In his vivisection of Redfin’s so-called Bill of Rights yesterday, Greg stated that many of the issues Redfin raised could be solved through the divorcing of the real estate commission from the transaction – in short, sellers pay their listing agent and buyers pay their buyers’ agent.
Under the current system, sellers pay both agents in a transaction. The listing agent negotiates the overall commission for the transaction and then offers a portion of the commission through the MLS’s cooperative agreement to other broker members. This is an off-shoot of the days of subagency, when all agents involved worked for the seller and buyers were on their own (whether they realized it or not.)
There’s a long-standing debate over who truly is paying the commission. Some will argue that it is the buyer since the cost is wrapped into their mortgage in a higher sales price. Others will argue that it is the seller because the money comes out of their proceeds.
The answer’s truly both – it’s two sides of the same pane of glass. But the debate on how best to handle compensation for buyers’ agents often is divided based on whom you feel is paying the commission.
In yet another of our almost continuous debates, Ardell suggested an unrepresented buyer ought to receive the portion of a commission set aside for a co-broke. After all, the seller already had mentally written that money off. Considering we’re in a market where the buyers already are asking for concessions, I find the idea of an automatic credit to be misguided at best.
The buyer has no God-given right to the co-broke fee. If the seller wishes to negotiate a credit then so be it. But to say the seller simply should hand the money over without the option of negotiation is ludicrous on its face.
I’m in favor of consumer protection, but not at the expense of half of the consumers on the market – the sellers. And that’s one of the many areas where Redfin’s co-called Bill of Rights falls woefully short.
Back to the idea of divorcing commissions from the transaction. On the surface it sounds like an ideal solution. The question is whether we want to force the buyers who likely need representation most into the ranks of the unrepresented – first-time buyers, for example, or others who can afford a home but not the cost of representation.
There’s always going to be a less expensive option on the market. But it’s also true that you get what you pay for. Before dismissing that as another cliche, think about it.
Those who are the best at what they do, regardless of the profession, demand premium payment. Agreed? So why would the most skilled in a given profession perform their craft for minimal compensation? Wouldn’t it seem likely that the least experienced and the least knowledgeable real estate professionals would gravitate toward a lower-cost alternative as a sort of entry position? What if these alternative brokerages offered a salary rather than commission-based compensation? Would they move then?
And at the end of the day, who is more motivated to work on behalf of their clients … the agent who is working for his check every day or someone guaranteed direct deposit every two weeks regardless of performance? (All closings are not alike – in complication or in the level of stress accrued by buyer and seller.)
Still, separating buyer and seller compensation would be a better solution than arbitrarily reducing the sellers’ net, just because a buyer elects to work without representation.
As I have said many, many, many times – until it can be proven unequivocably and repeatedly that a home purchased by an unrepresented buyer will be sold for x% less than the same house where a co-brokerage is being paid, you can’t say the commission is being paid by the buyer with no impact to the seller.
Again, it’s two sides of the same glass.
Change for the sake of change is worthless. Change for the sake of progress is priceless.