Back to the future for residential real estate

If you consider the roots of brokerage in residential real estate, you can imagine how much the business of selling homes has changed.  Unlike today, the first real estate brokers were independent. Their “listings” were exclusive and proprietary.  Buyer agents didn’t exist until well over one hundred years later.  And at the beginning, there was no broker cooperation on listings and commissions. 

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Of course, everything changes over time. Brokerage cooperation began with loose networks of brokers who agreed to help sell each other’s listings.  Early multiple listing services evolved out of those local networks.  And as the real estate industry adopted emerging technologies, the MLS concept evolved into the listing service we know today. 

The MLS framework promoted the evolution of real estate brokerage as well.  Centralizing and standardizing listed homes made home searching easier for brokers and their respective buyers. 

Brokerage cooperation allowed agents and brokers to sell others’ listings to buyers.  Up until the early 1990’s, all agents and brokers represented the home seller.  However, it’s likely technology and a robust MLS fostered buyer agency and dual agency. 

It seems as if it wasn’t until the advent of buyer agency when people began questioning agency and compensation.  Prior to buyer agency, the commission was negotiated between the listing broker and the home seller.  Selling agents (those who brought the buyer) were a subagent of the seller, so it made sense that the commission would be shared with subagents. 

The commission structure of today’s listing agreements seems to be an antiquated carryover, where commissions are “shared” with sub agents and exclusive buyer agents. 

As an aside, it’s common, if not required, for a buyer agent to disclose to their clients their compensation amount. If the coop commission is less, they will likely collect it from their client.

Currently, real estate agent and broker compensation is undergoing a meticulous and exacting scrutiny inside and outside of the industry.  During the last two decades, there have been legal challenges to the industry’s status quo on residential agent and broker compensation.  However, recent legal proceedings have gained traction such that a growing number of real estate brokers are embracing a possible future with “decoupled” commission.

When change is afoot in the housing industry, there is a lot at stake for real estate brokerages.  Although the outcome to the current challenges of real estate compensation is uncertain, the result may be that residential real estate brokerage comes full circle, where buyer and seller compensation are respectively exclusive.

By Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

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