Buyer agent commission controversy

buyer agent commission
Annual mean wage of Real Estate Brokers (infographic from bls.gov)

One of the hottest controversies in real estate that you have yet to hear about is who should pay buyer agent commissions. Agent commissions controversies have been around in one form or another for decades.  The commissions issue typically becomes front and center when the housing market is doing well.  This time, however, the buyer agent commission controversy is gaining steam and has the potential of changing (and possibly upending) residential real estate and online real estate platforms.

The debate is center in an anti-trust class action law suit filed against the National Association of Realtors and a number of major real estate brokerage brands.  As I reported last month, the law suit alleges that the defendants engaged in “anticompetitive practices.”  Among the alleged issues listed in the law suit, includes a “Buyer Broker Commission Rule” that requires buyer agent compensation for a home to be listed in the MLS. 

Regardless of how a listing agreement “structures” broker commissions, the perception and general acknowledgement is that the (buyer broker) buyer agent commission is paid by the seller.  The seller typically pays the listing broker a commission, which is shared if another broker represents the buyer.  This commission “pass-through” is responsible for the growth of online platforms selling home buyer leads and contacts.  It has also been responsible for the growth of real estate groups that act as “buyer mills,” which rely on high volume leads generated via online platforms and other means.  It can be argued that because of Buyer Broker Commission Rules, the billions of dollars that are generated and spent on home buyer leads (as well as buyer rebates) can be traced back to the home seller. 

Home sellers are not the only victims.  A study (jstor.org/stable/24887258) conducted by Joachim Zietz and Bobby Newsome (A Note on Buyer’s Agent Commission and Sale Price; The Journal of Real Estate Research; 2001, Vol.21 No.3 p.245-254) revealed that buyer agent commissions had a positive effect on home sale price, but only on lower-priced homes.  The conclusions suggested that buyer agents “do not act in the best interest of their clients because of the institutional structure of sales commissions.

Is it possible that the MLS perpetuates steering and anticompetitive behavior?  A recent study by Barwick, Pathak and Wong (Conflicts of Interest and Steering in Residential Brokerage; American Economic Journal; 2017, Vol.9 No.3 p.191-222) has shocking conclusions that resonates with those who are wary of the residential real estate industry.  The study pointed out that real estate commissions are higher the US than other industrialized countries.  The authors concluded, “Properties listed with lower commission rates experience less favorable transaction outcomes…they are 5% less likely to sell and take 12% longer to sell. These adverse outcomes reflect decreased willingness of buyers’ agents to intermediate low commission properties (steering)…”  They “provide empirical support for regulatory concerns” because the data indicates buyer agents will steer their clients towards homes paying higher commission.

Home sellers can learn from home builders about marketing and agent compensation.  Home builders figured out buyer broker commissions a long time ago.  They will not pay advertised compensation to buyer brokers who don’t show up with their clients.  And during hot markets, they pay a modest referral fee in lieu of commission. 

All things considered, the issue of buyer broker commission is a complex issue that depends on multiple factors, including market conditions.  However, increasing awareness is inventing new business models and lower buyer broker compensation expectations. 

Original located at https://dankrell.com/blog/2019/05/24/buyer-agent-commission-controversy

By Dan Krell
Copyright © 2019

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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.

Over-aggressive agent harassment

over-aggressive agent
When Over Aggressive Agents Abuse Technology (inforgraphic from nar.realtor)

Something has happened in the last few years where unsolicited phone calls and text messages have hit critical mass. It’s bad enough that unscrupulous individuals take advantage of technologies, such as phone number spoofing, to scam consumers. But it’s not a good sign for an industry when “professionals” abuse technology without regard to the law. You’re not alone if you’re feeling harassed by over-aggressive real estate agents who place multiple unsolicited calls and texts daily. There is a way to stop the over-aggressive agent calling and texting harassment.

When over-aggressive real estate agents abuse technology

Like other industries, technology has been integral in evolving the business of real estate in the last twenty years.  As a result of proper application, consumers are empowered.  However, some technologies are abused by real estate agents.  The combination of aggressive sales tactics and technology can sometimes go over the line and become harassment.  Recent lawsuits highlight alleged abuse of technology by real estate agents.

A recent class action lawsuit filed in California is taking on real estate agents who “cold call.”  Realtor Magazine (Cold Calling in Real Estate Under Fire in New Lawsuit; magazine.realtor; April 8, 2019) reported that the suit originated from a request for the defendant brokerage to stop directing their agents to make unsolicited calls.  The suit alleges that calling without consent violates the Telephone Consumer Protection Act and unsolicited auto-dialer calls violate the Federal Trade Commission’s National Do Not Call Registry.

The plaintiff alleges that he received unsolicited calls from multiple agents affiliated with the same brokerage to his cell phone, which is listed with the National Do Not Call Registry.  The calls solicited to re-list his home after it did not sell.  Although it’s sometimes easy to find a phone number (typically a land line) associated with a property, the plaintiff said his cell phone was not associated with the property listing in any way. 

Two other lawsuits filed earlier this month in Florida focus on unsolicited texting.  In one, the plaintiff alleges they received thousands of unsolicited text messages, violating the Telephone Consumer Protection Act, advertising homes for sale.  The other alleges the use unsolicited texting to find potential home sellers.

Haru Coryne, for the Real Deal, reported that the suits are really about the abuse of auto-dialer technology that transmits “thousands” of text messages from a spoofed local number (Unsubscribe! Resi brokerages sued over text message spam; therealdeal.com; April 4, 2019).  The founder of a popular real estate technology platform acknowledged to Coryne that real estate agents who use these technologies without knowing the law can get into trouble.  He further stated, “A typical real estate agent will have five, six, seven programs, probably never took the time to see what the law is. [But] Just because they offer it doesn’t mean you can abuse it.  It’s like eating candy and wondering why you’re getting fat. You can’t take technology and abuse it and wonder why you’re getting sued.”

There are many platforms selling these services to real estate agents.  New technologies mine data (including emails and phone numbers) and “communicate” with consumers (including internet auto-dialers).  There are several popular services that sell contact information (including cell phone and email) for expired listings and Sale by Owner.  The data can be used in conjunction with text/email broadcasting, phone number spoofing, and auto-dialers.  Many consumers feel harassed by the over-aggressive agent because they are bombarded with auto-dialers, texts, and emails, after opting-out or asking the agent to stop.

Stopping the over-aggressive agent

If you want to stop unsolicited calls and texts from the over-aggressive agent, simply opt-out. If they continue, contact the agent. Contacting the agent should put an end to the unsolicited communication. However, you may have to call the agent’s broker. If, in the slight chance, you continue to be bombarded with unsolicited communication after opting out and contacting the agent’s broker, you may have to consult an attorney.

This can be a watershed moment for the industry to educate consumers about professional Realtors and reign in the “bad actors.”  The National Association of Realtors (nar.realtor) and local Realtor associations advocate for the responsible use of technologies and cold calling.  With regard to telemarketing, the NAR states, “There’s no fine line or gray area: There are laws you must not break. But you still have a lot of flexibility on the right side of the law.” 

By Dan Krell
Copyright © 2019.

Original located at https://dankrell.com/blog/2019/04/15/over-aggressive-agent-harassment/

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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.

Negotiating agent commissions

negotiating agent commissions
Brokerage models (infographic from nar.realtor)

It’s no secret that residential real estate agent commissions are decreasing. Market forces has created new broker models that has put downward pressure on commissions. Many agents embrace consumers negotiating agent commissions.

If market forces are working in negotiating agent commissions, and commissions are decreasing, you might wonder about a recent class-action law suite.

If successful, an anti-trust class-action law suit filed March 6th could potentially change the landscape of the residential real estate industry.  The law suit alleges that the National Association of Realtors and a number of major real estate brokerage brands engaged in “anticompetitive practices.” 

According to the law firm Hagens Berman (hbsslaw.com), “the lawsuit alleges NAR and the Big Four have enacted a set of anticompetitive policies intended to prevent competition among real estate brokers, as well as stopping buyers and sellers form negotiating commissions, including: Only allowing listing brokers to list a property on an MLS if the listing broker makes a unilateral, non-negotiable offer of compensation on the MLS to buyer brokers. Prohibiting buyers and sellers from negotiating buyer broker commission. Prohibiting brokers from disclosing commissions offered on MLS. Allowing brokers to take both buyer and seller commissions, if the buyer is not represented by a broker. This anticompetitive activity has been devised at the national level and enforced at the local levels.”

I am not an attorney, but I have been listing and selling homes for over seventeen years.  These thoughts are my own. I am not speaking for anyone except myself.  I am offering insight from my professional experience.

On the face of it the lawsuit assertions are false. First, the allegations make it sound as if home sellers have no choice in how they sell their home except to use a full-service exclusive real estate broker.  As I wrote just last month, home sellers have many options in selling a home.  Besides selling “By Owner,” there are multiple broker options as well, including (but not limited to) MLS placement services, limited services and à la carte. 

These assertions also make it sound as if a home seller can only get an “exclusive right to sell” listing agreement with a real estate broker.  But again, the home seller has options in the type of listing agreement and broker agency type.  Because my space is limited and the issue of brokerage representation is technical, I won’t expound on the types of listing agreements and home seller representation.  However, each type of listing agreement has specific benefits and disadvantages.

Furthermore, commissions have always been negotiable. And market forces have been in favor of consumers negotiating agent commissions. The lawsuit’s assertions about real estate commissions are misconceived and cliché.  The matter of real estate commissions can be complex and depends on a number of factors, which can include (but is not limited to) market conditions, type of representation, types of services provided, among other things.  Additionally, home sellers are not the only party to a transaction that negotiates commission.  Home buyers who are represented by a broker negotiate the buyer agent commission as well.

The internet has created an empowered savvy consumer.  Like other industries, public access to information (internet) has been a major factor in reducing real estate broker fees and commissions.  Both listing broker and buyer agent commissions have decreased.  The internet has allowed home buyers to find home listings on their own regardless of advertised buyer agent compensation, including non-MLS listings such as home builder and FSBO listings. 

Although the NAR has yet to issue a formal statement, NAR vice president Mantill Williams was quoted as saying on Fox Business’ Bulls and Bears program, “We think this lawsuit is baseless and it has no merit. The state and federal courts have considered challenges to the MLS and they’ve concluded the Multiple Listing Service actually benefits consumers.”

Original published at https://dankrell.com/blog/2019/04/02/negotiating-agent-commissions/

By Dan Krell. Copyright © 2019.

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Occam’s razor home selling

Occam's razor and selling a home
Staging is one of the four basics of home selling. (infographic from nar.realtor)

Many home owners are preparing to sell their homes this year.  And in doing so, home sellers are looking for new and exciting ways to sell their homes fast and for top dollar.  But the reality is that selling a home is not rocket science.  There really isn’t a secret trick or approach to selling a home.  Rather, it’s more like magic, where properly performed fundamental tasks can set the stage for a satisfying experience. If you don’t know how Occam’s razor (or what it is) can help you get the most from your home sale, pay close attention.

Unfortunately, it’s a human trait seek a complex solution to a simple question.  In other words, applying Occam’s razer to your home sale can save you time and allow you to get out of your own way.  Occam’s razer is a tool that is often used to figure out solutions and devise scientific theories.  It has become popularized as the “keep it simple stupid” method.  However, Susan Borowski’s history and explanation of Occam’s razor, written for the American Association for the Advancement of Science, gives it teeth (The Origin and Popular Use of Occam’s Razor; aaas.org; June 12, 2012).  Borowski states, “Occam’s razor doesn’t necessarily go with the simplest theory, whether it’s right or wrong; it is not an example of simplicity for simplicity’s sake. It merely tries to cut through the clutter to find the best theory based on the best scientific principles and knowledge at the time.”

In other words, focus on the tried and true fundamentals of selling a home.  Anything above and beyond may not necessarily help to sell the home faster or for more money, but could help make the process more enjoyable.  That in mind, let’s consider these four basic concepts:

First, consider the condition of your home.  Do you have deferred maintenance issues?  Does your home need a makeover?  Homes that get top dollar are “turnkey.”  Many home buyers are willing to compete and pay more for recently upgraded and renovated homes.  Selling a home with deferred maintenance or lacking recent updates can not only turn off many home buyers, but can encourage low-ball offers.  A pre-listing home inspection can help you identify maintenance issues.  Also, consider consulting with a design professional to help you understand which updates (if any) are necessary to help your home sale.

Next, work on the home’s presentation to give it a clean and spacious feel.  Decluttering is one of those tasks that can be overwhelming, but it’s importance cannot be overstated.  Decluttering will force you to decide which items to keep in the home.  Additionally, staging your home can help balance space, furniture and décor.  This can help home buyers envision living in the home.

Deciding on a list price is often a conundrum.  Although enticing, don’t be seduced by the agent who tells you the highest sales price without understanding their rationale.  The housing market can turn on a dime.  If your home isn’t priced correctly, it can languish on the market.  There are many aspects that go into deciding a price, so work with a respected seasoned agent to go through the market details and scenarios. 

Finally, when the home is ready to list, how is it to be marketed?  Today’s MLS listing syndication takes advantage of the fact that most home buyers actively search homes on the internet. Don’t rely on gimmicks that promise activity on your listing.  A complete marketing plan will take into account the factors we discussed here, and apply strategies to attract motivated home buyers.

Original published at https://dankrell.com/blog/2019/01/12/occams-razor-home-selling/

By Dan Krell. Copyright © 2019.

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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.

Real estate tin men

real estate tin men
Beware the real estate tin men (infographic from keepingcurrentmatters.com)

Beware the Real Estate Tin Men!  “Tin men” was a term used to describe con-artists after the 1987 Barrie Levinson movie by the same name became a nationwide hit.  The movie was about aluminum siding salesmen who did whatever they could to sell home improvements in 1963 Baltimore.  The story revealed how everyday “schnooks” created the façade of a successful sales person, as well as revealing their unscrupulous sales tactics.  The main characters are flawed and likable, so much so that you’re rooting for them as they are cross-examined at their MHIC license hearing.

Modern versions of tin men still exist.  They exist in all professions.  They are constantly refining their tactics to get your business. They will often tell you what you want to hear.

When it comes to buying and selling a home, beware of the real estate tin men!  These are agents who will say and do almost anything for your business.

Many real estate agents still use tin men tactics.  Real estate sales is difficult and many agents will do whatever they can to get a leg up on their competition and a chance at a sales commission.  There is a subculture in the industry that is focused on pushing the ethical envelope to make money.  This philosophy is spread by “gurus” and coaches who teach sales tactics, persuasion, and income strategies.

Unlike the world of 1963, when a salesman could easily lie to make the sale, today’s easy flow of information makes it unlikely that a real estate agent would flat-out lie.  The internet has created a savvy and knowledgeable consumer by allowing easy authentication of information.  However, the internet has not changed the real estate agent’s reputation for bending the truth, otherwise known as “puffery.”

Rapport is often built on appearances.  Like the 1960’s tin men, many real estate agents also employ smoke and mirrors to help them appear successful.  Although some still drive cars and dress beyond their means to “fake it,” many agents rely on technology for their trickery.  The art of deception is widely used by agents who dare to manipulate data.  Many real estate agents, who supervise other agents, take credit for MLS sales they had nothing to do with so as to appear they have many more sales (than they actually do).  Likewise, many agents pay for fake internet reviews.  Although many platforms screen for false reviews, agents continue to find ways to get fake 5-star reviews on websites, including incentivizing unsolicited otherwise 5-star reviews from clients.

Many real estate agents rely on gimmicks as a means of getting business.  A popular agent promotion is “I will buy your home if it doesn’t sell.”  The reality is that although the agent may offer to buy your home if they can’t sell it, the conditions actually don’t make it a viable option.  Another oversold gimmick is “cutting-edge” marketing.  The promise of cutting-edge marketing used to mean advanced and new.  However, today cutting-edge real estate marketing is overshadowed by the truth that homes are primarily viewed on real estate internet portals, such as Zillow (all MLS listings are posted to these portals).

Most Realtors are ethical and do the right thing.  A recent article by Jim Dalrymple II even touts broker (and agent) humility as the “new method” and business model (Humility, not arrogance, is the new real estate leadership trend; inman.com; October 17, 2017).  And although real estate agents have increasingly been leaning towards transparency and authenticity, you should still beware of tin men.

Original located at https://dankrell.com/blog/2018/10/25/real-estate-tin-men/

By Dan Krell.          Copyright © 2018.

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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.