I read the article regarding the suggested “real estate cartel” and thought perhaps the FBI or the CIA ought to be involved in this “consumer investigation” of the real estate industry. (See, “Consumer group slams real estate ‘cartel.’“) Maybe we should call the Justice Department. and Federal Trade Commission and inform them that the Consumer Federation of America is much smarter than they are by applying specific generalizations lacking true market realities.
Give me a break, please.
After more than 28 years in this business, it amazes me how many armchair observers of the real estate brokerage industry take great joy in generalizing the realities of the business — how terrible things are and how misinformed and leveraged the consumers are to do business with brokers.
It has been a long time since I actually listed and sold homes, but I do not ever recall the industry tricking or strong-arming the consumer into making the decision to work with the industry or to ask for assistance in selling their home. No guns to heads, no extortion, no hostage taking – just offering services, pricing the offering to fit the needs of the consumer and going to work to get the job done.
Competitive service offerings or a cartel?
The Consumer Federation of America uses a very strong word here – cartel? I think not. Overly emotional? I think so. I do recall making listing presentations to many consumers who wanted and needed services to get their home sold. I remember incredibly competitive presentations, with varied services offered and flexible pricing all dependent on the wants and needs of the consumer. Did I win them all? No, but I do recall the advantage I had over others because I worked with an enterprise level brokerage company with vast resources available for the marketing and sale of the home.
Even back then, the consumer frequently would not invite some companies nor their agents to the kitchen table in favor of others that represented major firms with considerable market share and the proven track record of actual home sales in specific local markets. Contracting for real estate services is all about choice and not surrendering to a cartel. Are there lots of sore listings losers speaking through this paper? Maybe.
Dual agents accused of double dipping
Why do consumers interview companies and agents so carefully? Because they are asking these companies to sell their home, not to just list the home. There is a difference. Dissect any listing presentation today and you will find lots of content that addresses the marketing and sale of the home – not just one side of the transaction or another.
The consumer selects a company and an agent to represent them in the entire transaction, not just one side or another. The seller engages the services of the real estate brokerage company to sell the house, not to list the house. The seller expects and would prefer to have the listing broker list and sell the home – they have selected this representative. That is why the seller and the listing agent negotiate the related services fees at the front end of the transaction. A co-op sale made by some other company in the multiple listing service? Who are they and how qualified are they to get the job done? This is really when the consumer gets surprised.
Real estate services fees set by the listing broker?
In addition, the reason for the agreement and contracting for the fee for services at the time the home is listed is to assure that there are no surprises down the line when an offer is presented. It is the consumer who benefits from knowing upfront what the agent’s services will cost — not to somehow hold the consumer hostage for high commissions as this report suggests. In most transactions the listing broker has the fiduciary relationship with the seller – an actual contract – and no other party. That is because the consumer has freely chosen that broker and no other. If you want your chance at changing the rules, win the consumer’s trust and respect and their contractual agreement to sell their home for a specific negotiated fee.
Regulate the MLS more?
Why would anyone who has ever tried to work with an MLS suggest more regulation? This industry is more regulated than nearly any other such system in the world. The MLS is already highly regulated by the NAR by its outdated policies and rules. Simply stated, the MLS is in need of deregulation now – quite the opposite viewpoint of the Consumer Federation. Once the consumer has selected a listing broker and has contracted with that broker for services, the decisions about who, what, where and how the listing is marketed and sold should be that of the seller and the listing broker and no one else.
Today the industry is being held hostage by the MLS and its non-competitive policies. The right for any MLS member to display and market any other listing broker’s content is unique only to the real estate business. The same holds true with the implied cooperative policies of the MLS for co-brokerage transactions.
The NAR and its related entities need to get out of the business of real estate and deregulate the MLS. This deregulation will once again restore the competitive forces in the market and provide the consumer with a clear view of the strengths, size, capabilities and realities of the local market.
MLS rules, meanwhile, can serve to restrict the dissemination of information?
What does this mean? How could this be? Once a licensed broker joins today’s MLS anywhere in the U.S. that broker has all of the power and access to content of any other broker in the MLS – big or small it matters not. The smaller the brokerage company, the more the competitive advantage. In what other industry can a single-person company join and tomorrow morning have the same inventory of product and ability to advertise that product as the fellow broker member with thousands of agents and hundreds of offices?
Today’s MLS policies and rules are set by the NAR and their goal has always been to level the playing field for all members – what a great competitive advantage for new companies! There are not only no restrictions, there are far reaching rules that put the smallest and the newest broker in business with a huge shot of Vitamin B-12 on day one. And as for the consumer and their desire to know who really has what listing – that’s not a consideration in the world of the MLS. If you want to know those types of competitive distinctions, go drive the neighborhoods and count the signs.
Discrimination against alternative business models
Not really, it’s more like not wanting to enter into a transaction where the buyer brought into the transaction has purchased a limited or no services model and then discovers half way through the transaction that 110 percent services are really needed to get the transaction closed. Then whom do you think is stuck with the burden of work? The “more services” listing or buyer’s agent.
The consumer is very clear that both the seller and buyer need fair representation and someone in the transaction to represent each party. This is the nasty detail of agency and the lack of which creates nothing but havoc when there is no one present to deliver none of the services that were promised.
Traditional brokers have supported state laws and measures that ban rebates to real estate consumers
Not so. In the early 1980s, Coldwell Banker and Sears went to bat with numerous state legislatures in an effort to lift bans on offering consumers incentives to do business. The program was called The Sears Home Buyer and Home Seller Plan. Every single one of the Coldwell Banker brokers were then considered to be full-service brokers and even then, they were overruled and banned from doing so on the basis of everything to do with consumer protectionism and not banning new competition.
Consumers can take steps to improve the industry
Why would anyone believe the consumer should improve the industry if you also believed the consumer isn’t smart enough to understand the inner workings of the current real estate industry? If the Consumer Federation wants to do something possible I suggest this – truth in real estate. That means that every broker would need to fully disclose what they intend to do and not do in the transactional process. No clever marketing that baits consumers like “sell your home for 2 percent” – failing to disclose the fee for the buyer’s agent. That’s not truth in real estate. What are you going to do and what are you going to charge – yes, this disclosure would look more like an actual listing presentation and far less like an ad that tells the consumer nothing about what really is going to happen and will be need in the transaction.
And speaking of truth in real estate – as I read this Consumer Federation paper representing the opinions of more than 50 million consumers, I wonder, “says who?” It reads more like a paper written by lots of real estate services companies that were losing listings and buyers because they didn’t want less service and opted in for more service.
The bottom line when it comes to selecting real estate services is to let the free market decide. There is much choice in the marketplace today. Brokerage has never been more competitive and those that supply great services for reasonable fees and have a demonstrated solid return for the consumer will win and survive. And as for the rest? Let the market decide.
Kenneth L. Jenny is managing director and CEO of tranCen.com, a residential brokerage services company.