I suppose my first return column for Inman two weeks ago ("Agency is at the heart of syndication debate") was wildly successful in one respect: It burnished my reputation for stirring the pot. I do appreciate the robust responses from readers, especially the ones saying I’m out of my mind and flat out wrong on certain things.
One thing I’m apparently clueless on is buyer agency. I wrote in my first column:
"Here’s the thing: When you dig deeper into the root cause of the syndication kerfuffle, what you run into is the inherent problem of contemporary real estate. And it isn’t lack of mentorship. It is buyer agency, in the information age."
That resulted in Ray Wilson, the author of "Bought, Not Sold: Single Agency, Buyers’ Brokers, Flat Fees, and the Consumer Revolution in Real Estate," to say (to a reader who then posted his thoughts, with permission):
"Hahn is flat out wrong when he says ‘buyer agency wasn’t created to serve consumers; it was created to minimize litigation risk for listing brokers who were getting burned by subagency.’ ‘Created’ or ‘evolved,’ buyer agency, like all forms of agency, predates the industry and, in fact, does indeed exist to serve consumers."
But then just a few sentences later, Ray says:
"He is correct that the goal was to ‘minimize litigation risk for listing brokers,’ but buyer agency was then co-opted (not ‘created’) to allow continuation of the double agency scam under a new fraudulent label."
So I guess Ray’s problem is with the word "created." Real estate did not create agency, he correctly observes. Well, except that real estate quite literally created the concept of buyer agency, dual agency, and designated agency. From the Inman article on the history of agency:
"The report [a NAR report on agency issues] instead recommended that Realtor associations lobby for state laws defining real estate brokers’ agency relationships with clients, including provisions allowing disclosed dual agency and designated agency, rather than leaving those issues to be decided by general statutes and common law precedents.
"Any new law ‘specifically should state that it abrogates the common law as applied to real estate brokerage relationships,’ the report said."
When you abrogate the common law, and get state legislatures to pass new legislation defining the agency relationship — I have to say, that’s about as close to "created" as I can think of.
But that’s just to argue semantics. The real issue is the erosion of the value of buyer agency. This is the real crisis at the heart of real estate.
Take a moment to consider what it is that a buyer agent is supposed to do. If you ask a dozen real estate agents, you’ll likely get two dozen answers. But they roughly break down into the following categories:
- Find a home
- Advise the buyer
- Negotiate for the buyer
- Manage the transaction
Sometimes you’ll also find descriptions like "psychologist for buyers," "short-term marriage counselor," and "nanny."
The trouble is, consumers don’t necessarily agree. Because of Hear It Direct, a company I’m involved in, I’ve now participated in numerous consumer panels across the country where buyers make their views clear, in their own words. You know what they think?
Buyers think the agent’s primary job is to find them a home. All that advice, all that negotiation, and all that transaction management all come as a distant second, if they appear in the thought process of a buyer at all.
It makes sense if you think about it. Buyers don’t see the agent on the phone with the listing agent, or hustling with the appraiser or the loan officer — all of that is happening behind the scenes. Transaction management is often done by an assistant or an escrow company shuffling papers back and forth.
Besides, all of that is navigating paperwork — valuable, yes, but hardly the stuff a unique selling proposition: "We shuffle paperwork better than anybody else in the business!"
What about advisory services? There is no doubt that some real estate agents are truly gurus of the local housing market and can help a buyer not make a life-altering mistake. But consider the number of situations where the agent’s response is, "Speak to your financial advisor" and "Speak to your attorney" and "I’m not allowed to tell you."
It turns out that when you take a step back and look at the entirety of what constitutes advisory services, most of it pertains to the neighborhood and to the property. What the buyer wants is mostly factual information: How are the schools? Can I walk to downtown? How’s the commute on the freeway? How big is the backyard? Is it on a busy street?
Above all, buyers want to know "How’s the market?" and "What should I pay?"
The information age
Thing is, all of these advisory services as well as the primary purpose (as far as the consumer is concerned) of "find a home" are impacted by the revolution in information technology. I didn’t say buyer agency is the problem — I said buyer agency in the information age is the problem.
It cannot be seriously argued that consumers today do not conduct most of the "find a home" work themselves, using the Internet and, increasingly, the mobile web. It also cannot be seriously argued that so much of the advice that a buyer agent once provided can now be found on the Internet. See, e.g., GreatSchools.net, City-Data.com, Walkscore.com, CrimeReports.com, etc. etc.
Even the age-old question of "How’s the market?" and "What should I pay?" is under assault. We already know about Zestimates and the furor that causes. What’s less known is the fact that any consumer can order a BPO from BrokerPriceOpinion.com for $95.
One can argue the accuracy and validity of BPOs, and suggest that the agent used may not be an expert in that particular market, but the process used to do a BPO is not dissimilar from what a buyer’s agent would use to advise her client on what to offer on a house. And there is no guarantee that the buyer agent one finds off the Internet is any more of an expert on a local market than the BPO agent (more on this below).
Plus, given the amount of blogging and market reports posting that real estate brokers and agents are doing, it’s really difficult to assert that a consumer must ask a buyer agent to find out how the market is doing. See, e.g., here (blogger), here (major brokerage), and here (Association of REALTORS®).
So put it all together:
- Consumers find their own homes. Nowadays, they prefer to do that themselves, and the smart buyer agent makes that easier for them with saved searches, MLS listings gateways, and the like.
- Consumers do and can get so many of their important questions answered on the Internet and through third party sources. The monopoly of the buyer agent, if it ever existed, on such information is over.
- Consumers never saw all that negotiating and behind-the-scenes work that an agent does. (And that’s assuming a conscientious professional who does, in fact, do those things.)
And the "transaction management" piece is a total commodity service, often outsourced to transaction coordinators and third party companies.
What exactly is the value of a buyer agent in the information age again? To the consumer, very little. To the seller and the listing agent? Ah, now we’re getting somewhere.
Why syndication and IDX are implicated
Over the past couple of years, I’ve heard anecdotes from listing agents from East to West where a buyer would contact them specifically because they wanted to talk to the "real agent" to get the "real information".
As a matter of historical fact, Jim Abbot of ARG Realty — who has become something of a spokesman for the anti-syndication movement — clearly states in his videos that both buyers and seller benefit when they speak to an "official listing agent" who knows the real information about a particular property, because they listed it so know it inside and out.
Recall the BPO agent from above. If the problem with BPO is that the agent is unfamiliar with the particular neighborhood, what guarantees that the buyer agent found via IDX knows the neighborhood any better? They both do CMAs the same way, drive by the house the same way, walk the house if necessary the same way. They’re both licensed. And neither is the "official listing agent" who does, in fact, know that property better than anybody else.
And the Internet makes it more and more likely that a buyer can and will find the "official listing agent" if he only gives it a little bit of effort. As a matter of fact, the whole brouhaha over syndication is that consumers could, would, and do contact someone other than the "official listing agent". Well….
The value of the buyer agent in the pre-Internet era to the official-listing-agent crowd is that she brought the buyer to the table. If consumers are limited to newspaper ads and magazines to find out what’s on the market, they’ll simply call some agent to help them — you guessed it — find a home! And that buyer agent (or sub-agent) would happily cart that buyer over to the seller.
That is no longer the case. If anything, consumers want to speak to the "official listing agent" to get the "real" information they seek, and the official listing agents are more than happy to provide it to them since their job is to promote and sell their client’s property.
The core issue with syndication, then, is that buyer agents are no longer all that valuable to the industry. That buyer could just as easily have contacted the official listing agent to be sent to the buyer agent who works on the team (never you mind the whole potential conflict of interest there).
But as I’ve said, that issue exists with IDX as well. A consumer can end up contacting some random agent 40 miles away from the property by landing on her IDX website and be just as ill-served as if he clicked on an ad on Zillow.
So when Ben Caballero of NAREP talks about "business models" of syndicators being the real problem, I can only wonder what he’s talking about. His solution, from the comment on my first column, is to go pay-per-sale (PPS) instead of pay-per-click (PPC). How PPS solves the dilemma of buyer agency – namely, that the services offered by buyer agents are no longer all that valuable in the information age — is unexplained and unexplainable.
"The ZTRs [Zillow, Trulia and Realtor.com] treat a home as just another commodity, but a home is not a commodity from the perspective of the individual buyer or seller. Rather, it is a personal part of their lives. All homes — and their buyers and sellers — are unique in some way. In short, the buying and selling of a home is a personal experience that is much different than that of buying or selling a commodity."
Ben is right that the home is not a commodity. But buyer agents don’t sell a home; they sell their services. And those services are commoditized and increasingly irrelevant in the information age. Any claim about personal experience and personal part of their lives and all that is about the home, not about the buyer agent who opens doors for them.
There is a saying in real estate that has often been applied to the syndicators: they bring a fork to a potluck. That may or may not be true, but that saying also applies directly to buyer agents in the information age and we are seeing the real world implications play out across the board. Think about why agent teams are getting more and more popular, as one example.
Now, I realize that I’m poking the hornet’s nest here. I’m 99.9 percent certain that some people will have read simply the headline, not bothered to read the entire thing, and will rise up in indignant fury at my claim that buyer agent services are no longer valuable in the information age.
But we offer not just advice that would save thousands of dollars to the buyer, they’ll say, but also prevent the seller and the listing agent from screwing them over in a dozen different ways. Why, you have no idea because you’ve never worked with a buyer — like the one whose stress and nervous fears were kept in check only by my kindly yet professional psychological counseling through the process. Why, you have no idea of the real value of knowing the pitfalls in a transaction. We’re not home finders; we are counselors and advisors! And so on.
Okay, I’ll grant every single one of you all of these objections… if you would put them to the test.
Get paid for your advice. Get paid for being a counselor. Get your buyer to pay you by the hour, as they do lawyers, accountants, psychologists, and even nannies. Get the buyer to cough up the dough for your services out of pocket. There’s the value.
You see, the ultimate test of value in a free market is not what you think something is worth, or how much work you do. It’s what someone is willing to pay. Start charging a retainer and not a nominal one as is done today:
"You pay a $1,500 retainer, and I refund it to you if we close" type of stuff. Charge what you think your time and expertise is worth, and refund the entire buy-side commission.
What you will find is the actual solution to the crisis at the heart of real estate. To get someone to pay you out of pocket, you will need to offer far more than commodity information.
You will need to offer exemplary customer service at a minimum, and really detailed, really knowledgeable local expertise that cannot be found on some CMA or in a drive-by BPO. You will need to know if that side of the street floods after a rain, if the city council’s proposed changes to zoning will re-route traffic, etc. etc. Real expertise. Real knowledge.
The real solution isn’t PPS vs. PPC vs. PPM. The real solution isn’t some database technology or complicated rules. The real solution is service. Because the crisis at the heart of real estate isn’t a database. It’s buyer agency in the information age.