Earlier this week, the Consumer Federation of America issued a study highly critical of traditional real estate brokerage in the U.S., How The Real Estate Cartel Harms Consumers and How Consumers Can Protect Themselves. The report has gotten a lot of press, and generated a lot of discussion on real estate professional websites and blogs.
I happen to agree with many of the conclusions in the report. The report is particularly critical of "double dipping", where a listing agent, representing the seller, also works with the buyer-customer, so they earn both ‘sides’ of the commission. (In a traditional arrangement, the commission is split between the listing broker and the selling broker. If, however, the listing broker-agent also gets the customer, they earn the whole kahuna. That’s known as "double dipping.") In New York state, as in many other states, an agent in this situation (who started out representing the seller) can magically re-declare themselves as a "dual agent", not actually representing either party. The Consumer Federation slams dual agency as "a nonsensical concept since there is no way a broker can represent the financial interests of both buyer and seller."
I wholeheartedly agree, which is why I’ve chosen to work solely as a buyer agent representing buyers exclusively. (In New York State, very few agents work as exclusive buyer agents. We’re a pretty rare breed here.) Colleagues often question, "Why do you work as a buyer agent and not take listings? You’re just leaving money on the table. You can never get both sides of the transaction."
Exactly. I never get both sides of the transaction, but I also never feel compromised representing the interests of my principal, the buyer.
The report is also sharply critical of ‘standard’ commission levels, and questions why a newly licensed agent, for example, should be paid as much as one with decades of experience. That really touches on another issue that’s a hot button with me. There are some agents and brokers that do an incredible job for sellers. They market extensively, provide virtual tours, work their networks to make other agents aware of listings, communicate regularly with their sellers, and do whatever it takes to get a house shown and sold. These agents and brokers are worth their weight in gold, and every penny they make.
But there are other agents and brokers who do much less, and still charge roughly the same. One of my big hot buttons is agents who actually stand in the way of their client’s houses being shown, by making keys difficult to get or never being available for showing appointments. Some agents do little more than put a listing in the MLS (sometimes with terrible photos and little description) and sit back and wait for the phone to ring. I’ve even had situations (albeit very rare) with houses (often listed with out of county brokers) where the agent didn’t even know where the property was, or when I’ve asked them to meet me at the property, they’ve asked me for directions how to get there!
The fault for a lot of this actually rests with sellers. Sellers need to become much better consumers, and more informed about how to choose a good listing agent to represent them and sell their property. If sellers became better informed and more selective, market forces would take over and sort the wheat out from the chaff.
Buyers also need to become more informed, and demand to work with a buyer agent representing their interests. I’m not just pushing my own interests here. Many traditional brokerages do offer buyer representation — if you ask. As more buyers request buyer representation, more traditional brokerages will offer it. In my perfect world of sqeaky clean representation, listing agents would never work directly with buyers and buyer agents would never have listings.
Something that would go a long way to raising the bar would be a consumer rating system of real estate brokers and agents. There are consumer rating systems now for all sorts of businesses and products. Tripadvisor.com is a great example for hotels — with consumer generated star ratings and comments for tens of thousands of hotels around the world.
I don’t agree with the Consumer Federation’s contention that real estate brokerage is a cartel. Full service brokerages are very competitive with each other, and there is no ‘standard’ commission. Their position is that commissions would come tumbling down if there was more competition or the brokerage model was reworked. Sellers do have choices — there are discount and flat-fee brokers as well as full service brokers. But full-service brokerage, provided by experienced professionals, isn’t inexpensive to provide. While competition may shave commissions for full-service brokerage (and it already has), it won’t likely slash them. The problem is that consumers want full service brokerage, but at discount brokerage prices, and that just can’t be delivered. But if consumers are paying for full-service, they should understand what that entails and demand to get what they’re paying for.
The Consumer Federation report raises important issues, and I encourage everyone — sellers, buyers and real estate professionals — to read it.