The lawsuit alleges collusion between brokerages to make sellers pay 2.5% or more to the buyer’s agent.
The National Association of Realtors shrugged it off, and by the time the case gets to court, the current way we sell houses could be long gone anyway.
But let’s discuss being paid by commission.
The reason commissions are high is because of the home-selling process, and the amount of work involved just to have a shot of earning an actual paycheck.
Though I have a written listing contract with every seller, I can’t force you to sell your house.
I don’t do buyer-broker contracts with buyers, but if I did, you still don’t have to buy a house.
Whether I have a contract or not, there is no assurance that I will ever get paid, regardless of how much time I invest, and though I have a commission agreement with a seller, I have no control of the outcome – only the sellers decide if they can live with the resulting offers.
If an agent does get paid, it’s at the end – there’s no pay received along the way. Plus, the commission gets treated like a slush fund with many people trying to nibble away at it throughout the process. Then the brokerage and other parties take their cut, and the agent gets what’s left.
Given those conditions, shouldn’t there be a bonus, or reward attached?
Would you work for your current pay today if you knew you might not get paid anything? Or would you expect an additional bonus to live with that risk?
Just because buyers look at houses online doesn’t change the problem with being paid on commission. We’ve had these same issues before and after the internet.
Should we devise new pay structures for realtors?
The problem with a pay-as-you-go system is that you don’t know how long it could take. Consumers (both buyers and sellers) aren’t really sure what to expect in the beginning, and aren’t going to start writing checks unless, and until they get a good feeling that it would pay off. Flat-fee and salaried companies only provide transaction-processing services – which is only a small part of what I do.
There are two solutions:
A. Burn the business to the ground. This is the path we’re on, and the one-percenters will impose the systems they decide are good for you. They will also offer you their houses at prices they tell you are fair.
B. We convert to a free-market auction system.
The reason agents deserve big commissions is because of the all-encompassing nature of the service we provide. I handle every one of your real estate wants and needs all day, every day. I have skillfully navigate every possible issue/event that happens, because any one thing can kill the sale – and then you don’t get what you want, and I don’t get paid.
If the business was more predictable, less time-intensive, and had guaranteed pay, would I work for less? Absolutely, and the auction solution is the best answer.
It would take a major player like Google or Amazon to bring enough brand and reputation so consumers would consider the auction format. But if that were to happen, here are the benefits for everyone involved:
The selling process becomes structured – everyone knows how and when a house will sell. Post the auction date 30 days in advance so buyers can inspect the property – because the house is sold as-is, no repairs. On auction day, conduct the bidding out in the open where all have a fair shot at buying.
A real auction removes the agent shenanigans – no tilting the table in favor of anyone.
Sellers get a little more than retail value, and know the close date in advance.
Buyers know exactly what to expect, and have a fair shot of buying any home.
A streamlined, predictable process means less work for agents.
The hardest part? Convincing sellers that there aren’t two in the bush who will pay more.
P.S. If the current business does crash and burn, I’m thinking of being an artist:
With less than 24 hours to go in the REO auction, it looks like the seller got a little antsy and decided to push the bidding closer to their $1,499,900 list price. Will there be a flurry of activity right at the finish line? We’ll see!
Wells Fargo foreclosed on this Carmel Valley home in November. It had been listed on the MLS for the previous 12 months, and it looked like the agent had been trying to process a short sale (it was marked ‘contingent’).
She had it listed for $1,500,000.
Her clients paid $1,650,000 in 2007, and financed $1,137,500 with World Savings. Times were tough for many, and these folks got their notice of default filed in August, 2010. It doesn’t look like they made any payments since.
Wells Fargo’s amount at the trustee’s sale was $1,365,016, which is typically the amount owed. So the former owners got a couple of hundred thousand dollars in relief, but waved bye-bye to their down payment of $512,500.
Wells Fargo then listed the house for sale in January for $1,499,000, and has now sent it to an online auction. The bidding started yesterday, and will remain open until Tuesday:
The auction website also notes that it needs to be a cash purchase, though it’s not mentioned in the MLS listing. The buyer has to pay a 5% buyer’s premium on top of the purchase price, and I assume they want you to close escrow with the occupants inside?
What will somebody pay for the home, under those conditions?
The current bid is $1,199,920, though note sure if that is actually a real offer or just the minimum bid.
Realtors are fighting the idea of open bids? Agents prefer no rules:
Ontario real estate agents are lobbying the province against the mandatory disclosure of offers among competing home buyers in transactions involving multiple bids.
The Ontario Real Estate Association (OREA) sent a bulletin to its 78,000 members this week urging them to contact their MPPs to oppose the compulsory sharing of offer prices and conditions among competing buyers. That’s something the province has said it is considering as part of its planned update to the 2002 Real Estate Business Brokers Act (REBBA).
“Buyers and sellers should have the choice of using an open, transparent process,” said the OREA email.
It says that sharing information about competing bids could lead to the disclosure of personal financial information to any interested parties.
“The government should not force consumers to gamble their life savings in an experimental, mandated open offer process,” said the OREA email signed by association president Karen Cox.
“Hard working realtors like you would face increased red tape,” it warned.
Under the current rules, a real estate agent can only share the details of offers with the property seller.
But consumers should have a choice if all the buyers and the seller agree, said OREA CEO Tim Hudak.
Making the disclosure of offers mandatory “would be a radical change in the real estate market that does not exist anywhere else in North America,” he said.
“This would invoke a brand new process for every real estate transaction where brokers would have to distribute offers to all the other buyers,” said Hudak and that means sharing prices, deposit and closing information, right down to who gets the fridge.
The buyers’ addresses would be included in each of the offer documents, as well as conditions around the need to sell another home or the amount of cash that buyer has on hand for a deposit.
Some sellers would agree to share offer information based on their ideas of fairness for buyers, said Hudak. But all sellers should seek the advice of their realtor, he added.
At least one Toronto agent says his advice would depend on whether he was representing a buyer or seller.
“If I were representing my seller I’d say, ‘no.’ Unless I was mandated to do it, I wouldn’t do it. It’s our job to protect our clients,” said Royal LePage’s Desmond Brown. “If I had a buyer I would want to know as much information as possible.”
Among its 28 recommendations for modernizing the real estate act, OREA is proposing that the government eliminate bully bids — offers that pre-empt the time the seller has set to look at bids on their home. It is also recommends the elimination of escalation clauses, offers that specify the buyer will exceed the best bid by a certain amount.
The Toronto Real Estate Board (TREB) said it understands, “the fairness angle,” of disclosing competing offer details. “But this will also be a tricky area for the government to attempt to legislate,” said a statement attributed to board CEO John DiMichele.
“Disclosing bids puts realtors in conflict with their seller clients,” he said.
In regard to bully bids, the government would need to either require sellers to look at all offers as they come in or not accept any until a certain date.
“We prefer less government intervention in the marketplace,” said the statement.
A few readers have sent in articles regarding the class-action lawsuit filed about commissions – an excerpt:
A class-action lawsuit is seeking to upend the way homes are listed for sale and the commissions paid to agents. The goal, say the plaintiffs, is to make home selling more affordable by challenging how agents share commissions on local Multiple Listings Services known as the MLS.
The focus, the suit claims, is on NAR’s “Buyer Broker Commission Rule,” which, according to the complaint, requires “all brokers to make a blanket, non-negotiable offer of buyer broker compensation” in order to participate in the MLS, which is what brokers traditionally use to list for-sale properties. Brokers who don’t participate in the MLS can’t effectively market their properties, according to the lawsuit.
NAR, however, has no such “Buyer Broker Commission Rule” as described in the lawsuit, according to Mantill Williams, vice president of communications at NAR.
“The only requirement imposed by NAR rule is that the listing broker advise all other MLS participants what the amount of compensation to the buyer’s broker will be,” Williams says. “That amount is determined by the seller and the seller’s broker – not by NAR or the MLS. It can be expressed as a percentage of the sale price or as a fixed dollar amount – as low as $1. Under NAR policy, a buyer’s broker is free to negotiate the amount of the commission with the seller’s broker.”
Sellers can negotiate the amount of commission they pay to their own agents. Although sellers traditionally pay the commission, that commission is typically split with the buyer’s agent. The seller might end up passing on the commission costs to the buyer in the form of a higher listing price.
There are two problems that contribute to the situation; 1) The commissions aren’t disclosed to buyers, and 2) In spite of the statement in bold above, the commission rate offered to the buyer-broker is non-negotiable, according to the Code of Ethics:
Standard of Practice 16-16
REALTORS®, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker’s offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker’s agreement to modify the offer of compensation. (Amended 1/04)
The lawsuit wants to cause the buyer-agent’s commission rate – and who pays it – to be more negotiable (it’s not negotiated by the buyer now). What this lawsuit will include, but not solve, is buyer-agents steering their clients to listings that pay 2.5% or more in commission.
The attorneys will sensationalize the facts during their jury trial, and NAR will probably end up agreeing that buyers have more access to commission rates.
We will ignore this basic premise though: sellers should be free to offer a bounty to buyer-agents to sell their house, and the listing agent should convey that message, and encourage sellers to offer a rate that causes buyers to be steered to their house.
It sounds edgy, but it’s how it works in real life.
I said previously that this will likely cause more buyers to go directly to the listing agent, which will destroy the broker cooperation model we enjoy now.
But we could solve all of these issues with one answer.
If we did auctions instead, we wouldn’t have these problems.
The commissions would be obvious in advance (it’s been the 10% premium, paid by buyers), and all buyers would have an equal chance to buy the home. The sellers would be the big winners – no commissions, and eye-to-eye competition to drive the price higher, with no shenanigans!
Things that blow out deals are usually avoidable, and are easy to identify in hindsight. In this case, the agent let the buyers pick a roofer out of the book, which is a terrible way to do business. He gets paid the same whether he blows the deal or not, so of course he tells the buyers the house will fall down some day. No wonder he has great reviews – think of all the homebuyers he saved from buying a regular house, and are still renting!
But the most important lesson is how the agent handled the situation once a concern has been identified. Buyers are counting on their agent for expert guidance, which should include pointing out that there are no perfect homes out there, and let’s find a way to deal with the imperfections – because in this case, the house had far more positives than negatives.
But instead, the agent – who had been telling me that everything was fine – just sends over the cancellation form in the dead of night. She didn’t give me any more opportunity to address the concern (even though I has already provided ample evidence), or try to fix it herself. Instead, once her buyers objected, she just cancelled.
This is where we will see the last nine years of a bull market come back to haunt us. There are plenty of agents who got into the business since 2009 that not only consider themselves one-percenters, but have built teams and are riding a high horse. But they have never had to handle buyer objections.
Expect a long, stagnant, bumpy market ahead.
Get Good Help!
What did I do? I went back to the second-place finisher and sold it to them.
Hat tip to Eddie89 for alerting us to how the sale turned out:
A bidding war recently broke out over a prime piece of California real estate — and it wasn’t for a tiny San Francisco condo.
In this case, a dozen offers were made for an entire town, the 19th-century mining hub of Cerro Gordo, on 300 acres in the Inyo Mountains outside Lone Pine, Calif. It was listed for for $925,000 in June and closed on Friday the 13th for $1.4 million.
“I would say the date was very coincidental,” says listing agent Jake Rasmuson of Bishop Real Estate. “Strictly by chance but very fitting for the property.”
The seller accepted an offer from a group of Los Angeles investors who plan to preserve the relic of the American West and keep it open to the public.
“We did have higher offers, however the sellers really liked the buyers’ proposal and liked the buyers’ plan,” says Rasmuson.
Cerro Gordo has been in the hands of the same family for decades, and though privately owned, it was open to the public for tours. The owners were hoping to sell to someone who appreciates the property’s history.
The buyers are Brent Underwood, who founded the youth hostel HK Austin and Jon Bier, who runs a public relations firm catering to athletes. The two teamed up with other investors to make the purchase; they include Ryan Holiday, former director of marketing at American Apparel; Tero Isokauppila, CEO/founder of superfood company Four Sigmatic; Brendan Gahan, CEO/founder of Epic Signal; George Rutolo, owner of The Whisky Bars; and Kelley Mooney, an en executive at Hulu.
“We want to maintain the historic nature of the property while introducing amenities that will allow more people to enjoy this piece of American history,” Underwood says. “We have spent a lot of time with the current owners and caretaker to learn the history of the place. I’ve read all the books I can find on the town. I can’t express our excitement to be able to continue the care of this beautiful location.”
He adds that they also hope to eventually add overnight accommodations and events such as writing retreats, concerts, photo shoots, theater and more.
Silver was first discovered in the hills of Cerro Gordo in 1865, and in the following years prospectors flocked to its rich veins of silver. It became known as the “silver thread” to Los Angeles and silver was loaded onto mule trains and taken to the city. The town population swelled to some 5,000 at its height and quickly dwindled when silver prices dropped in 1877.
“We want to create a place that pays tribute to this historic part of American history,” Underwood says.
Choosing the right realtor to sell your home is critical.
It’s not life-or-death critical. We’re just talking about the extra 5% to 10% that is available when effective marketing creates maximum urgency – and the agent’s skills and salesmanship creates competition between buyers to achieve a top dollar sale.
Here’s what I do:
I conduct a thorough pre-listing inspection to determine the best improvements to make prior to hitting the market. Repairing the visual dings, doing ‘clutter patrol’, and implementing any staging where needed to maximize the appeal to buyers. I focus on bang-for-the buck; spending as little as possible with max results.
I recommend an attractive price – one that is retail-based for the location and condition, and makes the buyers feel like it’s worth checking out.
I have professional photos done and include my own video tour to help sell the buyers on the value of the home, instead of playing elevator music. I won’t include a Matterport 3D tour, which is the worst thing any agent could do for you. The buyers can view every nook and cranny in the house, so they keep looking until they find something they don’t like – and then give up. The goal of marketing is to get the consumer interested enough to jump in the car and check it out in person.
Inquiries – I handle all inquiries myself, and I answer my own phone. My focus is to gauge the interest of the buyer or agent, and help to sell them on the house. Redfin and most big agent teams have showing requests handled by a separate and unrelated third-party called Showing Suite, and they miss out on a critical opportunity to pick up intel about the interested parties that I use later in the negotiations and bidding war.
I conduct the open house extravaganza myself. We effectively advertise and have 25-100 people attend every open house. The crowds help to create the Fear of Loss; where interested parties realize they better step up quickly and pay more than they thought so they don’t lose it. Nobody does open house like I do.
Once offers are pouring in, I qualify both the buyers and agents myself. Other agents can get swept away by sappy love letters, or by all-cash buyers and not give due diligence to every offer, or ignore the buyer’s agent and their critical role in getting to the finish line.
Virtually all agents will ask for highest-and-best offers, and then help the seller to pick their favorite. It feels exciting, and all can say they played the game. But I create an auction-like competition where buyers participate in the final outcome, rather than passively hope their blind bid is enough. It takes aggressive salesmanship to accomplish this, and it’s where I pay for myself with a specific strategy to achieve a top-dollar sale (I am registered as an auctioneer with the State of California).
Donna has been our troubleshooter-in-chief for the last twenty years, and is our secret weapon. She bird-dogs every sale to the finish line and beyond, and as a result, we rarely have an escrow fall out. Our clients feel informed and well-served, with every detail covered in advance.
My last thirty listings have averaged an SP:LP ratio of 99% (selling within 1% of list price), with an average of 20 days on market – and half of them sold in ten days or less. Commissions are described HERE, and you’re only paying a little more than Redfin to get the maximum service available.
I am happy to give you a free consultation in person, or by phone or email!
"Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community... more "
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