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!
While the old tradition of broker cooperation via the MLS is slowly eroding, there is an opening for others to intrude. Two quotes seen this week in different articles:
Founder and CEO Rich Barton said in a radio interview on April 1st that he sees Zillow Offers as an evolution of Zestimates. In fact, at some point in the future, a Zestimate and a cash offer may be the same thing, he said in an appearance on National Public Radio.
“Ideally, I would like to have the Zestimate be a live offer on every home in the country,” said Barton, adding, “It will take quite some time to get there.”
Glenn Kelman, CEO of Redfin, a real-estate brokerage that has also got into the home-flipping business, said he still believes the endgame for Opendoor, as well as his own company, is to get buyers to purchase homes without necessarily using an agent.
“A large number of these companies, Redfin included, are going to be selling direct to consumers,” he said.
Will consumers trust them enough to buy and sell houses based on their fabricated estimates of value, without a realtor on their side? All that needs to happen is for these ibuyer companies to overwhelm the public with advertising, and convince you that their value estimates are close enough.
The advertising is the key. Consumers don’t have much real estate experience and education, and it’s not easy finding helpful resources (how many real estate blogs are there?). They just want to click and go!
It will be like TrueCar, where they advertise that their valuation system gives you an advantage, and to go down to one of their dealers to buy the car for that amount. TrueCar has sold over 2 million vehicles!
To further examine the off-market phenomenon, here are the first few entries snipped today from Facebook realtor groups:
I don’t fault the listing agents – this is realtor marketing in 2019, and everyone is doing it so it must be ok. Agents who represent buyers need to be well-connected and searching for homes in other places besides the MLS.
Yesterday, I whipped into the City of Carlsbad maintenance yard where they have all the realtor open-house signs locked up. They have been diligent in their enforcement efforts!
When the city first threatened to do something, we realtors didn’t take it seriously and failed to get out in front of it.
As a result, the city imposed a rule that requires our open house signs to be inside of the right-of-way, which is tough around Olde Carlsbad where there are no sidewalks and in many cases, no place to put signs that are ten feet from the street.
Not only are they collecting the signs every weekend now, but their driver has an attitude too, especially when he is on patrol with his girlfriend – which has to be against city policy for her to be riding along.
I asked about political signs.
They explained that those have a ‘special’ permit so they can be put anywhere. Politicians give themselves special treatment!
The percentages are quite a bit higher this year. The title of the graph could be ‘Sellers Who Are Having No Showings’ because most are (overly) optimistic this early in the selling season and hold tight on price until later. Something must be rattling them – like no showings.
An excerpt from the UT article:
Home price reductions are still common when the market is red hot. It is sometimes a selling tactic — although not usually considered a good one — to price a home higher and then come down so the buyer feels like they are getting a deal. But, the number of reductions recently shows a big change.
For instance, 8.5 percent of homes had price reductions in November 2016. In November 2018, there were 29.4 percent.
Jason Cassity, a real estate agent based downtown, said the industry has a problem shifting when there has been a big change — such as a downturn in sales at the end of last year. He said some agents are operating like there will still be a bidding war.
“If you continue pricing like it is 2016, it is going to sit on the market a long time,” he said. “Or you are going to be one of those 20 percent (in February) that have to price reduce.”
He said a lot of the reductions he has seen were listings marked up too high out of the gate, something a lot of agents could get away with for years. He said sometimes homes are priced overly high just to meet sellers’ expectation of a huge payday, not the actual value.
Cassity said he presents news articles about the real estate market to clients before they decide on what price they are going to market with.
Buyer-agents are heralding this as the Big Turning Point is real estate because the lawsuit aims to ‘break up the cartel’ and unbundle real estate commissions.
There is a whole legion of agents that offer a fee-for-service menu who think they are doing the consumer a favor. But it is a great dis-service to tempt consumers to select their agent based on their fee. This is where NAR and others have failed us miserably because nobody talks about how important it is for consumers to identify the skill level of agents they are considering.
Agents offer a discounted commission/rebate/fee-for-service because they don’t have the skill level to earn a higher fee. In effect, they ‘buy the business’ with lower cost/less service, and the consumer gets what they pay for.
But if this lawsuit prevails, causing MLS companies to be run out of business and ‘broker cooperation’ to get dismantled (seller paying the buyer-agent fee), the buyer agents will be the first casualty.
On this blog we talk about street-level impact.
Here’s an example that happened to Kayla in Manhattan, where the rental market is so hot that tenants have to pay their broker directly – and the typical fee is two months of rent.
Kayla is showing rentals to her old college roommate plus one other woman. The listing agent is present, and when Kayla goes into a bedroom with one of the women, the listing broker pulls the other aside and says, ‘if you don’t want to pay Kayla’s fee, just go through me directly’.
The two women rented the apartment directly through the listing agent, and burned Kayla.
We’re sliding into single agency, where buyers/tenants will just go directly to the listing agent. They will never know if they saved any money, they won’t know if they got proper representation (unlikely), and they will just take what they get.
The reason disintermediation worked in the travel business because consumers don’t worry about a bad vacation costing them an additional five- or six-figures in resale costs (and major disruption of life) to unwind one.
Without constant reminders of how important it is to Get Good Help, buyers will be left to their own devices and just go directly to the guy who has the product – the listing agent.
Single agency is not what’s best for consumers or agents – yet the market forces are heading in that direction without recognizing the ramifications. Watch what you wish for!
Obviously, my rantings on this topic have done nothing to slow down the trend, so joining Compass was the best way to position myself for my clients.
The real estate industry has never felt the need to create a powerful search portal in response to Zillow. There should have been an industry-wide effort to create a realtor-centric website to support our business, but NAR and others just shrugged it off.
Traditional realtors should be demonstrating why our experience, our advice, and our gravitas is a better solution for consumers.
It starts with realtors having the best real estate search portal – and Compass has committed to producing it! Our website will make it clear who the actual listing agent is on each listing, regardless of company.
There is another benefit – we put our Coming Soon listings in the front of the search, which will hopefully cause consumers to keep coming back, and help build the traffic faster.
From our CEO:
The future of the real estate industry will be defined by the company that creates the best experience for buying and selling a home. I believe Compass is going to be that company. To achieve our mission of helping everyone find their place in the world, we must make it as simple and straightforward as possible for people to navigate the process of buying and selling a home. We must also put the person who knows how to create a world-class customer experience front and center: the agent.
Many technology companies are doing the exact opposite. They’re confusing consumers and taking advantage of agents in order to maximize their own profits. They most commonly do this by hiding the true listing agent and monetizing the client lead in a variety of ways.
At Compass, we are not just looking to elevate ourselves, we are looking to elevate the industry. Being the first company to show the true listing agent on every listing will not only help bring clarity to the home-buying process, but it is the right thing to do.
It is part of a 3-step strategy to win the consumer:
Make the Compass website and mobile app just as good as the best aggregators by end of summer 2019
Invest millions of dollars advertising our Coming Soon inventory to consumers around the country
Put the listing agent on every listing, making Compass.com the only site in the country where consumers can always find the listing agent
It means we are gently nudging consumers towards connecting with the listing agents directly, making that trend more obvious to all. If the business is going that way anyway, we might as well be out in front of it. JtR
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