March 13, 2008
Billion dollar break-up: Protecting rebates vs divorcing two-sided real estate commissions
Redfin's corporate blog is cheering because an "Anti-Rebate Bill" introduced in Illinois that would have banned real estate rebates has apparently died in committee, or in Redfin's words, been "crushed." Other sources report that the bill has changed focus, and as The Black Knight in Monte Python's Holy Grail famously said, may not be dead yet. According to sources, there may still be an attempt to morph the anti-rebate bill into a procuring cause bill before Friday's deadline, which could be extended. What's at stake is the definition of procuring cause, a legal concept which Realtors use to decide who procured the buyer, and therefore who is entitled to collect the buyer agency fee under their guidelines. Although the exact language has not been shared, Redfin and other sources allege that the reworded bill would require a buyer agent to accompany their client to property showings to collect the buyer agency fee offered through the multiple listing service (MLS).
Buyer agency compensation is an old family fight in the residential real estate industry, one the consumer has been dragged into because a growing generation of discount business model use rebates to hook home buyers. What most home buyers don't realize is the two-sided real estate commission is obsolete, and some critics have likened it to a real estate transfer tax (hence our photo above). So, IMHO, firms discount business models like Redfin are actually propping up an artificial pricing structure and reinforcing a barrier to competition and consumer savings. While a recent Redfin blog post called the 3% buyer agency fee "boring," it did not challenge it or call it unnecessary or anti-competitive. In fact, the blog post says "Redfin has always been careful when listing a home to encourage our clients to offer the buyer’s agent 3%..."
I agree with Redfin, the proposed IL bill is not the answer, neither in it's original form, which sought to ban rebates; nor it's amended form, which may seek to define procuring cause. However, there is a long overdue reform that would reduce real estate commissions by billions of dollars annually: separate fees for listing agents and buyer agents. Think of it as a real estate version of BYOB: Bring your own broker. That's the only way to create an open, competitive market place in residential brokerage, where as one attorney wrote: "the ability to freely price one’s service is a pretty basic, bread and butter tenet of competition." The Consumer Federation of America first proposed that reform 16 years ago, and there is growing interest in "divorcing" the commission even within the Realtor community. You can learn more by viewing this 90 second slide show:
Uncoupling the traditional two-sided real estate commission: 10 Mega-trends leading towards a tipping point (click to see video)
As the real estate industry transitions to a more competitive marketplace, The Real Estate Cafe's will continue to offer a menu of hourly and flat fees plus rebates, including a 100% rebate option. However, we'd prefer to work with other change agents to unlock billions of dollars of consumer savings annually by compensating buyer and seller agents independently. If you are interested, please use this wiki to brainstorm about building a coalition and action plan to divorce real estate commissions. If you'd like to meet in person in Boston, no need to BYOB -- we'll buy the beer.
Bill Wendel | 02:30 PM in Change Agents, Commission Reform, Do-it-yourself, Real Estate Consumer Bill of Rights, RECALL: Real Estate Consumer Alliance, Savings & Rebates, Unbundling the Commission | Permalink
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In the era of Seller-Empowered MLS listings where the buyer does not even need an "agent" - WHY should a buyer pay someone an hourly fee when they can do it themself and save hundreds of dollars? ;)
- Corey Scholtka
Posted by: Corey | Mar 18, 2008 1:48:04 AM
This bill is a good first step. Let's not throw the baby out with the bathwater. Anyway, that's my 2 cents.
Posted by: Rob Lawrence | Apr 6, 2008 3:40:17 PM
In my opinion, procuring cause is accomplished when the buyer selects a buyer’s agent to represent them in the transaction, not “showing the home”.
If it’s determined that procuring cause is defined as “showing” the home that is purchased, then the buyer suffers, inasmuch as the entire commission will go to the seller’s agent; a party that does not represent the buyer.
Posted by: Home Buyer Rebates Atlanta Georgia GA | May 27, 2008 9:51:10 AM
To Corey, Kiplinger would disagree with you; savvy buyers seek out a qualified buyer’s agent.
Posted by: Home Buyer Rebate Information - Atlanta, GA | May 27, 2008 10:02:25 AM
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