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August 16, 2006

Think Outside the Commission

Paydaytippingpoint Fifteen years after the Consumer Federation of America first called for the traditional two-sided real estate commission to be uncoupled (a reform they repeated recently in congressional testimony), some momentum is finally building to change the way real estate agents get paid.  What's surprising is that the most recent proponent has presented his case to fellow professionals through a provocative mini-series called "The end of MLS as we know it."  Policies once assumed to be barriers to implementation may no longer be obstacles, according to a well-respected attorney who advises multiple listing services.  That's GREAT news for real estate consumers who could save billions of dollars annually:

It is widely believed that it is impractical or impossible for the buyer to pay her own broker at closing. A report published in spring 2006 discussing the future of MLS considered the idea of buyers paying their own brokers: "It is unlikely that this will happen unless HUD and Fannie Mae allow the buyer to finance the portion of the commission that the buyer would need to compensate their own agent."

In fact, HUD and Fannie Mae regard a commission paid by buyer to buyer’s broker at closing as a valid closing cost. In other words, to the extent that closing costs can be financed, a buyer broker’s fee can be financed as well. The traditional view is that the buyer borrows money to pay for the purchase price and comes to the closing with the closing costs in cash. Practically speaking now, buyers have the option to come with a piggyback loan ready to cover some of the down payment and closing costs in return for a second lien position on the property. There may even be tax advantages to this approach for the buyer.

One of the first fee-for-service business models in the country, The Real Estate Cafe has been encouraging consumers and real estate professionals to "Think Outside the Commission" for more than a decade.  In fact, we've been monitoring mega-trends pushing towards a "tipping point." To learn why we think this transition is inevitable, take 90 seconds to view our video online.  Then, contribute your own ideas about how consumers and industry innovators can begin demonstration projects, document best practices, and deliver billions in consumer savings. 

If you're a homebuyer who can't wait for the industry to transition, The Real Estate Cafe already offers a variety of money-saving compensation options, including a 100% commission rebate plan.  If you're a lender interested in a demonstration project to that would give consumers the option to BYOB (Bring Your Own Broker), The Real Estate Cafe is eager to experiment and will gladly host a chat online or real estate roundtable in Boston to brainstorm next steps.

Bill Wendel | 02:43 PM in Change Agents, Commission Reform, FSBO: Best Practices, Real Estate Consumer Bill of Rights, RECALL: Real Estate Consumer Alliance, Unbundling the Commission | Permalink


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Its good to see that there might fianlly be a change to Realtors commission structure. They have been making too much for too long IMO. They also havent been doing the best for the customer. I personally am glad to see the arrival of online services like http://www.hungryagents.com to help bring down commissions in the short term.

Posted by: z | Sep 20, 2006 4:11:10 PM

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