Interbroker Compensation and Compliance

30 Replies

Respect my authoritah! Or not. Up to you.

As is somewhat normal, Brian Larson has a thought-provoking post on the future of the MLS up on MLS Tesseract. I gather it’s just one part of a series that he wrote a while back on Inman. In this particular post, Brian argues that interbroker compensation (aka, “Offer of Cooperation and Compensation”) is an anachronism and should be abandoned. He cites a number of factors — decline of sub-agency, restraining innovation in brokerage models, unfairness, and possible legal problems — to argue for getting rid of the Offer.

Brian ends the post, which was written in 2005/2006, with this:

So, other than references to some old reports from 2005 and 2006, I think all of this still makes sense, perhaps more so… What do you think?

Well, I think you’re making a ton of sense, Brian. But I do have a question about compliance, and data integrity.

The Offer and Compliance

Let’s assume, for the sake of discussion, that I agree with all of the policy reasons that Brian brought up four plus years ago. Let’s also assume that the industry can get around the “MLS” ceasing to be one under NAR rules if it gets rid of the Offer. Finally, let’s assume that eliminating the Offer would mean all sorts of wonderful benefits vis-a-vis brokerage models, fairness to sellers, price-fixing problems, and so on.

One thing we would need to tackle is the issue of compliance.

Four years later, one of the key things that we’ve learned about the MLS is that everybody wants the data that the MLS holds. RPR, First American, LPS, Move, Inc, brokers, associations, government, and likely aliens from outer space. The reason, of course, is that the MLS has the most accurate and up-to-date information about housing anywhere. We all sort of take that data accuracy and data integrity for granted.

But you have to ask why it is that the MLS has the most accurate data, and how it got to be that way.

The answer, of course, is tied to the Offer.

The challenge with any set of data is in the initial collection. Garbage In, Garbage Out is an iron law. Start with crappy data, and you can’t help but end with crappy data and bad conclusions. The MLS has managed to create a scheme in which millions of individual data collectors (i.e., real estate agents) take the effort to ensure that the data in the system is accurate and up-to-date. Is it perfect? Of course not. People make mistakes, and agents get lazy and fail to update the data.

And… that’s where Compliance comes in.

Is Compliance Possible Without the Offer?

What Brian’s post raises is the question of whether Compliance is possible without the Offer. If it is, then sure, by all means, let’s get rid of the anachronistic, anti-competitive, anti-innovation Offer of Cooperation and Compensation. My gut tells me, however, that Compliance without the Offer becomes a toothless hound of war that can only gnaw, rather than bite.

Say a MLS sends out a Compliance violation notice. The agent ignores it. It then fines the agent; the agent ignores that. At the end of the chain, since the MLS is a private, non-governmental entity, the power that the MLS holds over the agent is excommunication. The non-compliant agent will not be allowed to access the MLS.

The question is, why would anyone care about being declared a pariah by the MLS?

I believe that the reason why people care today is the Offer. Without the MLS, if I bring a buyer to the table, I’m not guaranteed anything at all. Maybe the seller would cut me a check, or maybe not. We see this all the time in commercial real estate, where the Offer does not exist. Commercial brokers have to open discussions with, “So, if I bring you someone, what are you gonna pay me?” Suppose the listing broker simply violates the private agreement. As a commercial broker, your only recourse really is to sue them in court for breach of contract. A residential broker who is part of a Offer-driven MLS can bring the issue to the MLS itself.

None of this is compelling argument to keep the Offer in place, necessarily. However, what it does mean is that the individual agent, who is going out and getting listings, ensuring that the data is accurate and up-to-date, because she doesn’t want to get kicked out of the MLS, is motivated by the security and the certainty that the Offer provides. Without the benefit that the Offer provides, losing MLS membership might not be all that painful.

Look, for example, at the lack of data accuracy in places like Zillow or Trulia, which are, in many respects, just like a MLS. Shouldn’t we wonder why that is?

Unintended Benefits, Unintended Consequences

I don’t for a moment believe that the MLS started with the specific goal of ensuring data integrity. I don’t believe that the Offer was created by all of those brokers back in the day because they cared so much about putting some teeth into Compliance. Data integrity was, and remains, the unintended benefit of the Offer.

As a result, if we are considering the elimination of the Offer of Cooperation and Compensation, we have to think about the issue of compliance and data integrity. Again, this is not an argument against Brian’s position; I can see why the Offer causes some of the problems that he mentions. But it is to raise yet-another-thing to consider.

-rsh

  • http://twitter.com/BLarsonMpls Brian Larson

    Rob: I think I address some of what you say in the remaining two posts (which I’ll put up on MLST in the next few days). But I think you are all wrong on believing the offer of compensation is responsible for data accuracy. The reason brokers fear “excommunication” by the MLS is because brokers have iterative relationships with MLS. In other words, if you don’t comply with our rules, we’ll cut you off. You may get this listing sold, but your future listings won’t appear here… The offer of compensation doesn’t change that dynamic at all; thus our clients who don’t require it are not having any problems requiring data compliance.

    I hope we can discuss more as the balance of the posts come out.
    -Briran

    • http://www.notorious-rob.com Notorious R.O.B.

      Looking forward to it, Brian. :) I do think you’re dismissing the importance of the Offer, however, to Compliance having teeth, but that’s the kind of elevated, important discussion I always get with you. :)

  • Terry Penza

    Compensation surely kept the focus of MLS, however, what has made MLS are rules and procedures members must follow and without you have anarchy. Think MLS or local REALTOR association are not necessary? Then how do you collect commission from an office that won’t pay you? Put in 5 bedrooms in a 1 bedrooms house to get he phones to ring, allow a listing in only if you feel like it…

    • http://www.notorious-rob.com Notorious R.O.B.

      Terry, thanks for the comment. I guess this is what I’m looking forward to discussing. Those rules and procedures members must follow? What happens if a member doesn’t follow them? How do you ENFORCE those rules/regs/procedures? What makes members follow those rules?

      • Terry Penza

        Many MLS send a fine that is doubled every couple of weeks until the listing is fixed. If MLS does not catch the error, trust me other REALTORS will turn them in! Peer pressure and public humiliation goes a long way. Last resort is to deny access to the system. Once the membership believes the MLS will stick to their rules they usually comply.

      • http://www.notorious-rob.com Notorious R.O.B.

        What I’m asking, I guess, is why a REALTOR would care whether they get or don’t get access to the system. John Kalinowski’s comment below is interesting in that context.

      • Terry Penza

        Just because there is a listing does mean the coop office automatically receives a commission. MLS compensation is a type of contractual agreement between MEMBERS to share $ and if the listing office does not pay then MEMBERS of a local REALTOR association MUST participate in a hearing to determine who gets the money.

        If you are NOT a MEMBER of MLS then they would have to go out in the web, find the property, negotiate a commission with the listing office then make an appointment. Also, if they are not a member they may not have access to the lock box to gain access to the property. All the little things MLS/Associations set up as services to the members to make their job a little easier. Can you sell without it? Sure, but you have made your life more complicated and many more hoops to jump thru to get that compensation. We work for pay and not for fun, we expect our money when the work is done

  • Bhickey

    I’m going to go around the Offer / Compliance discussion for a moment and try to get to the core of the issue, which is the future of the MLS and NAR. What value do they have and what part do they play in the residential real estate transaction? You have gone over this before – but I think Brian’s Blog is just discussing small details in the much larger picture.

    From where I sit (broker, agent and current real estate model disruptor), the MLS is simply a source for historical data (what sold and when) and current data (what is for sale now). Historical data is easy to find and available from many sources, so the MLS holds no power harboring that data. So, we’re left with current data i.e. “what’s on the market now”? We can’t be so naive to believe that a membership based national platform couldn’t be implemented in short order. If it needs to be just one entity – just merge Trulia and Zillow. Offer a low cost and easy to use system for licensee’s and the MLS(s) goes bye-bye.

    As far as cooperation and compensation? That will all be innovated out. Listing fees or “connection fees” will be the only reliable revenue stream. With all the transparency provided by the Internet – will we really need a buyer’s agent? If an agent is handling the buyer, why not have that agent negotiate his/her commission with the listing agent – instead of having the listing agent dictate compensation? As far as the integrity of the data? It looks like social networking will police that – bad information will be overcome by good.

    The transaction is where the real innovation will take place. Where we get our data is the easy part. Let the Law oversee compliance – not NAR and the market ultimately will decide what services are worth – and chance are pretty good that they are not worth the going rate.

    Brian Hickey
    teardowns.com

    • http://www.notorious-rob.com Notorious R.O.B.

      Thanks Brian – I’ll ask you the same question, and maybe re-read the post. In your Truillow world of one platform and so on, how do you enforce rules? How do you ensure that the data is accurate? Social networking will police data integrity? Really? How exactly would that work?

      It would be helpful to compare, for example, Loopnet and CoStar in commercial real estate, and their different approaches to data integrity. Then compare them both to MLS.

  • http://www.LiquidBlueRealty.com John Kalinowski

    Brian – I think Rob is correct, that the indirect result of the co-broke commission offering in the MLS is data compliance. Brokers fear being cut off from the MLS, because they know the only way to guarantee getting paid is to sell MLS-listed properties. That’s why the avoid showing FSBOs to their buyer clients. If you don’t have access to the MLS, then you lose your guarantee of payment.

    @Rob – Back to Brian’s article. If you lose the co-broke, then you don’t need the MLS commission offering, and you don’t need the MLS. Can’t our industry evolve into something else that works, instead of a misleading setup where buyers think they are being represented by their agent, even though their agent is being paid by the seller.

    People sell stuff all day on Craigslist and eBay, and through used car lots and every other type of sale channel you can imagine, and they somehow figure out how to figure out what is the correct data for the product they are buying. Why should real estate be any different? It only exists the way it does today because there’s way too much money behind it in the way of big brokerage companies and the NAR, that would shrink if the present system changed. Having it shrink would probably be a good thing, since the result would likely be a smaller pool of highly qualified, professional sales people who receive a smaller payment per transaction, but complete more of them, kind of like CPAs.

    • http://twitter.com/BLarsonMpls Brian Larson

      I still have not heard how the compensation offer makes the MLS essential. Brokers can make compensation offers without MLS. And there is a variety of ways that MLS listings get offered without compensation (broker-owned MLSs that don’t require compensation and listings in NAR-affiliated MLSs with low base compensation but the promise of additional comp under “bonus” circumstances).

      I suppose the theory is that right now MLS is the unique source of the most up-to-date information and that taking away the offer of compensation might make brokers look for that up-to-date info somewhere else. But if the offer of compensation is that valuable, why don’t sites like Trulia and Zillow offer to extend it? There is no legal or practical impediment I can think of. In fact, they could charge as their fee just a tiny percentage of the compensation that flows through them. (There is at least one MLS in the U.S. that does it that way now–it’s broker-owned as NAR would not permit that.)

      I think compensation is neither a necessary nor a sufficient condition for MLS being the “hub” around which a market’s real estate activity happens, and we have the evidence that is true right now. John K’s comment over on MLST, the gist of which is that getting comp out of MLS would be good for consumers and bad for brokers, is worth discussing. But I’ll take that up over there.

      • http://www.notorious-rob.com Notorious R.O.B.

        Brian, you’re hitting on the exact issue, though. Trulia and Zillow can’t extend it, because they are not the brokers in question. The evolution of the Offer took decades, and it is now a solid part of the residential real estate industry. But it isn’t that the “MLS” is offering the Offer of Compensation and Cooperation; its members are.

        In theory, I suppose the members (?) of Trulia/Zillow can do the same: make a unilateral offer of cooperation and compensation. Then Trulia/Zillow can enforce that via Compliance, just as a MLS does.

        I don’t know that the Offer is necessary nor sufficient; maybe we’re talking about two different things here. You’re focusing on the MLS business model as a whole; I’m focusing on one small aspect – data accuracy. I happen to think that data accuracy is the result of Compliance, which has teeth only because of the Offer of Cooperation and Compensation. Without the Offer, the MLS is basically Zillow/Trulia, and I see no real reason why “members” would pay fines, or be afraid of getting kicked out.

      • http://www.LiquidBlueRealty.com John Kalinowski

        ROB – I’ll tell you from experience that MLS does not equal data accuracy. The MLS system (as least ours) does absolutely nothing to regulate, monitor, or control the accuracy of the data entered. The only thing they monitor are silly things like if you enter open house or contact information in the Remarks field. They have nothing to do with data accuracy, so I guess I’m not following the premise of this whole post.

        The Offer of compensation to other agents is definitely “necessary and sufficient” if you want them to show your listings. It’s that simple. Try entering a listing with broker compensation of $100 and see how many showings you get.

      • http://twitter.com/BLarsonMpls Brian Larson

        My point is that the reason MLS can impose the rules has nothing to do with compensation and everything to do with MLS’s (natural) monopoly as the unique provider of the most accurate (but by no means perfect) information. Trulia does not have that information precisely BECAUSE it does not enforce data quality; but it can’t enforce data policy because it’s not that kind of unique resource. I wonder what would happen if Realtor.com started enforcing data accuracy (I know that sounds comical, but hear me out). Most brokers feel they just cannot afford NOT to be on Realtor.com, not because there’s an offer of comp, but because everyone expects every listing to be there. It’s the same with MLS. As long as your local MLS has the uniquely most accurate and up-to-date source of listing data, you cannot afford NOT to be there (compensation or no). (John K’s comment below in a way proves my point–MLS does not have to be completely accurate, it just has to be the best available.)

      • http://www.notorious-rob.com Notorious R.O.B.

        You don’t think it’s maybe begging the question a bit to say that the reason why people follow MLS rules on data accuracy is because the MLS has the most accurate data? Plus, is that really a convincing view of human nature?

        See, I think Trulia doesn’t have that information because it doesn’t enforce data quality. But Trulia doesn’t enforce data quality because it can’t enforce data quality. There’s no mechanism for enforcing data quality. Imagine Trulia telling its customer, “fix this error, or else, we’ll boot you”. How many agents would simply laugh it off? For that matter, REALTOR.com is in the same boat. For that matter, Google is in the same boat; it can penalize fraud and black hat tricks; how the hell is it going to penalize wrong data, or late updates to off-market information?

        Also, it occurs to me that it is logically inconsistent to suggest that the Offer creates price-fixing problems, which implies that the participants value the Offer greatly, and then to suggest that it plays no role in the unique data quality that the MLS has.

        My view is that people want to make sure they’re going to get paid if their buyer does the deal. The Offer guarantees that payment. I think it’s a powerful incentive to join the MLS; can you do without it, as Bhickey does? Of course. Does that mean the MLS has infallible data? Of course not — I’ve never claimed that. But it does mean that the MLS, unique out of ALL of the organizations in and around real estate, has a method by which it creates accurate and timely data.

        The real question is your claim: “as long as your local MSL has the most accurate and timely listing data, you cannot afford NOT to be there.” I don’t know if that’s true. Most agents aren’t data junkies, after all, and in the age of syndication-everywhere, it isn’t clear to me that data accuracy/integrity is the driving motivation behind complying with rules and paying fines and such. I believe that even today, the real motivation is to be left out of the assurance of payment that is so powerful that it raises antitrust issues (as you rightly point out).

        To be clear, I’m not arguing with the main thrust of your post. All of your points are valid, as far as I can tell, in 2010 as was in 2006. But the change between then and now is that we all have become very sensitized to the value of MLS data. When you think about what mechanics are at work to create such highly accurate, highly timely data… I just don’t see how you can leave the obvious motivations that the Offer creates in the average agent.

      • http://www.LiquidBlueRealty.com John Kalinowski

        Unless someone else comes up with a new “best available” that is nationwide, cheaper, and more technologically up to date (as in Google/Trulia/Zillow or some combination thereof).

  • Bhickey

    I’m not sure what rules you are referriing to? Inputting information? I just came from a closing about 30 minutes ago. If a Truillow platform was available for me to enter the sales price – I would do it. I’m not sure why as a Licensed agent I would have any incentive to input inaccurate information. Can’t I input inaccurate information (taxes, # of bathrooms etc.) in the MLS now – whether intentional or by mistake?

    I would think an open social platform would correct errors or inaccurate information – if someone was in the house and saw there were only 3 bedrooms instead of 4 – they could offer the correction.

    Maybe the broker should be responsibe for accurate data. I am a broker and would gladly be held for that task – my agents would simply drop the RESPA on my desk after a closing. Seems easy enough?

    I don’t know anything about Loopnet or CoStar’s approach to data integrity – so I can’t comment.

    As I think about it more – it is almost a politcal debate – large government (MLS / NAR) or govern at the local / broker level.

    I favor giving more power and more accountability to the broker.

    Hope this helps clarify my thoughts.

    Thanks,
    Brian H.

    • http://www.recake.com Berry

      Brian:
      THAT should be an easy debate- govern at the local broker level! Much better get people to “do the right thing” when they know their reputation is at stake with a group of local peers that they will see at the next Chamber/Rotary/City Council meeting.

      Now as a vendor who chooses to get data the right way (no screen scraping, etc), it is quite a pain to go through 850 MLS systems/boards/rules at an (extrapolated) cost north of $100K a year. (Why are some BIG, er any, MLS systems not using RETS yet!?)

      But I’d rather do that than work with ONE place that could put us out of business.

      I say all that to say this– “I [also] favor giving more power and more accountability to the broker.”

      Real Estate is, like politics, largely a local affair, and as such I like to see the power placed there.

  • Bhickey

    John and Rob – I came to this industry about 10 years ago after spending about 20 years trading financial securities. I brought the multiple / alternative marketplace mindset to the real estate business and believe ultimately the single marketplace model (MLS) will be broken. It happened to the NYSE, NASDAQ etc.; the residential real estate’s MLS is on deck.

    So, you understand where I am coming from – 99% of our sales are done outside of the MLS. While we are members, we really just use their data to help calculate/ estimate value. We don’t have any fear of being cut-off by the MLS because we don’t need it.

    Operating out of fear is a terrible position. The only thing we should fear is a competitor that can do what we do better, cheaper and faster. Our Associations, Boards and (MLS’s) Exchanges should be afraid of us – after all, we pay the dues.

    Brian H.

    • http://www.notorious-rob.com Notorious R.O.B.

      “While we are members, we really just use their data to help calculate/ estimate value. We don’t have any fear of being cut-off by the MLS because we don’t need it.”

      Why do you use the MLS’s data to help calculate/estimate value? Why not Trulia or Zillow’s data?

      Then consider why that is.

    • http://www.LiquidBlueRealty.com John Kalinowski

      Bhickey – What did you mean by “99% of our sales are done outside of the MLS”? Where are you working, and are you talking about residential real estate sales?

  • Bhickey

    Rob – I pay dues to the MLS, so we default to them first, plus, it’s habit.

    My Trulia/Zillow reference should not be taken literally. I’m not that familiar with either company. We would however, be prepared to use any company that was the holder of accurate and timely information.

    Google is probably working on the solution now.

  • http://www.theJEMgroup.com James Malanowski

    I’ve got to agree with Rob on this one. The MLS was designed not for marketing our inventory to the public but to other broker-members. The only reason for the existence of the MLS was to guarantee compensation for the selling broker and provide the assurance of reciprocity. Look at the IDX rules today … We can opt out of allowing other brokers to display our listings via IDX but if we do, we are not allowed to display other broker’s listings ourself. I’d be willing to bet that when the first MLS was formed there were not many rules about the data until they realized that because of the benefit the MLS provided to its members they could set and enforce rules.

    If the industry shifted tomorrow to where the buyer actually hires and pays their own agent the MLS would have to find a new value-add to keep up its membership and incentivize its members to follow the rules. As several have said, a MLS is only a Zillow with better data. Of course, we’re providing Zillow with all our data, so how long will it be that that can be said?

    At this time, the main benefit of the MLS to me is accurate (more or less) historical data that cannot be found elsewhere … yet. I do not need the MLS to sell my listings with the global reach of the internet. If I don’t have to pay another agent to bring in the buyer I’m better off … and so is the buyer when they’re fully represented.

    Times are changing quickly. It will be interesting to come back to this conversation in 5 years to see if what we’re talking about here comes to fruition.

    • http://www.LiquidBlueRealty.com John Kalinowski

      Jim – I think you’re right, and we’re headed toward a place where Zillow/Trulia/Google will have equivalent, or better data. Just look at Wikipedia. A couple years ago, educators and others “in-the-know” laughed at it and said the data could never be accurate. Now it has become the number one source for information. Could the MLS soon go the way of the encyclopedia?

      The only concern with getting rid of the co-broke commission is that buyers likely won’t be “fully represented”, they will probably be almost entirely unrepresented. Once buyers realize they have to pay it themselves, out of their own pocket, most will not hire a buyer’s agent. They will just go to the listing agent.

      The other concern is that home prices will drop by the amount of the commission that is no longer paid to buyer’s agents. No matter how you look at it, buyers are paying an extra 3% in the sales price to cover the cost of their own agent. Eliminate the buyer’s agent co-broke, and home prices will drop by at least 3%, probably more, since listing commissions will also drop. It won’t just be extra money in the sellers’ pockets. The system will compensate.

      • http://www.theJEMgroup.com James Malanowski

        Unless and until Zillow, etc can enforce data integrity the way the MLS does it will never be as good of a tool for historical listing data. I know that I’ve been guilty of forgetting to update aggregator sites in the past when my listing data changes or sells but when I forget to update the MLS I get a fine. Also, my MLS doesn’t release historical or sold data to outside sources so the only way to get that info is to be a member.

        If buyers really understood the importance of fiduciary they would pay for it. This industry has been pushing “free” for so long that they put no value in buyer agent services. It is our job as the real estate consultant to educate the buyer and offer full representation. In addition, if the buyer is paying their agent, that cost can be covered with a closing credit negotiated with the seller just as any other closing cost so it wouldn’t necessarily come out of their pocket.

        I don’t want to argue your last point here on this blog post, except to say this … If in fact you are correct that prices would drop because of commission reductions, so what? If commissions actually affect value (which I personally don’t believe they do) then market values are artificially inflated in the first place and need to be adjusted. It would be a temporary hit for a long term gain. As you said, the system will compensate.

      • http://www.LiquidBlueRealty.com John Kalinowski

        James – with some estimating that prices may drop another 20% next year from today’s level, the last thing the markets could stand would be a further drop in pricing.

        Let’s do some math on commissions and pricing. Right now if a buyer pays $200,000 and there’s a 6% commission, the seller nets $188,000. Let’s say the co-broke is eliminated and the listing commission drops to 2%. For the seller to net the same $188,000 the home would need to sell for $191,837. Buyers won’t continue to pay $200,00 for the same home, with the seller getting a bonus in their pocket after the commission’s gone. The home will now instead sell for about $192,000.

        No matter how you look at it, commissions are built into the price of the home as a cost of sales. Reduce the cost of sales, and the market will realize that the sell price needs to go down to net the same amount. The sellers won’t just get a bonus.

        So, is it really better for the consumer? That’s the question. Sellers will net the same, home values will drop (along with equity), and buyers will mostly go unrepresented. Hmmm… Where’s the gain? I think I’m contradicting myself from previous comments, but this is the conundrum that goes back and forth in my head whenever this topic comes up.

        As far as “educating the buyer” on full representation; maybe we can cough up an extra chunk of fees to the NAR and they can run some more TV commercials to tell the public how “professional” we all are, and how they should now come up with an extra 3% out of their pocket at closing to get our professional representation. That should do it!

      • http://www.theJEMgroup.com James Malanowski

        We’re way off topic now, but here it goes …

        Commission has nothing to do with value. I don’t know about you, but I’ve never calculated the value of a home and then tacked my fee on top. Yes, I know about net listings, but that’s not what I’m talking about here.

        When was the last time you saw a FSBO listed below market because he wasn’t paying a broker? Have you never had a seller bring cash to closing because the proceeds were not enough to cover his costs? Why would you assume that a seller would reduce his price and not pocket his money? The only time I ever see a seller drop the asking price is when they need to sell faster.

        Sellers are always interested in the net price – not as a ceiling, but a floor. It’s absurd to me to think that anyone considers commission to affect value. You said “equity will drop” … How can you call it equity if it goes away with lower commissions. Equity is tied to value, not the cost of sale.

        Don’t even get me started on the NAR. You can’t call yourself a professional because you belong to an organization that has no barrier to entry. You have to earn the title of Professional by the work you do and the way you handle your client’s affairs and interests. Letting buyers believe that they are truly represented when the listing broker is paying the buyer’s broker is rediculous and needs to change ASAP.

      • http://www.LiquidBlueRealty.com John Kalinowski

        James – That’s the number one mistake FSBOs make, and why most end up listed with an agent. If they were smart, they would list their price lower than the market, by the amount of the commission they are not paying. They would then be the most competitive, and would sell. Most don’t do it, though, and try to compete with listed homes.

        You said: “The only time I ever see a seller drop the asking price is when they need to sell faster”. I don’t get that one. If your home is not selling, it’s overpriced. Period. Price is the ultimate factor. Every home should sell in less than a month if it’s priced right. When someone says the average time to sell a home in this city is 90 days, they just don’t get the dynamics. It doesn’t take 90 days. What typically happens is a seller sits with a price that’s too high for 60 days, then reduces their price to a competitive number. Then someone buys it. It didn’t take 60 days to find a buyer. The home actually sold in the number of days after they lowered the price.

        Commission is a cost of sale, and quite definitely is part of the value equation. The value of a home is the net price in the seller’s pocket after deducting the cost of sales. It’s not the top number on the contract. The top number on the contract doesn’t pay off your mortgage, it’s what’s left after you pay commission. If the commission completely goes away or is reduced dramatically across the board, the top number on contracts will go down by the same amount, and sellers will net the same. The market is created by both buyers and sellers, not just by sellers.

        Sorry, but equity is most definitely related to the cost of the sale. If you sell a home for $100,000 and Owe $50,000 you have $50,000 in equity. Now hire an agent at 6% and still sell it for $100,000. Your equity is now only $44,000.

        Once buyers realize that sellers are only paying, say, 2% in commission, the sell prices will start dropping by the amount sellers are “saving”, which is 6%-2% in this example. So, you end up with a sell price of $96,000. $96k – $50k mortgage is $46,000 net. Tell me how their equity didn’t shrink if they’re now left with $4,000 less in their pocket than they had before the co-broke commission was eliminated?

  • Bhickey

    John,

    We are in residential real estate. We operate within the niche of redevelopment infill property – i.e. teardowns/renovations. We operate in the countries most affluent communities.

    We use our brand (teardowns.com) to aggregate and catalog local buyers i.e. builders, investors, individuals and Realtors. In our brokerage business; we then target homes in these neighborhoods that appear to be candidates for redevelopment – big lot, old home etc.

    We then target these homeowners with direct mail. The value proposition? Sell “as-is” with little to no inconvenience, for low cost (rarely is there a buyers agent – if there is, the agent asks for a commission).

    We create a competitive environment from the buyers most likely to buy. Most of the owners of this property type are older – hence the functional obsolesces, and we are a breath of fresh air – most of these sellers don’t want the “traditional” real estate experience. Our client is the seller and they sign off on the fact that their listing will not be in the MLS – they get it.

    What is the stat? Something like 70% of buyers buy with 10 miles of their current residence and 90% of buyer go to the Internet when its time to buy – we just play the odds. The buyers of this property type are local (exception being resort communities) and so is the best buyer – the MLS system is just too expensive and unnecessary. Our job everyday is to have the right buyers in our local database – then just connect the seller to those buyers for a reasonable fee.

    Again, if I were to be fearful it would be that Zillow and Trulia become a brokerage – they could play out this same model in the traditional world and the current MLS model dies.

  • http://twitter.com/BLarsonMpls Brian Larson

    Second of my three posts on this topic on MLS Tesseract went up today, for anyone interested in carrying on this conversation: http://www.mlstesseract.com/2010/12/end-of-mls-as-we-know-it-redux-part-ii.html