A call for an end Cooperative Compensation

As a buyer or seller, does this make sense? As a Realtor, what are your objections or words of support? Lenders – what do you think? Is this a challenge worth undertaking?

We can write about it til our fingers bleed. We can talk about it until we are blue in the face. Not much will change until we get the relevant laws changed. For that, we need the help of the NAR. As a profession, we need to rid ourselves of Cooperative Compensation and the practice of the listing broker paying the Buyer’s Agent.

Cooperation between Brokers need not go away. In fact, without cooperative compensation, the practice of real estate representation will be enhanced, as the perceived collusion between Realtors will be mitigated significantly. What needs to disappear is the inherent conflict of interest that comes from the Listing Broker paying the Buyer’s Agent. That is always a fun conversation with first-time homebuyers as well as more-savvy ones.

Buyer: So, how do you get paid?
Buyer’s Agent: Well, the Seller pays me.
B: What do you mean?
BA: Well, not really, you are paying for the house, and you are getting the mortgage, but the Seller has agreed to compensate my company for my services.
B: What do you mean?
BA: It’s complicated.
B: Well, am I bringing the check to closing?
BA: Yes.
B: Then how and why is the Seller paying you?
BA: Because that’s the way it’s always been, and the laws have not changed sufficiently to allow for buyers to finance their representations’ commissions into the mortgage, Realtors have not adapted to the new realities and they are stuck in the mindset from when all agents represented the Sellers.
B: But why is the Seller paying you?

It’s easier for the Buyer’s Agent to just take whatever the Seller is offering – there is no negotiation with the Buyer about the Realtor’s compensation, so much so that often times the answer to the “How much is your fee” question is “It’s free to you – the Seller pays me!”

I went around and around with some of my clients for several hours one time, agreeing with them the entire time how convoluted, antiquated and archaic the Buyer’s Agent’s compensation arrangement is, but there was nothing we could do to change it. It needs to be simple. If Realtors want to equate themselves with other professionals, we need to be paid that way, heck we could lead the charge towards transparency in fees.

Attorneys are paid by their clients, except when they lose, and do we really want to equate ourselves with that side of the legal profession? Who knows how doctors get paid? More often than not, they can’t even tell you how much a simple test costs because they don’t even know.

Greg Swann has written an enormous volume on this issue, but we need more. Educating the consumers is but one part of the equation. Educating Realtors is another. Effecting change at the legislative level is an even greater challenge. Making the argument for “divorcing the commissions” is relatively easy. Changing laws is not.

Here’s what we do.

At our local Realtor Associations, meet with the Government Affairs Committees and ultimately the local Boards of Directors. Then our state lobbyists. Then our state legislators. It won’t be easy, but we can get it done. Matter of fact, it will be time-consuming and mostly unrewarding, in light of the expected attack from those who are content with the “way things have always been.”  It’s going to take more than blogging.

I was seeking advice from an “old-timer” in the business a few weeks ago on how we could get rid of Dual Agency. His response:

What it would take to get rid of dual agency is for the General Assembly to pass a law that would change that. The reason that it exists today is that it is a carryover from the past when an agent, representing the seller, worked with a buyer and appeared to represent(and in many cases did) the buyer. Old habits die hard! You are in a position with VAR to have the General Assembly change that.

It’s not often that one has the opportunity to effect change like this. The time may be right, and beneficial to everybody – consumers, Realtors, regulators – to change how we do business to a more transparent, ethical and professional way of working and compensating.

Maybe we can rid ourselves of Dual Agency while we’re at it. And referral fees. Transparency is a good thing.

Am I wrong? Off base? What are the arguments for keeping things the way they are?

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