The solution to many of real estate’s problems

Can possibly be found in this working paper just released by the AEI-Brookings Join Center. In my opinion there are many flaws in the study, primarily that it seems they are describing the real estate environment of a couple of years ago.

The bolding that follows, save for the title, is mine.

Buyers Should Know that Mortgages Can Include Fees Paid Directly to Buyer Brokers
In most cases, the fees charged by even non-traditional buyer brokers are paid out of the co-op fee offered by the listing broker or the seller. …  That does not appear to be due to any formal rules deterring banks from granting buyers mortgages based on a total sale price that includes the fee paid directly to the buyer’s broker rather than by the listing agent from the latter’s commission received from the seller.  Nevertheless, many lenders appear resistant to regarding a fee paid directly to the buyer’s broker as part of the sale price, even if only out of ignorance.378  This may occur because some written lending standards may not have been officially revised to recognize that agents working with buyers are no longer usually subagents of the seller.(379)  Buyers and banks should be informed that these mortgages are available and accepted in the secondary markets.

The advent of Buyer-Brokerage, whereby the agent represents the Buyer rather than the Seller. If the above is accurate, wouldn’t this change everything? Before I start practicing this and offering $0 for the co-brokerage fee, I need to verify that this is a do-able option. Educating all the Realtors who have not read this study would be at least half the battle.

If the Buyer is able to negotiate the commission, rather than rely on the pre-negotiated price offered by the Seller, which the Buyer will be amortizing over thirty years through their payment of the mortgage, true freedom would be had.

In fact, the FTC hypothesized that the ability of brokers to steer their customers to homes associated with agents charging the going commission rate and split “is the most important factor explaining the general uniformity of commission rates in most local markets.”366

This is a bogus argument. With the rapid increases in technology, the fact that most consumers use the internet and the fact that most of today’s consumers have adopted the emerging search technologies more rapidly than most Realtors, “steering” consumers away from houses with a lower co-broke fee is 1) difficult if not impossible, 2) clearly not in the best interests of the client and 3) stupid.

Their Six Recommendations:

– Home Buyers Should Know What Their Broker Will be Paid
– Home Buyers Should Know Specifically What Services Their Broker Will Provide, in Particularly Whether the Broker’s Agent May Intentionally Overlook Some Homes
– Buyers Should Know that Mortgages Can Include Fees Paid Directly to Buyer Brokers
– Sellers Should Know that Some Buyers Forgo a Broker Seeking to Save Money
– Sellers Should Know that Buyers May Agree on Lower Fees with their Brokers
– Listing Brokers Should Disclose What Specific Services They Will Provide, and Whether They May Selfishly Seek to Limit Dissemination of Listing Information

Are all mostly reasonable. Might they also suggest that real estate agents who are able to adapt should be paid even if there is not a successful transaction?

I’ve said it before and I will say it again:

Marketing will become less and less a component of a Realtor’s core competency. Representation will.

If the MLS becomes fragmented and devalued as the FTC apparently want, then agents’ mastery of the MLS will therefore be less valuable. Finding the home will be less and less a component of a successful Realtors’ necessary expertise. It will be part of the job, but not, as it too-frequently is now, the only part of the job.

Competition on price has always been part of the equation; many clients feel that they get what they pay for. Choosing the attorney or doctor who advertises they are the cheapest around may not lead to the most successful trial outcome or surgery. Many Realtors provide a similar level of service to their clients.

Thanks to the “Freaks” for pointing this out.

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  2. Jonathan Dalton October 7, 2006 at 20:34

    I’m a proponent of “you get what you pay for.”

    As for representation overtaking marketing, I sincerely wish for such a day as I finally could tangibly benefit from the time and study I’ve put into the contract and place me at the upper echelon of the local industry in place of those with five- to six-figure marketing budgets.

    Now if only I can get the public to care about what I know instead of going catatonic …

  3. Sean Hattaway October 13, 2006 at 17:26

    and here I was thinking that marketing can take care of explaining issues like these smoothly to the public. but, yeah, it’s really becoming less of a factor on real estate business. this downturn in the market really hurts.

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