DOJ + Protectionism = More Bad Publicity for Realtors
This came in late yesterday courtesy of Inman PM:
“Realtor-backed legislation that would ban cash rebates to consumers in real estate transactions awaits the governor’s signature in Tennessee. The U.S. Department of Justice opposes the bill, which it alleges “would impede real estate brokers from competing on price and force Tennesseans to pay more in real estate commissions.” Also, the legislation would reverse a decision earlier this month by the Tennessee Real Estate Commission, a regulatory agency, to repeal a statewide ban on real estate cash rebates.”
DOJ opposes a bill that would eliminate the rebate business model (sorry Realtor Genius, the term’s not dead yet - not until you suggest an alternative) from the real estate industry. To quote the Colonel, “You think so, Doctor?”
Perhaps NAR and its state chapters should spend more time listening to the conversations taking place on the real estate blogs across the country. Maybe the views expressed on the blogs and elsewhere should be viewed less as the opinions of outliers and more as a legitimate voice for the agent population. Statistically, members of the real estate blogging community are but a small percentage of NAR’s rolls. Then again, so is membership on the local Realtor board.
In the face of Redfin’s 13-minute commercial courtesy of 60 Minutes, and in light of the presence of limited-service and rebate models throughout the real estate industry, many agent have expressed that these models don’t pose a severe threat to their business. Many, many of us feel we don’t have to compete on price to be hired by a buyer or a seller - our track records and our proven level of service will carry the day in the end.
Apparently, NAR and the state associations have no such confidence in most of its members. If they did, they would not continue to support anti-competitive legislation that will have no effect except to attract the further attention of the Department of Justice and provide additional ammunition to an REBC which already has enough ammo to obliterate a small country.
Meanwhile, those of us practicing this business on a daily basis and airing our viewpoints in the wider world of the Internet are left to try and explain away the moronic actions of NAR and the state associations. You can’t on one hand argue that a rebate business plan is not viable and then do everything you can to eliminate it on the other. If it’s not viewed as a threat, leave it alone. And if nothing else, stop taking steps that place a model in which you don’t believe in the limelight.
(That last statement has been thrown at many of us who discuss Redfin or Zillow. I’ve never discussed either out of fear. Call it morbid curiosity for one, and a feeling-out process on the other.)
Also, NAR PR monkeys, please stop the blather that such bills are designed to protect the public. The argument has no credibility and no one is buying it. There are far bigger issues in the wide world of real estate threatening consumers than a company willing to give up a portion of its commission to a buyer.
Most actions by the NAR appear to be designed to maintain a status quo that has long since passed. The days of brokerages being able to contain their information in an effort to generate the most possible leads and limit the amount of competition are long gone.
The sooner NAR comes to grips with this reality and stops sponsoring legislation that only can make all of us in the industry look like protectionist buffoons, the better.
Popularity: 8% [?]
Lets just be blunt, 1.3 Million Realtors is too many. If there were 200,000 realtors and we all didn’t have to scratch around for clients constantly both agents and the public would be better off.
Of course losing 1.1 realtors would be a huge revenue loss to NAR - which is a business in and of itself.
Obviously NAR is not an all purpose evil entity, but it’s just become a purpose unto itself.
-Athol
NAR is real estate’s version of the DMV. On their best day they’re merely irritating.
The real problem could be that the leadership, for the most part, is populated by agents who never really experienced great success. They’re like college professors teaching future MBA’s and Finance majors - they teach because they could never do it in the real world.
An immediate impact might be felt if NAR leadership was hired from the outside, and not populated by the types currently running the show.
Interesting post, I’m curious to see what the effects of the legislation will be if it is ultimately followed through.
I hate to be the first here to somewhat agree with the NAR but not completely. I think a rebate may sound great for a buyer but at what cost is this to the consumer. The piece on Gone in 60 Minutes was an infomercial at best. So lets say Joe is selling his house at a 3% commish and will get that back as a rebate on a purchase. He only can receive that on a Redfin house. So now the Supply and Demand kicks in. As we know in Economics little supply equals high demand especially for those looking to get their “rebate”. So they sell their house for 300,000 pay a 9,000.00 commish but then are forced to buy homes for 400,000.00 where is that rebate helping? That is how this company makes money!
How the rebates help Realtors and consumers is when you can give your Seller or Buyer a Rebate at closing.
[…] The Tennessee State Legislature is trying to outlaw real estate commission rebates — guess at whose behest? Little Pink Houses has the dirt. Jonathan Dalton has the dudgeon. […]
Seth - it depends on how the rebate is put together. From what I’m seeing in the bill, it’s a general attempt to outlaw any sort of rebates - not rebates tied between a sale and a purchase. Check out this post on Little Pink Houses for links to the bill itself. (HT to Bloodhound for the link.)
I’m not a proponent of the model; at least, it’s not a model I believe I need to follow to be successful in this business. Having said that, I can’t see where any good comes from attempting to banish the model completely.
Banishing the model is what those who cannot compete do to survive. It’s called striving for monopoly.
I’m with you Jonathan, everyone just take your best shot and let the chips fall where they may.
The free market is the nearest thing to a perfect arbiter as there is.
It’s the FAILURE of business models that benefits the consumer, not what some in the industry might ‘decide’.
It always comes back to results. Those who provide the best results, as perceived by their clients, win. This isn’t rocket science, is it?
By concentrating on delivering excellent results, everyone wins. The rest is background music in the form of whining by the Loser Choir.
“Although our customers like us a lot because WE PAY THEM to use our services” source buysiderealty.com/careers
That is not a business philosophy, that is a bribe (even they admit it). That is not being competitive, that is desperation.
Last time I checked, a bribe may not be such an ethical practice, but so what… if they can go out of business and help a few folks with some extra cash in the process, great.
Anyway, their model is to gain market share,(nothing more, nothing less)then they’ll complain about how their services are expensive and up the commissions go.
It is all a load of crap, all of it.
More power to nar, cheapest team of lawyers I’ve ever had.
Athol, yeah, we call it thinning the herd. It happens about every 6.7 years or so, but it will not happen because of discounters.
Thanks for the mention… have a great Holiday guys…Ben&Lani
[…] J. Dalton on what NAR’s up to over in TN. Love it or hate it, you should read and weigh in. DOJ opposes a bill that would eliminate the rebate business model (sorry Realtor Genius, the term’s not dead yet - not until you suggest an alternative) from the […]
This is one of the best things I’ve seen written on this issue from a real professional’s point of view. And I agree with Jonathan that a free market is the best decision-maker.
Just as nature abhors a vacuum, free markets abhor “value gaps”. The fact of new models springing up in the industry is evidence that there is fat in the cost of services. Another indicator is that the Large Franchises have begun the practice of putting their agents’ listings up on Web sites, then charging them hefty referral fees for clients that come in via the corporate site.
Now that the costs of housing on the coasts have pushed the upper middle class into the $1,000,000+ range, people who watch their money are asking “where’s the beef” for the $50,000-$60,000 fee. Most of these people work for their money and expect those they pay to do the same.
The standard answers to this complaint include brokerage splits, corporate franchise royalties and advertising fees, lost business, and marketing costs. Only property marketing costs are relevant to the consumer. All other costs are industry structure issues and if enterprising professionals (full service or otherwise) can find a way to minimize or eliminate some of these unnecessary profit centers and reduce costs to the consumer, they can succeed.
The current structure of the seller setting the commission and the buyer paying it, and the anti-competitive laws, policies and behavior that still permeate the industry means that rebates are one of the few mechanisms available for saving consumers money. As you and Jeff suggest, those with bad models won’t make it. They can’t fool the consumer anymore than the NAR can.
Thanks for the compliment, Cathy …
There is some legitimacy to the idea of brokerage splits, NAF fees and marketing costs (as well as taxes) eating into a commission check that some seem to view as pure profit. There is work involved in selling a home. How much, and how much it ought to cost, are there areas for debate.
If the presence of a broker split is indicative of an agent who has met not just the state’s minimal (and laughable) standards, but someone who has been extensively trained by a brokerage, adding to the quality of the customer-service experience, then I think you’d see less argument from the public. That’s not always the case, though.
All large franchises are not alike. Century 21 does charge a hefty fee for turning leads back to the agents, but in my office’s case it’s being paid by our broker who has subscribed to the company’s Leadrouter service. Any leads coming through C21.com, and by extension Trulia or Google, goes straight to the agent without a referral fee attached.
Results have been a bit underwhelming since we flipped the switch, but I think the concept is solid.
I agree that there is legitimacy in principle to these costs. All businesses have overhead related to the quality and marketing of their products or services. One should be able to assume that the higher the overhead, the better the quality.
What I am trying to say is that consumers ask what they are paying that $60,000 for - particulary when they purchased the same home 3 years ago and the commission was half that amount. I have yet to hear an articulate consumer-oriented response.
Have brokerage costs risen at the same rate that housing prices have? Do they fall at the same rate? How could this be?
In a free market, when a business model’s costs climb to a point where a business cannot make a reasonable profit without charging an unreasonable price, the business fails - unless it is supported by government intervention.
Do the consumers have the right to ask the question? Absolutely! Do the real estate practitioners have the right to charge whatever they choose on a sale? Absolutely! Free market economics … the market will bear what the market will bear.
And when the market will no longer bear what the real estate practitioner is asking, then changes need to be made.
One thing that has been left out of the equation in most of the conversation about commissions is risk, especially at transacting larger amounts of money. A home valued at $100k 10 years ago, now worth $800k? Obviously there is a lot more at risk. Personally, I think the protection of such a large profit center should cost money, and the fact that the fee has remained a simple 3% is fair. The problem is that the consumer wants to cash out all of the money and keep it all- I’m just not sure it is a fair expectation especially if we are carrying the majority of the liability and the insurance needed to offset that cost. E&O only costs a fraction but the overall cost of defense will go far beyond that fraction when you factor in your business, reputation, loss of revenue, possible negative media exposure etc… The cost of doing business has gone up because the greed factor on every front has skyrocketed- and still the fee is still around 3% no matter what… I also think the reason agents are so frustrated about this issue is that the vast majority of us are very fair in pricing. I can’t remember when I actually asked for a full commission. I’ve always tried to find a fair balance (whether they asked or not)- and I think the vast majority of us have. Somehow though, we’ve all been lumped in as a generality. The DB’s aren’t the only ones that discount, but somehow they’ve created the perception (or attempted too) that they are a select few in a pool of sharks. I guess thats why the claws have come out on both sides.
wow speaking of risk, another agent found murdered in a new home basement- the links on realtorgenius dot com
Guys - One of the more egregious mistakes we can make as an industry is to proceed with the assumption our potential clients care as much about our expenses as they do about the neatness of their sock & underwear drawer. Nobody cares.
They care about results. The rest is, to them, like recess in fourth grade during a kickball game - “Johnny’s cheating Miss Felando.”
Results are, of course, gaged differently by different people. In the investment side of the business, some are very conscious about commission size, while others are more interested in results. Even results are defined in different ways. An investor might judge me based on the planning aspects, or if the tax deferred exchange went without a hitch, or if he kept more cash flow because I had him make us of a tax regulation for which he was unaware.
Or, as the majority do, they might define results based upon their net worth now vs when they met me.
However, they do it, my expenses and/or liability don’t enter into the construction of their equation.
They just want results.
This is why Johnathan’s and B.R.’s clients use them, and send clients to them. They consistently produce significantly superior results and deliver superior service while doing so.
They’re maybe too modest to say that - but they’re as successful as they are because they’re simply better at what they do, by far, than their competition.
Results put the commission debate on the back burner. Always has, always will.
[…] DOJ + Protectionism = More Bad Publicity for Realtors […]
“Many, many of us feel we don’t have to compete on price to be hired by a buyer or a seller - our track records and our proven level of service will carry the day in the end.”
Thats some great insight. Kudos to you! Your right on target.