ObserverX connected some excellent dots in a recent comment. Quoting Coco he wrote:
“…“The full service agent admitted they do not show One Percent listings unless the client absolutely persists to see a One Percent listing, due to the reduced commission rates.”
So much for “agency” … in the current system, the notion that the RE agent will “look out for the best interests of the client” is a total joke and I don’t know why the RE profession is even allowed to promote itself that way.
Don’t get me wrong, I’m not saying that RE agents don’t provide a valuable service or that they should work for peanuts but let’s call a spade a spade when it comes to the default commission structure. I’m not familiar with agency agreements in other areas but my understanding is that typically they are structured so that the interests of the agent are *aligned* (or at least neutral) with that of the client, not *against*. I suppose it could be argued that the buyers/sellers bring it on themselves for accepting the status quo. If I were retaining a buyer’s agent, I’d say “If the 1% listings aren’t offering the standard commission that you expect, I will top it up so show me everything.” Then I’d simply factor that cost into the price I’d be willing to offer for the given property. Simple.
C’mon realtors, why won’t the RE profession come up a default commission structure that aligns with the intent/responsibilities of “agency”???”
It’s common for consumers to complain that discount brokers are denied access to the MLS and that many Realtors avoid discount brokerage listings. While the former is factually incorrect (discount brokerges merely have to be members of the Board to get their listings on the MLS, and they are there in quantity), the latter is, unfortunately, true. What is misunderstood, I think, is the reason that discount brokerage listings are avoided, to what degree they are avoided, what the impact of the avoidance is, how it can be solved and who is responsible for solving it.
The reason that discount brokerage listings are avoided is simply becasue they don’t offer enough commission to the selling Realtor. Real estate is a tough business, and it takes money to stay in business. Nobody can work for less than it costs them to come to work.
(Its important to point out that discount brokerage listings do get sold, and to point out why. In my experience my agents sell them because I make sure they understand their agency responsibilities and I make sure they discharge them to the best of their abilities, because the buyer tops up the commission, or because the agent makes the seller pay more at offer presentation time. More often than not, at least in my office, the selling agent executes his/her agency responsibilities and takes the discount and chalks it up to the cost of doing business.)
The impact of avoiding showing and selling discount brokerage listings is that Realtors may well be failing to discharge their agency duties, buyers may not find their dream home, and sellers using the MLS on a discount basis may not get full and effective MLS results. That is a serious failing. (The problem arises because we live in a free country, and listing Realtors and sellers are free to make whatever deals they want. Personally, I’ll take the freedom to contract as individuals see fit even it it creates a challenge for Realtors and consumers).
The new Real Estate Services Act (RESA) has a requirement that we include a “Schedule A” with all listing contracts. That means that after we go through all the lawyer fabricated boilerplate that we use to tie sellers up as tightly as we can we have to provide a page, in plain English, setting out what specific services we’ll provide. Its a matter of fact that we can discharge our legal duty by simply providing a blank Schedule A, but common practice is to provide a standard list of actions. This is important, because failure to perform the actions amounts to a breach of fiduciary duty to the principal (the seller) in the Realtor-Seller agency relationship.
We do not yet require written Buyer Agency Agreements, much less Schedule A’s for them, but as ObserverX indicates, its a clear breach of a buyer agency agreement (whether written or verbal) to say “I’ll show you everything on the market” and then not show a buyer discount brokerage listings (or, for that matter, FSBOs). Some Realtors don’t understand this, and so can’t advise their clients of the potential problem, or the solution. Clearly, if a Realtor wants to make the business decision to not show properties that don’t pay enough to cover expenses, they must tell their buyers “I’ll show you every available property except…” and then describe the exceptions.
Its just as clear that once a Realtor tells a buyer that they won’t show discount brokerage listings because they don’t pay enough the Buyer will ask “But what if my dream house is listed by a discount broker”? The simple solution is to say “Buyer, you pay me an agreed upon commission to act as your agent. If the seller of the property we eventually buy offers cooperating agents a portion of the selling commission, we’ll deduct that amount from the total that you and I agree that my service is worth”. This takes away the disincentive of a discount broker’s listing (and, for what its worth, it generally will eat up any perceived savings on the seller’s side). Further, it is the central ingredient of standard Buyer Agency Agreements around here.
Unfortunately, Buyer Agency Agreements, while more common than in the past, are not widely used. In the first place, many buyers hesitate to sign them, and in the second place, many Realtors don’t feel comfortable selling the value of their services. There can’t be a default commission structure including numbers, because that would amount to a restriction in trade, and while I’m not a lawyer I don’t think the Board can enforce seperate agency (mandatory agents for both the seller and the buyer).
Who then, has the power and responsibility to solve this problem? The government, of course, can simply change the law and require that people use agents to both buy and sell real estate, that the agents be different individual people, and that the buyer and the seller each pay their own agents. I’m not sure that would be welcomed by a wide slice of society.
Realtors can become more educated and more professional, and sell the value of their services more effectively. This would make it easier to adopt written Buyer Agency Agreements, and those agreements would clearly set out the Realtor’s responsibilities.
And of course, there is a role for the consumer. A smart buyer should request a Buyer Agency Agreement (I have never seen that happen). Yes, it is a contract, and yes, it does bind the buyer to a certain extent, but on balance the advantages make it worthwhile.
ObserverX stated that he wasn’t as clear as he’d like to be on agency agreements, and I’m sure he’s not alone. In my opinion agency is the single most important aspect of professional real estate. Because of that I have a link on this site to the Blue Agency Brochure. Click on it, skip the crap about privacy and personal information (at least for the time being) and review the 5 agency duties that a Realtor owes his principal. Anyone conducting real estate business in BC, whether a buyer or seller, should be completely clear on the contents of this brochure. You may find it a little dry, but its essential reading.