Love them, or hate them, real estate commissions are a mainstay of life in the industry. (Just try to say “flat fee” or “hourly fee” and listen to the crickets.) And, of course, real estate commissions are always “negotiable.” And, since they are only paid when the deal is done, they are paid out of escrow, as just another cost item. Paid, by the Seller, who just got oodles of money from the sale.

Wait: Paid by the Seller? For the work done by the Buyer’s agent?

Well, in “real estate land” the Buyer’s agent is … a “sub-agent” of the Seller’s broker. And the Seller’s broker agrees to pay a share of the fee received from the Seller to the Buyer’s agent.

How is that done, exactly?
Well, by agreement of course.

In the yacht selling world, each time a yacht broker representing a Buyer approaches a listing agent, the Buyer’s agent first gets a “co-operating agreement” by which the Buyer’s agent and listing agent agree to split the fee paid by the Seller to the listing agent. Each time.

That’s waaaaay too cumbersome for real estate people, and they are smarter too. They found a way to kill two birds with one stone.

Once you’ve listed that home, you need to “get it to market” and let everyone know it is available. How? By using a Multiple Listing Service. The vast majority of agents subscribe to the MLS and it is the platform where agents go to see what’s available, what’s sold in the past, and all kinds of other stuff.

Now, to be able to enroll onto the MLS in the agent’s area, one has to agree to all the MLS “Rules” and guess what one of those Rules is? You have to share listing agent commissions!

Bingo, Bango! The “co-op agreement” is built in! It’s a Two-Fer.

But wait, there’s more.

Y’all have heard the word “disruption” before, haven’t you?
Think Uber and taxi cabs.
And everyone knows that “technology” is our friend.

So, enter Zillow, and Trulia and the like.

Lets pretend you’re a fairly smart consumer, and you want to do some snooping about in the real estate market. That MLS information? Well it is only available to real estate agents that are members of the MLS. Joe Consumer can’t have access to it, unless through a real estate agent. Hmmm. Sounds a little industry-protective to me. And did to Zillow too.

Bada Bing – Bada Boom. With the Zillow platform, ANYBODY could see houses that are for sale, and get “sold” information too. An excellent research tool? You betcha.

Did it make real estate agents nervous?
Oh. Hell. Yes.
After all, those agents didn’t have exclusive access to the MLS information anymore.
And, it didn’t take a rocket scientist to figure out that without the monopoly on information about listings, “things” would happen to erode the commission structure.

Suddenly those “negotiable commissions” started getting negotiated. Eee gads. Not that!

Then there was the little side benefit Zillow created for itself.
You see, part of the evolution of the marketing process had Sellers DEMAND that the property be listed on Zillow as well as any MLS. The Sellers wanted the broadest exposure. As Zillow grew in popularity, it would have been a breach of fiduciary duty of the real estate listing agent NOT to place the property on the Zillow platform as well.

So what did Zillow do next?

Why it sold space on the house pages, by creating a list of “agents” for a Zillow user to reach out to if that potential Buyer was interested in the house. Those leads were send on to the agent that had paid to be placed on the house page. Not just the listing agent mind you, but any agent that paid Zillow to be shown on those house pages. Nice bit of income for Zillow, don’t you think? Zillow started compiling information on house pricing, and sold that information too.

Zillow is also wondering how it can get in to the real estate transaction business too – just wait till that happens. (Licensing concerns can be a real brain buster on that score.)

In the meantime, it appears that some smart allecky lawyers are causing trouble for the big real estate brokerage houses. How? Why?

Well, they are claiming that the MLS listing process is a vast conspiracy which artificially results in high and stable (i.e. non-negotiable) commission structures that are imposed upon Sellers (and Buyers who end up paying for them via the sales price of the house).

They are likely right.

And the howls of protest from the real estate industry can be heard everywhere.

One such screamer is the National Real Estate Post. It has started circulating a “Petition” in an effort to … gain support? … raise money to defend the lawsuit (it is not a party to the lawsuit so fart as I know)? … send a message (to whom?)?

What’s the main gripe the Petition addresses?

Well, it claims that the“fees” charged by Zillow are nothing but “commissions” disguised by another name, and that those fees are more than 7% – far more than the “negotiable” 6% ‘standard’ commission fee. Oh, and they really don’t like the Zillow ad money feature.

In fact, they propose that Zillow pay real estate agents that list a property on Zillow a 25% referral fee of the ad money Zillow collects from those other agents that pay to be listed on a house page.

Ummm, guys … that ain’t gunna happen.

Here is a copy of the Petition; and a link to the NREP website.

[[ Full Disclosure: HLF often posts its War Story Wednesdays on the NREP website. We agree more often than not with what Frank and Gary have to say. Just not this time… ]]

Honesty in Real Estate

Summary:

Real estate agents, and the buyers and sellers they have faithfully represented for decades, are under threat from a small number of technology companies looking to disrupt the real estate industry. This movement began back in 2004 when companies like Trulia and Zillow were formed, and has recently neared a tipping point that will long have repercussions on the housing market and on the economy as a whole. That is why we support educating consumers to the lack of transparency, hidden costs, and community dangers of real estate iBuying platforms.

Attack on Real Estate Agents:

Recent articles in major news outlets have reported a class-action lawsuit that has recently been filed against most of our nation’s real estate agents, brokers, MLS’s (Multiple Listing Systems), and NAR (The National Association of Realtors). The lawsuit claims the above referenced organizations conspired to keep real estate agent commissions artificially high (at 6%). This accusation is baseless, and made with the express purpose of steering future home buyers and sellers away from hiring traditional real estate brokers and toward high cost iBuying platforms.

Proof Points:

– Real estate commissions are 100% negotiable in every state
– MLS’s do not regulate commissions nor censor low commission listings
– Nationally the average real estate commission is well below 6%
– iBuying platforms in reality charge more per transaction than real estate agents, but do not call it a commission

E.g. Zillow routinely charges 7% in fees while Offerpad and Opendoor routinely charge 7.5%. Though they do not call these fees a “commission”.*

Media attention from the antitrust lawsuit on “commissions”, and strategically placed advertising, have been used to mislead and steer home sellers toward these more expensive iBuying platforms. We believe this campaign is a deliberate effort by a small number of large technology companies not simply to digitally disrupt an industry but also to mislead home buyers and sellers into thinking they’re getting lower costs and more value through these iBuying real estate platforms. Which they are not.

As just one example, Zillow has been steadily expanding its influence in the real estate industry and begun to compete with real estate agents for real estate transactions. For the twelve months ending March 31, 2019, Zillow revenue, in the billions, has funded its expansion largely from fees received from real estate agents. Zillow uses listings from community based real estate brokerages to attract attention from buyers and sellers. Zillow then commoditizes the information of its viewers and sells the information to real estate agents in the form of leads. Zillow has done this without compensating real estate brokers or real estate agents, and has made billions in the process.

We believe Real Estate Brokerages are entitled to a revenue share from Zillow’s gross profits for the use of the Brokerages listings. A fee similar to the customary referral fee of 25% that all Brokerages have participated with for decades. This would allow local real estate agents and brokerages to not only compete, but to educate home buyers and sellers to the true cost of all Real Estate sales platforms. Because when Sellers are truly informed of all their options, all of our communities’ win.

We the undersigned support the above statements and goals because we believe that when any industry maintains a level playing field the consumer wins. We are signing because we support fair competition amongst real estate agents, which ultimately results in lower costs for consumers and better service from agents. We support technology and the benefit it can provide consumers but believe some technology-based companies are playing to consumers “built in” belief that “technology” always means quicker, more efficient, and cheaper. Finally, we believe that MLS and real estate brokers should not share their listings unless Zillow pays a fair revenue share for the use of their listing which helps fund the type of changes this petition outlines. We believe this will make our communities stronger, healthier, and will preserve the equity that so many homeowners have worked hard to achieve.

More information about the Petition can be found here:

Honesty in Real Estate