I have said it before. Redfin’s success, and the success of the countless other Refin-ish companies out there, will be their failure.
The “who pays the commission” debate rages on over at the Bloodhound, as does the banter about divorcing the seller’s agent and buyer’s agent commissions. I won’t attempt to tackle the “who pays” subject this morning, at least not in a big way. I have gone on record many times as saying the seller pays. That is the reality. The seller establishes the total commission and the seller establishes the amount of the coop to the buyer’s agent.
The bigger issue I see is the issue of whose money the buyer-side commission is versus the perception of whose money it is. And it is this perception that what will drive us toward divorcing the buy- and sell-side agent paychecks.
I have already been received a mini brow beating this week for my unpopular comments on the role agents play in making a market, so I am on a roll. I might as well stoke the fire – If I am representing the buyer, the coop fee is my money. Period. And, what I choose to do with this money is my decision. If I am Redfin, I will choose to give 2/3rds of it to my client, if I am Buyside Realty, I will choose to give more. Most “traditional” agents will confess that there are many times they will choose to credit their client some amount due to repeat business, to close the gap at the contract negotiation stage, or even to resolve repair issues arising from the property inspection.
But, regardless of who pays, it is the agent’s money, at least at close of escrow, for services rendered. Russell Shaw said as much in this recent post (read between the lines), so maybe he will come to my defense when the friendly fire ensues. It is the agent’s money, and everyone wants a piece of it.
- Agent as Principal. This one is easy, and we get a lot of these. They can and will represent themselves. “I live in (a land far, far away), and I am a licensed agent. I saw your listing on (pick your favorite search engine site). Can you let me in to see the home? And, oh, by the way, how much is the buyer’s agent commission?” Aside from the added hassle to the listing agent of having to provide access to the property and the fact that the out-of-area agent lacks the knowledge of the market, local disclosures, area practices and contracts, the Agent as Principal considers himself in a position to perform on his own behalf, and he will be “compensated” for those services to himself.
- Listing Agent Shopper. “I do not have an agent. If I let you represent me, how much will you give me?” Never do they say, “My commission is “x”. How much will I have to pay you?” In any event, it is the listing agent as potential buyer’s agent who has the choice to share his paycheck for buy-side services rendered, or not.
- Limited-Services Broker Client. “I do not have an agent. Can you show me the home?” Wait, this is the wrong topic. Okay, too many times the clients of the limited services model tend to initially lie to gain access, knowing that they are asking you to do the job for which their agent is going to be paid, and their agent has chosen to give them some portion of their commission. Most of us agree that the limited services agent will not truly, fully earn the commission, but their commission it is.
And then, there are the traditional agents who make the introduction and perform the traditional broker duties for and on the behalf of their clients. This is their job, one for which they will be paid. Some of these agents may choose to credit a portion of their paycheck to their clients in proportion to value they place on themselves, and sadly, too many seem to place very little value in their abilities, but it is their choice.
These traditional agents are the agents that are still involved in the majority of our transactions, but their numbers are diminishing. And here is why. All of the other folks I spoke of will accept a lower level of service because they perceive little risk in lesser representation. They expect, rightly so, that the listing agent will pick up the slack to ensure a successful transaction. The listing agent is increasingly being put in the position of accepting more work, more responsibility and more liability so that the buyer’s agent can give justify a business model centered on giving their own paycheck away. And the buyer’s agent is leaving the buyer with the perception that their money is somehow not really their own.
So, why may commissions ultimately be divorced and why might we just live to see a world in which the seller pays their agent and the buyer pays their own? Because each time a Redfin or the like climbs the popularity ladder, because with the success of each new listing agent shopper and discount seeker, one more nail is being driven into the coffin of the traditional buyer’s agent. When we have a world of people seeking money for nothing and a world of agents willing to deliver, the seller will have no reason to offer a coop.
Which brings me back to the wisdom of divorcing commissions and the future of the opportunists who aspire to feed on the buyer coop carrion. No coop means that buyers will finally be asked assign a value to the their representation. Buyer’s agents will finally have to demonstrate their value and earn their fee. And when the agents representing the buyers have nothing to give away but conversely have to place a price on their services and actually charge their clients directly, the associated accountability will only benefit the buyer… and the Redfins of this world will no longer have a shtick.