Inman News, the leading real estate technology website just published an article entitled “Conflict, confusion and risk in real estate commissions” which documents the growth of fee-for-service business models, like The Real Estate Cafe. It’s a good overview, but wish Inman News had expanded on their opening comment that “Others …think the commission-based structure should be reformed.” Five years ago, Inman published a guest perspective from an industry expert entitled “The End of the MLS as we know it: Let’s get rid of interbroker compensation” which bluntly stated:
“The real estate industry now operates multiple listing services that not only draw attacks for suppressing competition, but also have at their core a service that is obsolete and inefficient: the communication of interbroker compensation offers.”
Following feature stories about falling real estate commissions in CNNMoney and AOL that year, The Real Estate Cafe blogged about our hope that St. Patrick’s Day 2006 would be remembered as the year home buyers and sellers began to “BYOB” — Bring Your Own Brokers — and compensate them separately.
At that time, 10 mega-trends were pushing the two-sided real estate commission to a “tipping point” and some real estate consumer advocates hoped the FTC / DOJ would require MLS’s to “uncoupled” or “decoupled” commissions in 2006, fifteen years after the Consumer Federation of America first called for that reform. Although dated, this 90 second slideshow and wiki on divorcing real estate commissioins help explain why:
Hard to believe there has been so little progress towards uncoupling or divorcing real estate commissions over the past five years, when that change alone could deliver billions in savings to real estate consumers annually. With nearly one in three households upside down on their mortgage, can home sellers — whether they are using a listing agent or selling on their own — afford to pay a traditional co-broke? Nonsense! Why pay a 2.5-3% co-broke when you’re going broke? If the co-broke fee is effectively an industry imposed real estate transfer tax, why haven’t regulators intervened to protect consumers from unnecessary expenses?
A solution won’t come from the Consumer Financial Protection Agency because reforming residential brokerage practices is outside their regulatory scope. However, if innovative lenders will allow buyers to finance real estate consulting fees, thereby liberating both buyers and sellers from unnecessary costs, that would turbo charge the growth of the fee-for-service movement in real estate!
Maybe Inman News can invite their 2006 quest columnist to update his perspective. At the time, he had already “argued for five or six years that interbroker compensation should go the way of the MLS book and broker subagency. Recent events persuade me that the industry is ripe for this change now.” What’s your opinion?