My Reply to 60 Minutes - On Their Segment Last Night

Unfortunately- your episode on Real Estate seemed like a free TV commercial for Redfin. The introduction suggested that an agent themselves pockets 6%. You didn't mention the fact that Real Estate commissions are totally negotiable - and range from 4% to 7% - plus or minus - in various markets - or that such a commission is usually split 4 ways (not two later – as you stated) - so that at 6% - a typical agent take may only be 1.5% before expenses (gas, health insurance, signs, ads etc.)

With the discounters - unfortunately - the general public gets what it pays for. Unfortunately – the consumer thinks they are saving money – but they are really losing out. The "commission savings" is not a savings at all when one factors in the fact that a good negotiator would have netted a client much more money than any "discount" or “rebate.”

As a discounter - it is difficult to argue that you did everything possible to advance your client’s interests when you didn’t even interview your client in-depth to know what their interests actually are. Since the net commission to the practitioner is so low, it seems reasonable to suppose that only the least-talented licensees will work for these outfits. With added volume as the only path to income, you get a rushed and incompetent agent.

But absolutely – there has been some discrimination against different types of brokerage models – that deviate from the norm. It is great that consumers have choices. They just need to be educated about the implications of those choices. But no one is educating them about the implications of the different forms of representation.

The “discounts” and “rebates” they receive – actually hurt them – because 99 times out of 100 – they would have netted much more money - had they had true fiduciary-level representation. (For a buyer – traditional “buyer agents” don’t provide that in many cases. Levels of representation have been so watered down for the consumer – in order to protect the brokerages from increased liability. Unfortunately – this produces poor results for the consumer.)

The industry doesn't educate the consumer about the difference between a "buyer agent" who by definition - works for a company that lists property for sale (and can get into "dual agency" conflict of interest situations with their buyer client or not show FSBO properties or have biased home showing – showing more of their own company’s listings for example) and an Exclusive Buyer Agent (they and their company never represent sellers to offer buyers a better form of representation - without the conflicts of interest – offering unbiased home showing - and showing of all FSBO properties – and telling their client about the negatives of a property – not just the positives.)

Unfortunately - in the drive to decrease liability - brokerages are not offering true fiduciary level services to their clients - and are instead - giving them inferior forms of representation for discount prices – touting it as a “savings.”

Unfortunately - the consumer remains in the dark about the implications of the discounting - seeing instead "rebates" while getting shafted on the purchase price - for example - perhaps when they could have paid $25,000 less - had they used an Exclusive Buyer Agent.

In the traditional brokerage model - so-called traditional buyer agents make more money when their buyer’s price goes up. They can paint the picture any way they want to their buyer client – with the client none-the-wiser – and the tendency can be for the agent to get their buyer to come up in price to get the deal done and get their commission check – rather than doing the hard work (sometimes taking days longer) of getting the seller to come down in price. Most Exclusive Buyer Agents align their compensation to be in the buyer client’s interests – so they make less when their buyer client's price goes up.

The only exposure that Exclusive Buyer Agents typically get might be recommendations in Consumer Reports Magazine, Kiplingers, CNN Money, the Wall Street Journal or other publications.

But in the world of State Real Estate Associations who’s boards consists of traditional Real Estate mega-brokers -- only two states - Ohio and California note the existence of Exclusive Buyer Agents in their consumer disclosure brochures - unfortunately for the consumer. The consumer is left in the dark.

One can only assume that the traditional brokerage powers that be - have made sure that consumers are in the dark about the existence of Exclusive Buyer Agents – to fuel their legalized "double dipping" (conflict of interest) business model.

If people knew about Exclusive Buyer Agents - it would be a no-brainer to use one – as why wouldn’t someone want someone to be on their side 100% of the time – with no conflicts. Unfortunately for consumers - there is less than a 20% disclosure rate by buyer agents (who represent sellers and their company does) that they can get into major conflict of interest situations. Such disclosure is supposed to be upon first meeting – but many times, isn’t until the situation happens – when a buyer wants to write an offer on that agent’s own listing.

Unlike gas and airline flights – Real Estate is not a commodity – and it takes a skilled negotiator, using sophisticated negotiation tactics to get better deals for their clients. For example – it is extremely unlikely that a Redfin agent would float multiple offers – pitting one seller against another – since it would be too time consuming. Their business model is “churn and burn.”

In fact – the Redfin client – has to see houses by themselves – not having someone advising them that it is a real dog for it’s location or other features that can only be observed by a personal tour – (the Redfin agent is also in the dark) – and the buyer may get raped for information by the listing agent who may be present when the buyer is touring – with the buyer inadvertently compromising their negotiation position – as information is power in Real Estate. The listing agent might have found out from the buyer for example – that the buyer only has one day left to look before they are forced to make a decision because “our out-of-town visit is up - and we can’t come back if an offer doesn’t work out”, and that “this house is the only one we like” “we just love it” “we’d be willing to go almost full price for this.”

With Redfin - the listing agent may also lay claim to the commission – stating that they were the “procuring cause” that the buyer bought – leaving the buyer with no rebate whatsoever from Redfin -- if the listing agent wins the long drawn out commission dispute.

Not only did the buyer not get $35,000 off the price (had they used an Exclusive Buyer Agent – who might have found out that the seller had double mortgages and had to sell soon due to a pending divorce – and used other negotiation techniques) – but perhaps they buyer also got referred to a home inspector that “didn’t blow the deal” (as the model is “churn and burn”) -- or get added home inspection credits. In addition – no one is helping them shop for the best loan – perhaps saving them an additional $30,000. (Many traditional agents don’t help their client shop for the best loan – perhaps referring them to the “in-house lender” for convenience. Even worse for the buyer - many agents (again –“for the sake of convenience Mr and Ms. Buyer) act as a lender as well – which is a HUGE conflict of interest for their buyer client. Had they had help getting the best rate and fees from other lenders – the may have saved an additional $60,000 or more over the life of the loan.

Worse yet – the traditional agent’s brokerage many times has profit sharing or rent agreements with the in-house lender – with the agents recommending the in-house lender to their client for “convenience sake” – which is hardly being a true fiduciary for their client – (meaning putting the client’s interests before their own.)

The same can be said of listing agents using the seller’s money to run ads that they know are less than 2% effective in selling the home – but such ads - gives them free advertising to bring them “buyer leads” using the seller’s money. Is that putting the seller’s interests ahead of their own interests? No. So most traditional agents – even in an industry historically slanted in the seller’s favor – still aren’t doing their sellers any favors by not being a true fiduciary for them.

The REAL problem is – the industry is being run very inefficiently because the consumer is left in the dark about how they are really being represented – and the implications of that representation. Both buyers and sellers aren’t getting the true fiduciary-level representation that they deserve – because of brokerages watered down levels of representation – to reduce their legal liability, and discounters touting “rebate” savings when offering little to no representation or negotiation expertise to the buyer or seller.

Rick Hauser ABR GRI

Broker/Owner

Relocation Advisors Group Inc.

An Exclusive Buyer Brokerage in the Chicago Area.