Is your income below $12,000 per year?

Artur,

Thanks so much for recommending my article to your readers.  By the way, I was planning on alerting readers that I updated the Oct. 2006 version (which had 6 recommendations) with a May 2007 version, which has reduced my recommendations to 4.  The new version is at 

http://aei-brookings.org/admin/authorpdfs/page.php?id=1332

I also wanted to thank those who commented on the earlier version and helped me improve it.

For people who are interested in the article, but do not have the time to plow through the entire 60+ pages, the Cornell Real Estate Review has published an abridged (still 20 pages) version at http://crer.realestate.cornell.edu/

Also, as Bryant told you, I welcome substantive criticisms of my article - including pointing out any factual errors, analysis that you believe is misleading, even if not inaccurate, and important omissions.  If people could be more specific, I would be happy to respond.

Artur, your email to me observed that you "believe in limited regulations, fostering competition and positive selection. Markets have tendencies to straighten themselves, as long as we don't over-regulate them. If we need to regulate - we should stimulate market forces. Preventing accumulation of power in "single hands" is another basic principle that helps markets."  I completely agree with that.

Some people have complained about me that I favor too much regulation, but none of my suggestions involve government regulation; all involve educating home buyers and sellers about what services are being offered and what the options are so that they can demand the services they want and try to secure the best price-quality combination.

I think that you are absolutely right to caution brokers to look at what happened to dominant firms of the past when they did not correctly anticipate what their customers wanted.  Thus, I believe that if the NAR and local MLSs do not modify MLS rules to enable MLSs to best serve home buyers and sellers, then Google, Zillow, local newspaper databases, and/or Craigs List will displace them as the dominant "go to" site.  I also believe that varieties of the fee-for-service business model will be the dominant model in the not too distant future, because, I believe that that model best serves the interests of home buyers and sellers.  Therefore, if the NAR and realtors do not offer those options, than the banking industry, Zillow, or someone else with the financial muscle to tangle with the NAR, will base their entry strategy on educating consumers about how that pricing structure serves them better.

Artur, I also completely agree with you that there are too many minimally qualified brokers and agents. I would like to see new agents specialize in a particular task or geographic area so that they can offer a valuable niche service that is not already available buyers, at least not at the quality that they offer it.  If they can not justify their entry in this way than I would prefer to see them enter a different industry.

Anyway, I will be off on vacation on Friday, 8/13/07, but I will try to check back here and try to respond to any specific comments or responses to my revised article.

Thanks again for writing about it.

Artur,

I agree with your response to my post.  I believe that the decoupling of buyer and listing broker fees will require a substantial amount of education by consumer affairs media reporters and editorial writers - TV, radio, and print media (online and off).  But I believe that the market will work as follows: increasing numbers of sellers will learn that a growing number of buyers desire the option of doing some of the work of searching for a home on their own and thereby saving a significant amount of money - using an excellent broker who passes on the lower costs s/he faces by charging a lower, non-traditional fee.  Particularly in a buyers' market, most sellers will not want to deny an interested buyer this option, if the buyer wants it.  Sellers will want the flexibility to accommodate such buyers.

Therefore, increasing numbers of sellers will request that their listing brokers agree to a new provision in the listing agreement.  The provision would state that the listing broker agrees to reduce its fee by the coop-fee amount it has offered if and when the buyer and the buyer's broker have independently agreed to a specific fee.  The listing broker would agree to apply that coop fee towards

1. the payment to the buyer's broker of the fee that the buyer and his/her broker have agreed upon and

2. the remainder to a reduction in the sale price of the home.

Unless all the significant brokers in a local market refused to offer a provision like this (if all refused, it would suggest to me that they had probably made an anticompetitive agreement that violates current antitrust laws), I would expect that competitive pressures would force most, if not all the brokers in the market to offer this provision in their listing agreement.

This would then lead all those sellers and many others to seriously consider the use of buyer brokers who charged such non-traditional fees once those sellers looked to buy something new, if that arrangement served the interests of these new buyers.

I think that this would create a positive feedback loop that would effectively decouple buyer and seller brokers' fees.

I agree that my scenario does include the application of the antitrust laws, but that is the extent of it.  There would be no micromanagement of any markets, simply enforcement of prohibitions against anticompetitive agreements to deny consumers an option that they were requesting.

Maybe this will not be enough, but I am hopeful that the traditional media AND the Internet will help improve consumer education.  In fact, I think that one of its greatest benefits to consumers will be its improvement in the consumer product selection process.  But that is another very long law review article that I wrote in 2000 in the Harvard Journal of Law & Technology.  See www.ssrn.com/abstract=247818.