Has buyer’s brokerage run its course? My answer may surprise you.

By
Real Estate Broker/Owner with Richard Weisser Realty

Has buyer’s brokerage run its course? My answer may surprise you.When I first sold real estate in 1984, buyer’s brokerage was rarely practiced and even more rarely compensated. The theory was at that time that if the buyer wanted an agent to represent them, then the buyer should be the one that pays for it.

The actual implementation of the concept usually only occurred in commercial real estate transactions. For whatever reason, business buyers seemed to grasp the notion that the entity deriving the benefit from the service should be the one that pays for it.

After some significant litigation in the early 1990’s in which residential buyers claimed they had been duped by brokers that represented the seller as a sub-agent, buyers DEMANDED representation.

However and quite inexplicably it was still assumed that the seller would pay the commission. It is very unusual to say the least for one person to pay for services that will help the other party prevail against their own interests.

Which leads us to where we are today:

Many consumers do not want to be represented. They prefer to shop their own deals and fend for themselves.

This is perfectly fine, except that this process usually will involve some time and effort from one or more traditional buyer’s agents that will show houses, offer services, and never be paid.

IDX and the proliferation of information on the Internet have triggered a cataclysm that will eventually lead to the demise of brokerage. The old models are no longer in demand and will eventually succumb to market forces.

It’s just a matter of time.

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  1. Anthony Gilbert 08/22/2011 07:32 AM
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Rainmaker
678,889
William James Walton Sr.
WEICHERT, REALTORS® - Briotti Group - Waterbury, CT
Greater Waterbury Real Estate

This is rather curious. I agree with you, in part, Richard. But I think that if the matter of compensation for buyer agents is taken out of the hands of the listing agents, and buyers are required to pay for the services of the buyer's agent either directly themselves, or added to the closing costs, then your scenario would be much more likely to happen, and a whole lot sooner.

Aug 22, 2011 05:01 AM #44
Rainmaker
259,533
Melina Tomson
Tomson Burnham, llc Licensed in the State of Oregon - Salem, OR
Principal Broker/Owner, M.S.

I agree and disagree.  I think if buyers were paying for their own representation, they would be a lot pickier about hiring a buyer agent.  Most consumers see agents as door openers and quite frankly many agents have worked hard to give buyer agents that represenatation. I think if buyers had to pay for service themselves, they would actually take the time to interview more agents and pick good represenation. So I agree that the number of buyer agents would decline, but I think those that remain would be highly sought after due to their knowledge and skills.

Consumers want competant representation.  In my experience many buyer agents don't provide this for their clients. I'm on the other side as the listing agent, so I know when I have a competant person who is representing their client well on the otehr side.   We, as a generic group, have failed to deliver to consumers what they want so they are forced to go solo.  I wouldn't pay someone to open a door for me and say "here's the kitchen" as their sole contribution to my house hunt.  I'd want information.

Aug 22, 2011 05:24 AM #45
Rainer
97,429
Glenn Freezman
Nucazza LLP & Home Buying Evolution, & Family Abstract, Inc - Fort Washington, PA

Richard, As you may be aware, Nucazza is well aware of this issue and is looking at Alternative Compensation Models that employ the realtor as a trusted advisor and a consultant whereby they may still earn a living for the councel that they provide without being tied into a commission at closing. 

 

The point that the Buyers representation should have taken into account is the adverse effect of having the selling agent pay for the buyers agents services and the inherent conflict of interest that occurs as the byproduct.  Would you ever hire a negotiator that gets paid by the opposing negotiator?

Aug 22, 2011 05:53 AM #46
Rainer
65,667
Anthony Gilbert
The RealFX Group - Issaquah, WA
REALTOR® - Issaquah, Sammamish & Snoqualmie

I have to respectfully disagree - mainly with the statement that the internet will cause the "demise of brokerage." I think this all boils down to educating potential clients. How on earth can anyone expect a potential client to know the value a buyer's agent brings to them, unless they SHOW them? And I don't mean just on occasion... I mean demonstrating value through one's actions each and every day - and not only when there's the promise of a big pay day!

As a consumer oriented business owner, I can attest to the fact that the internet has changed ALL consumer relationships and traditional retail models. Real estate is no different. It's critical to predict and adapt to change, and continue to seek new opportunities - which are always out there.

Yes... there are of course many people who don't mind going about the process on their own. But there are also many, many experienced buyers who know better - and first-time buyers who are just as savvy.

The demand for buyer representation will always exist in one form or another. Again... it's simply a matter of adapting to the changes, and embracing new opportunities.

Aug 22, 2011 06:40 AM #47
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1,726,107
Richard Weisser
Richard Weisser Realty - Newnan, GA
Richard Weisser Retired Real Estate Professional

Every once is a while a post takes on a life of it's own, and this is one of those cases!

The extraordinary comment are a testament to the passion and zeal of those that really care about real estate as a profession.

This is a wonderful discussion, and thanks to all for adding your very important thoughts on the subject.

Aug 22, 2011 07:16 AM #48
Rainer
105,849
Tim Krueger
Morovish Properties - Costa Mesa, CA

You could cut your own hair too.  I believe buyers agents and agents in general need to adapt to the market just likes sellers need to lower their asking prices. 

The only way to survive is to Shift with the market and even Shift infront of the market. 

Aug 22, 2011 07:25 AM #49
Rainer
264,127
Bill Travis
Captain Bill Realty, LLC - Gilbert, AZ
Broker/Owner

I'm a buyers agent, and haven't run into these problems. I don't get asked to give part of my commission, and if I did, I would refuse.

However, I would offer to work for Activity based fees, and share the risk with the buyer. Then they would get a portion of the commission, for sharing risk and limiting my Activities.

They would end up paying me about 1/5 of my total fee up front.

Then in 30 days another payment so that the total they have paid is half of the amount they owe me. The balance is due at COE.

They are sharing the risk by paying me as I work.

The commissions we earn are higher than we would be paid if we worked for 8 billable hours a day, like attorneys. The commissions are a "contingency" based fee. No sale, no pay. Same with attorneys. That means we have many unpaid hours of work because not every client closes on a transaction. We take all the risk.

Want part of my commission? Share the risk by paying me up front.

By caving in and giving away part of the commission and still taking all the risk, we are teaching the public that we are weak and afraid of losing a deal. They can smell blood a mile away and will prey on the weak.

There is a better answer. Share the Risk.

So they don't have the money to pay me up front; or don't want to share the risk. That's fine. I'll do the contingency arrangement, taking all the risk, and I'll also keep all of my commission!!!

If agents begin to compete on price instead of skill and worth, well what can I say?

Aug 22, 2011 07:59 AM #50
Rainer
217,273
Andi Grant
310-508-4354 | FirstTimeHomeBuyerRealEstate.com - Los Angeles, CA
Helping 1st time buyers and home sellers in LA!

If buyer's brokerage has run it's course on this premise, what do you think would happen to listing agents when all FSBOs have to do is offer discounts for not using agents, if it gets to the point where the consumer considers themselves so saavy that they don't need one.  

Were it to happen it would only end up repeating the cycle of what happened before as you stated "After some significant litigation in the early 1990’s in which residential buyers claimed they had been duped by brokers that represented the seller as a sub-agent, buyers DEMANDED representation"

ETA:

WOW - just read your #41 response.  I think we can find a lack of competency on both sides of any offer from time to time.  That response sounds like you don't have a lot of confidence in buyer's brokerage.  Thank God that isn't the mindset here in my neck of the woods as more buyers want representation. 

 

Aug 22, 2011 08:11 AM #51
Rainer
154,163
Deb Espinoza
Stage Presence Homes, San Diego Real Estate - Ramona, CA
GRI, Broker, SRS,ABR ePro, SFR, CNE

Richard- Interesting ideas. I think that you get out what you put in. I put in massive amounts of education for buyers and I get plenty of calls saying that they want me to represent them in a purchase of a home- quite a few want to know what they need to pay me so we can get started.

If you don't find benefit in a REALTOR that represents buyers then I believe you can't portray that vaule to a potential buyer and get buyer business. It's all a frame of mind and and bringing your prospects along to your way of doing business and signing on with you as their representative; whether it be buyer OR seller. Not all buyer OR sellers are going to believe we are of value to them- thus why we have FSBO's and discount/rebate brokers ; but if you don't believe in what you bring to the table, and know your value then there is no way someone else is going to value you.

Aug 22, 2011 08:33 AM #52
Rainmaker
350,136
Pam Miller
Realty Associates - Friendswood, TX
Broker Associate - Pearland/Friendswood

Richard - wow!  Interesting reading.  I still believe that the buyer's agent is an important part of the transaction and will be for a long time.  I really push the idea that "You need your OWN representation". 

Aug 22, 2011 08:34 AM #53
Rainmaker
375,516
Lloyd Binen
Certified Realty Services - Saratoga, CA
Silicon Valley Realtor since 1976; 408-373-4411

Huge topic for a little comment.

Different buyer want different levels of assistance.  The most logical solution--each principal pays their own agent whatever fee is agreed upon--will be resisted by many agents who have trouble justifying the commission they receive.  It also creates loan and appraisal problems, but those could be easily solved.

The internet and techonology have not changed the duties or role of the listing agent.  It has just given them better and more marketing tools. But the listing agent's job is no easier or no less time-consuming now than it was 25 years ago.

Some DYI buyers prefer to represent themselves because we Realtors have trained them that they can save a brokerage fee.  (We're so smart.)  These DYI buyers don't believe the value we as selling agents deliver justifies the fees we receive.  Selling agents either need to improve services to justify the fees they receive, or reduce their compensation.  

Aug 22, 2011 08:36 AM #54
Rainmaker
545,033
Lori Cain
eXp Realty - Tulsa, OK
Midtown Tulsa Real Estate Top Producer

Interesting discussion. As usual, as much information in the post as the comments.

I RARELY get calls on my listings from clients. The last time I sold one of my own listings was 3+ years ago.  I pick up Buyers from my COI and internet - almost 50/50 at this point. Yes, they may search on Zillow and other sites, then give me a list of what they want to see, but I believe there is an understanding that it's adventageous to have a coach in their corner.

I certainly blog enough about the advantage of having Buyer representation.  :))

Aug 22, 2011 08:49 AM #55
Ambassador
853,368
Brenda Mullen
RE/MAX Access - Schertz, TX
Your San Antonio TX Real Estate Agent!!

I personally don't think that buyer's agents will disappear.  However, I do agree with the fact that perhaps the form of compensation needs to change in a lot of states where it is perceived that the seller is the one actually paying for the service. 

If the buyer's agency were to disappear, then I do believe real estate professionals will find themselves in the same position that brought about the agency in the first place.  Buyers think that someone is representing their interests and even if you explain to them you aren't, I don't believe they are fully convinced. 

My point being, I don't believe anyone should do a Real Estate transaction without professional representation, (i.e FSBOs), but I do believe the buyer or seller needs to do their due dillegence and find a professional that will truly represent them :)!  Terrific post!

 

Aug 22, 2011 10:41 AM #56
Rainmaker
3,975,308
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

Richard, I am not finding that in my area.  I find people asking me if I am representing them or the seller more often than ever before.

Aug 22, 2011 10:42 AM #57
Ambassador
1,702,855
Tammie White, Broker
Franklin Homes Realty LLC - Franklin, TN
Franklin TN Homes for Sale

This may be true in some cases. But there is always an exception. I am working with a buyer who kept sending me requests to see homes she was finding on Zillow. They weren't anything like what she told me she was looking for. Something came on the market that seemed perfect for her. I called and said, "I'd like to take you to see this home." She reluctantly agreed. We wrote an offer this a.m. We are still the best resource to help people find the right home. Because sometimes, they don't even know what they want.

Aug 22, 2011 12:29 PM #58
Rainmaker
908,388
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

It's a trend here that buyers want to go directly to the listing agent because they don't want representation, or they think they will get a better deal. 

Aug 22, 2011 05:33 PM #59
Rainmaker
99,808
Mollie Wasserman
Your Move Made Simple - Framingham, MA

Richard, there's so much I could say on so many levels but I'll try keep this succinct: we made a tremendous mistake as an industry when we were told by our state and national associations to change our primary role with the consumer WITHOUT also examining a change in how we were compensated.

Prior to the 90's when our primary role and responsibility was to move the property, commissions made total sense. However, as agency considerations grew in the 90's, our state and national associations told us that while we still needed to move the inventory in order to earn a living, we were now told to wear a second hat - that of a fiduciary who must put the needs of the client above all else, including and most especially our own. In my book "The End of 6%", I call it the Elephant in the Room: "No matter how it’s presented or dressed up, there is an inherent conflict of interest when a real estate professional is expected to act as a fiduciary agent providing objective, unbiased counsel to clients, while at the same time being paid by commission."

We've been nibbling around the edges with agency, but the truth is that as long as we continue to be paid like salespeople, the public will continue to regard us as such. If we want to be valued as true fiduciaries, we need to be paid like other fiduciaries are. If our sole value is that of an information provider and performing functionary type services, we will continue to be disintermediated by technology. But our true value - that of a fiduciary, providing counsel, representation, and advocacy (whether as a listing or buyer agent) can NEVER be replaced. But, we need to start getting paid based on the value of our counsel  - not the value of a property.

Aug 22, 2011 11:34 PM #60
Rainer
81,924
Barbara Heise
Keller Williams Realty STL - Saint Louis, MO
Search for Homes for Sale in St. Louis

Our roles are definitely changing.  Most buyers have the time to research and get the answers on their own.  Hoever, no matter how much data they gain, they still rely on the realtor for certain thing.  I think we need to analyse what we are doing for buyers and sellers in today's market.  We are still a necessary commodity but we may need to redefine our role.

Aug 23, 2011 12:30 AM #61
Rainmaker
144,481
Cindy Abel
Southern Nevada Realty, LLC - Las Vegas, NV
Broker/Owner - Las Vegas Homes and Real Estate

I think IDX has increased the need for a good buyer's agent.  I mainly work with buyers and they are all happy once they find me.  Whew - someone who answers her phone, responds to emails, sends listings via email (plus keeps getting more and more criteria so that the listings are actually what the buyer wants to see), organizes showings, provides market information, knows the area, listens, keeps up with deadlines and keeps everyone on track so the transaction goes as smoothly as possible.

Sure there will always be people who want to do it alone (FSBO anyone?).  But, a buyers recognize and appreciate the value of a good agent when they see her  ---- me :)

 

 

Aug 23, 2011 07:12 AM #62
Rainmaker
512,906
Lisa Wetzel
RE/MAX Realty Affiliates - Carson City, NV
CDPE, SFR carsonvalleyland.com

Interesting ... I'm not sure how I feel.  I see buyers who want and need help and want agents to pave the way for them... It's going to be interesting!

Aug 25, 2011 04:51 PM #63
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