Last week an editorial appeared in the Wall Street Journal: When You Buy or Sell a Home, Realty Bites. The article was written by the guys at REX, an early stage company that helps sellers sell their homes off the MLS without paying a cooperating commission which I wrote about last month: $75 MM Investment In REX Homes Makes No Sense. The gist of their article is that a series of anti-competitive practices by realtors support high commissions.
The guys at REX and I are actually on the same team but we see the world a bit differently. We both believe that real estate commissions are too high and the consumer deserves better alternatives than the fantasy pedaled by high commission realtors. However, where we differ is that I don't see any evidence of a conspiracy in the real estate industry and that's certainly not what's propping up real estate commissions.
The conclusions in the article are based on a number of assertions that are simply not true - or at least they are not true in the Chicago area, which is served by our MLS, MRED. Some of those assertions can't even be true outside of the Chicago area because they would be in violation of Realtors' own code of ethics.
Realtor Association Membership
The authors of the article claim that...
Boards of Realtors mandate that if any member of a brokerage firm belongs to a service, every agent at the firm must be a dues-paying member as well—a potentially unconstitutional requirement in light of the Supreme Court’s 2018 ruling that government unions can’t exact fees from nonmembers.
...but it just doesn't work that way in the Chicago area. What dictates membership in the Illinois Association of Realtors and one of the local associations is access to the MLS. You have to be a member of those associations to gain MLS access. However, nothing prevents you from practicing real estate without MLS access. I occasionally run into real estate agents that operate this way.
When I first became an agent I thought it was a bit odd that you had to have those memberships to get MLS access but in hindsight it kind of makes sense. If the MLS is "their" system then it makes sense that you would have to be part of their organization to gain access to it.
Now, that whole thing about the Supreme Court and government unions makes no sense to me. The realtor associations are not government unions.
Sharing MLS Data
The authors claim that we are not allowed to share MLS data with non-members. I'm not sure if they are talking about us sharing MLS data on our own listings or other realtors' listings. The latter we certainly can't do but I can do whatever I want with my own listing information. In fact, every time a realtor advertises one of their listings to the general public they are sharing MLS data.
Home Sellers Required To Hire A Buying Agent
This is perhaps the biggest problem with the article. The exact claim made by the authors is that "Homeowners are required to hire a buying agent if they employ a selling agent through a multiple listing service", which is not really true. First of all, you can buy a home without having an agent. It happens at least 5% of the time if I recall correctly. A separate buyer's agent will also not be involved if everyone agrees that the listing agent will act as a dual agent. That accounts for another 5 - 10% of transactions.
Furthermore, if a buyer's agent is involved they are not "hired" by the homeowner. They may be indirectly paid by the homeowner, through the listing agent, but they work for the buyer. As the Illinois Real Estate License Act says "compensation does not determine agency." And, although the listing agent is required to offer a cooperating commission in order to get the listing on the MLS, the Chicago area MLS explicitly states that "the Service [MRED] shall not fix, control, recommend, suggest or maintain the division of commissions or fees between cooperating or between Participants and non-Participants"...with one caveat. You have to offer something. It can be $1 (and there are actually several instances of this right now on the MLS) but 0 is not acceptable. So you can call that price fixing if you want but for all intents and purposes it's not.
There's actually a lot more to this story which I will continue with on Thursday but I thought I would quickly skip to the punchline.
Home Sellers Keep Commissions High
So there is no conspiracy. Sadly, it's actually gullible home sellers that drive up real estate commissions. Instead of just Googling discount realtor, discount real estate agent, or discount commission - there are plenty of alternatives out there - they buy into a very tempting fantasy about how special realtors can sell a home faster and for more money than other realtors. The "best" real estate agents are not necessarily the best at selling homes but they are the best at selling that fantasy to a receptive audience and it earns them top dollar.
#Realtors #RealEstateAgents #RealEstate #RealEstateCommissions
Gary Lucido is the President of Lucid Realty, the Chicago area's full service real estate brokerage that offers home buyer rebates and discount commissions. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.