A Question About Being A Fiduciary

This is part of a response I wrote to a post at the normally informative blog of Jason B. Graves regarding the DOJ vs. NAR.

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A question: If a real estate agent, hired to market a property and assist the seller in obtaining the best possible price and terms for his or her property, knows the best way to do this is by letting every potential buyer know about the property through every available marketing channel, why would anyone opt a listing out of anything? 

Another question: If a real estate agent had no chance of double ending a sale (getting the listing and co-op commission) and had no chance of obtaining a buying client through the marketing of the listing, would any agent care where or by whom the listing is displayed?  I think the answer is no.

The question every consumer and real estate agent should be asking is; why do brokerages want the right to opt out of having their clients properties advertised on other real estate websites?   The answer to this question is greed.

You see; if you are a big broker with thousands of agents and thousands of listings, you might be tempted to exclude your client’s listings from other real estate websites in order to increase your chances of being the broker of the seller’s agent and the buyer’s agent thereby collecting both commissions.

Last year three of the biggest brokerages in Chicago removed their listings from the MLSNI, one of the biggest multiple listing services in the country.  They gave a cornucopia of conflicting and nonsensical reasons for the pull out but limited the listings they pulled to those of the north suburbs of the city.  That indicates to me it was a test.  It did not work, within a year they put their listings back in the MLS.  That indicates to me the experiment was a failure.  Who suffered from this failure? The public and the small independent brokers who serve them suffered. 

To stay competitive, small, mostly non-traditional brokers wasted thousands of dollars joining a previously insignificant listing service the big three moved the listings to(which by the way does not allow its listings displayed on the internet), only to see that money wasted when the big brokers returned to MLSNI.  Consumers who had their homes listed with those big brokers suddenly had a significantly smaller marketing channel for their properties, but as one homeowner told me, they where told it would not affect them.  Worst of all, overnight the data that consumers, real estate agents and appraisers have come to depend upon for determining market value was fragmented and thereby rendered less effective.

Property ownership has become as important in this country as the stock market and federally insured banks in terms of building individual wealth.  The government has a responsibility to ensure fair competition and make sure brokers and agents fulfill their fiduciary responsibilities.

Comments

[Jason B. Graves]

I understand your point about INEST not being a true VOW but why do they base their services on a 2.4 percent commission?

See **note on bottom of http://www.internest.com/xyz/incentiveintro.asp?Act=F&Stat=Start&PM=False&IPV=False&Info=False&Terms=False&VOW=False&Org=%2Findex%2Easp

On a different note, I like the VOW structure and feel it's a shame for big companies to bully smaller competition. What I don't see is that if a brokerage decides not to participate then that's okay. You can't force membership to an MLS. You can't force a seller, either. We owe loyalty to our clients but that comes at a cost. Would a unified, national mls registry help? But since individual states regulate real estate licensing and law practices might we be stepping on some toes? We need a solution but freedom of information is not it.

[Realty Freak]

Hi Jason,

I am not sure what iNest has to do with the DOJ vs. NAR lawsuit but I do feel I need to correct your last statement about them and VOWs.

1. In the iNest terms of service it states clearly that they are receiving a referral fee. This is no different than a real estate agent who collects a fee for referring a buyer or seller to another agent and does no other work. iNest is making clear that they will only pass on the 1% rebate to the buyer if they receive 2.4% of the sale price or more.

2. iNest in not an almost true VOW as you say. iNest does not run a VOW at all, it runs an IDX website. Their is no almost a VOW website just like you can't be almost pregnant. You are or your aren't. Their is a big difference between an IDX and a VOW. Users of an IDX do not have a relationship with the broker operating the site. Users of a VOW do have that relationship.

As for DOJ vs NAR, it is not as you say "a shame" for large companies to bully the competition, it is against the law.

I hope you have read the actual DOJ complaint and not just the press and trade journal rhetoric.

What I think most people miss is this. By removing listings from other brokers websites, big brokers are really only effecting those brokers who obtain the majority of their business from operating a VOW website. These VOW companies offer an alternative type of service for the consumer, one that is often less expensive and is very threatening to the status quo.

Some facts. The chairman of the board of RE/MAX, the nation's second-largest real estate franchisor, publicly expressed his concern that these Internet sites would inevitably place downward pressure on brokers' commission rates. One broker complained that because of the lower cost structure of brokers who provide listings to their customers over the Internet, "they are able to kick-back 1% of the sales price to the buyer." And Cendant, the nation's largest real estate franchisor and owner of the nation's largest real estate brokerage, asserted in a widely circulated white paper that it was "not feasible" for even the largest traditional brokers to compete with large Internet companies that operated or affiliated with brokers operating VOWs.

So to answer your question, if a MLS member broker decides not to enter a listing into the MLS so no other member can effectively inform consumers of that listing in person, by telephone or by VOW website ,then that's OK, it effects everyone equally. By "opting out" listings only from the Internet, a broker is only effecting those brokers who predominatelyt use the Internet to conduct business.