Request for Comments "Real Estate Workshop"
DE-COUPLE COMMISSIONS: THE ANTI-COMPETITIVE NATURE OF SELLERS AND LISTING AGENTS SETTING BUYER AGENT FEES. For years the norm in the real estate industry was seller sub-agency. An offer of compensation to the sub-agent to sell a listing made sense. But since the December 1983 FTC publication, "The Residential Real Estate Brokerage Industry", buyer agency has become mainstream and seller sub-agency rarely practiced. For years the commission structure was a 50/50 split of the total commission and still is in many marketplaces. But with a lot of pressure on listing agencies to reduce their commissions, brokerages in many areas started the practice of uneven commission splits. In several market areas in which I work - I'm licensed and practice in three states (MA, NY and FL) - the commission splits are often 60/40 to 70/30 favoring the listing brokerage. And in some marketplaces an administrative fee is taken out of the buyer side commission as well. I've had listing agents tell me I shouldn't have shown the home if I wasn't willing to accept the offered cooperative fee. I've also witnessed on more than one occasion; traditional real estate salespeople tear up listings that didn't have a high enough cooperative fee listed. This practice of course sometimes is the reason the cooperative fee is low in the first place so that other agents won't show the home and the listing agent has a better chance at the in-house sale and double dipping of commissions. I wonder if sellers really understand what is going on here? I doubt it! Imagine an attorney setting the compensation for another attorney on the other side of a legal matter. Imagine a buyer agent setting the compensation for the listing side of the transaction. After all the buyer is paying the compensation for both sides of a transaction in the purchase price they are paying. The commission gets shown on the seller side of the disclosures as a seller's cost, yet an argument can easily be made that the buyer actually paid it. So perhaps the buyer should be dictating how much gets paid to the listing side. Let's not forget that the REALTOR Code of Ethics prohibits an attempt to alter the offer of compensation in Standard of Practice 16-16: "REALTORS, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker's offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker's agreement to modify the offer of compensation." Yet, real estate commissions are supposedly "negotiable". If that was really the case, why is Standard of Practice 16-16 worded the way it is and directly prohibits negotiation of fees? Standard of Practice 16-16 truly is anti-competitive. The New York State Department of State agreed and took a dim view of this Standard of Practice. The Department of State prohibits its enforcement in NYS on the grounds that it is anti-competitive and that it negates the concept of commissions being negotiable. There is no longer justification for a seller and/or a listing agent to set the compensation for a buyer agent. That should be a matter between the buyer and their agent. The listing agent should justify their fee with what they will provide the seller along with their knowledge and experience. The buyer agent should justify their fee with what they will provide the buyer along with their knowledge and experience. Let the respective consumers and their agents determine the compensation of each. Let the market determine the compensation for real estate commissions, not some outdated anti-competitive practice whereby one side tries to control the compensation the other side gets. The market will determine what a listing agent and a buyer's agent is worth and will pay them accordingly if it is allowed to do so.