Why do we have a system where both the buyer's real estate agent and the seller's agent are incentivized to encourage the highest sale price possible on a house? Shouldn't the buyer's agent be incentivized to achieve the lowest possible price whereas the seller's agent is incentivized to achieve the highest possible price? Is the only viable solution to remove all commissions from all steps of the housing valuation process (loan officers, appraisers, real estate agents, etc.)? Shouldn't the commission be replaced by a flat fee that has absolutely nothing to do with the sale/asking price of a house and everything to do with the actual amount of work the agent does? If there were a flat fee at all points in the process of buying a house, wouldn't that allow for more competition among the various players (loan officers, appraisers, real estate agents, etc.) and thereby result in fairer pricing of houses in our free market economy? What can be done to change the way agents, etc., get paid? Should something be done?
Monday, March 27, 2006
The Commission
Why do we have a system where both the buyer's real estate agent and the seller's agent are incentivized to encourage the highest sale price possible on a house? Shouldn't the buyer's agent be incentivized to achieve the lowest possible price whereas the seller's agent is incentivized to achieve the highest possible price? Is the only viable solution to remove all commissions from all steps of the housing valuation process (loan officers, appraisers, real estate agents, etc.)? Shouldn't the commission be replaced by a flat fee that has absolutely nothing to do with the sale/asking price of a house and everything to do with the actual amount of work the agent does? If there were a flat fee at all points in the process of buying a house, wouldn't that allow for more competition among the various players (loan officers, appraisers, real estate agents, etc.) and thereby result in fairer pricing of houses in our free market economy? What can be done to change the way agents, etc., get paid? Should something be done?
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4 comments:
I have always thought this little arrangement did little more than encourage a little wink, wink, nudge, nudge kind of price fixing collusion.
I think a flat fee would be more appropriate and allow for those agents and brokers worth their salt to put a real value on their services.
My hope is that if the housing bubble crashes hard and if people get hurt enough, then some good might come out of this if people then begin to seriously question NIMBYism, MALT, Prop 13, realtor (and other) commissions, etc. We could only be better off for it in the long term.
I would think that the real professionals in the real estate industry would welcome a financial structure that would separate the best from the rest. Certainly their profession has attracted some opportunistic and poorly qualified people during the boom times that many long time real estate professionals say give their whole profession a bad name.
So what better way do they have for making sure only those who are truly competent get paid for it.
The way it is, those who are less qualified don't necessarily make less... the commission structure is hardly a standard for meritocracy.
I see a combination of factors that will drive a market towards slimmer margins:
>Public outcry over fraud and price-fixing of real estate. I imagine we'll see some well-needed regulation here. Buyers may be very skeptical towards realtors in the future, and they'll need to prove their worth.
>If the RE market collapses, there will be a surplus of realtors, possibly working for less to undercut each other.
>If an RE collapse triggers economic instability, I think all this nonsense spouting from NAR, Lereah, et al will be more closely scrutinized. And, given the recent reaction in DC to lobbyists, I see the NAR losing power to consumer advocacy.
>That legislation to open up the MLS and pave the way for online businesses may cut margins significantly for the whole industry. Good; it's about time.
Athena: I agree that those realtors who built a reputation for themselves will have a better chance surviving any future shakedown. We have a local realtor here who we completely trust, and while he's a little worried about the future, I think his reputation will keep him afloat.
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