Glenn Kelman, chief executive and broker of Redfin.com, posted a comment to one of my entries about that company. I replied to him there, but I’m posting the exchange here, as well, frankly because I consider it Big News.
Here is Mr. Kelman’s remark:
Thanks for this thoughtful comment Greg. Many Redfin customers decide to refund part of the commission to the seller, but this is their choice: the money we refund is theirs, so the choice is theirs. Regards, Glenn
And here is my somewhat lengthier reply:
There we go! Truliamazing, times two!
> the money we refund is theirs, so the choice is theirs.
I agree with this, of course, but I wonder if you would be willing to address the larger issues I have raised here and here (and elsewhere for that matter).
I believe as an Arizona State licensed real estate broker that Redfin.com’s (and BuySideInc.com’s) policy of sending buyers unattended to listed homes is an abandonment of agency, a clear break in the chain of representation. Your company in particular has proved very successful at portraying reluctant listing agents as the bad guys, but, in fact, I believe that cooperative effort is the reason that listing agents recommend that sellers provide compensation for cooperating brokers. You are certainly free to do as you choose with your earned commissions, but my argument would be that you have not earned them by any standard of procuring cause that would be applied to any other real estate brokerage. Can you defend your company’s representation of its clients and therefore defend its having earned the commissions it has disbursed?
Another way of asking the same queston: How much commission would Redfin.com have earned if it sent a client unattended to a new home subdivision?
All that having been said, I think you will get away with what you are doing. But if you do, it seems very reasonable that listing agents will either stop offering co-broke commissions altogether or will condition those commissions on true cooperative effort. No doubt the New York Times will deem this unfair, but in fact the sales price of the home will be lower than it would have been if compensation for a buyer’s agent were to be included in the price. The problem with this is — and the reason that, even in the age of buyer brokerage, sellers and not buyers set aside the funds to compensate the agents — is that very often buyers either have no cash or insufficient cash to pay for their own representation out of pocket. It is completely correct to say that compensation for the agents is a sleight of hand effected with the conviviance of the lender, but it is unlikely that lenders will roll the buyer’s agent’s compensation into the loan as a separate line item. The net consequence, in the long run, would be that many buyers will have no representation at all. Do you dispute this?
My take, Mr. Kelman — and I think you have a lot of guts for speaking up here — is that you have identified the critical weakness in the so-called “culture of cooperation.” By diverting the costs, the liability (and as Marlow Harris points out, the physical risks) of buyer representation to the listing agent, you generate a cost savings on your end that you can pass along to the buyer. Unfortunately, by diverting those costs to the listing agent — most especially the doubled legal liability — you induce listing agents to withhold offers of cooperation. The ultimate Tragedy of the Commons is not that one cow (or one cowbird) overgrazes the land, but that the Commons is sold and enclosed by walls. This may not actually net out to be a bad thing overall, but it’s a bad thing for buyers, who need conscientious representation more than sellers do.
If you think I’m wrong, I would be grateful to hear why. I’m not just saying that; almost everything I know I learned by being wrong.
> Many Redfin customers decide to refund part of the commission to the seller
This I don’t actually believe. I have seen sellers and buyers do some amazingly nice things for each other, but I have never seen them concede non-negotiated funds in either direction. If you like, someday I’ll buy you a drink and you can try to persuade me that this really happens.
Technorati Tags: blogging, disintermediation, real estate, real estate marketing
Simon says:
Greg, to your response to the my comment
https://www.bloodhoundrealty.com/BloodhoundBlog/?p=279#comments
“Interesting, so say I have a buying agent, but I went to an open house on my own. The selling agent is going to sue the buying agent with procuring cause action?”
>> Can. Doesn’t have to.
The case I mentioned happens every day, yet actual lawsuits of procuring cause action is almost non-existing. The realtors never bothered with this before (assuming they do have a case), but now they are ganging on Redfin, something is wrong here.
September 13, 2006 — 2:46 pm
Greg Swann says:
> actual lawsuits of procuring cause action is almost non-existing
I don’t know this one way or another. Do you have stats? I don’t.
> The realtors never bothered with this before (assuming they do have a case), but now they are ganging on Redfin, something is wrong here.
Suppose you had a small grocery store. You had a certain amount of shoplifting, but you had resigned yourself to it, concluding that the cost of enforecement exceeded the value. But then a criminal gang brazenly announces that it intends to subsist by shoplifting at your store. Your response would be very different, but it would not be wrong.
For what it’s worth, I don’t know that anyone has brought a procuring cause action against Redfin. But they’re certainly asking for it.
September 13, 2006 — 3:29 pm