There’s a lot of discussion of Buyer Broker compensation going on around the RE.net, and I want to draw attention to it while I can. I have some further thoughts of my own, but I’m not sure I’ll be able to get to them today. It’s Saturday, after all. One of the reasons I’m re-thinking everything associated with buyer representation is the dreadful shortage of Saturdays in the week.
Pursue these links. This is interesting.
Kris Berg argues that it really is the seller who pays both agents. (For agents Back East: In Arizona, and I believe in California and Washington, we do not have sub-agency. The buyer’s agent represents only the buyer, but is paid out of the co-broke established by the listing agent.)
Jeff Brown suggests dropping the veil and having the buyer pay his own agent directly rather than through the escrow process. The key problem with that, of course, is that many buyers don’t have cash for earnest deposit, inspections, appraisal, down payment, closing costs and a buyer’s agent’s fee. Many buyers don’t have cash for any of those things.
ReyEstate has a summary of the latest episode of egg-tossing from Freakonomics. I’d be much more impressed by those boys if they actually worked in real estate.
All of this debate is good, I think. There is no doubt that sellers have a very high degree of control over what listing agents are paid. It seems completely reasonable to me for buyers to have that same level of control over what buyer’s agents are paid.
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Technorati Tags: blogging, compensation for buyer representation, real estate marketing
Jeff Brown says:
It wasn’t my intention to imply the buyer should pay his agent outside of escrow. He should, as a part of the escrow, pay his agent with his own funds, as per agreement just like the seller pays his agent. The HUD-1 would show it as coming from the buyer and call it a commission or fee.
As far as the buyers without money, well, that’s just another reason I don’t I’m on the investment side. 🙂
October 7, 2006 — 9:53 am
Greg Swann says:
Sorry, I didn’t mean to mis-represent you.
October 7, 2006 — 10:07 am
Jonathan Dalton says:
Greg,
In Arizona we do have subagency in fact if not in practice. Only reference I could find, however, was in the suggested broker policies where it is recommended that brokers decide whether they will allow subagency.
October 7, 2006 — 5:12 pm
ardell dellaloggia says:
Sub-agency means a buyer could be show homes by an agent who ends up working FOR the seller of whatever house he buys, even though that house is not listed by that agent’s company. Is that likely to happen in AZ?
October 7, 2006 — 5:21 pm
Greg Swann says:
Ardell, sub-agency is not outlawed in Arizona. It is so highly deprecated in residential real estate that to find an MLS listing offering a co-broke for sub-agency indicates that the lister either made a mistake or is an idiot.
October 7, 2006 — 7:39 pm
Galen says:
Levitt (Freakonomics dude) owns rental properties, which sort of puts him in the industry. Furthermore, I’d posit that that the best innovations in industry and the best observations about an industry come from outsiders.
October 7, 2006 — 7:52 pm
Greg Swann says:
> Furthermore, I’d posit that that the best innovations in industry and the best observations about an industry come from outsiders.
That’s interesting. What revolutionary ideas have the Freakonomics boys brought to the attention of surgeons?
Forgive me for tweaking your nose, but I think you would be appalled at how much they don’t know if they were presuming to micro-manage your job. I think the publication scheduled for Freakonomics contra Knuth may be delayed.
FWIW, the best — and worst — innovations in any industry are made by people within that industry. Outsiders always think they have the keys to the kingdom, and the further outside they are, the more compelling those keys seem to them. You can tell when innovators believe they really do know better than other people in that industry, because they back their pronouncements with blood, sweat, toil and tears — and investment capital.
The Freakonomics boys aren’t even economists, in fact. They’re journalists. They do a job almost no one is willing to pay money for. And here is the real estate weblogger’s revenge: I know how to do their job better than that do it! That assertion doesn’t have to be true: In the flow of “free” information, all assertions have equal value — none.
In February of 2005, I was working with two investors from California. They were very experienced in business in general, very smart, very well-prepared. Hard-chargers to a fault, and they were constantly off the MLS reservation, wondering about every sign they saw, whether or not the home even came close to their search criteria.
One of them found a FSBO being sold by a seminar investor — the kind of one-trick-pony who learns a certain way of buying and selling homes, then does that one thing over and over again. They couldn’t figure out how the sale was supposed to work, so they asked me to come out and talk to the seller. He was holding the house open, so all four of us were there together, in the kitchen of the house.
I asked the seller six questions, one after another, and at the end of those six questions, I knew everything I needed to know to get that house at a bargain price for my buyer, while seeming to pay a premium price to the seller, incorporating $2,000 in compensation for me to represent the buyer only. I didn’t beat the seller up, I was completely deferential. But I knew what questions to ask, and he didn’t even know what information I was probing for.
My two investors stood there with their mouths agape while I was putting this deal together, and it was only later that they understood how much I had done with so little effort.
If newspaper writers think they know how to play this game better than the professionals, I’m always ready to offer a contrary point of view. They should bring their deeds. That makes the game more fun.
But: I will wager one Barton — a coin named after the man who discovered with his own home that Zestimates are not be trusted — that the Freakonomics boys don’t follow their own bad advice when buying or selling real estate. I’ll bet they don’t do their own surgery or software engineering, either.
October 7, 2006 — 9:48 pm