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The settlement of the lawsuit filed by the National Association of Realtors has been completed, and the future is likely to be smooth sailing. Let’s think again.
In addition to the Justice Department’s intervention, an appeal has also been filed, and we are far from seeing an end to the chaos. A case in point is the fight over NAR’s Clear Cooperation Policy (CCP).
When I spoke to an agent who recently suspended her license with a large national brokerage firm about the benefits her broker offers, she said, “We have access to off-market listed products.” Curious, I asked her for an explanation.
“Our brokers send out a list of ‘market alerts’ so they can see properties that have just been listed but are not yet on the market,” she said. “This gives us the opportunity to approach these sellers and see if they would like to accept a pre-emptive offer. This is a huge advantage for us because we are able to get more deals with much less competition. Because it can be done.”
Worried, I continued. “Do sellers understand that by not going to the open market and getting maximum exposure to all the potential buyers out there, they are significantly reducing their chances of getting a better offer?” What was her reaction? “Maybe, but I’m more interested in the opportunity.”
In my opinion, this mindset reveals a culture that values the agent’s opportunity over its fiduciary responsibility to the customer to obtain the best possible offer. I wish this was a special case, but my experience tells me it’s not.
In fact, this is not just the agent’s perspective. I believe a similar trend is prevalent among securities industry leaders, as evidenced by the fierce battle to remove the Chinese Communist Party.
In my opinion (and not necessarily the opinion of my office or brokerage firm), this is the central issue behind the ongoing heated debate over NAR’s clear cooperation policy. This issue was recently highlighted in T3 Sixty’s The Opportunity Report. In providing context, the report states:
“NAR implemented the CCP in November 2019 (effective May 1, 2020) in response to concerns that non-MLS listings were putting buyers and sellers at a disadvantage. Legal challenges and criticism The company is facing legal action, but has also drawn attention from federal regulators, who oversaw the removal of compensation from MLSs and now question requiring publicly marked listings to be submitted to MLSs. It seems to be exhibiting.
CCPs require brokers, and by extension sellers, to list on the MLS under certain conditions or face penalties. Listing on an MLS allows sellers to gain broader exposure to potential buyers through other agents, but commissions on two-sided in-house transactions are typically lower than through separate listing and selling agents. It will be. Additionally, MLS shows price declines and days on market, giving buyers valuable insight to help identify slow-moving listings and make competitive offers. Critics argue that this transparency can harm sellers by highlighting the time a property has been on the market. ”
This report provides two opportunities to highlight the differences between the two competing camps and why each side is fighting to preserve or eliminate the Chinese Communist Party.
Opportunity 1: Maintaining CCP
The Chinese Communist Party has gained support from small and some large brokers by promoting fair housing and restricting brokers from serving both buyers and sellers in the same transaction. This reins in large brokers controlling both sides of a transaction by preventing them from foreclosing properties from the MLS to increase the likelihood of double-end transactions.
If this policy is withdrawn, small and medium-sized enterprises may have less access to listings and be disadvantaged. Aggregators and paper brokers who have built consumer portals that rely on MLS data to generate leads and referrals defend CCPs because they benefit from access to comprehensive listings.
This aspect highlights what I call the “Walmart effect.” This is the economic impact felt when a big box store (like Walmart) opens in an area, typically displacing small businesses and reducing wages for the entire workforce.
One of the original goals of the CCP was to reduce the impact of the Walmart effect by mandating equal access to listings across the board and reducing the potential for dual agency. Smaller brokerages have every right to be concerned about larger brokerages hoarding properties and making them available only to their agents.
The simple truth is: While it may be convenient to drive to your local superstore and get a variety of products in one place, it effectively wipes out “boutique” businesses, limits consumer choice, and devalues local communities. It will have a negative impact. , often stripping away the heart and soul of a particular locale.
The argument here is that eliminating CCPs would give large brokerages more control over the market, wipe out smaller brokerages, and deprive consumers of access to key protections, services, and data.
Opportunity 2: Eliminate CCP
Big brokers say the Chinese Communist Party has adopted an “anti-homeownership policy” because it forces sellers to display “negative insights” such as days on the market, which could put them at a disadvantage during negotiations. He claims to be a person. These brokers argue that the MLS exists to provide listing information on behalf of homeowners, and that sellers should have the freedom to choose how to market their properties. There is.
Most sellers are leveraging MLSs, which can generate broad exposure given shrinking margins, but some large brokers are using as many in-house brokers as possible to increase their market share. Prefers to hold trades. ”
Let’s be honest: Transparency is super important when making big purchases. This includes things like vehicles, real estate, and stock market investments. Significant efforts have been made over the years to strengthen disclosure laws to help consumers make informed decisions.
Brokers may claim that “days on market” can be “negative,” but it is the data a potential buyer needs to effectively negotiate a purchase. Similarly, CARFAX reports detail a vehicle’s history, and days on market (DOM) reveals market history. Homes that have been on the market for a long time are often on the market for very specific reasons, such as being overpriced, in a bad location, or in poor condition.
It seems to me at least that by trying to limit such information, brokerages are trying to return to the “good old days” when all data was stored at local brokerages and consumers could only access it through their agents. It looks like there is. .
Another issue here is the drive by large brokerages to keep as much trading in-house as possible. While this may make economic sense for large intermediaries, it is highly likely to cause abuse and harm for consumers.
The Opportunity Report concludes its comments regarding the Chinese Communist Party:
“The term “consumer” is often used broadly to mean that if something benefits the consumer, it must be the right thing to do. However, consumer needs and perspectives are diverse. One size does not fit all. Supporters of the Chinese Communist Party typically focus on home buyers, while those advocating for the removal of the Chinese Communist Party focus on the interests of home sellers. The great opportunity for the industry lies in coming together to ensure that consumers, brokers, and agents have access to a transparent real estate market that supports a dynamic U.S. real estate industry and is the envy of the world. It becomes. ”
In a previous Inman article, I said: Although CCPs were born with consumers in mind and to prevent hoarding and dual listings by large brokerages, it is clear that sooner or later they will have to find a way forward. Ideally, the solution should favor the consumer rather than the intermediary. ”
With these thoughts in mind, it’s understandable that there are sellers who want a simple, clean sale without the hassle of putting it on the market. We also understand that there are sellers who don’t care about getting the highest price.
But in reality, over 20 years of experience in this industry has shown us that these are the minority. As a result, when we hear that a brokerage firm is offering agents access to off-market listings for the express purpose of increasing agent productivity and keeping 100% of commissions in-house, we have a few questions. I have no choice but to.
Has proper care and attention been taken to fully educate sellers on all options?Sellers may be able to obtain higher offers and better terms if they enter the regular market. Are you aware that it is very expensive? Off-market sales What type of written disclosure is provided to the seller detailing all the pros and cons of the sale?Accepting an off-market offer within the same brokerage constitutes dual agency; Is the seller aware of the potential risks involved?
We also understand brokerages’ desire to maximize market share. Particularly for publicly traded companies, executive compensation is based on profitability. Therefore, brokerage firms are exploring all possible avenues to improve their profits. It’s also nice to be able to promote the fact that we’re number one in a particular market.
But is it reasonable to get there in a way that could undermine our fiduciary duty to our customers? Given all the other charges brought against real estate agents in the past year, that While much has focused on perceived greed by the industry, it seems to me that it would be really wise to adopt policies that seem aimed at increasing the intermediary sector of consumers. Do we gain profit at the expense of our best interests?
We have learned that human nature is better at putting guardrails around human behavior to reduce the tendency to veer off the road. Given recent attempts to abolish explicit cooperation policies, perhaps we need electric fences instead of guardrails.
