REALTORS Called for Technial Foul– Unsportsmanlike Conduct
October 13, 2006 |
One aspect of sports for which the official is directly responsible is enforcement of the rules. One of these rules governs unsportsmanlike conduct. In basketball, any unsporting conduct results in a direct technical foul, and if it is severe enough, could even result in ejection from the game. I am beginning to think that there are some real estate associations out there that could use a technical foul or two. . .
I recently received in my inbox the morning news update from Inman news, just like every other morning. This time, I clicked on a link to an article about the Canadian Real Estate Association and its efforts to make rule changes to the MLS that are similar to those being challenged by the Federal Trade Commission in the US. According to the article, the Canadian Competition Bureau, which is equivilent to the United States Federal Trade Commission, has raised concern over the proposed MLS rule changes and how it would effect competition in the Canandian real estate industry. If all this sounds familiar, it should. The same thing is happending here in the US, in many different places. The only difference is that in Canada, the CREA owns the MLS. Judging by the potential outcome of the rule change according to the article, it would appear that we share more in common with our neighbors to the north than just a border.
The reason that I bring this up is not to rail against such rule changes and the potential negative effect that they may have on competition. I disagree with the rule change, but that isn’t the reason why. The reason that I dislike this rule change, and the similar changes that have been made, and ultimately rescinded in the US, has to do with the following passage from the article. The quote refers to Ian Martin, CEO of Erealty.ca:
His company works only with sellers and offers discount commissions as low as 0.5 percent of the sale price. The company’s agents do not personally visit properties. Martin said he believes his company represents the next generation for the industry, though he said he recognizes that there are those who want and need full-service real estate representation.
I don’t have a problem with limited service brokerages, per se. I recognize that there is a segment of the market that might actually want limited representation. My problem is the fact that limited service is the “next generation” of the real estate industry. It isn’t just in Canada, either. Companies like Redfin.com garner similar accolades here in the United States.
I fully recognize the fact that there is downward pressure on real estate commissions. This pressure is coming from consumers. There is obviously a growing number of consumers who feel that the comission being paid to real estate agents is not commensurate with the service being provided. Sometimes, this is most certainly true. If I list your home, put a sign in the yard, sign a contract in a week, and successfully represent you through a 30-day closing, 3% of the contract price of the home is pretty steep. Add the 3% to pay the buyer’s agent, and now things are getting really steep. This is the same argument that is being made by consumers all over the country. It is a fair argument that deserves a fair response.
One would think that with all the money being poured into real estate over the past few years, and with all the great entrepreneurial minds that exist in this country, something brilliant would come along. Nope. The most popular response to the downward pressure on commission rates is to eliminate services. Offering limited services for a lower fee has gained a ton of momentum, and national and local limited services brokerages are a big part of every local real estate market. Now that this type of business model is popular, are those in the industry who oppose it doing anything innovative to compete? Nope. The best solution that has been found thus far is to change the rules and laws that govern the profession in order to place a limit on “limited service.” To change the rules in such a manner that only a portion of the profession, who are operating legally, are adversely affected is bad. To do so just because you don’t like the way they conduct their business is unsportsmanlike. This is a microcosm of a much larger issue in the real estate industry. The problem is not that industry is anti-competitive. The problem is that REALTORS are afraid to compete.
For those REALTORS who have such a big problem with limited service brokerage, there is a much better option– COMPETE. If you don’t like the fact that the broker down the street is offering limited service, try offering more service. Instead of requiring him to offer increased service, increase your own level of service. If, after educating the public about the value of the increased service you provide, there is still a segment of the market population that is going to chase after limited service for a limited fee, then good riddance to them. I don’t want to work with people who have low standards and expect nothing. Usually, nothing is what those people get, along with a large helping of disappointment on the side.
Along the same lines as these new MLS rules are the “minimum service” laws that have been enacted in many states in the country. For me, they fall in the same category of unsportsmanlike conduct as the MLS rules. Our profession should not feel the need to require service. If everyone does what they are supposed to be doing, and the free market is allowed to take its course, then those that offer limited services will enventually be put out of business by those that offer a level of service more commensurate with what people expect. And if the problem is that people’s expectations are too low, RAISE THEM.
The real estate industry is one of the few industries where innovation is not restricted by onerous government intervention. The very last thing that the industry and the public needs is to have REALTORS trying to make rules that inhibit any type of innovation. There is nothing illegal about offering limited services. Heck, for some people, it is desirable. If this type of business model is going to be viewed as a problem within the industry, the way to handle it is to use the current industry rules to compete against those businesses in the marketplace. The solution is most certainly NOT to enact rules designed to throw roadblocks in the way of those offering limited service. Those limited service brokerages haven’t broken and rules.
Free-market competition is one of the things that makes America great, and one of the best attributes of the real estate industry. Trying to avoid such competition by the enacting of new rules is unsportsmanlike at the very least, and a violation of free-trade at the very worst.
[tags] real estate, realtor, charlottesville, technical foul, canada, limited service, redfin, erealty, discount real estate, MLS, FTC, competition, free market [/tags]
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6 Responses to “REALTORS Called for Technial Foul– Unsportsmanlike Conduct”
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Disclaimer
My name is Daniel Rothamel. I am a licensed real estate agent in the Commonwealth of Virginia and a member of the National Association of REALTORS. As such, I adhere to a strict code of ethics and all laws with regard to equal housing, which is reflected in the content of this blog. My broker is Strong Team REALTORS, 86 Joshua Lane, Palmyra, VA 22963; (434) 589-5800. My VA Real Estate License number is 0225 077325. All of the opinions in this blog are mine, unless otherwise noted.
I agree with you, almost without reservation. Realtors need to stop being afraid of their shadows and venture out into the cold cruel world of real competition. Over the almost four decades of my career limited service for reduced fees have failed without exception, and will, for the most part this time too. Quality service is always in demand, but quality results will trump all.
One observation though.
>If I list your home, put a sign in the yard, sign a contract in a week, and successfully represent you through a 30-day closing, 3% of the contract price of the home is pretty steep.
The last time that happend to me I simply asked the client if they thought my commission would be better earned had been less successful in selling it so quickly, taking four months instead. Was he trying to tell me my services were less valuable because I sold his property sooner rather than later? He withdrew his comment, but not until his wife stopped laughing hysterically.
Incredibly, they’re still clients.
[Reply]
[...] Two of note from Daniel Rothamel at The Real Estate Zebra: Working with clients before the real game starts to make sure they understand the process and some unsavory games being run north of the border. [...]
Jeff,
I like your story about your clients, and you are exactly right. I think that the overall issue, however, is that there is a disconnect in the industry between services rendered and the amount of compensation. If the amount and quality of work is the same for a $300k house as it is for a $400k house, why is the compensation different? I think that this is the issue to which the public is objecting, whether or not they articulate it.
Referees are aware of this problem without even thinking about it. We don’t get paid differently if the game goes into overtime; or in baseball, if the game lasts only two hours as opposed to three. The teams in those games don’t mind because the amount of money in question is pretty low and paying officials in any other way isn’t practical.
The issue is magnified in the real estate industry because the amount of compensation is in the thousands or tens of thousands of dollars, and it is coming directly out of the seller’s pocket.
[Reply]
[...] RSS ← REALTORS Called for Technial Foul– Unsportsmanlike Conduct [...]
Daniel, you make an excellent point. However so far the market hasn’t thought it particularly compelling. When and if it ever does, the current template of a percentage of the price commission may go the way of the manual transmission.
Either way though, the perception of value received will remain the central test for our clients. Have you as their broker improved their position to the point your fee was worth it? As long as the answer to that question remains yes, how you arrive at that fee will not matter.
Our industry leaders tend to defend instead of rationally explain.
[Reply]
[...] How nice of MNAR to tell broker members what they are going to do before they have even done it. Perhaps brokers will instead try to help their agents innovate and compete in the marketplace and . . .oh never mind, I already covered that. [...]