In a dynamic economy, whole industries are occasionally disrupted or made obsolete. Sites like Expedia and Priceline have democratized travel information and put brick-and-mortar travel agencies out of business. Amazon ravaged shopping malls and is now using many of them for warehouses. However, real estate is one industry that has managed to resist consumer demands for transparency, convenience, and lower prices.
Real Estate Agents Are Still Charging Yesterday’s Commissions
Clients used to rely on buyer’s agents to run comps and find open houses in their price range. Now, companies like Zillow post listing information online, and shoppers are quite capable of visiting open houses on their own, either physically or virtually. So, how do buyer’s agents get away with charging yesterday’s commissions?
This is mostly thanks to an industry practice according to which the seller sets the buyer-side rate. If the seller wants people interested in their property, he or she has to offer the standard 3%. Otherwise, a buyer’s agent might discourage clients from seeing the showing or skip it entirely.
According to the National Association of Realtors, 83% of shoppers begin their home search online, but 90% purchase through an agent or broker. Consumers still rely on agents’ opinions, and many do not realize that they pay significantly for this advice. There is a widespread belief that the seller pays the buyer’s agent, but the seller simply bakes the agent’s price into the home’s asking price. If there were no buyer’s agents – or if buyer’s agents competed based on commission – homes would be cheaper.
The Fight over Real Estate Commissions
Change from within has been slow. On May 13, 2019, low-fee brokerage Redfin announced that RE/MAX had ended their partnership over concerns about Redfin Direct, a program that enables Redfin’s listing customers to receive offers from unrepresented buyers. RE/MAX feared that Direct would undermine buyer’s agents and disrupt the status quo.
Fortunately, there are other means of effecting change. A recent lawsuit against the NAR alleges that the practice of including non-negotiable buyer-side commissions in the listing price, a practice which is required of NAR members, is a violation of the nation’s antitrust laws. If the suit succeeds, it may force transparency and competition on the real estate industry.
Blockchain Brings Hope for the Future
There is more in store on the technology front. While the attorneys fight it out in court, the Propy team has been working to simplify and accelerate the purchase process. The Propy platform enables users to complete the transaction virtually, with the use of blockchain technology. In the future, if buyer’s agents cost money, the reason will be because they add value.