How do you rate the standard of ethical real estate practice since the 2006 housing boom to now?

  • Standard is lower. (46%, 55 Votes)
  • Standard is about the same. (34%, 41 Votes)
  • Standard is higher. (19%, 23 Votes)

Total Voters: 119

Comparing American real estate agents to their counterparts in Britain, a recent article from The Economist questions U.S. agents’ ability to charge a 5-6% brokerage fee at a time when British agents charge half the price – and close a greater number of deals per agent.

This recent article suggests American agents, whom the author refers to by the generic term, “realtors,” are:

  • overpaid;
  • underproductive;
  • intolerant toward competition; and
  • manipulative toward their clients.

Online services have sounded the death knell or forced restructuring for many occupations, and the advent of hugely popular real estate websites should push live agents into obsolescence, yet U.S. brokerage fees have not decreased. In fact, the national average has seen an uptick from 5% in 2005, to 5.4% in 2011, according to REAL Trends’ research firm.

How do American agents do it?

The exclusive practices of many real estate agents, particularly members of local boards associated with the National Association of Realtors (NAR), have allowed them to maintain control of the market through price-fixing. This is a historical characteristic inculcated in many agents and brokers.

Before 1990, only licensed brokers/agents had access to real estate listings, requiring buyers and sellers to hire a professional in order to buy or sell a home. Printed listings were inscribed with words of admonishment that the agent holding the book was not to let members of the public take possession of the property data.

Even since the internet made nearly all real estate listings available to the public, many agents continue their exclusive practices by conscientiously avoiding cooperation with the activities of non-NAR members, or For-sale-by-owner (FSBO) transactions.  Some even refuse to work with the web sites that voluntarily promote their listings free of charge.

The silent brotherhood of brokers has sometimes been a threat to nonconformist discounted brokers as they deal within the association, looking out for other members, to the exclusion of anyone else. The same treatment is applied to users of non-CAR forms and other materials. [People v. National Association of Realtors (1981) 120 CA3d 459]

Other theories for the continuation of sizeable brokerage fees suggest brokers are able to acquire their fees by playing buyers and sellers against each other. To the buyer, a broker suggests that the seller will pay the brokerage fee—the buyer has no need to negotiate for a lower percentage since the fee is irrelevant to his bank account.

Conversely, brokers assuage seller’s complaints over fee rates by arguing the fee is factored into the purchase price and thus covered by the buyer. This implies two prices for property: one with agents and one without — a strange pricing arrangement even FSBOs know how to get around.

first tuesday take

The real estate industry is unquestionably exclusive in its use of public data. This is an unfortunate fact, but more brokers and agents are becoming less diabolically manipulative than this recent article suggests.

Unflattering publicity prompted by unflattering facts from cases such as People v. National Association of Realtors (NAR) in 1981, have given many cause to doubt the integrity of real estate agents and brokers. The irresponsible agency practices of many which peaked in the 2006 housing boom did little to improve the situation, but rather revealed a population of agents (and their supervising brokers) more concerned with making a quick buck than their proper, lawful role as advisors to their clients.

Related articles:

Severing ties with listing aggregators

Price fixing and kickbacks for the sake of earnings

However, such behavior is not the rule for California agents and brokers. The public’s recent disillusionment with agents presents a challenge to the better breed of those practicing real estate, but it must not be allowed to progress to cynicism and doubt.

Agents must prove their worth through honest, faithful counseling of their buyers and sellers. This is accomplished quite simply: by releasing both known and readily available (knowable) information about a property when the buyer requests more information following initial exposure to the property– ASAP.

By being more than a mechanical calculator of theoretical property values and purchasing prices.

By being truthful, upfront gatekeepers of the real estate market.

Related article:

Damage control: restoring public trust in real estate professionals

Re: “The great realtor rip-off” from The Economist