Inman

What if buyer’s agents had to negotiate their own commissions?

By April 16, 2018 No Comments
What if buyer’s agents had to negotiate their own commissions?
REPOSTED DIRECTLY FROM INMAN NEWS. THIS CONTENT HAS NOT BEEN MODERATED BY WFG NATIONAL TITLE.

Buyer agency and exclusive buyer representatives are nothing new. What would the consequences be if listing and buyer’s agents each negotiated their commissions separately with the clients they represent?

A few days ago, I had a fascinating conversation with Ken Jenny that really got me thinking about how agents are compensated and the problems that are inherent in the current system.

Jenny made a strong argument for the creation of a viable alternative to the current MLS system that is not governed by organized real estate. Jenny believes that brokers need to have more choice in the way they manage, share and license their data; that level of choice is simply not available in the current MLS environment.

Jenny then posed an interesting question based on the fact the brokers and agents can display the full IDX feed on their sites: In what other business could someone advertise literally hundreds of thousands of products they essentially know nothing about or have not even seen?

He went on to argue that that you wouldn’t go to a BMW dealership to buy a new Mercedes. By the same token, if you wanted to sell BMWs, you could only work at a BMW dealership.

In terms of the impact on the consumer: Those who lack specific product knowledge have a high risk of misrepresenting that product to a potential buyer.

Buyer’s agents rely on listing agents to create the revenue in the deal

One of Jenny’s most persuasive arguments was that the industry is plagued by unproductive, poorly trained agents who are only able to do business because a productive listing agent negotiated a 3 percent buyer commission on their behalf.

Imagine what would happen if every buyer’s agent had to negotiate his or her own commission with buyers. That would immediately wash out virtually any agent who simply used other agents’ listings to generate leads or was incapable of selling their value as a buyer’s agent to the buyer.

This would immediately raise the bar on the level of skills required to earn a commission and would better serve the consumer. Furthermore, sellers would love it because they would only be paying a 3 percent commission.

On the downside, if buyers had to come up with additional money for the commission (that, in truth, they’re already paying as part of the purchase price), that could negatively impact affordability, which is already a huge issue.

The models are in place to make this change

Although this change may seem radical at first, when you look at what is happening in practice, most of the elements required to make this change are already common practice for thousands of agents.

Consumers want the listing agent

For the past several years, I’ve been hearing that consumers have come to the same conclusion that Jenny did.

When listing agents try to convert a lead that was not a fit for their listing (and the same is also true for those who are doing other types of prospecting), the buyers cut them off and say, “I’ll just call the listing agent direct.”

Addressing the dual agency issue

Any change that would allow one agent to represent both the buyer and the seller raises the issue of dual agency. Colorado and Florida, however, have already eliminated dual agency. Instead, all salespeople are brokers.

The South Broward Board of Realtors, Inc. in a letter to State of Florida legislative committees explained how this system works in its state:

The transaction broker crafts a transaction by bringing a willing buyer and a willing seller together and assists with the closing of details. The transaction broker is not a fiduciary of any party, but must abide by the law as well as professional and ethical standards.” (such as NAR Code of Ethics).

Exclusive buyer representation

Exclusive buyer representation, including the ability for buyer’s agents to collect commissions directly from the buyer, already exists in virtually every state.

In fact, the National Association of Exclusive Buyers Agents (NAEBA), already operates in this model. NAEBA is a professional organization of buyer’s agents and brokers who only represent homebuyers.

Agent teams

In many large agent teams, the duties of the listing specialists and buyer’s agents are clearly divided, and there is no crossover between the two roles.

For example, when a buyer agent generates a listing lead, the lead is turned over to the listing specialists on the team, and the buyer’s agent receives a referral fee.

The same is true when the listing specialist generates a buyer lead. This specialization allows the teams to give their clients the best possible customer experience based on who is best suited to handle each aspect of the transaction.

Implementing a referral agent model

What do we do with all those licensed, but non-productive or poorly trained agents who can’t negotiate a buyer’s commission? The solution has been around for decades.

Many brokerages have a “referral agent” program. Agents who are new, part-time or who would like to semi-retire from the business, can refer client leads into the brokerage. Some brokerages require these referring agents to be trained on how to make these referrals before they can participate in the program.

Once the lead comes in, it is assigned to one of the productive agents who specializes in a given area. In terms of the agents who receive leads, it’s treated like a relocation referral.

Sometimes specific referring agents are assigned to one or two top producers. If need be, these agents can join the referring agent on the listing or buyer appointment to make the handoff and secure the business.

Could it work?

Making major changes in practice is a daunting task, however, as you can see from the examples above, the elements required to implement such a change are already being used by thousands of agents daily.

I’m genuinely curious about both the positive and negative consequences that such a move might cause. I know the Inman community has strong opinions, and I would love to hear what yours are in the comments section below.

Bernice Ross, President and CEO of BrokerageUP (brokerageup.com) and RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles. Learn about her broker/manager training programs designed for women, by women, at BrokerageUp.com and her new agent sales training at RealEstateCoach.com/newagent.

The views and opinions of authors expressed in this publication do not necessarily state or reflect those of WFG National Title, its affiliated companies, or their respective management or personnel.

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