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The Sacred Pact of Cooperation Between Brokers Is Unraveling

The Sacred Pact of Cooperation Between Brokers Is Unraveling



With a corrugated brow, a well known real estate executive recently lamented, “Our world is turning upside down. In a few years, nothing will be the same.”

Indeed, the mainstream real estate industry seems ready to admit and even embrace big changes they previously ignored or resisted.

German philosopher Arthur Schopenhauer said, “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”

And what is becoming self-evident?

The 110-year-old broker cooperation compact is unraveling and could, sooner than later, become a relic of the past. Four big trends — legal challenges, coming-soon listings, digital transparency and instant offers — are upending what has been as central to real estate sales as turkey is to thanksgiving.

“The industry that relied on a clear standard of cooperation and compensation could easily find itself outside looking in,” said MLS guru David Charron.

But why? The compact is elegant and simple

You show my listings and I show yours. We share the commission, a listed home is put on the MLS for everyone to see and everything is hunky dory. Kinda, until recently.

Now and quite suddenly, holes are showing up in the system. Never have so many smart people and savvy institutions shined a light on a tried and tested compact that is equally idyllic as it is opaque.

Broker cooperation makes it easy for home buyers to use an agent without putting up any cash. How could that be a bad thing? Well, it is also a construct where who pays who for what is often a convenient mystery. And confused interpretations of fiduciary duty are too common. Or put more simply, is the buyer paying or not?

Another nagging characteristic of the old system is that it often involves a protracted home sale process.

In a more transparent world, such practices are under a microscope by a new set of companies and by new ways of doing business. They want to speed things up and make the process more certain. Consumers seem eager to embrace the trend as they have with everything else in their lives, from instant medical test results to same day delivery of an Arctic Air two section refrigerator from Amazon.

And then there are the lawyers and their perilous lawsuits

Two major class action cases have been leveled against the industry, challenging the very core of the broker compact. The claims stem from NAR’s compensation policy, which requires listing agents demand buyer-side commissions from sellers when listing a home on an MLS.

This legal strategy has been tried before. But some smart observers believe the times are different today and transparency may prevail on the industry in ways that the old guard never expected.

Whatever the outcome, the cases will tie up the National Association of Realtors. Even if it prevails and declares victory, marketplace and tech trends are moving at warp speed on other fronts, changing the old ways, that could once again leave NAR behind the curve.

Industry eating its own tail

Another threat to broker cooperation is one of the industry’s own making. “Coming soon listings” circumvent the open and transparent real estate marketplace that was a derivative and shining element of broker cooperation. This shadow market undercuts the compact.

Faced with shrinking margins, everyone is racing to grab both sides of the transaction. Greed trumps doing the right thing.

This trend threatens the MLS who today is the defacto regulator of the transaction. And it will damage one part of the broker compact that worked so well: clear and devotional representation of both the buyer and the seller.

Instant offers change everything

The most ominous threat to broker cooperation is the growing share of instant offers and iBuyers.

In many cases, instant offers are a consumer direct solution where the broker compact is less and less important. A seller does not list in the conventional way because showing off each other’s listing is unnecessary in an instant-sale situation.

The protracted timeline of selling is being replaced by the fast and furious transaction.

This phenomenon is being driven by a proptech industry that is eager to change the old rules. Add Wall Street’s growing interest in owning more homes and you have a new marketplace, rising alongside the old way.

The radical changes brought on by iBuying are beginning to enter the consciousness of the old guard, some of whom are determined not to be left behind. This week, Keller Williams announced its Keller Offers program. It plans to spend $100 million this year, and by the end of 2019 expects to be active in six to eight major U.S. markets.

Last fall, Coldwell Banker announced it will begin making quick cash offers on homes, and NRT is also testing the idea.

Are these companies behind?

Yes, leader Opendoor opened its doors six years ago and will be offering the iBuying option in most major markets in the U.S. by the end of next year.

Zillow is full-on committed to instant offers, pivoting its entire business model around quick sales. And a raft of other startups are entering the market — competition that will speed up consumer adoption and expand market coverage.

What was once considered a wacky alternative will go mainstream by the time President Trump finds out if he is going to serve a second term in the White House.

Let’s imagine a time when 50 percent of home sales are done via instant offers. That could be the final nail in the coffin of broker cooperation.

It will disrupt the MLS, alter the traditional commission sharing scheme and effect how agents perform their services.

In the end, broker cooperation becomes less and less important. The listing business, as we know it, will be much smaller. Buyers will compete with institutions and agents will deliver on-demand service or risk being left out.

Email Brad Inman





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