The real estate commission system needs to be reformed to protect consumers.
First, a little background on how real estate agents are paid. Typically the seller agrees to a commission in the listing agreement. This commission is used to pay both the seller’s agent and the buyer’s agent. The seller’s agent then decides what portion the buyer’s agent receives when the property is listed on the MLS. The seller’s agent can change the buyer’s agent commission on the MLS at any time. This commission system creates several problems for home buyers and sellers -
Buyers must include a buyer’s agent commission in their offers even if the do not use an agent. This is because the commission for the buyer’s agent and the seller’s agent is controlled by the seller’s agent. This results in the agent getting both commissions while providing no additional service to the buyer or the seller.
Buyers do not control what their own agent will be paid. This can result in agents not telling buyers about properties that have low commissions. And since commissions are not public, buyers have no way to verify if their agents are acting ethically.
Sellers may offer bonuses to buyer’s agents in order to bring in more buyers. As a result, buyers may be taken to see properties without knowing their agent will receive a bonus. Agents may also encourage buyers to buy properties offering bonuses without informing the buyer of the bonus.
Buyers are spending time researching properties on line but are not benefiting from lower commissions. Recent house sales, house sales trends, general neighborhood information, crime statistics, school information, etc. are now all available on line. The internet has made real estate agents advice about a neighborhood much less valuable.
Buyers can now eliminate many properties by the information available on line. While this saves the agent time in taking buyers to see homes, buyers are not paying lower commissions.
Sellers do not know if the buyer’s agent commission is too low to attract agents. This can result in a home taking longer to sell without the seller’s knowledge.
All of the above issues can be eliminated by giving the buyer complete control of the buyer’s agent’s commission. It allows buyers to set the commission based on partial or full real estate services. It also allows buyers to save the entire commission if they buy a home themselves, just as sellers can keep their agent’s commission if they sell their home themselves. On a $200, 000 home, a buyer can easily save $5,000 on the commission.
Also, it is unfortunate that some states require consumers to use an agent. If consumers are not forced to use mechanics to fix their cars, why are they forced to use an agent to sell or buy a house? This and the current commission system are two ways the NAR attempts to limit competition at the expense of consumers. New consumer protection laws are needed to end these practices.