Is Brokerage Solidarity A Real Estate Reality?

Is the brokerage community some sort of monolith, a group-think brotherhood where all march in unison?

I wondered about such issues when I got email the other day which really peeked my interest. The letter went something like this:

I wonder if the FSBO listings on the MLS are treated differently by brokers at large, even though the FSBO offers the same commission to the buyer’s broker? Would you think that brokers would boycott/avoid FSBO listings as a matter of solidarity? Is there any data on this topic that you might know of?

These are important questions and they implicitly raise several points. Let’s take ’em one by one.

First, the term “FSBO” means “for sale by owner.” By definition, all homes listed on a broker-operated MLS are placed there by, er, brokers and not directly by owners. Thus such properties are not FSBOs, they are brokered listings complete with listing agreements and fees paid to brokers.

Listing agreements can vary enormously, the terms are not set in stone. The pantheon of listing options includes exclusive right to sell contracts, exclusive agency listings, listings with a flat fee and listings which reflect a menu of services. The terms and fees are negotiable.

Regardless of how a home is listed, if it’s listed it’s not a FSBO. With a listing, any listing, there’s a broker involved and there is an obligation to provide services which meet visible and established standards.

Second, our correspondent raises the matter of fees; to whit: All things being equal does the way a home is listed impact the interest of buyer brokers?

If the fee to a buyer broker is the same as the fee from any other property, and if we assume that brokers are lucid, then the buyer broker doesn’t care. But let’s say that broker Smith — if only for the sake of argument — will not show certain listings for philosophical reasons. In such a situation you can bet that broker Jones will be elated both to find a buyer and collect a fee. A seller, of course, needs just a single purchaser.

Buyer brokers can and do approach FSBOs — sellers without any broker representation or assistance — and make offers. The reason? Buyer brokers are still being paid, perhaps directly by the purchaser or indirectly by a credit to the buyer from the seller.

Third, the idea of brokers having “solidarity” is interesting. No doubt the brokerage community would like to see such cohesiveness.

Brokers compete with one another and often have very different ideas regarding policies and practices.

As evidence, consider that 1.3 million people now belong to the National Association of Realtors. Given this enormous membership, it’s not surprising that NAR has one of the largest political action committees in Washington. In the 2006 election cycle, the NAR PAC took in $9.4 million according to OpenSecrets.org. Of this amount, $3.6 million went to federal candidates.

No doubt these are big numbers, but think about it: This is an association with 1.3 million members — the PAC collected a hardly-mammoth $7.23 per member. Forty-eight percent of the NAR PAC money went to Democrats and 52 percent went to Republicans. Not an even split, but not evidence of political solidarity, either.

If the brokerage community has such solidarity, where’s the money? Of more than 1.3 million members, only 3,609 contributed at least $200.

When last I looked more than 2 million people had real estate licenses, which means that more than 700,000 licensees not only do not contribute to the NAR PAC, they don’t even belong to NAR.

The real question raised by our correspondent is whether a property entered into an MLS will get a fair shot at being sold regardless of how it’s listed or who does the listing. It’s a fair question.

Assuming the house represents a competitive property in the local marketplace, I think the logical answer goes like this: Brokers are entrepreneurs who earn their living representing others in the sale and purchase of real estate. Each buyer and seller, each sale and purchase, represents a business opportunity — and brokers who turn down such opportunities don’t eat.

Published originally by Realty Times on January 23, 2007 and posted with permission.

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