Agents not showing homes over reduced commissions
Bringing light to another issue that I have seen in the real estate industry, the reluctance of realtors to show a property due to commissions offered by the sellers. I have witnessed, seen and know of realtors who will simply not show a listing because of the commissions being offered by the sellers. The practice is starting to increase in regularity as we see more discount brokerages enter the market that offer less commission to the agent representing the buyers.
The Los Angeles Times talks discounted commissions
I recently came across an LA Times article about the practice of not showing homes over reduced commissions and thought about a few recent examples that I have seen myself. The article discusses the fact that sellers really don't know if their property isn't being shown due to the decreased commissions offered to buying agents and buyers do not know that they are not being shown the same property. Agent commissions can vary and some discount brokerages or fee for service brokerages offer the buying agent less of a commission when they represent the buyer. These are the brokerages that tend to see the 'boycott'.
In the article, when talking about not showing listings that offer discounted commissions another agent discusses a realtor's willingness to work for free. I agree that there could be a situation where you do end up working for free but the likelihood of it is low. Often there is some payment offered to the buying realtor. I feel this attitude does not reflect a mindset of an agent that is trying to build long-term relationships. Yes you might end up selling a house and not getting paid a lot on the deal but I do not feel that real estate should be about the money, it should be about helping people find a home. The agent in this article should consider the long term advantages to building a relationship with his clients and the future karma and referrals that can come. I doubt with a mindset that is about protecting themselves and their commission that, agents like this have a large portion of business coming from referrals anyway, where-as 100% of my business this year has been referral based.
The ethics surrounding homes that do not offer the realtor commissions are pretty straight forward in my mind. Show the buyer the home. What if it was the perfect home for the buyer? Do I want them to miss out on a potentially perfect home for them over a few thousand dollars for myself? Of course not! I want people to find a home they love.
The National Assn. of Realtors' (which is an American association) code of ethics prominently states that in representing a buyer or a seller, agents must "protect and promote the interests of their clients." If you're not showing homes appropriate for your buyer, that doesn't sound like good representation.
I have to agree with the code of ethics from the National Association of Realtors and the LA Times. Looking out for my clients means showing them all the homes that might work for them, regardless of what is in it for me. The interest of the buyer should take priority.
This is what the acknowledged industry ethics leader and senior vice president for Berkshire Hathaway Home Services had to say:
— about the issue, and he said there's considerable gray area here.
Without a formal written buyer-agent agreement that specifies compensation and creates a fiduciary duty between agent and client, no one can reasonably expect an agent to work for little or nothing, Aydt believes.
"At some point," he said, "the failure of a buyer's agent to show properties because of a perceived 'low' commission" could violate a Realtor's ethical duties "and perhaps state law."
Perhaps violate ethical duties? An agent work for little or nothing? It sounds like the ethics leader and senior vice president of a large Real Estate company in the USA is more concerned about the commissions for agents then the interests of buyers. If the head of the company is saying this publically, what do you think the agents of his company in the field are doing.....?
Does this actually happen?
I hadn't really noticed this in action until last year. While I was away in Thailand a friend reached out to me and discussed listing her property. She had previously reached out to me and discussed listing her home with a discount brokerage, a for sale by owner (FSBO) website and asked for my opinion. I told her that I thought it didn't matter, as long as she was priced appropriately, that her home showed really well, was almost brand new, in a trendy neighbourhood and that it should sell regardless. I encouraged her to do what was right for her and never once took issue with her asking me about a discount website.
A few months later she reached out again. She wasn't getting any showings and she asked me why. We talked about price and how her home showed during showings but I know that her home was immaculate and it seemed to be priced close enough to market value that she should have had some showings. I thought about it for a while and then asked about what she was offering as a buyers commission. I can't remember if she was offering nothing or a minimal amount but that doesn't matter, it was low compared to what a buyers agent would normally get for selling her house. I told her that it shouldn't matter, that agents should be showing her home anyway but that the reality was it likely had something to do with her lack of showings. She updated the buyers agent commission and there was a small increase in showings but nothing like there should have been. She reached out again, this time I was stumped, I didn't know why it wasn't getting showings. She didn't have professional photos but with the location, cleanliness and style of her home, I thought it should be generating interest. Her suspicion was that there was a 'Real Estate Mafia' and that she was not getting showings because agents were not showing her property because it was with a discount brokerage. I initially disregarded this but have since changed my mind...
Why did I change my mind?
When I returned from Thailand she decided to list with me and we went through my documented approach of preparing a home to sell. We had professional photos, made sure it was super clean, had open houses and marketed the property. The first few days on market we had an influx of showings and this carried on for the first couple of weeks. The home was actually quite popular, like I initially thought it would be. At the time I thought it looks like great photos and the right marketing really do make a difference! They do make a big difference in getting a home sold but in hindsight after my next experience with agents and how they responded to discount brokerages, I think she might have been right. Maybe it was the 'Real Estate Mafia' that was boycotting her listing...
A room full of 500 agents saying they would not show discount brokerage listings...
In the real estate industry there are several gurus and coaches who offer training and coaching across North America. Recently I was 'fortunate' to receive an invite to attend one of their local week long training sessions in Calgary from one of my referral partners. The name of the organization is not important, it is not my intent to name names, it is not an attack, I simply want people to know what happened. I was warned beforehand that the course might be a bit too 'salesy' for me and different from the way I operate. I appreciate that I was given this warning but I could have never imaged the level of salesy mcsales that happened there. For five straight days, eight hours a day, basically all that was taught was how to be a human spamming machine. Cold calls, door knocking, spamming your Facebook account for referral requests; it was the antithesis to how I operate. This is not how I do business but I digress.
The point here is that the course was quite large, most of the people there had either received free entry from a local mortgage broker, paid to attend the course, or were local clients of the 'Guru'. I think there had to have been 500 people in attendance, maybe I am a bit off in my guesstimate but for sure there were at a minimum several hundred realtors. .
How did the main speaker of the coaching team operate?
On the third day of the course the head 'Guru' for the week started to talk about discount brokerages. He was from Ontario and he was discussing how he operated back there, to put this in context for the three previous days he had been discussing semi-unethical practices and then followed it up with saying that he refuses to show listings that are offered by discount brokerages. He said he simply will not show them, he doesn't have a buyer brokerage agreement in writing with his buyers saying that he will not show properties that do not offer him 'his commission'. He simply just won't show the listings, he lies to his clients and tells them that the seller did not get back to them or makes an excuse for why they can not visit a certain property. He also bragged about how he thought it was a good idea that when setting up a search for buyers to simply add a filter in the home search to filter out properties that did not offer him what he 'should' be paid. There was zero thought about the buyers, it didn't matter if the perfect home for them was available, if it did not offer him full commissions then not only was he not showing it to them but he setup his searches to filter out any properties that did not pay him first.
Wow, I was shocked! First, someone would do this? Second, you can do this? I had no idea that there is a way to actually filter out homes that do not offer commissions. He was from Ontario though so likely you could not do the same thing here right?...Wrong, a few minutes later I was looking at the additional advanced search options on our Calgary Real Estate Board software and it was there, the ability to filter out a home based on the commissions offered by there seller.
Now, there are some realtors who sit down with buyers and have a written contract that says that if the sellers do not offer them full commissions that the buyers have to make up the difference and pay their buying agent directly. If the buyers do not agree to this, I know agents that will not work with the buyer, or the buyer can chose to not be shown listings where they will have to pay 'their' buying agent the commission. In this scenario, there is a chance that the buyers might miss out on a home that is perfect for them because the realtor wants to make sure he gets paid first. This is likely a business model that works for some people but it does not sit right with me.
What did the room do?
So, there I was in a room full of approximately 500 agents, on a course where we were supposed to be learning about being better realtors, put on by one of the largest real estate coaches in North America and we were being told by the presenter that he simply does not show listings of discount brokerages. The crowd erupted in applause...
If you have ever done a course with me, whether while in the military, at Dalhousie, the Royal Military College, University of Calgary or during pilot training you know that I always sit in the back corner of the room, no exceptions. It turns out from the back you get a great opportunity to observe things that are happening in the room. Here I was, watching a room full of realtors who are supposed to be representing the best interests of their clients, rising to their feet, cheering, clapping and shaking their fist all at the same time. It made me feel like I was at a pep rally or perhaps a political rally but sadly I wasn't, I was at a coaching course for realtors and a vast majority of the room seemed to be in agreement about not showing listings that do not pay full commission.
So does it actually happen?
I thought back to the listing from above...Maybe this was the 'Real Estate Mafia'? Is this what the seller thought of when she coined the term in my mind 'Real Estate Mafia'? Likely not, I am assuming she was thinking of individual agents sitting at their computers, casually passing over listings from discount brokerages; not an entire room full of realtors erupting in applause when the 'Grand Master' stated he did not show these type of homes.
This system is clearly broken. The fact that realtors ignore listings that are offered by discount brokerages is wrong but realistically it is not going to change. Agents are concerned with protecting themselves and their livelihoods first, not the interests of their clients. Good luck getting people to take a 'pay cut' so that they can do a better job of watching out for their buyers. It is almost like the system is an enabler to the problem, we have industry leaders of large real estate firms not taking a stand against this behaviour but the industry's widely acknowledge ethics guru stating there is a grey area and saying that
"the failure of a buyer's agent to show properties because of a perceived 'low' commission" could violate a Realtor's ethical duties "and perhaps state law."
Should the correct response not be that it does violate a Realtor's ethical duties? There are filters on the software offered by real estate boards that make it easy to filter out these properties and there is really no way to get caught doing this. How many times has a realtor said that you could not view a showing because the seller said no, or that it was an inconvenient time for the seller or tenants? Was that the truth or was that listing you sent to your realtor from a discount brokerage that they did not want to show?
It really is a grey area and it shows the importance of why working with a realtor who is looking out for you is important. The chance that you might miss out on a perfect home over a few thousand dollars in commissions does not seem worth it. Just like a condo I sold in Canmore last week, not every home offers buying agents full commission but that is not a reason to pass it over. I was happy that we could find a home that was perfect for the buyers; one that matched exactly what they were looking for. Would it have been easy to pass it by and find another listing? You bet but that's not who I am.
If you want a Realtor who puts clients first, please reach out to me. If you want to be treated like the clients of that room full of 500 agents, look elsewhere.