Uncoupling real estate commission: 10 Megatrends pointing towards Tipping Point in 2006
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Transcript of Uncoupling real estate commission: 10 Megatrends pointing towards Tipping Point in 2006
Uncoupling the traditional two-sided real estate commission
10 Mega-trends leading towardsTipping Point in 2006
OverviewTwo-sided fee: Linchpin of 900 MLSs
Barrier to price competition
Goal: separate agents / separate fees
Consumer savings: $10 billion annually
10 trends = tipping point/break point?
1. Subagency disappearing
Realtors moving away from subagency
Buyer agents negotiating own fees
Historical basis for two-sided commission becoming obsolete?
2. Rebate models pressuring
Lending Tree, ZipRealty, & others
Rebates moved into mainstream
Chipping away at two-sided commission
But not going far enough
3. Old Biz models experimenting
DeWolfe New England, leading RE firm
DirectDirect.com: separate commissions
“More logical if each paid”
“Equitable, straightorward, honest, & revolutionary”
Purchased by NRT/ Cendant, Fall 2002
4. MLS Listing entry only proliferating
Hundreds of listing entry only options
Flat fees: under $500 to 1%
Some require 2-2.5% coop fees
Undermines ability to maximize savings
Fear listings will be boycotted
5. 103 - 107% financing
Allow buyers to finance 3% closing costs
Another 4% to pay-off consumer debt
Why not allow buyers to finance fees?
6. Banks competing
Proposal 1st made by Fed in 2001
Brookings Institute endorsed in 2005
Increase competition in industry?
Likely to uncouple fees, offer financing
Rising foreclosures will minimize fees
7. Fee-for-service unbundling
Menu of service / real estate a la carte
NAR: business model of the future?
Potential partners with banks
National Assoc. of R.E. Consultants founded in 2000
8. Widespread consumer dissatisfaction
Gomez/Inman @ 2000:
CBSMarketWatch: Most overpaid jobs
CNN/Money: Brokers overpaid
WSJ: consumers pay $24 billion / yr. more than European counterparts
9. Regulators looking at barriers to competition
GAO congressional study overlooked
Brookings made repeated reference
FTC seeking recommendations on how to uncouple
10. Real estate bubble shrinking home equity
Prolonged downcycle following bubble?
Home prices stagnate or fall
Home equity shrinking/negative equity?
Seek alternatives to preserve equity
Minimize transaction costs, both sides
Time for a change1991 CFA: “decouple commission”
1996 Former NAR economists: “next major revolution replacing commission”
2000 Inman / Gomez: “1 in 4 buyers, 1 in 3 sellers wants full service, full fee”
2005 agent: “outdated system...Stop telling me how much I must work for...”
Regulatory intervention
Why is the industry still built on two-side commission?
What obstacles need to be removed before...
Buyers & sellers hire own agents
Determine what services are worth
Compensate independently
Policy change necessary
Goal: finance fees independently
Fannie / Freddie hold the key
Change could be implemented rapidly
Billions in consumer savings annually
Local experimentation
Agents & sellers fear being boycotted
A few innovators are experimenting
MLS require offer of compensation
BYOB: Bring your own broker
Minimal fee offered/buyer pays extra
Currently no easy way to finance
Involving consumer groups
Back to the future: CFA reform @ 1991
2005: CFA return to real estate?
Push overdue reform past tipping point
Help millions of buyers and sellers save billions of dollars annually
Build coalition to lobby Fannie / Freddie
Discussion:What series of actions needed next to break-
up the two-sided commission?What series of actions needed next to break-
up the two-sided commission?
Prepared by Bill Wendel, The Real Estate Cafe. Comments?Email [email protected] or 617-661-4046 to discuss / give feedback