Redfin's Real Estate Consumer's Bill Of Rights
The blogosphere is busy once again today with Redfin's announcement of a Real Estate Consumer's Bill Of Rights. On the surface, it looks pretty but let's examine what and why Redfin is proposing and why it is mostly self serving to their flawed business model.
Here are the highlights. Please visit the always thoughtful Ardell DellaLoggia at Rain City Guide with the full Bill of Rights and her commentary on several points.
1. Choose the services you pay for
2. Know how your agent makes his money
3. Know when you are committed to an agent
4. Know what services your agent will provide
5. Have an agent that represents only your interests
6. Know the commission refund you can get before you buy a house
7. See all the houses for sale
8. Have an open discussion about a house for sale
9. See all the information available about a house for sale
10. Be sure your agent will show your house to everyone
In theory, they all sound wonderful but they are really a smokescreen to justify Redfin's business model which is a financial flop. Redfin is a licensed real estate broker based in Seattle and currently expanding into several other states including California and Arizona. Their premise is that in exchange for the client doing a lot of search work, they will rebate a portion of the real estate commission back to the buyer. They want to keep their costs down so their only solution is to discount the quality of their representation including having their clients call the listing agent to show the home only to step in at the last moment and claim the commission. Huh?
Number 5 is of special interest to me and a subject I've discussed before and will do so again. I don't understand why consumers continue to call the listing agent to see a house as an unrepresented buyer. Maybe they still believe they are being represented in the transaction when dealing with the agent for the seller. The listing agent will explain dual agency and it might go right over their heads and if that is the case, they most definitely should have buyer representation. The astute real estate consumer might believe that perhaps by dealing directly with the listing agent, they can get a concession greater than what their buyer's agent would be able to negotiate for them. I wish them well.
If a buyer felt he/she could negotiate a better deal on the house, wouldn't they be better served negotiating a commission rate payable to the buyer's agent for just the services they needed to be rendered on their behalf and truly have someone representing them in the transaction. Do they really have all the information available or do they simply think they have it all? I agree totally with redfin #9. Information should be transparent and in a perfect world, this would entitle everyone to all the available information; at this point, it simply isn't public record. Days on market has been manipulated by agents, price reductions during the course of the listing are not readily available and of course, automated valuations such as offered by the likes of zillow "zestimates" are not worthy as the basis for making a decision on the real value of a property.
Now the big one. Let's talk commission and who is really paying the commission, is it the buyer or the seller. For years, real estate agents told their buyer clients not to worry, their services were free. A perfect place to insert the phrase, "not exactly". As I have pointed out on many occasions, the commission is paid by the seller to the real estate agents from the proceeds of the transaction. If the buyer didn't pay the seller for the property, there would be no proceeds to pay any commission to the buyer agent.
Greg Swann of the Bloodhound Blog spent much time and thought disecting the Redfin Real Estate Consumer's Bill of Rights and the most important point he makes regards "divorcing" the buyers agent compensation from the listing agent's commission. .
Greg says, "Such a change would be easy to effect, a simple matter of lenders permitting the buyer’s agent’s fee to be expressed on the buyer’s side of the HUD-1 form. The seller would pay the listing agent on his side of the form, out of the proceeds from the sale. The buyer would pay the buyer’s agent out of his own or the lender’s funds. Practically speaking, the money traveling across the closing table would seem to be identical to the present circumstance. But the buyer would have true representation, and the buyer’s agent would have nothing to gain — or to fear losing — from either the listing agent or the seller.
That would be true reform, of true benefit to the consumer. So why doesn’t Redfin propose divorcing the commissions? Why? ... Because a divorced commission is a negotiated commission. Redfin can’t live without the three-percent buyer’s agent’s commission. It doesn’t want to earn that commission, so we get ten paragraphs of self-serving tap-dancing".
Please read Greg's very informative article, Redfin.com's Real Estate Consumer's Bill of Rights: A Wolf in Sheepskin's Clothing.