This is a further dissection for discourse of Mark Nadels (who is not an FTC attorney, he is an attorney and works for the federal government, and has presented his work at a 2006 FTC Bureau of Economics seminar..sorry Mark) critical assessment regarding traditional real estate brokerages revenue and subsequent disclosure models.

‘Marketing Your Competitions Weakness’ outlined the problem and opportunity that lies within the current state of Realtor/Consumer affairs:

• The NAR has control over the passage of most any state level legislation.
• They wield this power to protect the traditional Realtor, prohibiting alternative model practices such as rebates and ‘unbundled’ services.
• Localized MLS access rules may discipline non-traditional brokers and restrict the exposure of a consumers listing.
• Consumers have relatively little objective content and are surprisingly ignorant of their rights about how to negotiate with an agent. Or they are browbeaten by Realtors for attempting to do so.
• Traditional brokers have been successful in suggesting alternative models are ‘discounted’ or ‘inferior’, with little justification except the ‘you get what you pay for…’ cliché.

Six Disclosures that Might Stimulate Price Competition doesn’t so much outline alternative commission models, but rather describes the type of information consumers will gain increased access to, and could cause a $30 billion dollar decrease in broker revenues according to Mr. Nadel.
As an agent, considering the alternative channels consumers now get more and more information from, outside of the influence of the NAR’s raw marketing power, how would you address the following disclosures if they became mandatory in some shape or form? You will notice most of the disclosures are heavily weighted towards buyers’ agents. This will be a 3 part post.

Home Buyers Should Require an Estimate of the Dollar Amount of the Fee That Their Broker Expects to Receive for Serving Them if a Sale Occurs.

Furthermore, to help buyers compare that fee to an hourly fee, they should also be told how their broker’s fee would translate into an hourly rate. Although the time spent by an agent may vary widely and the estimate of 20 to 69 hours as the average374 appears to be on the high side, agents should provide buyers with an estimate of their hourly rate based on their previous sales. They should also inform buyers of what that figure would be if the effort required only 10 hours (exceptionally short) or 100 hours (on the longer side). These figures should encourage buyers who chose to handle some of the tasks themselves to discuss a lower fee or an hourly rate with brokers.

The idea would be to create an easy, consumer friendly comparison method based on an hourly rate. How much is an hour of your time worth?Buyers Should Be Told Whether Their Broker’s Agent May Refuse to Inform Them About Homes That Become Available and that Meet Their Criteria, Even if They Are Not Represented By Traditional Brokers.

As a consumer I would ask a broker to sign a document requiring them to disclose all listings that meet my criteria, regardless of commission offering or broker type, traditional or otherwise.
It is debated whether not showing a listing to a client based on commission offerings officially breaks the ‘code of ethics’, regardless, it doesn’t appeal to the consumers code of finding the best all around home available.

I’ve written many posts regarding the lack of disclosure in the mortgage industry and the resulting harms, primarily do the fact consumers are not typically afforded a transparent look at how much the mortgage is truly costing them.

The real estate industry is a far different animal. While costs/fees are fully disclosed, very few consumers understand that they are able to negotiate, let alone how to negotiate, commissions with a Realtor.

‘Disclosure’ typically means additional paperwork. The RESPA docs that every mortgage lender must (should) send out within 3 days of pulling credit, is a small book. Some similar disclosure docs should be required of Realtors, although not through some act of legislation (that’s obviously futile), rather through community acceptance and consumer fostered demand. A Realtor who pro-actively accepts and performs under some format of these disclosures has an opportunity to significantly differentiate themselves from their competition.

As stated, these disclosures (and the 4 others to come) could result in a $30 billion dollar fall in annual broker revenues. Who suffers? IMHO the agents who part-time it, the ‘coat tail’ riders, and buyers agents who attempt to collect 3% for relatively little value provided. Listing agents could actually be better served with such disclosures. The top producers would continue to succeed with less ‘fat’ in the industry.
Remember, Im wearing my marketing hat, looking for ways to identify weaknesses and leverage knowledge for future Realtor success (call it Realtor 2.0).

These posts aren’t meant to cast stones, rather to discuss through community discourse regarding the practicality and feasibility of implementing some well thought principles and disclosures.

I write these posts out of personal and professional interest for the comments they induce, which are invaluable. Do I think Mark Nadels discourse and proposals are the end-all discussion? No. But his research can’t be ignored and deserves to be debated by those it proposes to effect the most.