This article from the Charlotte Observer may just take front and center in my “What the Hell?” file. A big giant hat tip to Jim Duncan of the fabulous blog RealCentralVA for pointing it out on his Posterous blog.
Fair warning, this is likely to be long and some will call it a rant. But often the real estate industry pisses me off to no end, and I have to get it off my chest. Writing here is the best therapy I’ve found for keeping my blood pressure down and eliminating (or at least reducing) the desire literally slap someone silly.
Let’s look at this lunacy step by step. . .
A group of leading N.C. Realtors hopes to change part of a rule that protects homebuyers from having their search guided by their real estate agent’s financial interests.
The presidents of the state’s three largest metro Realtor associations are protesting part of a 2008 rule that requires buyer’s agents to provide a written disclosure of compensation they might receive from sellers when a home is sold.
Change a rule that protects homebuyers? Are you freaking kidding me? First of all, it’s rather pathetic that we have to have RULES in place that protect homebuyers. Check me if I’m wrong, but isn’t a significant portion of our job ensuring that homebuyers are fully informed and making decisions that are in their best interest? Don’t we, uhm, REPRESENT THEM??
Sadly though, rules are needed because there are too many out there who will do anything for the almighty buck, ethics or what is in your clients best interest be damned. Yet here are the presidents of North Carolina’s three largest Realtor associations protesting a rule that helps homebuyers understand what is going on.
Changing such disclosure, said North Carolina Real Estate Commission director of legal services Tom Miller, could once again leave some homebuyers unaware that agents have extra financial motivation – such as a hidden bonus – in showing them a home.
But Tony Jarrett, regional vice president for the Triad for Allen Tate Realtors, said the rule requires burdensome disclosures for potential "in-house" transactions, in which one company employs both the buyer’s agent and the agent listing a property for the seller. In those cases, the homebuyer must be told not only what the buyer’s agent would receive if the property is sold, but the total compensation being paid to the real estate company.
"We don’t believe in-house compensation is a disclosure issue," said Jarrett, who will make a presentation to the commission at its monthly meeting today in Raleigh.
“Burdensome disclosures”?? Really?
Dear Homebuyer –
If you buy the home on 123 Main Street, the listing brokerage will receive a commission of X% of the sales price; the buyer’s brokerage will receive a commission of Y%. In addition, the seller is offering the buyer’s agent an incentive bonus of $X dollars.
Burdensome? Give me a freaking break. That took all of 15 seconds to type. Burdensome my ass.
Tony Jarrett, regional vice president for the Triad for Allen Tate Realtors, doesn’t believe in-house compensation is a disclosure issue. Why not? Why shouldn’t BOTH the buyer and seller be completely aware of all the costs in a real estate transaction? Why hide it???
Yet Mr. Jarrett is joined by others:
Jarrett is supported by the presidents of Realtor associations in Charlotte, Greensboro and Raleigh, each of whom wrote letters on the issue in the past month to the real estate commission.
I’d LOVE to see those letters because I simply can’t fathom why informing home buyers of the costs / compensation involved in a real estate transaction could remotely be considered a bad idea.
The Genesis of the disclosure rule, according to the Charlotte Observer:
Real estate brokers are typically paid a commission, or a percentage of the sales price. Some sellers, particularly homebuilders, also pay agencies a bonus for finding buyers. Such extra incentives, which come in the form of cash, trips and gifts, are legal. Before 2008, however, an agent didn’t have to acknowledge receiving those extra incentives until after the homebuyer had made a purchase offer on a home. Agents also were only required to tell the customer orally, making the rule hard to enforce.
The 2008 rule required that buyer’s agents inform homebuyers of bonuses in writing – and before that offer is made.
The rule was prompted by a 2007 Observer report that revealed millions of dollars in bonuses paid by homebuilders to Charlotte-area company Realty Place. The investigation found that Realty Place potentially violated state rules and federal law by not disclosing those bonuses to homebuyers they steered to those properties.
So here is a brokerage getting “millions of dollars” for sending homebuyers to certain homebuilders. Maybe those homes were the best choices for their clients. Or maybe the brokerage sent their clients there to earn millions of extra dollars. We don’t really know. But”¦
Realty Place owners agreed in 2008 to permanently close its doors in the face of an investigation by the real estate commission, which licenses and regulates real estate agents in the state.
So it would appear that not all was on the up-and-up. Greed is ugly. When a builder is dangling a boat load of money in front of you, it’s not all that difficult to convince someone to look toward that builder for their slice of the American Dream.
To address questions about what might be considered "extra incentive," the 2008 disclosure rule requires simply that brokers disclose all compensation they expect to receive from a transaction, including commissions and bonuses. In the case of an in-house transaction, that means the agency must disclose all of the compensation that both the buyer’s agent and selling agent will receive.
Good! The agency should disclose ALL of the compensation that both agencies in the transaction receive. ESPECIALLY if it is an “in-house” transaction.
Jarrett, who said that he supports the intent of the disclosure rule, argues that only the buyer’s agent should be required to reveal compensation for in-house transactions – and that a customer gains no benefit from knowing if a company is getting extra compensation by a third party, such as a relocation service.
Such information also can confuse consumers and burden agents with new disclosure requirements, Jarrett and others said.
Here’s this “in-house” issue again. What difference does it make that it is an in-house transaction? Dual agency once again rears its ugly head. This
deception protecting hiding what a brokerage makes on an in-house transaction sure sounds to me like someone wants to protect their dual agency cash cow. If there is nothing wrong with a dual agency transaction (which is legal in many states, apparently including North Carolina) then why the move to attempt to hide the compensation from the buyer? (or anyone else for that matter).
A “customer gains no benefit from knowing if a company is getting extra compensation by a third party, such as a relocation service.” Really??
Dear homebuyer customer –
You need to see this home at 123 Main Street! It is AMAZING! It is EVERYTHING you’ve been looking for! There is simply no other home on the market that meets your needs. Trust me, I’m here for you and I know this. The fact that I’ll receive extra compensation from the builder or the relocation company has nothing to do with my steering you this way. Trust me.
“Such information also can confuse consumers and burden agents with new disclosure requirements, Jarrett and others said”
Burden agents? See the 15 second disclosure typed above.
Confuse consumers? I don’t think “Jarrett and others” are giving consumers much credit. Hell, that practically screams “YOU DON’T HAVE TWO BRAIN CELLS TO RUB TOGETHER”. Buyers (and sellers) are smart. They are completely able to understand a simple compensation disclosure.
"We do want to be able to disclose, but we want to do it in a practical way," said Lyn Kessie, president of the Charlotte Regional Realtor Association.
I. Don’t. Even. Know. What. To. Say.
Just disclose it for Pete’s sake! How difficult is it? You want practical? Here’s what you write in the law:
“Real estate brokerages ”“ both on the selling and buying side ”“ are required to disclose in writing all compensation, of any form, received in a real estate transaction.”
Period. Forget “in-house” contingencies. Forget trying to determine if you disclose the buyer-side commission or the seller-side. Forget trying to determine if a cash bonus, an increased commission rate based on multiple sales, or a non-cash incentive “counts”. Forget the lame-ass excuses that it’s a “burden” or it will “confuse” the consume. JUST DISCLOSE ALL FORMS OF COMPENSATION. Period.
(Tom) Miller of the real estate commission said the additional disclosures for in-house transactions protect homebuyers, because the agency involved employs the agents on both sides of the potential transaction. "The company is telling the agents what to do," Miller said, "and that company might be receiving incentives from another party."
An example: If a builder offers a real estate company a bonus for selling its homes, that company could theoretically direct its agents to show those homes first. If those companies were exempted from providing full disclosure of its compensation, those incentives could be hidden from consumers. "We would be back to where we were before the rule was adopted," Miller said.
Sadly, Mr. Miller is correct.
Phillip Fisher, the commission’s executive director, said the commission is unlikely to vote on any major changes in the rule today. Commissioners could appoint a task force to study "in house" transactions, or it could direct the legal department to do the same, before deciding on any changes in the rule.
Said Jarrett, who worked on a 2007 real estate commission task force that initially studied the disclosure issue: "We just need to figure out what the solution is."
Oh for the love of God. Now we need a “task force” at a state real estate commission, and let’s drag in the legal department while we’re at it. All this to “figure out what the solution is” to what seems so stunningly simple and obvious ”“ tell people what the costs are in buying a home, which includes agent/broker compensation and incentives ”“ before they purchase a home.
Why is this so difficult? Why is it even a topic of debate? What am I missing?
Photo credit: t-shirthumor.com