The Real Estate Industry depends on Cooperation between brokers and agents. Cooperation is what makes the real estate market machine hum. When brokers and agents do not work together, it is inefficient and less valuable to clients.
What Makes the Real Estate Industry Effective
At its core, the real estate industry relies on a communication system to serve its clients. The better brokers and agents communicate, the easier it is to understand, and that understanding leads to better cooperation. Today’s broker-to-broker communication tool is the Multi-List Service (MLS) – Thankfully, we have moved on from phone book-size catalogs full of black-and-white photos of houses for sale. In conjunction with its Broker members, the Multi-List Service strives to deliver clear, concise information and enhance Cooperation.
The Cooperation part is why most people list their house with a Real Estate Agent. The agent is the gateway to the Multi-List Service and all the benefits of the cooperation it offers. Information about their home gets broadcasted to all other agents and brokers, who, in turn, share it with their interested clients. The more prospective buyers see a home, the more likely that house will sell at an appealing value, with terms and conditions suitable to the seller.
A Misunderstanding – Cooperation vs. Compensation
Some in the Real Estate Industry need help to understand the ethics and reasoning behind cooperation and compensation differences. Some Brokers and Agents have a problem adhering to the National Association of Realtors Code of Ethics if they do not see an “expected commission” paid by the seller on a listing in the Multi-list. They sometimes believe both are necessary for selling a home – not so. The Code of Ethics states the following regarding Cooperation and Compensation:
“ARTICLE 3 – The obligation to cooperate does not include the obligation to share commissions, fees, or to otherwise compensate another broker.”
There are good reasons for the separation of Cooperation and Compensation. Cooperation offers all Broker Members reasonable access to properties listed by any other broker member – Compensation involves paying a fee for a provided service. Relative to real estate, that service may be buyer representation, seller representation, etc. Keeping the two “C’s” separate may aid in the avoidance of violations for not putting the client’s interest before the agents – For example; violations may include steering a client to a property because the agent gets a bigger payday.
Compensation and Representation – Things Got Muddled
Years ago, there was no such thing as a “Buyer Agent.” All real estate agents represented the seller – The agent bringing the buyer represented the seller as a sub-agent (The listing broker being the primary agent). If a buyer wanted exclusive representation in a real estate transaction, they might hire an Attorney. I would be surprised if home sellers lined up to pay the buyers’ Attorney Fees.
Cooperation, by its definition, is more effective when all agents are on the same side. Today, representation is often split, with buyers represented by their Buyer Agent and sellers represented by their agent – Sounds like a good idea, right? Yes, but cooperation can get tricky when one divides representation duties, such as in the case of buyer and seller agency.
Strangely, even though home sellers lost representation to Buyer Agency, they are enticed to continue paying the entire commission bill, just like when both agents represented them. Mandating that a home seller pay the buyer’s fee for representation has led to interesting consequences, such as mega-lawsuits against the Real Estate Industry relating to anti-trust and collusion allegations.
Dual Agency – A Threat to Cooperation?
It is common and legal in most states for agents to practice dual agency and represent both parties, buyer, and seller, in a real estate transaction. The practice of dual agency has been discontinued in eight states thus far. It may not be long before the remaining 42 states adopt a “No Dual Agent” posture. I stopped practicing dual agency years ago. How is it not a blatant conflict of interest to have a seller pay me to represent them and the buyer of their home in the same real estate deal?
The practice of dual agency could lure listing agents to do things that give them a better chance to collect both sides of a commission. Those tactics may include finding ways to reduce Cooperation, which may not be in the home seller’s best interest. I believe tactics like “Coming Soon” and “Pocket” listings are just a few practices that threaten the fabric of the industry.
Cooperation in the Real Estate Industry is vital. Compensation is a by-product of excellent service stemming from great Cooperation. If the Real Estate Industry focuses too much on compensation, cooperation will undoubtedly suffer, and our customers along with it.
Without Cooperation, where would the industry be? To answer that question, one only has to look at the Congress of the United States of America.