Should agent rebates and commission concessions be illegal?

In the dozen or so years I've been involved in the real estate industry, few things raise the hackles of industry veterans more than the topic of agent rebates/concessions/discounts.

When the limited services brokerages broke into the real estate transaction candy store (with the keys provided courtesy of the internet), everyone was sure that they were going to give away all the candy and then nobody would want to pay full price for a lollipop ever again. To add insult to injury, many of these discount/limited services brokers thumbed their noses at the realtor associations and opted to act as rogue licensees running free in the market place.

*Quick! Hide your children! Lock up your daughters! Gather the pitchforks, rakes, and pick-axes! Light the torches! Let's show those bastards nobody—NOBODY—is going to infiltrate our syndicate industry and cut in to our richly deserved piece of the pie!


Okay, I might be exaggerating just a little bit but here's the point: I read a post at Active Rain recently that proposed making rebates to clients illegal. The premise was that if it is illegal to pay commissions or referrals to non-licensees (AKA "kickbacks") it follows that it should be illegal to provide a concession to a seller or buyer. The glaring difference between kickbacks and concessions is whether you're a party to the contract or not.

In Colorado, for example, a listing broker can concede a portion of the list-side commission to the seller as both are parties to a contract (the listing agreement). By the same token, a selling agent can concede a portion of the buy-side commission to the buyer as both are parties to an exclusive right to buy agency contract. Those negotiations are specific to the written agreements of compensation in which both parties have mutually entered.

It was suggested in the Active Rain post that NAR should use its political action strong-arm to get the states to pass legislation making concessions to buyers and sellers illegal. This kind of protectionism is exactly what the public would expect from an organization that is perceived to line its own pockets at the expense of consumer advocacy.

In our market, discount brokerages have made little or no advances in market share during the last decade. Independent brokers are found in greater numbers, to be sure, but their power as a collective voice is far too diluted to impact the market in any revolutionary way. They're independent for a reason. They don't want to be told how to do their business. Sadly, it is not the advent of discount business models that has eroded commission incomes. The erosion is being driven by lackluster performers (both full-service and limited service) who charge top-dollar for their respective models but don't deliver a service that exceeds the value of what they charge.

In his book The Collapse of Distinction, author Scott McKain writes about the commoditization of everything. One hamburger joint in Duluth is the exact same hamburger joint in Sarasota. The Target where you shop is plan-o-grammed exactly the same as every other Target in the world. For the most part, consumers dig this. They trust it. They feel comfortable. They know where stuff is. They know how much it is going to cost. Aside from sheer square footage, I know I can get about the same level of service and product lines at the Target on one end of Fort Collins as I can at the Target on the other end of Fort Collins. They are completely homogeneous.

Unfortunately, this is how the public sees real estate brokers. We are all the same. We all charge the same. We all provide the same level of service (which, by the way, is perceived as poor). Now, before you turn your pitchforks in my direction, let me clarify. What the public perceives is very different from what your client perceives. Your client thinks you're wonderful. Your client is content to pay the fee you charge because your service exceeds their perception of value. It is in this realm where we can compete without protectionist legislation. This is where we can compete and build consumer confidence rather than wear it down to nothing (or less). 

If you're competing with a discounter, is the client going to get better service from you? Do you know how? Can you itemize each point of consumer contact in a transaction? Can you describe the level of service your client will receive at each of those points? Is the client going to get better marketing from you or your competition? Is the client going to benefit from your upstanding reputation in the local Realtor community? Is the client going to enjoy an experience that creates an emotional bond to you that sets you apart from anyone else that sells real estate?

These are the things that distinguish agents who can charge more from the agents who simply charge less or are held hostage by clients to provide rebates and concessions. These are the things that minimize the need to provide concessions or pre-agreed rebates.

 If you want NAR to regulate something, how about having them create more stringent requirements to be a Realtor? If we, as Realtors, decided that we weren't going to tolerate under-performers and wanted to create real distinction for the Realtor brand through better training, transparent customer satisfaction, and performance expectations (and I'm not just talking about GCI), that would be money better spent than outlawing seller concessions and buyer rebates.

Chris Hardy is a Broker Associate for Coldwell Banker Residential Brokerage in Fort Collins, Colorado. In 2011 he was named Realtor of the Year by the Fort Collins Board of Realtors.

You can send your feedback to Chris at chris.hardy@coloradohomes.com, and you can visit his website by logging on to www.chrishardyrealtor.com.

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