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1. The Rules They Are A Changing For
some time now I've been thinking that
there's one rule that needs to be
changed in our ethics and guidelines of
professional conduct as real estate
agents. And that rule is the one telling
us that we must present all properties
equally to our clients and prospects
regardless of the commission being
offered to us as the cooperating agent.
While there were many, many years when
this guideline made complete sense to
almost everybody, it no longer makes
sense now in today's world of
ever-changing business models. When
I began my career as a full-time agent
in 1980, we didn't have the continual
downward grinding on commission rates
that we have today. A full sales
commission on improved property was
generally considered to be 6%, and a
property owner in some situations might
end up negotiating the rate
as low as 5% before signing the listing.
In situations like these, the agents
were pretty much in agreement that they
would treat listings offering 5% commissions
the same as listings offering 6% commissions
when presenting the properties to their
clients and prospects. This was deemed
to be the reasonable and honorable thing
to do by almost everyone in the business. Now
let's fast forward to today. In
today's business model, owners, discount
brokerage companies, and listing agents
have changed the real estate model
dramatically. Listing agents sometimes
take listings where the owner is only
offering a 1-3% commission. In addition,
listing agents will sometimes offer a
cooperating agent a fee that is less than
half of the total commission being paid
by the owner. I've even seen situations
where the cooperating agent was told
that any commission they would receive
would have to be paid by their own
buyer...and that the entire commission
being paid by the seller would go to the
listing agent only. So
in looking at today's situation, a lot
has changed since 1980. And while this
change has been taking place, a lot of
owners have been demanding lower
commissions before signing listing
agreements. But when these owners demand
this and put their properties on the
market offering commissions far below
the normal rates, in my mind there's no
longer any reason for agents to be
obligated to submit these properties as
aggressively as others to their
prospects. In
following through with this line of
thinking, if you've been in the business
for a number of years now, the following
scenario may sound familiar to you: You're
negotiating a listing agreement and the
owner wants you to substantially reduce
the listing commission before signing
the agreement. You mention how this may
impact the number of times the property
is presented by other agents to their
prospects, and the
owner then says something like,
"Aren't all you agents required to
present my property just like all the
others regardless of what amount of
commission I decide to pay you?" And
in hearing statements like this from
owners we recognize that a rule that
made great sense for all of us years ago
should now be thrown completely out the
window. It's unconscionable to both have
our commissions be completely beaten
down by others and simultaneously not
have the right to choose where our time
is best spent as business professionals. If
an attorney charges $400.00 an hour,
wouldn't it be rather unfair for a
prospect to be able to tell the
attorney, "I'm only going to pay
you $200.00 an hour, and according to
your association's code of ethics you
have no choice but to accept it." Once
again, the underlying reasons for the
original rule in our profession were
valid at the time, but they're not valid
anymore. So
in writing this article I decided it
would be a good idea to review the 2004
NAR Code of Ethics before I
published my article. And, lo and behold,
I see no provisions in the 2004 Code of Ethics
obligating agents to submit all
properties equally to their clients and
prospects regardless of the amount of commission
being paid.
While I'm not an expert on all the
previous editions of the Code, that
provision has been so deeply ingrained
in so many of our minds that I know it
has appeared in previous editions. But
what's strange to me is the fact
that very few agents seem to know that
this provision no longer exists. It's
somehow been removed, but the word just
hasn't been disseminated to the troops. In
any event, I'm absolutely thrilled because
it's a change whose time has definitely
come. The
only problem I see with this is there
still may be some situations where agents
don't fully disclose all the important
facts to their clients. To handle one area
where I can see a potential problem, we
could consider putting a box to check or
leave unchecked in our listing agreements
that says something like the following: "Owner
has been advised by the listing brokerage
company that the cooperating commission
being offered to other brokerage companies
may result in
both fewer showings and the owner
receiving a lower price for the
property." By
including a statement like the listing
agent is now on the hook for full
disclosure to the owner about the pitfalls
of offering a lower commission in the
marketplace. It also makes listing agents
responsible for disclosing situations
where they plan on keeping the lion's
share of the commission themselves while
offering a lower-than-normal commission to
cooperating agents. (For example: The
listing agent offers only 2% of the full
6% commission to cooperating agents.) Also,
if there's a property on the market that
may be ideal for an agent's buyer, but the
commission being offered to the
cooperating agent is very low, the agent
could approach his or her client and say
something like the following: "There's
a property on the market that may be ideal
for you, but the owner is offering a
ridiculously low commission to the agent
who sells it. If I show you the property
and you like it, can I count on you to
protect me and include an additional 2%
commission for me in the transaction to provide
what we both would consider to be a fair
commission?" In
my 25 years in our industry, I've found
that most buyers will be willing to agree
to this provided you ask them BEFORE you
tell them the details of the property and
exactly where it's located. If you show
them the property first and then ask them
to provide an additional commission after they've toured it...it
may be another story entirely! Ideally,
one of the best ways to handle this in
advance is to have it all spelled out in
an exclusive buyer agency agreement with
the people you will be representing on
their upcoming property purchase. This way
they will have agreed to provide you with
additional compensation in the event that
a fair commission is not already being
provided for you. As
real estate agents we have the right to
protect our own business interests and not
be held hostage by owners and other real
estate professionals who want us to work
for unreasonably low fees. But in doing so
we must also take great care and make sure
that the highest and best interests of our
clients and prospects are always
protected. 
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