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 House Bill 174 and Discount Real Estate Brokers, Part 2
By: Darin "Sid" Cameron, CRS
Wed, May 11th, 2005 11:54 pm

Yesterday I mentioned the Missouri senate passed a bill that specifies services that real estate brokers must perform (House Bill 174).

As I've been surfing the internet, I've seen several postings from agents who work for discount brokers claiming that they are being unfairly punished by "traditional" real estate brokerages who want nothing more than to keep real estate commissions high.

Here is my perspective...

Let me start by saying that I am not anti-discount brokerage. I believe there is a place for all types of brokerages in the real estate industry and I believe sellers deserve options- including the option to sell their home without a broker or agent at all.

I also believe that the biggest problem the real estate industry has isn't discount brokers who offer reduced services for reduced rates. In my opinion, the biggest problem the industry has is the mass horde of people masquerading as "full-service" agents that know little about the industry, provide less service than the discount brokers, and ruin the industry's reputation by over-promising and under-performing.

However as the concept of discount brokerages has caught on, there have been brokers that have popped up that basically removed ALL services from their portfolio. (Except for separating the seller from a transactional fee of course...) Generally the only service these new-age brokerages have been providing is to place the seller's home into the Multiple Listings Service (MLS) database that buyer's agents use to find homes. From there they let the seller handle the rest.

The problem with these "no service" brokerages has been two fold. First off, it places the burden of reviewing and negotiating contracts on the seller who usually has little to no experience in doing so. Second, this in turn increases the burden placed on the buyer's real estate agent who ultimately ends up working directly with both parties in the transaction.

Opponents of this legislation suggest that this all boils down to the buyer's real estate agent trying to do as little work as possible for their commission check. However, there really is more to it than that.

When a home buyer signs an agreement with a real estate agent to represent them, the agent is placed in a binding contract with the buyer to represent their best interest in the transaction. This is basically the same relationship you would have if you were working with an attorney or if you were a sports star signing with a sports agent.

When the agent is placed in a position where they are working with both the buyer and seller (a practice called "Dual Agency"), their ability to represent the best interest of only the one party becomes questionable. That's why buyers and sellers must sign a release form that basically waves their rights to representation before an agent can legally create a dual agency relationship.

But in the case of the "no service" brokerages, no dual agency contract can be signed since the seller does in fact have a representative (just one who isn't present during negotiations). Regardless of how the transaction actually develops, it opens up the buyer's agent to potential litigation should the buyer have second thoughts on the property after the sale.

Even worse, this scenario places the seller in a position where they may think they are being fairly represented by the buyer's agent even though they are not. This is particularly troublesome when the seller is elderly or has some sort of limited mental capacity.

It's easy to imagine the elderly widowed woman living on a fixed income giving the "nice agent" every home credit and price discount they ask for. Unfortunately, the "unscrupulous" agent in this scenario is simply performing their job as required by law.

And this is where politicians get involved...

There's an old saying that says, "There is no product or service on earth that some person can't strip value from in order to reduce its cost- and the person who only buys based on price is that person's victim." (Author Unknown)

That saying is pretty dead-on here. What we've seen is that at some point the presences of an agent doing nothing can cause more problems than having no agent involved at all. Heck, one has to question why a seller would pay some of these agencies when they could just try to sell the home as a For Sale By Owner (FSBO).

That's why the task the Missouri politicians have attempted to tackle with this bill is the question of, "What are the minimum responsibilities of a real estate broker or agent to justify them even being in the loop."

I don't believe this taxes or limits legitimate discount brokerages in any way. Reputable discount brokerages who deliver a service of some kind have nothing to worry about. The goal here is to simply keep unscrupulous brokers or agents from preying on unsuspecting homeowners who don't know better.

I applaud this bill.

[ Next Article: Update on New Listings and Internet Video Home Tours ]
[ Previous Article: House Bill 174 and Discount Real Estate Brokers, Part 1 ]

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Darin 'Sid' Cameron, CRS

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Darin "Sid" Cameron spent 15 years working in the technology industry which in 1998 relocated him to St. Louis. In 2004 he took over web development tasks for Kimberly's real estate team and later became the full-time Marketing and Operations Director in 2005. In 2011 Sid launched two brokerages, The Realty Store, Inc. and Realty Referral Partners, Inc, while continuing to perform marketing and operations for Kimberly's team. Sid holds a real estate broker's license in Missouri, CRS certification and was the first CyberStar in the St. Louis area.
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