Ray Wilson

Ray Wilson, author of Bought, Not Sold, brings academic discipline and field experience to expose consumers to the reality of the realty industry.



Reality in
Realty (1999)

1. "When An 'Agent' is not an Agent"
2. "Is You Is, Or Is You ain't, My Agent?"
3. "The Dating Game"
4. "States of Confusion"

Reality in
Realty 2001
1. Career Advice
1.1 "Don't Quit Your Day Job"

2. Seller Advice
2.1 "Appraiser, Yes! CMA, No!"
2.2 "Listing Purpose & Pitfalls #1, 2, & 3"
2.3 "Listing Pitfalls #4 & 5"

3. Buyer Advice
3.1 "EBA, EBA, EBA"
3.2 "Promises, Promises, Promises..."
3.3 "You! You! You!"

4. NAR
3.1 "The 'Big Grab' versus the Big Dope"
3.2 "If not revolution, then evolution""

Reality in
Realty 2006
1. "Making Magic in Chicago"
2. "No Sign of Reform in NAR Leaders"
3. "The Wrong in the Percentage Commission"

The "Big Grab" versus the Big Dope

Abandoning Common Law Supports of Agency Leaves Realtors Vulnerable to Bankers' Move into Real Estate

© 2001, Opinion by Ray Wilson

Promising a "fierce battle against the Fed's proposal", the President of the National Association of Realtors, Richard Mendenhall, has denounced what he dubs, "The Big Grab". In a statement to Realtors, he warns of "The Big Grab by banks moving into real estate brokerage" and says:

"At the urging of some of the nation's largest and most aggressive banks, the Federal Reserve Board and the U.S. Treasury are proposing to allow financial service holding companies and national bank financial subsidiaries to offer real estate brokerage, management and relocation services."

The "Big Grab" is, of course, what Mendenhall considers an incursion into a Realtors-only membership province and he urges Realtors to

"Get involved now to help Stop the Big Grab. Don't let banks take us out of the center of the real estate transaction."

Actually, like Mendenhall, I am pretty leery about these big institutions getting into real estate brokerage. It's reminiscent of a big sales agent trade organization muscling into the business of buyer representation. Charging bank conflict of interest in the move into real estate brokerage, he is at least right when he says,

This "Big Grab" through sheer marketplace power could change our business forever

The NAR President should know about the abuse of "sheer marketplace power". In about two dozen states, NAR's state associations have steamrollered over legitimate buyer agents and consumer advocates alike who wanted to keep the Common Law prohibitions against conflict of interest in real estate agency. Only one state, Massachusetts, has turned back "designated agency" legislation -- a charade which allows the same firm to promise both buyers and sellers that it will represent them in the same marketplace.

That was a rather sudden break from a century of NAR supporting the Common Law and preaching against double agentry. That was easy when there were no buyer agents. All agents were on the same side, forcing buyers to come to them without agency protection. Sellers' agents made up virtually all of NAR's membership were in full control. That did not mean their seller clients benefited, for most were buyers first, and usually buyers again.

But in an era of expanding consumer awareness, buyer agents emerged, and the listing agents' absolute hold on the market was threatened. Realtors responded with "sheer marketplace power" using their boards, arbitration powers, courts, and finally political power to smash competition from those daring to provide true agency to buyers. And now the Realtor Chief fears that these big banker bullies will overpower traditional real estate brokers and treat them the way NAR has treated buyer agents.

What is most intriguing is something Mendenhall seems to miss in all of this. In his denunciation of "The Big Grab", he takes no note whatsoever of the one thing the big bad bullies are apparently not grabbing for! Nowhere in his statement does Mendenhall list AGENCY among the things the bankers want to do, nor in his description of what Realtors do!

"The Big Grab" is a catchy phrase. It sets the mind a-thinking.... and then a-wondering what kind of Big Dope would shoot himself in the foot. NAR actually campaigned to eliminate the one thing that could have protected its members against big grabs like this!

Mendenhall says:

We all know that real estate brokers' loyalty is to buyers and sellers.

On the contrary, we all know that agents and not brokers owe loyalty to clients! The words "broker" and "agent" are not synonymous. We also know that the big guys can't really provide agency the way local brokers can -- that is, IF the local brokers haven't thrown away this one edge they had over the large and necessarily impersonal institutions.

Let's examine the logic of the Mendenhall protest:

"... banks' expertise and vested interest lies in making loans, not providing real estate services.
"Don't let banks take us out of the center of the real estate transaction. Even the banks admit that their primary goal in requesting this foray into real estate brokerage ... is to diversify their product line, not to serve consumers better."

Again, what we do know, and what a century documents that NAR knows, is that AGENCY serves consumers better! It begins long before and extends far beyond the narrower activity of the transaction. The pretense that brokerage is all about the transaction is at the heart of charades like "transaction brokerage" and "designated agency". This is the deception that strips away the agency protection that the Common Law gave sellers in the marketing phase and buyers in the home-search phase -- all prior to the mechanics of the transaction. The truth is, that is where brokers can serve consumers better -- by being agents!

It is an almost dyslexic use of the language to portray brokers "at the center of the transaction". It is the principals (buyer and seller) who belong in the center; and it is the lenders and lawyers who really go to work at that point. The fact is that the hard work of brokers is largely over by the time of the transaction. If the brokers have done their job well -- meaning as agents -- the transaction tasks are purely administrative.

But, following NAR's nationwide strategy, Realtors opted out of agency. They abandoned their own fidelity to the Common Law of Agency and the common sense that says you cannot give agency to both sides. And they tossed away their legitimate claim to one needed service that banks really cannot provide. It is agency which kept all the separate home buyer and seller services bundled together in the brokers' "expertise" mystique. More than anyone else, NAR unbundled the bag of goodies everyone is now grabbing for!

Unbundled services are here to stay! Despite NAR's now lamenting what NAR begot, it is not all bad for consumers. Buyers and sellers still have a constitutional right to contract for full agency, provided they can find an Exclusive Sellers' Agent (ESA), Exclusive Buyers' Agent (EBA), or very small-firm Single Agent. At the same time, they will indeed have expanded choice in a menu of lower cost non-agency options. (In one and the same statement, Mendenhall says there is no good for consumers in the Big Grab, and that one of the bad things is service price-cutting).

It is certainly bad news for non-agency firms playing both sides of the market and expecting to collect agency-level commissions! Aware consumers will pay for agency, but expect to get it. Those expecting agency only within "the transaction" can not only get it for less cost, but from an attorney, who should understand it's full legal implications well beyond the average broker. Sellers won't need to pay agent prices to post their property on the local computerized data bases (not necessarily MLS) nor will buyers need an agent to access computer listings. Those not choosing agency protection in the property marketing, search, financing, inspection or negotiations process will simply pick and choose among the now unbundled lower cost services.

I asked before what kind of Big Dope would shoot himself in the foot. Perhaps the answer is one who didn't know the gun was loaded. But how big a dope does one have to be to know the gun is loaded, point it at one's foot, and pull the trigger? How can NAR today not know that they have a loaded cannon? Will some responsible adult in New Hampshire or Wisconsin please put a trigger lock on that thing?