New Research Confirms Realtors Systematically Violate Their Fiduciary Duties – Hurting Buyers and Sellers

A survey by Google found that 67% of Americans do not trust real estate agents. Now, new research conducted by the National Bureau of Economic Research confirms they may be justified in their belief not to trust them.


How impressive was this research? It was conducted by PhDs from Cornell, MIT and the Wharton School of Business. And the National Bureau of Economic Research is one of the most respected think tanks in the US. And what did the research discover about Realtor behavior?

Properties listed with lower commission rates experience less favorable transaction outcomes: they are 5% less likely to sell and take 12% longer to sell. These adverse outcomes reflect decreased willingness of buyers’ agents to intermediate low commission properties (steering) rather than heterogeneous seller preferences or reduced effort of listing agents. While all agents and offices prefer properties with high commissions, firms and agents with large market shares purchase a disproportionately small fraction of low commission properties. The negative outcomes for low commissions provide empirical support for regulatory concerns that steering reinforces the uniformity of commissions

Our findings provide empirical support for regulators’ long-standing concern of steering behavior contributing to the lack of variation in commission rates, despite consumers’ increased access to information and lower search costs due to the internet.

Compared to other industrialized countries, commission fees in the United States are high. For example, commission rates average less than 2% in the United Kingdom and the Netherlands, compared to the typical rates of 5% and 6% in the United States (Delcoure and Miller, 2002). As highlighted by our model, unbundling commissions has the potential to eliminate steering and reduce commission fees.

Why are real estate commissions still so high in spite of all the new information freely available and an oversupply of Realtors? Because buyer’s agents punish sellers who try to save on commission by keeping their buyers from buying the home until the seller increases their commission to the acceptable rate. In other words, extortion.

Sellers get ripped off because they are forced to pay the extorted rate and buyers get ripped off because they do not get honest representation from their agent. That’s a problem.

And what is the solution these really smart people suggest to combat this problem? The same thing I have been screaming about for two years: stop expecting the seller to pay for the buyer’s agent. What I call Problem One in my book The Intelligent Home Seller.

Unbundling of commissions (making the buyer pay for their own agent) makes 90% of the problems in the real estate industry go away. Unfortunately for Realtors, it will probably make 90% of the Realtors go away. What we know from countries like Australia, where sellers do not pay for buyer’s agents, is that there are almost no buyer’s agents. And without buyer’s agents (and their steering buyers away from low commission homes), there will be tremendous downward price pressure on Realtor listing fees. The average commission would most likely fall from around 6% to less than 2%, instantly turning a $60 billion industry into a $20 billion industry and wiping out a lot of Realtors in the process.

I think it is fair to expect NAR (The National Association of Realtors) and their team of high-priced lobbyists to be out in full force to oppose any legislation that even hints at unbundling of Realtor commissions. After all, what’s more important, serving the interests of 85 million home owners or maintaining the revenue from a million dues-paying members? Fight on NAR.



To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

It’s Not the First Home I Would Show

That one statement tells you everything you need to know about what is wrong with the real estate industry.


When I went to sell my home in Southern California last year, I decided to offer less than the customary commission to the buyer’s agent. I had several reasons for doing so. First, unlike most home sellers, I understand that you do not have to offer the customary commission (2.5% in this case). Just like everything else in real estate, what you offer to a cooperating agent is negotiable.

Second, it was an extreme seller’s market when I went to sell, which means there would be a lot of buyers interested in buying my home (over 40 families came to the Open House). I was simply taking advantage of market conditions, as any intelligent home seller would do.

My final reason for doing so was the amount of money. The customary commission to the buyer’s agent would have been in excess of $18,000, and there was no way in hell I was paying two months of my salary to someone for about 20 hours of work unless they were curing me of cancer.

Before I offered such a commission to the buyer’s agent though, I wanted to make sure my listing agent and his broker were okay with it. Why would they care? Because when a home seller offers less-than-customary commission, it tends to tick off all the other agents and brokers in the area who can retaliate against them for taking such a listing. I just wanted to make sure my agent and his broker were prepared for the blowback. My agent was fine with it, but his broker’s reaction is what floored me. What did his broker say?

Re-read the title of this blog post. Those are the exact words my agent’s broker said to my agent when told of the less-than-customary commission. She was referring to the fact that were she representing a buyer, my home is not the first one she would show because other homes offered more commission.

She confirmed in those few words every reason why 67% of consumers do not trust real estate agents. By saying what she said she admitted that what is most important to her is her commission and what is least important to her are her clients. You cannot really trust what she says because she puts her own self-interest—in direct violation of her code of ethics—above yours.

You depend on a real estate agent for their expertise and you cannot trust it because of misguided incentives. What is the bottom line? When it comes time to buy or sell, if you want real estate expertise you can trust, get yourself an education.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

Of What Use is the NAR Code of Ethics?

Realtors like to point out that when you hire a real estate agent to help you buy or sell a home, you shouldn’t just choose a real estate agent, you should pick a Realtor™. What is the difference? Realtors belong to the National Association of Realtors (NAR) and just plain real estate agents do not. And how does membership in NAR benefit buyers and sellers? The best I can tell, only one way: Realtors have a code of ethics.

angel2Go ahead. Ask any Realtor why it is so important to hire a Realtor and not just a real estate agent. Almost without exception they will tell you that they have a code of ethics. Of course a code of ethics is only effective if the people bound by it actually abide by it. So, do Realtors abide by their code of ethics? Not so much.

Based on a recent survey of more than 300 real estate agents by Consumer Reports, they found that about 86 percent said they have seen other real estate agents engage in poor business practices. That is code for violate their code of ethics. Of course none of the 300 real estate agents surveyed had ever done that. They were all angels.

What were some of the dirty little secrets agents confessed to? Here are quotes from the article:

“I sometimes steer clients toward houses that will bring me a higher commission, rather than the best house for them.”

“You can’t believe everything I say about myself in my marketing material.”

“I might persuade a client to sell a home for less than it is worth.”

“I might encourage buyers to make an offer that is too high.”

“I sometimes reveal information about the lowest price a seller will take or a potential buyer’s top price.”

“I might not disclose problems with the neighborhood to potential buyers.”

So you hire a Realtor for their expertise and you cannot trust what they tell you. Lovely. So what is the value of the NAR Code of Ethics? There isn’t any. The ONLY way to make sure your Realtor is doing right by you is to be an educated consumer. Everything else is just misdirection. To learn to be a more informed home seller, visit ReaListing.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

Top Agents Even Treat Each Other Like Idiots

Have you ever heard of TAN (Top Agent Network)? It is doubtful, unless you are a top producing real estate agent. According to their website…

Top Agent Network (TAN) is the private online community where the verified top 10% real estate agents in local markets collaborate & exchange valuable Non-MLS information. These advance communications help TAN members sell more homes while attracting more clients.

The only thing we know for sure about top producing real estate agents is that they sell a lot of homes. From that we can infer that they are exceptionally good at marketing THEMSELVES. Top producing agents may or may not be any good at their supposed fiduciary duty: looking out for the best interest of their clients. Since most home sellers are ignorant of the home-selling process, even if these top producers were short-changing their clients, they would have no way of knowing it (or proving it).


The supposed purpose of TAN is to leverage these top agent’s success to garner an even larger share of the real estate pie. By creating this private online community, these top agents can keep their deals hidden from the other 90% of losers, er, agents who are not part of their elite inner circle. And how do they accomplish this feat? By keeping their listings off their local MLS (Multiple Listing Service), and I assume, off of the third-party sites like Trulia and Zillow.

I am certain that these top agents understand that by hiding their listings from 90% of the agents, the MLS and the third-party sites, they are severely limiting their exposure, which most assuredly results in lower prices for the home. In other words, it screws the home seller, and is a clear violation of their fiduciary duty and their code of ethics.

Now, real estate agents wanting more business for themselves and screwing home sellers is not, in and of itself, news. That has been going on for years. What is interesting about TAN is how they go about trying to convince these top producers to join their little clique. From their website, they explain “How Pre- and Non-MLS Marketing Serves Sellers:”

Greater ease finding properties for buyers. How does that serve sellers? It helps the TAN agent’s buyers by eliminating all the other buyers.

More strategic marketing options for sellers. By strategic, I think they mean “limited.”

Whether by word of mouth or through ad-hoc meetings… Yes, that is how I want to market my home in the age of Internet technology, word of mouth and ad-hoc meetings.

I am shocked to see how TAN uses these perverted twists of logic to try and attract members. I am sure this BS would work on home sellers, but other top agents? Maybe they have been dishing it out so long, it is the only thing they know to do. I can tell you this for certain: the next time I hire a real estate agent to list my home I will inquire as to whether they are a member of TAN. And if they proudly respond that they are, I will proudly respond adios.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

The Consumer is King in Real Estate, Except When it Really Counts

If you spend a lot of time trolling the real estate industry—which most consumers don’t—the buzzwords du jour are consumer-centric. “The consumer is king. Case closed. Period. There is no going back,” claimed an article on the Inman News website awhile back. Why this has not been true for the past fifty years is a mystery to anyone. I suppose it is a consequence of the universal unleashing of information in the real estate industry due to the prevalence of the internet. Perhaps it was easier to be agent-centric when they had a stranglehold on all the information. Not so much today.


But for whatever reason, I am glad the industry has finally come around to putting the needs of the buyers and sellers first. They do, after all, pay everyone’s salary. So, I was a little disappointed to read last week that the California Association of Realtors (CAR) is going to out “Code of Ethics” violators to members only. In other words, which agents are in violation of their code of ethics will not be made available to consumers—the ones most harmed by the violations. That is the kind of information, if made available, that would be extremely helpful to buyers and sellers in vetting a real estate agent to represent them. But, it would be an even more powerful deterrent for agents, knowing that consumers can easily discover their dastardly deeds. If you want to eliminate unethical agent behavior, you have to make it costly to engage in it. Just outing them to other agents is an insufficient penalty.

I do not know whether to be grateful that the association is doing something more than nothing with regard to the violators, or disappointed that they did not take the more aggressive step of alerting consumers. But it is certainly not unexpected. They do, ultimately, represent real estate agents and not consumers. The association actually has a financial incentive to never out violators to consumers: they risk losing a dues-paying member.

Perhaps someday the real estate industry will embrace true transparency, put the needs of their customers ahead of their own (like it states in their code of ethics), and believe that buyers and sellers are best served by the quality of member agents and not the quantity of member agents. Now, that would be consumer-centric. Until then, all buyers and sellers will continue to be in the dark about which agents strictly adhere to their code of ethics and which ones just brag about it.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

How Home Buyers Get Screwed and Agents Violate Their Code of Ethics With a Click of the Mouse

There is no doubt about it. New technology makes home shopping easier, for both home buyers and their agents. Gone are the days of having to visit every home. Now, with third party sites like Trulia and Zillow, there is a wealth of information available to today’s home buyer. But, there is something even better (for now) than these third-party websites. Something more comprehensive and accurate: MLS direct to the desktop. (MLS = Multiple Listing Service)

Today, your buyer’s agent can set up search criteria according to your requirements for a home and have the MLS listings e-mailed directly to your inbox. You just click on a link and view the home. That’s right. Your buyer’s agent now has the ability to show you every listing in your price range without ever leaving the comfort of your home. But they won’t.

You see, along with search criteria like number of bedrooms, bathrooms and price range, your buyer’s agent also has the ability to limit the listings you see by THEIR commission. That’s right. If your ideal home comes with a less-than-satisfactory commission for your buyer’s agent, there is a pretty good chance you will never see it in your inbox. You will not see it because your buyer’s agent does not want to make a less-than-customary commission, and because they want to punish the listing agent for attempting to sell a home with one.

As you can see in the image below taken from the CLAW (Combined Los Angeles Westside) MLS, when setting up a home buyer search, there is field called “CSO”. Simply put, the percentage or dollar amount placed in the CSO box is the amount above which the commission must be for the e-mail to be sent. Anything below that amount and the buyer will never see the listing.


Now, limiting the homes your agent shows you by their commission is called steering, and it is a clear violation of the NAR (National Association of Realtors) code of ethics. Interestingly, to use most MLSs you have to be a member of NAR. And to be a member of NAR you have to agree to abide by their code of ethics. So, pretty much every agent using this form to set up a search for a buyer has already agreed not to limit the homes they show their buyers based on their commission. This raises the obvious question: what the hell is that field doing there in the first place? If the field’s only value is in limiting the homes a buyer sees and limiting the homes a buyer sees is a violation for everyone who uses the form, why have it?

As a home buyer there is nothing you can directly do to prevent this from happening to you. You can try to find a completely ethical agent (I am sure they exist), but in the end you have no way of knowing for certain. If you really want to cover your bases, set up home searches on the third party sites like Trulia and Zillow. Buyer’s agents cannot restrict what homes show up there. Then if a home you are interested in shows up on one of those sites but does not show up in your inbox, you and your agent can have an interesting ethical discussion.

To see how ReaListing tries to increase the transparency in the real estate industry, click here.



To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

A Realtor™ Would Never Do That

I have this crazy notion that I am going to sell my home and pay a fair, fixed-price commission to both my listing agent AND the buyer’s agent. No 6%, no 5%, just a nice cold hard chunk of cash, independent of the selling price of my home. That would be quite a trick.


Now, there are a lot of flat-fee/discount brokers in the real estate industry. They have been around forever. Why they do not have more market penetration, I have no idea. So, they can save me money on the fee paid to my listing agent. But, all these discount listing agents have one thing in common: they all suggest/recommend that I pay the buyer’s agent the full amount (i.e., 3%). The problem with that, of course, is a mathematical one. For me to save serious money on realtor fees when I sell my home, I have to realize savings from both the seller’s agent AND the buyer’s agent. Otherwise, my savings are almost inconsequential. So, what would be so terrible about offering a flat fee to the buyer’s agent?

Talk to any listing agent and they will tell you the problem with offering less than customary commission to the buyer’s agent is that they will steer their buyer away from your home and show them homes that are more profitable for themselves. But what if my home is the ideal home for their buyer? I thought to myself, “A Realtor™ would never do that.” Now a real estate agent might, but not a Realtor™. What is the difference? A Realtor™, as they are so quick to point out, abides by the National Association of Realtors (NAR) Code of Ethics. And what does their code of ethics say about showing my home with its less than customary commission?  Well, let’s read it together:

The duty obligates a real estate broker to act at all times in the best interest of his principal, to the exclusion of all other interests, including the broker’s own self interest.

I feel like it is that moment in the movie A Few Good Men where Tom Cruise’s character asks Jack Nicholson’s character, “Why the two orders? If the men were given the order that Santiago wasn’t to be touched, and your orders are always followed, why was it necessary to transfer him off the base?”

If Realtors™ abide by a code of ethics which prohibits them from steering buyers away from my home, and Realtors™ always abide by their Code of Ethics, why is it necessary to offer full price commission to attract them to my home? Why the two orders?

These discount listing agents must be mistaken. A Realtor™ would never do that. I can rest easy now knowing that every Realtor™ representing a buyer in my neighborhood will show my home with same alacrity as every other home.

But just in case, to learn how ReaListing makes unethical buyer’s agents a thing of the past, click here




To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.