• Terry Yonker

It's Time For a Transparency (R)evolution in Real Estate

two hands touching
Can't we all get along?

Can't we all just 'get along'?

One of the things that we take pains to accomplish at Buckeye Realty is to remove ‘Agency’.

Agency theory states that there is a conflict of interests between a buyer/seller and their agent. The notion of a party (example: agent) that takes hidden actions to obtain benefits at the expense of the prejudice of the capital provider (example: buyer).

What about getting interests aligned?

Aligning them can be a challenging task as the human tendency to protect their income sources and benefits often overrides the moral obligation to provide the best advice/services for their customer. We see this all too often especially in tighter times when the next deal may be someone’s mortgage payment or car payment.

This lack of transparency is one of the key causes of the problems in the commercial real estate market and a contributor to previous financial crises. Although the Real Estate sector is visibly improving in this area, it's crucial to keep pushing further; and we can agree that transparency is of utmost importance to provide not only insightful market guidance but for making better business decisions too.

An easy first step toward transparency is by removing extra fees that are tacked on to the deal. They have many names; Transaction fee, Doc Storage fee, Broker fee (we’ll make up another new one soon!). All of these different names mask what they really are, just another source of income that often gets slid into agreements without so much as a squeal from the clients.

Here's what needs to happen to align all of our interests

1. A transparency (r)evolution

This push towards transparency is becoming so important that the guys over at JLL even track it with an index. I love how it is getting the attention that it deserves. Although I gripe about agency and interests working against each other, thank goodness we are in the US! Looking at the chart it is no wonder that capital continues to flow to the U.S. and Florida in particular.

Read more: The Global Real Estate Transparency Index 2020

2. Levelling out the commissions

Wide open transparency like we are seeing on the residential side can, in fact, lead to squeezing commissions. The role of the agent moves providing marketing prowess as the infrastructure and efficiency in pricing and exposure is already in place through Zillow, MLS, Realtor.com, etc. This infrastructure in place shifts our role as agents to more of a a ‘trusted advisor’. Interestingly, the price of this same expertise can fluctuate with home values. The advice and guidance is just as crucial on a 100k purchase as it is on a 1 million dollar purchase. Why should the compensation fluctuate so much between them?

Read more: Real estate commissions: Who pays whom?

3. Hide-and-seek for sneaky fees

Real Estate commissions are sometimes hidden and so not known and understood by consumers. In this 2019 report, the Consumer Federation of America (CFA) shows how this can be at times intentional, and systematic. While there may be short term gains, the long term detrimental effects to all agents and the industry in general can’t be understated.

Read more:Hidden Real Estate Commissions: Consumer Costs and Improved Transparency

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