Some brokers are deciding to reduce the co-broker fee on their listings. At best, this is a quick fix for business models in trouble. At worst, fixed fees can mean anti-trust violations. Either way it is a dangerous precedent to attempt to elevate earnings at the co-broker's expense. These listing brokers haven't done the long term math, only the short term game plan. Who's going to lose the game in the end? Buyers and sellers. And when buyers and sellers blow the whistle, the real estate industry loses. Big time.

Imagine what could happen if the National Football League (pre-salary cap era) operated the way some real estate brokers are beginning to. Let's say the Browns are playing the Cowboys in Dallas, and owner Jerry Jones decides that he's not making enough money. Instead of watching his expenses, exploring new ways to attract sponsors and partners, and keeping his players out of jail, he decides to levy a fee against other teams when they play on the Cowboys' home turf.

When the Browns arrive to play, he informs them that they will have to pay a fee to play. The Browns have fans to protect, so they angrily pay up. So do the other teams. Eventually Jerry earns enough to pay his players outrageous sums so he attracts all the best players. Soon there is only one team worth watching, the Cowboys. Every time the other teams take the field they lose. The fans start to lose interest. Ticket sales drop to nothing. The sponsors, who thought they backed a winner, realize they, in fact, subsidized a dictator. Obviously something has to be done. The other teams consolidate. They get the NFL to restrict draft picks to the Cowboys. The fans boycott the Cowboys. Sponsors desert Jerry. He goes bankrupt, and the NFL goes on. Moral of the story? Nobody likes a bully.

Well, nobody likes a bully in real estate either. No broker would attempt to reduce co-brokers' fees unless they thought they had the clout, the market share, and the right kind of market to do it. That makes these brokers bullies.

With home sales on the upswing, some listing brokers may think this is the right time to bully other brokers, but that strategy could backfire. The real estate industry is already under attack by consumers who don't understand the value of most brokers and agents' services. If you were to ask most real estate consumers how agents are paid, whom they represent in the transaction, and what services agents and brokers provide, they couldn't tell you. If these things were common knowledge, the National Association of REALTORS® wouldn't be spending hundreds of thousands of dollars improving the image of Realtors. State legislatures wouldn't be attempting to unravel the tangled balls of twine called agency and disclosures. And, all real estate consumers would gladly pay Realtors' fees without trying to do a reverse end around.

Instead Realtors are among the most misunderstood and mistrusted professionals around, and consumers are constantly seeking ways to reduce costs by negotiating fees downward or handling the transaction themselves.

If you were to put it to the test, most consumers believe that the agent with whom they list their home will sell the home, and one-third of the time or more, they would be right. In-house sales account for as much as 70% of some brokers' earnings, those with dominant market shares. But what the consumer doesn't know is how the marketplace really works, that in order to get the highest and best price and terms for their home, the home must be exposed to as many qualified buyers as possible. The way this has traditionally worked is for brokers to share the commission paid by the seller equally with a selling broker and their agent, because a majority of the time, an agent outside of the listing broker's company will bring the buyer to the table.

Real estate consumers are told the game plan, but not how the plays work. If a listing broker/agent reaches an agreement with the seller that they will charge a commission of 6%, will the broker/agent disclose to the seller how much will go to the selling broker/agents? When - before the seller signs the listing agreement or after? How is the reduced commission presented to the seller? As an advantage? How? Explain the math to me. Explain how having fewer agents show the home is an advantage to a seller who wants a quick sale and a high price for their home.

The seller can only agree to reduced co-broker fees out of ignorance. That means the seller really has no advocate. Otherwise why would the seller agree to effectively reduce the exposure of their home for the same commission as others would charge to throw it wide open to the marketplace? Does the seller really understand the risk that his/her home might be passed over for showings by co-brokers who are looking for better compensation than their listing offers? Disclosure may clear the listing broker's conscience, but that doesn't mean it absolves him/her of being a bully or of violating his/her fiduciary responsiblities to the client - the seller.

Imagine the dilemma of the selling agent who has a buyer for the home. How good is s/he going to feel about showing a home where the commission fee has been not only determined by the listing broker but reduced in a punitive fashion? How does it feel to put more in the pocket of a broker who wants to dominate the market, squash buyer's agency, or just wants to be a putz?

Ethically the agent must show the buyer all the homes within the buyer's criteria, but the agent is presented with a moral dilemma. Show the home and give a bully a victory at closing, or pass over the home in favor of another listing. Which way will the agent decide? As long as it is within the discetion of the agent to pick homes, who will ever really know?

Some listing brokers get on a moral high horse concerning buyer's agency. But the bottom line is that if the selling agent's buyer offers an amount and terms that the seller agrees to, why should the selling agent be punished if s/he is a buyer's agent, exclusive buyer's agent or sub-agent? Does it really matter what kind of agent s/he is once the seller agrees to terms? Isn't the idea to get the deal done? What agent in her/his right mind, exclusive buyer's agent or not, would be such a fierce adversary that the deal never happens? Not one any informed buyer or seller would ever hire twice.

And what about the buyer? Will the buyer really get a complete look at the marketplace if homes are being passed over for showings because of reduced co-broker fees? Buyers are more consumer-savvy today than ever. If they want representation in the transaction, they will hire an attorney, who will be more than happy to help them fill out their contract, or buyers are learning to do it themselves. Either scenario spells disaster for transactional agents who had better be on alert - these buyers are getting a groundswell of support.

Nationally known financial planners such as Rick Edelman, author of The Truth About Money, HarperBusiness, are examining the real estate transaction and declaring that it is not the seller at all who pays the commission anyway. It is the buyer who not only pays it but finances it over 30-year mortgages and that is how he is advising his readers and clients. How long will it be before astute buyers not only insist on representation but controlling the fee schedule of the real estate contract? It isn't impossible that one day soon the listing agent and broker will be on the receiving end of reduced fees. One brokerage firm in Dallas, David Wynans Realtors, already sees the writing on the wall and has restructured its business model on a flat listing fee and fee for service basis. Also looming is the Internet. The Internet offers faster services for home buying, saving buyers half the time and effort, according to a recent survey in California. How long will savvy buyers continue to bring an extra 6% in loan money to the table to pay for representation that they aren't getting?

If real estate buyers and sellers really knew about the commission squabbles going on today, they would be shocked and disgusted. And what do consumers typically do when they are unhappy with a service or discover that they are paying too much? They flock to an alternative - anyone who can offer a way for them to obtain the same services and goods in a cheaper, more efficient manner.

Anyone who doesn't believe that has missed the most recent lessons of the Internet economy, where traditional industries have been turned on their ears by companies like Etrade, EBay, and Amazon.com. Any broker or agent who says Realtor.com and HomeAdvisor.com hasn't affected how they do business isn't selling any real estate.

The bottom line is that a buyer can't buy a home without a seller putting one on the market. A seller can't sell a home without a buyer. Whether you are in a buyer's market, a seller's market or a normal market, things change. You won't always be at the top of the seesaw. The Realtor you cheat today may be the one you badly need tomorrow. The consumer you fail to disclose today is the one who will either choose a competitor's services or buy or sell FSBO tomorrow because they are sick to death of commission squabbles.

Realtors need to return to fair play, fair pay for services rendered. Or the end result could be that real estate consumers just may find something else to do on Sunday afternoons, too.

Go to the Interactive version of this article.

Published: August 19, 1999

Use of this article without permission is a violation of federal copyright laws.

Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.