On the heels of a state Supreme Court decision in Iowa that put one flat-fee real estate broker's antitrust lawsuit against a "full-service" broker out to pasture, another set-to is brewing in Omaha, Nebraska.

NP Dodge Co, among the largest real estate firms in Omaha, has notified a few smaller companies that their agents will be paid less on sales commissions than the co-op fee listed in the MLS.

The reason - discount fees charged by the smaller companies, they say. NP Dodge says it's because the companies offer less than full service, causing the NP Dodge agents to have to work harder.

In certified letters sent to six competing brokerage companies, according to staff writer Deborah Shanahan in an article "NP Dodge cuts fees to others" for the Omaha World-Herald published 9-2-2004, NP Dodge said that "beginning August 21, any purchase agreements brought by the smaller company agents for NP Dodge listings will result in a commission of one percent."

According to the author's research, 66 percent of the listings in the Omaha-area Realtors' Multiple Listing Service showed a co-op fee of 2.4 percent, while an additional 25 percent showed a 2.8 percent fee paid to buyer's brokers.

"We looked at companies with inexperienced associates or a reputation for providing a limited amount of service," Mike Riedmann, president for residential sales told the Omaha World-Herald. "Many of the companies that do limited services also offer those nonservices at a discount, so they often do go hand in hand."

"When dealing with those companies," Riedman told the World-Herald, "NP Dodge agents end up picking up much of the work of bringing a sale to closing. The 1 percent commission is designed to compensate them for that."

According to the paper, most of the companies which received the letters are new, with new business models. "BancWise, for example, is a mortgage bank that sells real estate. Alliance is a support brokerage where agents pay a $250 fee per transaction and keep 100 percent of the commission. Together, the six companies have nearly 10 percent of the 3,500 houses now listed for sale."

NP Dodge has about 22 percent market share.

Said Joe Marcarelli, an Alliance co-owner, "NP Dodge's actions indicate it's upset at the small companies' success." "He said, according to the author, that the big firms, with well-furnished offices at key locations, can't afford to discount commissions and compete with the new companies offering alternative ways to sell real estate. Alliance, for example, considers itself a "virtual firm," keeping only one 700-square-foot office for its 20 agents to "stop and drop." Kurt Geschwender of WhyUSA, said he'd never seen anything like the NP Dodge letter in his 34 years in the business. Ever since interest rates started dropping in the 1990s, the business has been a "free-for-all" and it's become tough to compete, he said."

The following letter illustrates how difficult it may be to explain the situation to consumers - that if business models don't play equally on the field, that some may retaliate. Lower commissions to consumers is one form of retaliation, while lower co-ops to other brokers is another.

Writes consumer Lance Schultz,

" As a consumer, I fail to see how a move like this will benefit buyers and sellers of real estate.

If I am a seller, why would I list with NP Dodge knowing that they will discriminate in the commissions offered to certain buy-side brokers? I'm paying the entire commission and I don't care who brings the buyer or what "level of service" they provide to the buyer. So maybe the listing agent has to do a little extra work (which I seriously doubt, since most work after the contract is signed is done by escrow companies, lenders and home inspectors). The buyer's agent has still provided me the most important service - they brought the buyer!

As a buyer, I now have one less web site where I can get all of the listings in the MLS (thanks to the petty squabbles between brokers, I don't know of any local site in Omaha anymore to see all listings).

This situation just reinforces my decision to forgo the use of a Realtor in my last two home sales. My time is better spent marketing my home myself than trying to figure out which agents will truly market my home to all potential buyers. My money is better spent on a real estate attorney to handle the paperwork and negotiations. Please don't quote me the statistic about Realtor-listed homes selling for 20% more than FSBOs either. All that means is that owners of lower priced homes are more likely to market their homes without a Realtor - not that Realtors would get 20% more for the same home."

Meanwhile a concerned agent in Houston articulates why some new business models are a problem for existing brokers.

Writes "Jon,"

Dear Blanche,

I hope you can address a question that I have yet to find in any news source. I am speaking about the proliferation of "100 commission" brokerages. I know in our real estate office we have lost two-thirds of our agents (6 out of 9) to one of these groups.

The real estate agent simply pays the broker a one time fee of $179.00 per year and then a $90.00 transaction fee to pay for E+O insurance and the agent pockets the rest. I see so many ethical and procedural problems with this practice. In the case of the "100%" company I am referring to, the MLS shows the broker has 640 agents working for him in the greater Houston area, and his advertising says he has agents in the Dallas and San Antonio also.

Unless I am misinformed the fiduciary obligation of a principle ultimately lies with the broker of a real estate company not the agent. How can a principle truly be represented if the broker probably doesn't even know of their existence? I am told that is the reason for the E+O insurance. But I seriously doubt that E+O insurance was ever intended to be a loophole for a broker not to adequately supervise his/her agents. Also, I have been told by another agent that when she was co-oping a deal with one of these agents and couldn't reach them, she never could reach her broker, I wonder why?

TREC (Texas Real Estate Commission) says in their laws that a "Broker must provide adequate supervision of his/her agents", what does adequate mean? I think adequate should at the very least mean that a broker needs to know the details of every file or principle they represent.

I think it is unethical for an agent to get a listing for a house when the owner doesn't realize the loose connection between the broker and the agent. I also feel it is wrong for brokers that do practice good ethical standards to lose good agents that they have invested countless man-hours and money in training and advertising only to see them go to a "100%" group that TREC arguably never should have allowed in the first place. Finally, what incentive is there to become a broker now? It is far less expensive to join the "100%" group and reap the same financial benefits. These are just some of the thoughts that I have about this, Blanche, I hope you can share some of your opinions concerning this with me.

Sincerely,

Jon

Published: September 7, 2004

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