It was big news this weekend: real estate agents are practicing tying. Despite being banned by their own industry associations, brokers themselves admit to recognizing the signs. A tricky problem, but what would be workable solutions?
What is tying?
When a real estate agent sells a house, his client is the seller, who pays him or her a commission when the house is sold. As interested parties, you can then make an offer on a property; the broker will then select the best buyer on behalf of the seller.
In a tying arrangement, the real estate agent is looking for a prospective buyer from whom he or she can earn once again; there are several ways to do this. For example, a real estate agent can explicitly demand that you as a candidate only get the new home if you let him or her sell your old home. A similar situation can take place with mortgage leads, for example, you may only sell the home if you take out the mortgage with an affiliated agency.
Why is tying prohibited?
In the Netherlands we have the two-husband principle, which means as much as: a broker cannot represent two parties at the same time. We explain this using an example:
Suppose 3 offers have come in on a property: €300,000, €315,000 and €330,000. As a seller, you would always go for the highest bid of course, but what if the broker knows that number two has a desirable property to sell? The broker will then only pass on the first two bids to the seller and push for number two. The seller misses out on €15,000 because of this, and the real estate agent has extra turnover because of a new assignment.
The same example can also be reversed. Suppose the candidate agrees to the broker's demand, it remains to be seen whether the broker will be 100% committed to selling candidate No. 2's own home. After all, it is in the broker's interest to complete the first assignment as quickly as possible. Therefore, the broker might prefer speed over results.
From the preceding examples, it quickly becomes clear why a broker simply cannot serve two parties at the same time and tying is prohibited.
How does a Bid Log solve this problem?
The key point is open communication. If we take the first example, the seller is clearly not aware of all the bids. If the seller had received all three bids, the order would probably have been given up on going for the third and highest bid. Therefore, in Eerlijk Bieden 's bid log, all information a broker receives is forwarded 1-to-1 to the seller. This way, there is no more information disparity.
Unfortunately, since the introduction of the Bid Log, several variants have been circulating that focus primarily on benefits to the broker rather than the consumer. For example, programs exist to deliberately circumvent the obligation to share information with the seller.
What are other solutions?
At every real estate agent site these days, you see pop-ups with: "What is your home worth?", or "Free mortgage consultation. In themselves, these tools are a useful tool to win commissions for realtors and usually a good tool for consumers. However, I think the use of these tools during an active bidding process needs to be critically examined.
Because a broker is already working on a sales job for a paying client, it feels odd to ask how much the candidates' homes are worth and whether they might be interested in mortgage advice. As far as Eerlijk Bieden is concerned, these are unnecessary incentives, since a broker may not do anything with this information anyway.
Of course, a broker is free to request this outside the sales process, but to avoid conflicts of interest, these retrievals must be removed from the bidding process.
