VOWs and Commissions: Experiment Results, Five Years Later

Matt CohenIn 2008, when the average real estate commission was 5%1, NAR and the DOJ reached a settlement regarding display of data online. The DOJ’s theory behind the need for this change was that consumers would benefit from a decline in commissions caused by the ability of “new model” brokers to use sold data online. Let’s look at what really happened:

Before the settlement:

“The average national residential commission rate fell in a virtual straight line from 1991 to 2005, falling from 6.1 percent to 5.02 percent.” 2

After the settlement:

Year Average Commission 3
2009 5.36%
2010 5.4%
2011 5.4%
2012 5.4%
2013 5.2% 4

Meanwhile, ZipRealty – a strong advocate for VOWs with the DOJ – hasn’t fared so well. They eliminated commission rebates to consumers a few years ago and pulled out of 12 markets. Fielding a VOW apparently did not fill an overwhelming consumer demand or create a profitable brokerage able to thrive and grow on lower fees to consumers.

If commission trends can be tied to anything, it is to the housing market and how much effort it takes for professionals to service the transaction.

The DOJ’s theory does not seem to be supported.

Have people from Canada’s Competition Bureau looked south to the U.S. as they contemplate their own experiment, or are they still repeating the same old disproved theories?

 

 

1 http://www.businessweek.com/articles/2013-03-07/why-redfin-zillow-and-trulia-havent-killed-off-real-estate-brokers

2 http://realtrends.com/image/files/PDFS/Chapter%206.pdf

3 Published online in various locations by Real Trends (http://realtrends.com)

4 projected by Real Trends.

Posted in Clareity Blog Tagged with: ,
5 comments on “VOWs and Commissions: Experiment Results, Five Years Later
  1. Has the VOW concept seen its day?

    As the industry and consumer expectations have changed, it seems that the idea of a VOW, with logins, authorization and accountability, has faded into obscurity. I know that as a consumer, I hate having to create a user account to get basic answers to my immediate question. The proliferation of Broker and Real Estate Portal websites means that if I get to a spot that suddenly starts asking for my information, B-Bye, I’m on to another website! You really have to have killer information or I determine a need to return before I create a user account. Think Amazon.com, I created a user profile because I know I will be coming back often and it saves me time and effort in making future purchases.

    Online brokerage hmmm, maybe not the most appealing to me as a buyer? Home buying or selling is a far different transaction than booking tickets or renting a hotel or vacation condo.

    • Matt Cohen says:

      Thomas, I think it’s important to note that these VOWs were not supposed to just be websites, competing with other non-passworded websites, but rather client service portals for virtual brokerages – theoretically there should have been all sorts of wonderful online collaboration tools developed there to help the virtual brokers help their clients – certainly needing privacy and password protection – but I’ve audited a lot of VOWs for rule compliance and never ran into one used for real client servicing. Mostly, the data was just used as something to get people to register and create ‘leads’.

  2. John Mosey says:

    Great observations, Matt. The supporting evidence is particularly important for any regulator whose motivation is to help as opposed to using an issue to pump up their tough guy cred.
    I remember, during the worst of the Financial crisis and housing collapse, attending real estate offices for Tuesday morning meetings and being struck by the common sense economics of seller bonuses and higher commission rates being offered to further incentivize a successful transaction.

  3. Cindy Miller says:

    Every marketplace has room for different business models and it is the marketplace that will always determine the success or failure; regulation does not drive the market (though over-regulation can certainly stifle it).