VOWs and Commissions: Experiment Results, Five Years Later

February 4, 2014

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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:

YearAverage Commission 3
20095.36%
20105.4%
20115.4%
20125.4%
20135.2% 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.

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Author: Matt Cohen

Matt Cohen has been Clareity's Chief Technologist for more than 20 years. He has consulted for many of the top Associations, regional MLSs, large brokerages and franchises, and a wide variety of information and technology companies that service the real estate industry. MLSs, Associations and Franchises look to Matt for help with system selection and negotiation. Real estate software and technology providers look to Matt for assistance with product planning, software design, quality assurance, usability. All seek his expertise in information security assessment. Matt has spoken at many industry events, has been published as an author in Stefan Swanepoel’s “Trends” report and in a variety of MLS and Association magazines and newsletters, and he has been honored by Inman News by being listed as one of the 100 Most Influential Real Estate Leaders in 2013.