Short Term Agent Agreements - Why?

Zillow's Play To Combat NAR Rules Impact

Non-Exclusive Touring Agreements

Zillow debuted a ‘non-exclusive touring agreement’ for home buyers and agents this week They’re billing it as a consumer-driven response to NAR settlement agreement rule changes. It’s really a move to protect their profits.

The Big Lie Behind The NTA

Altruistic, It's Not

Zillow’s NTA isn’t a BAA. The agreement relates only to touring homes, for a limited time of 7 days. There is no requirement for broker compensation and, as the name implies, the agreement is non-exclusive.

Ostensibly, the non-exclusive touring agreement was created to ease buyers and agents into the signing of a long-term, exclusive buyer agency agreement by creating an obligation-free opportunity to interact during property showings. Zillow says:

“The proposed NAR settlement outlines the requirement that buyers have written agreements with agents before touring. While this may seem like an extra step, when done right, agreements can provide transparency, promote open conversation, and foster alignment between the two parties. However, insisting that a buyer sign an exclusive, long-term agreement with an agent, perhaps before even meeting the agent, feels premature. That’s why Zillow has created a non-exclusive touring agreement, and we’re making it available for use to the entire residential real estate industry. 

Zillow is not required to offer consumer-facing agreements in light of the proposed NAR settlement, but we have an opportunity to provide tools for the industry to fulfill these requirements in a way that puts the consumer first. While we recognize the form of this agreement will vary by state, we’re calling on the industry to adopt a non-exclusive, limited-duration agreement for the initial tours conducted by an agent with a prospective buyer.”

“When done right…”  Is this doing it “right”? No. What’s wrong with the concept? Everything.

wait---what?

First off, a property tour is not a fitting or appropriate place to discuss a buyer’s needs, wants and current situation. It is not an opportunity for agents to outline their process and explain the benefits to working with them, answer questions and review materials. It is a time-constrained, distracting event in which the buyer and agent are literally noving targets. I can’t think of a worse place to ‘promote open conversation and foster alignment.’ The idea is just laughable, yet this is Zillow’s rationale for creation of their non-exclusive, short-term agreement.

Then there’s this: “…insisting that a buyer sign an exclusive, long-term agreement with an agent, perhaps before even meeting the agent, feels premature.” That line leads me to ask what the heck is going on in ZillowWorld?  Only in the “click to tour” environment can I imagine that type of low bar activity.

Of course buyers should interview agents before signing agreements. and agents should interview buyers before agreeing to perform services for which they should be compensated. Nothing in the NAR settlement rules changes that. Only in Zillow’s twisted interpretation are buyers and agents put in this imaginary position. Zillow’s agreement, on the other hand, absolutely puts agents in the position of having to perform pre-touring services and tours–at their own expense–without compensation. I would not want the agent who would do that to represent me, I can tell you that.

What’s ‘long term?’ Thirty days? Sixty… ninety?  The average home search takes 30 to 90 days. It’s length depends on many variables, inclduing how well-prepared the buyer is. It’s up to the agent to bring the buyer and market into alignment–something that’s absolutely not going to happen running through random properties for a day or two, and certainly not without a buyer agency agreement.

Ziilow goes on to say “Buyer agreements typically outline exactly what an agent will do for a client. However, requiring a long-term exclusive agreement with a single professional, before the home buyer has an opportunity to meet with multiple agents or sufficient time to decide to work with this agent, negatively impacts the consumer experience. To put it simply, most people want to date before becoming exclusive.”

Hogwash! Another Zillow-invented scenario. Yes, BAAs outline duties, also broker payment, and protections afforded the buyer, such as loyalty, confidentiality, fiduciary responsibility and fulfillment of disclosure requirements. Without that agreement, the “click to tour” agent is actually a sub-agent of the seller, who owes the buyer nothing. That’s one hundred percent going to “negatively impact the buyer experience.”  Zillow conveniently neglected to mention this salient point, however.

And hold on, where’s the fire? There are few, if any, real estate emergencies. Buyers can take all the time they want to interview agents and decide with whom to partner. If it happens that there’s a home on the market the buyer thinks is “the one,” it’s sure to sell quickly, and they haven’t yet engaged an agent, they can attend a 30 minute phone or video meeting to discuss, and sign a single-property BAA. Buyer Agency Agreements are malleable. There are always ways to work in which everyone is fairly treated—except in ZillowWorld, apparently.

The truth is that unless a buyer is a client, agents are very limited in what they can say, and what they can do on the buyer’s behalf. They’re bound by rules and laws. All the really valuable stuff is withheld if there’s no agency agreement.

It’s not a personality contest, an agent’s proficiency and integrity should be primary selection criteria, but if a buyer wants to know if a particular agent will be compatible in terms of their working style, they can simply request a sit-down meeting and ask, face-to-face.

Zillow’s ‘dating before becoming exclusive’ language is slick, but inappropriate. The buyer/agent relationship is not  personal, it’s a business relationship, and one in which the agent assumes the majority of risk. Who works for nothing? If I ask any of Zillow’s “most people” what they do for a living and if they’ll do it for me free of charge at first, paying all expenses, then for momths after that for a potential fee (but not guaranteed), I’ll get a laugh and a resounding “no.” Why does anyone expect a Realtor to work without compensation? Would you ask your lawyer to prepare for a trial for free? Would you ask your doctor to perform tests without charge, or demand your tax preparer send you a return without payment? The real estate market is not the sample table at a department store, or a speed dating bar. It’s a complex, specialized field in which licensed agents wait until the largest transaction “most people” have in their lifetimes closes to be paid. Maybe that’s the concession that should change. Maybe we should require payment upfront. Like Zillow does.

The Purpose Of Touring

Touring homes isn’t a ‘get to know you’ step, it’s the result of ‘get to know you’ steps.

The short-term, non-exclusive touring agreement is based on a false premise. The very idea that any buyer/broker relationship should begin with home touring is patently wrong.

Touring homes with a new buyer client is mostly about gauging their reaction to the fruits of work performed in preparation for the first tour. This includes careful interviewing to learn the buyer’s needs, wants and the differences between them, priorities, capacity to purchase, timeline and the reasons for it, perception of the market vs reality (the actual market), willingness to compromise, neighborhood preferences, and so many more important pieces of information that ultimatley allow the agent to shortlist homes that will actually meet that buyer’s criteria and appeal to them on an aesthetic level.

Quite a bit of time, research and effort should go into the preparation of a first tour, from creating the customized searches that translate to feeds the buyer will see, discussions with clients regarding criteria and listings, performing neighborhood market research for each location and researching individual properties, to honing short lists and running preliminary CMAs, scheduling, obtaining day of tour property updates, and facilitating the actual tour. It’s a fairly involved process, preceded by the initial meeting(s) with the client to establish a working relationship.

If an agent hasn’t done that advance work, they’re allowing the buyer to run the tour haphazardly, dictate the process, and affirm the buyer’s probable belief that agents offer little value. Who wants to hire–and potentially pay out-of-pocket–the agent who puts so little value on what they do and how they do it? What buyer wants that agent negotiating for them and managing their transaction? How much confidence does giving away your time and efforts inspire? How does being the ‘agent on a string, summoned at the snap of a finger’ bolster respect for agency and promote a working relationship?

And why would any qualified agent perform all the advance work for zero compensation?

Zillow’s shameless self-interest in “calling on the industry to adopt a non-exclusive, limited-duration agreement for the initial tours conducted by an agent with a prospective buyer” is breathtakingly manipulative. Labeling it a consumer benefit is blatant misrepresentation. Do they think the real estate industry is stupid and weak enough to support it? Actually, yes, they do, because NAR, real estate boards, and brokerages have handed Zillow big paydays to their own detriment before.

Is it beneficial to buyers, as Zillow claims? Absolutely not. Agents who shortcut the process by placing the emphasis of representation on opening doors do their clients and our industry a disservice.

The Lead Gen Game

It has been my experience that most buyers who insist on touring before taking the essential pre-tour steps in the home search process, including the most basic; meeting the prospective agent first; aren’t really interested in evaluating an agent’s abilities. They often have a different agenda; using inexperienced, weak and desperate agents as human door keys, freebie research assistants, and providers of off-market listing access. The quality of the agent doesn’t matter. These types of buyers don’t value agents. When it comes time to purchase, they’ll either go it alone, or sign with a discount brokerage offering rebates or lowball commissions.

So why would Zillow pander to these buyers and the agents who rely on non-exclusive, short-term agreements to secure clients? Quite simple: Zillow’s clients are the agents buying their tough-to-convert Internet leads. It’s a numbers game, often with the agent buying bulk leads assigning them to newbie agents offering little value to the buyer.

Lead generation is key to a profitable real estate career. For those who measure success by profit, it is the key. There are many ways to generate leads, and buying Internet leads from Zillow (or Redfin or Trulia or Realtor.com, etc.) is one. The average conversion rate (turning inquiries into clients) for real estate internet leads falls between 1%–5% according to research. There are recommended scripts (eye roll) and methodology that supposedly increase conversion success.

Throughout the real estate industry, referrals are by far the most profitable leads. Upwards of 60% of home sellers work with an agent recommended by someone they know. Upward of 35% of buyers work with an agent referred to them. Why the disparity? Perhaps its because many buyers start out by ‘looking in the shop windows’ before doing the more valuable work of vetting their buying power by obtaining a pre-approval, interviewing agents, and researching their target market(s). Sites like Zillow encourage the ‘shop first’ inclination because they make their money marketing agents’ listings and selling the leads back to them. What seems like a consumer-centric service is really just a lead gen mill.

The home buying process is more complex, work-intensive and opaque than listing and marketing a home. While sellers have only to sell one home and deal with one agent, buyers have an entire market to consider. There are a lot of moving parts, market changes are frequent, there are numerous players involved, such as the buyer’s agent, lender, title company, appraiser, home inspector, etc. The risk is borne primarily by the buyer, who brings the money for the sale and whose contractual protections are often few. That’s why, in our view, hiring a qualified, honest, experienced agent dedicated to serving buyers well is far more crucial than hiring a listing agent. Yet, buyer agents are often viewed by the public as optional, of questionable value, or even a wasteful expense. How did this happen, when buyer agency was created to protect buyers’ interests? Zillow, and copycat sites had a heavy hand in it.

We won’t go into their algorithm, which they finally admitted themselves was innacurate, the fact that they promoted online buying and selling at the expense of expert representation with the now defunct (and abruptly closed) Zillow Offers leaving sellers with unsold properties twisting in the wind, Suffice to say that they contributed (a lot) to the devaluation of agent representation.

Zillow's NTA Makes Them Seem Desperate, Manipulative and Mercenary

manipulation

Calling For Ill-Gotten Profits

What’s the word for a company who profits by not paying workers?

Zillow’s short-term, non-exclusive agreement scheme is a thinly-disguised ploy designed to maintain its lead gen and ad revenue at agents’ expense. Simple as that. Zillow Group saw its stock slide 13.4% when the NAR settlement terms were announced. They had to grease the path to their lead/ad goldmine somehow. Suggesting that agents bear the cost while they offered nothing (again) seemed like a great idea, apparently. It’s the first of what will probably be many tools used to maintain the status quo, inevitably propping up the industry inept and further degrading buyer agency in the eyes of the public. It’s a ‘non-agreement’ (requiring an actual Buyer Agency Agreement for work with actual value), that promotes their ‘click to tour’ showings ahead of quality representation that includes critical initial steps in the homebuying process. It also creates space for agent manipulation by buyers. Zillow’s non-exclusive agreement allows buyers to get free touring services from one, two, three, or many agents at the same time. The potential for abuses is just enormous, as is the insult to the real estate community.

For a different take and insights on potential procuring cause conflicts and other aspects of the Zillow non-exclusive touring agreement, read:

 

 

Disclaimer

This post is the opinion of the author and does not reflect the views of Compass real estate brokerage, DOMO of Compass, their agents or staff.

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