Is The Traditional Real Estate Model Under Pressure?


Posted on Monday, May 22nd, 2017 at 3:42pm.

Is The Traditional Real Estate Model Under Pressure?

Asked to comment on changes affecting the traditional real estate model, Stephen Carpenter-Israel, President and Broker of Buyer's Edge, said that the increased use of house hunting websites, as well as a recent California Supreme Court ruling on the practice known as "dual agency" are shaking the industry to its core.  

Stephen Carpenter-Israel - President & Broker of Buyer's Edge

Stephen Carpenter-Israel - President & Broker of Buyer's Edge


Tech Has Led to Increased Demand for Transparency

Over the past decade, consumers' widespread embrace of technology spurred the creation of firms such as Zillow, Trulia, and Redfin.  "These online databases disrupted the 'cartel' of the old brokerages that used to monopolize access to property data" explained Carpenter-Israel.

In essence, these tech firms revolutionized house hunting by giving consumers free access to information on their smartphones, empowering them to look for better ways to buy or sell their homes.  While this disruption brought greater transparency to the way the industry operates, "homebuyers are still turning to agents to help them parse through the noise and evaluate the true value of properties," said Carpenter-Israel.

With more information at their fingertips, there is a trend toward better-educated homebuyers and sellers becoming skeptical of the traditional brokerage model.  "As clients become savvier, they are increasingly looking for a true fiduciary relationship with their realtor," said Carpenter-Israel.  "They are demanding transparency and loyalty with no conflicts or competing interests."

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California Legal Battle: The End of Dual Agency?

In fact, the courts are beginning to pressure brokerages to deal more openly with what has historically been a fairly secretive system explained Carpenter-Israel. "In fact," he said, "The need for increased transparency and full disclosure was the focus of a recent California Supreme Court ruling that may change the structure of the industry." 

The litigation revolved around the practice of "dual agency" when a real estate broker is representing both the buyer and seller. In this case, the California Supreme Court ruled in favor of the home purchaser who said he overpaid because the size of the house was misrepresented by the listing agent, who worked for the same company as his buyer's agent.

"The ramifications of this ruling may lend credence to the case for eliminating dual agency and push the industry to accelerate the trend towards brokerages choosing to exclusively represent either buyers or sellers, but never both," said Carpenter-Israel. "With 25 states having already eliminated an individual agent's ability to serve as a dual agent, the timing may be right for a meaningful change."

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Recently, California state representative Lorena Gonzalez Fletcher introduced legislation that would prohibit the practice of dual agency in commercial real estate transactions.

The proposed legislation may be the first of many efforts across the country that would fracture the traditional model of commercial and residential real estate firms representing both sides the deal. Ultimately, the outcome of these legal battles may require completely separate real estate firms to represent each side, not just provide a disclosure of the conflicts.