future of the residential real estate brokerage industry, The

Real Estate Issues, Summer 2001 by Jud, G Donald, Roulac, Stephen

These legal problems have stimulated NAR and others to push to reduce the broker's legal liability by creating a form of non-agency client representation that has become known as "transactional brokerage." Transactional brokerage is a means of providing neutral third-party real estate brokerage services to buyers and sellers and at the same time reducing the liability of the broker (Evans, 1999b). By replacing the common law of agency with state statutes that clearly define broker and agency relationships, the movement to transactional brokerage hopes to make brokers no longer subject to court cases in which the common law of agency either has set or will set a precedent of broker liability. The new statutes will clearly define the duties and responsibilities of brokers, thus eliminating the basis of many liability lawsuits. A number of states, including Colorado, Florida, Georgia, Kansas, Pennsylvania, and Texas, have moved or are moving in this direction.3

The elimination of the liability problems that threaten the industry will have two effects. First, it will put further downward pressure on commission rates and fees. When brokers come to be seen not as agents but only as transactional middlemen, it will become harder for the industry to uphold traditional commission rates. The clear precedent here is what has happened in the securities industry, since the time commission rates were deregulated. This change in legal status will thus heighten the downward pressure on rates. Second, with the removal of the impediments of potential legal liability, entry into the industry will become easier and less threatening to service firms and others, furthering the movement toward merger and consolidation.

THE FUNCTIONS OF THE BROKER

In thinking about the future of the brokerage industry, it is useful to emphasize that brokerage services for the most part are an information commodity. The Internet makes it possible for information products to be produced dynamically based on the needs and wants of the consumer. Information technology also makes possible the personalization of information at little or no additional cost (Smith et al., 1999). In this section, we consider the functions that the broker performs and how these functions are likely to change with the Internet.

Brokerage Services Offered to the Seller

According to Blanche Evans (1999a) the broker performs the following eight services for the seller:

1. Advice on fix-up prior to showing;

2. Advice on calculating the listing price;

3. Listing the property in the MLS and on the Internet;

4. Assistance with marketing, including signs, brochures, tours, open house parties, and other advertising;

5.Providing potential buyers with information on various financing alternatives;

6. Negotiating the offer;

7. Arranging the closing;

8. Troubleshooting the gap between offer and closing.

Looking over the list, it is clear that the Internet alters the method of efficient delivery for all of these eight services. All of the services that entail the broker relaying information to the home seller-- advice on fix-up, marketing assistance, listing the property, negotiating the offer, arranging the closing-can be done faster and easier by utilizing the Internet rather than relying only on personal communication between the broker and the seller. Web sites can easily provide check lists for sellers to follow when planning fix-up activities, listing the property, developing their marketing plans, negotiating offers, and arranging the closing. Some sellers may still need or want personal contact with a broker to answer questions and provide advice, but many will not, and the savings will translate into increases in broker efficiency.