We started using a marketing strategy in the early 1990s where we advertised to property owners that we could sell their property “for free.” Of course, we weren’t working for free, charging the buyer a premium instead of a seller commission.
We would hold there is no issue with advertising “free services” as long as the complete picture is presented. As some of you know, the United States Department of Justice has taken issue with real property buyer agents telling their clients they work for free when actually the seller’s agent (the seller) is paying them.
Why would that be? If the seller is paying the buyer’s agent (or the buyer is paying a buyer’s premium) then those principals can and do need more money to pay those fees, and as such the real property seller needs a higher purchase price, and the auction buyer may be forced to bid less.
Do these real property sellers or auction bidders disregard these higher fees? Sometimes they do — especially at auction — but some do consider these fees and nevertheless, any fees earned by agents must be disclosed to clients as without disclosure, this constitutes a secret profit.
We’ve written about secret profits and the serious implications of non-disclosure: https://mikebrandlyauctioneer.wordpress.com/2022/01/22/auctioneers-and-secret-profits/. To avoid liability, the message and contract must be comprehensive — such as “free for you, as the buyer (or seller) is paying our fee.”
Furthering disclosure, it may be prudent to discuss that bidders may bid less (or sellers will require more) to pay these fees, as it’s not necessarily immediately apparent to all [potential] clients. In other words, what is obvious to you may not be obvious to others.
For those paying attention, as of January 26, 2023, a federal court ruled the Justice Department’s inquiry dismissed, and reinstated a prior settlement agreement — including that the members of the real estate association would have to clearly disclose any compensation details.
However, this recent ruling does not prohibit the Justice Department from other claims nor an appeal of this specific ruling. My prediction is additional litigation is to follow as more improvements are desperately needed including eliminating subagent “dual agency,” “coming soon” and “pocket” listings.
Curious about my wishes? Dual agency, coming soon, and pocket listings are completely counter to this association’s claim to act in the best interests of home buyers and sellers across the country. This isn’t a “heavy lift” but of course, old habits tend to die hard.
As an auctioneer, do you have a habit of saying “no fee” or “free” without mentioning there’s a buyer’s premium? Again, a better statement includes full disclosure including “no fee” or “free” along with “for the seller, as the buyer pays our fee.“
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at Mike Brandly, Auctioneer, Brandly Real Estate & Auction, and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy and Western College of Auctioneering. He has served as faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.
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