Yesterday in Part 1, we saw that that more and more real estate websites keep rolling out.
Is that the future, more gadgets? Undoubtedly there will always be more new websites to empower participants with more information. Is information all you need to successfully buy a house?
Let’s break down the home-buying process into two steps:
1. Information-gathering/search for home.
2. Meeting of the minds, and follow-through to close.
It used to be that realtors had a stranglehold on the homes for sale via the private MLS, and you needed an agent to be able to find a home. Now you don’t – and the agents whose skills are limited to house-searching will be helping only those buyers who can’t/won’t search themselves. Have you noticed how much the younger folks are addicted to the internet? Expect that the realtor population will dwindle significantly in the future.
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Buyers are able to do their own home-searching, and educate themselves tremendously about market values. They know more than the sellers, and usually more than the agents – because the buyers have more at stake. But is that enough to make the deal?
I say no.
But first let’s note that any home seller can put a sign in their yard and sell their house without a realtor, if they don’t care about selling for the buyer’s price. Have you seen a lot of those sellers lately? Me neither.
Future home buyers will struggle to achieve a meeting of the minds with the seller at an acceptable price, but a third-party can assist. In a down or flat market, the buyers are willing to hold out, it would only be in a rapidly- improving market that buyers might compromise on price, and meet the seller’s demands – unless the house was so unique that the buyers had to have it, regardless of price.
Because the market will probably be choppy for years to come, how will this third-party evolve beyond today’s model?
Three ideas:
1. Specialized buyer-agents with exceptional skills/experience (Nordstrom, Four Seasons)
2. Listing agents who push for dual agency (Wal-Mart)
3. Statewide transactional specialist (Internet sales)
All three exist now simultaneously in other industries, and it’s up to the consumer to decide which is the best fit for them.
A. If you want personal attention and assistance all along the way, with assurance that when it comes to crunch-time your agent will be there to properly guide you and the transaction, then #1 is for you.
B. If a buyer is satisfied with their own level of market knowledge gained from the internet, and doesn’t mind getting minimal representation, then going direct will become more popular in the future – primarily because the listing agents will be pushing for it. Leftover agents from today will still have a shot at selling other agent’s listings, but only if the buyers are willing to pay a higher price – which will be less likely in the future.
C. The third option is in the works. The MLS entities are currently bonding together to create a state-wide MLS. This will lead to the possibility of an agent working the entire state of California, and providing expertise over the internet to be the third-party to make the deal anywhere.
The next step, Part 3, will be how agents get paid. I don’t think most people mind paying for assistance, it’s paying for what you need that is hard to identify. There will also be crossover between A, B, and C above that, if the pay scale was clear, would enable clarity and flow.
Signed, Jerry Maguire
The best argument I know for eliminating the RE agent commission compensation structure is that zero agents are in favor of such change. They know they are cutting a fat hog for the value they add. Please spare the comparisons to doctors, lawyers, psychologists, etc. It’s obvious to anyone who has ever been exposed to the industry that in the vast majority of transactions, the value/compensation ratio is whacked.
Completely agree that you get what you pay for but people want Nordstrom level of service for Walmart pricing.
What about all the buyer/sellers that were tricked into Nordstoms level pricing but get Walmart level service? From what I’ve seen from realtors there’s a lot more Walmarts than Nordstroms.
(For the record I like WalMart. They sell things cheaply and you know what to expect when you’re shopping there. So I don’t know if this analogy is 100% fair.)
The best argument I know for eliminating the RE agent commission compensation structure is that zero agents are in favor of such change.
I totally disagree.
Most every agent does loads of work without any compensation, now or later. If we do get compensated, it’s always later, and only if we can close the sale.
The lousy agents would be the first to sign up for change – look at how many do BPOs for $75, just to get a constant paycheck.
shadash,
Agreed that the analogy isn’t perfect, but I was thinking of the minimal level of service.
It is surprising to hear that a listing agent who gets both sides of the commission would deliver sub-standard service, but it’s because the business has gone to the big listing teams, and the buyers get stuck with the underlings.
I find the conversation about agent comp interesting.
Jim, I think you’d kill it if the industry went to a fee structure. People would pay more for your service because it’s hard to find, SD North County likely attracts such clients, and you’d get paid for your work whether someone buys or not. I also think it would weed out the amateurs (the 90% of realtors who are unable to articulate their value) faster, increasing your market share.
Just my thoughts from the cheap seats.
I recall an article a few years back about Robert Barnett, an atty in DC who is now the go to man for politicians, etc to get books published.
He has handled clinton’s, greenspans, etc and charges his hourly rate of $900+/hr compared to the 15-20% agents take. He is good, and gets his fee..
http://articles.latimes.com/2007/aug/31/entertainment/et-barnett31
His clients save lots of money on the multi million deals, and he has more work than he knows what to do with…
Jim, Charge $975/hr and you’ll be super busy!!
“Most every agent does loads of work without any compensation, now or later. If we do get compensated, it’s always later, and only if we can close the sale.”
There are two very well-worn arguments for RE agent commissions, both included in that single sentence above. What these arguments in effect boil down to is “I have no guarantee of income and only get paid at closing so I need to be massively over paid for the closings that I manage without regard to the actual value rendered”.
The other is “some of my clients require years of attention before they pull the trigger”, or restated “sorry pal but you well informed, low maintenance clients are just gonna have to massively over pay on your transactions in order to subsidize the window licking tire kickers.”
Each of these arguments is 100% based on the needs and wants of the agents with zero regard for either the customer or the actual value provided. Fact is, there is only one reason commissions have stayed in place throughout the decades – Complete and total informational advantage, which is coming to an end. When informational advantages disintegrate, when transparency prevails, the value-price ratio eventually swings in favor of the customer.
Somebody will step into the market with a deep value proposition that is marginally profitable, and the market will be forever changed. I believe that day is not too far off.
Full respect and honor to you Big Jim, but that’s just the way I see it.
Doesn’t #3 already exist today, aka Redfin? Heck, when I bought my house, I used Redfin’s website to point out houses I wanted to see to my (non-Redfin) agent, in addition to ones he found. I think he had personal connections that may have helped close the deal, however (he used to work at the listing agency and apparently left on good terms). I can’t remember if he found the house I eventually bought or I did (via Redfin).
All commissions are negotiable.If you dont want to pay negotiate a better price.If you have no kajonas to negotiate then pay up.
Jerry Maguire: I am out here for you. You don’t know what it’s like to be ME out here for YOU. It is an up-at-dawn, pride-swallowing siege that I will never fully tell you about, ok?