May 17 2007
So, why say there's a problem? After all, real estate brokerages have helped place tens of millions of Americans into homes over the years. We've helped them through the complex and at times trying process, as well as worked tirelessly to help them locate that gem of a property.
Let's disregard whether the MLS and coop system were ever efficient in the first place. However, they were probably necessary to help build an infrastructure to serve the consumer with consolidated and accurate listing information. But now that infrastructure is built, and the world of marketing and dissemination of information is GIGANTICALLY different from 20 years ago.
Information is more easily collected and disseminated with the internet, thus lowering the costs for the real estate brokerage.
Surveys show that 70% to 80% of real estate buyers and sellers now use the internet heavily in their research.
Though a lesser percentage first see the home they purchased on the web, that percentage is growing fast. That's at the same time that the percentage having it brought to their attention first by a REALTOR® is decreasing.
What does this mean? First, real estate professionals need to look at their businesses very differently. Serving the client entails different skill sets and delivery mechanisms today. Perhaps we shouldn't still be:
Spending huge sums on print ads and mailings while stating that we know they don't work well anymore, but "our sellers demand them."
Justifying listing commissions by the large pool of listings we maintain and market that don't sell quickly, thus increasing our costs. Perhaps a sliding scale based on time on market could be considered?
Continuing to take overpriced listings to languish on the market, thus raising the cost to sellers who priced well and their properties moved quickly.
Why the answer isn't the Redfin model. First, let's say that we're talking about the buyer side of the Redfin model. The seller side is quite sustainable, as many transactions using today's technology can be completed and profitable at a $3000 fee. But the buyer side presents several problems:
Buyers are lured mostly with the rebate. They may not understand the process nor fare well if unaccompanied for home viewings.
Redfin gives buyers instructions on how to get the listing agents to show them homes if an open house isn't available. That's not what the listing broker contracted to do, so perhaps they deserve some or all of the rebate more than the buyer. This would be especially true if they are doing a flat fee listing without all that fat that Redfin mentions in standard listing commissions.
Here's a quote from Redfin's site as to how much they charge to show properties: "Redfin can also host a private tour of homes for sale that accommodates your schedule. A Redfin assistant agent will show you around for three hours, and you can see as many homes as you like. Your first tour is free. After that, we charge $250 per three-hour block, or $125 for a single property. Even if you spend $1,000 for five tours, you still can save $9,000 on a $500,000 property."
The seller agreed to the coop commission expecting that agents would show the buyer the home and protect their interests through the process. If the buyer is a do-it-yourselfer, then more risk could accrue to the seller. They may want to cut their payout in this instance.
Discussions can rage on for hours. But there's one thing that seems to be very true. The industry needs to change, and there are innovative and consumer-friendly pricing options out there already for both buyers and sellers of real estate. Mud slinging in either direction is not necessary. However, the survival of the real estate agent and brokerage requires some assumptions:
We do bring value to the table for both buyers and sellers
Value is dependent on the consumer's needs, and will be more to some than to others.
Real estate brokerages will evolve to offer pricing packages more suited to the needs and desires of the consumer.
Only in the most homogenous of subdivisions or condo projects, can one even begin to think that a buyer is better off without representation of a good agent AT the property to help them view it objectively and critically.
The listing agent/broker cannot be the person to adequately help the unrepresented buyer so that he can get a rebate of the money set aside to provide the proper representation.
Luring buyer business with the promise of rebates will not be a long-term successful business model, as it gives payment to a buyer of monies that have been set aside for other purposes. If they're not to be used for those purposes, then the seller should retain them and, if they desire, pass them to the buyer as a discount on the sales price.
