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Wednesday, October 04, 2006

Realtors Getting Testy, Anti-Competitive

In yesterday's open thread, Plymster pointed out an interesting bit of drama that is being played out in the Seattle real estate blogging scene. I'm not really interested in fanning internet flame wars, but the comments of a local Realtor™ really sheds some light on one of the problems the real estate industry as a whole is dealing with in the face of emerging technologies and a national slowdown. This is only tangentially related to the "bubble," but it's interesting enough that I think it should be posted here.

Beau Betts (Seattle RE Professionals blog contributor and a local "Accredited Buyer Representative") kicked things off with a post on his blog questioning the viability of Progressive Homesellers' flat listing fee business model.

I'm really not sure how this business model is going to work out. I know that there would be no way John L. Scott would allow me to work as a discount agent while under their roof. If I came to my broker with a listing agreement for 3% + $3,995 (which I'm sure Progressive Homes takes a cut of) and said that the service I'd be providing would be absolutely minimal, I'd be show the door with a list of discount brokers to call (Redfin, Assist-2-Sell, Sutton, etc). Working for John L. Scott I'm expected to provide a full range of professional marketing services to my clients to get their homes sold. Just putting a sign up and adding the listing on the mls with a few lousy pictures taken by the Seller is not allowed.
In the comments to the post, Marlow Harris—also a Seattle RE Professionals contributor, and more importantly, a licensed Realtor™—laments the fact that licensed Realtors™ operating under established brands are out there undercutting the sacred 6%.
The unfortunate truth however, is that some well-known companies have bought a franchise and are operating as almost 'rogue' agencies out there, offering limited service for as low as 1%.

Have you seen 4% Real Estate? It's a John L. Scott agent!
At this point, Trevor Smith—the 4% Realtor™ himself—joins the discussion in defense of his business:
Thank you for taking notice of my business model: 4% Real Estate. However, I ask you review my website for clarity. I am a full service real estate agent. I give all my clients the same treatment that my peers charging 6-7% are giving. Remember, real estate agents received a 30 - 50% raise over the last 3-4 years due to the increase of housing prices. Do you know any other profession that received that sort of pay raise?
Rather than directly address Trevor's points, Marlow resorts to name-calling:
If the National Association of Realtors was a labor union, and we were union workers, you'd be a scab, my friend.
Aside from Marlow's misuse of the term 'scab' (unless there's a Realtor strike that I'm not aware of), her comment is quite interesting because of its extremely anti-competitive undertone. As Trevor rightly points out on his blog, fixing real estate commissions is against the law. In fact, the National Association of Realtors is in the midst of defending itself against an antitrust lawsuit brought against it by the Department of Justice:
...challenging a policy that obstructs real estate brokers who use innovative Internet-based tools to offer better services and lower costs to consumers. The Department said that NAR's policy prevents consumers from receiving the full benefits of competition and threatens to lock in outmoded business models and discourage discounting.
Marlow's comment would seem to indicate that she is in favor of exactly the kind of anti-competitive practices that have gotten the NAR into hot water. Seeing as how I'm not "in the industry" per se, I'm not really qualified to offer a very educated opinion on the situation. However, a Seattle Bubble reader that is an industry insider made the following comment to me via email:
Her comment is the most stupid, arrogant and glaring comment by a Realtor I have ever seen in print. I cannot imagine why on earth she would place herself in such a dire situation by saying that. This is just the type of anti-competitive behavior that the Dept. of Justice is suing over and is clear ammunition they are looking for.
It will be interesting to see how this all plays out. With credit tightening, sales slowing, listings growing, lawsuits brewing, and new technologies emerging, it would seem that the squeeze is on for the traditional 6% real estate agent.

(Beau Betts, Seattle Real Estate News, 09.22.2006)
(Trevor Smith, Seattle - Tacoma Real Estate, 10.02.2006)
(Press Release, Department of Justice, 09.08.2005)

9 comments:

4 Percent Realtor said...

Hey guys thanks for noticing this debate between Marlow and I. I really wasn't looking for a fight with her, I was just setting out to clarify that I am a full service Realtor providing all the services that traditional agents provide. I think this kind of debate is playing out all over the country, and I am hoping that the consumer will be the ultimate winner. Once again, thanks for your post and your support.

The Tim said...

No problem Trevor. You'll also note that I've added a link to your blog on the right under "Other Real Estate Blogs." Keep up the good work.

synthetik said...

The whole RE industry is a complete sham.

Let's say I know absolutely nothing about buying a car. Would it be better to walk blindly into a car dealership, listen to what the salesman had to say and then base my entire purchasing decision on that? To add insult to that, be led directly into another room to work out the financing "options"? (GM and Ford haven't made a real profit in years without GMAC)

Wouldn't it be more prudent to research the car online at consumer reports and then possibly pay someone to go in and negotiate the deal on my behalf? ($100-500)

Without the power of the MLS, I can't think of a reason to use a Realtor - whether buying or selling.

All the "services" they provide can be had either for free or for a small fee; and totally unbiased.

Can't figure out the paperwork? Use a lawyer. Not sure if the house is worth the price? Do your own research or pay someone a few hundred bucks to tell you.

The Tim said...

You bring up an interesting point, synthetik. Most car dealerships' use a price negotiation strategy that involves figuring out the maximum amount of money that they can get out of you per month, then trying to price the car as high as they can based on that. Of course, any pro-consumer website out there like Edmunds.com will warn you of this and advise you how to avoid this kind of tactic, which is decidedly anti-buyer. The wise buyer first determines how much the car is truly worth, then bases their financing on that price.

When it comes to buying a house, everything is backwards from how it should be. It's all about the monthly payment. I think this is largely why prices have been allowed to get so out of control. I'd write more, but I'm actually saving it for a full post :^)

SourMash said...

I agree that the RE industry is way overdue for massive change, but an analogy to car buying is a reach.

Cars are mass-produced. Multiple copies of the same model are identical in features. The buyer has a huge array of flexibility in finding a seller of that identical, mass-produced product. Information about purchase and pricing is freely available.

But in real estate, every property is different, and highly dependent on very specific market characteristics. Making a comparison between one property and another requires a great deal of information, and is very time sensitive.

That information is tightly guarded by a cartel, which sells "services" that are bundled with the information.

If MLS data was truly free and timely, a motivated buyer would have no reason at all to hire an agent.

And that's why the cartel members are crapping themselves over the Redfins and Zillows of the world.

plymster said...

I think prices for housing transactions will probably dropping as a result of tech and process advancements like Redfin, Craigslist, and Zillow. These technologies bring information to the buyer and seller and make the transactions relatively easy. Banks can check out borrowers faster than ever (if they choose to), and for less money than before.

These same transaction enhancements make it easy for people to buy/sell their own homes. There was a time when you had to have an RE company behind you to place a four-color add with typeset print in daily, weekly, or monthly publications. Now, anyone can post up-to-date ads on Craigslist (or the Seattle Times/PI classifieds), estimate their home value on Zillow, and use Redfin to handle the transactional details in half the time it used to take to print a black and white flyer.

We saw this transformation in the stock market (remember when brokers used to charge $100 per trade?), and -boom!- you had day-traders building a stock market bubble. The same thing is happening to housing (except worse, thanks to the massive credit bubble).

seattle long term owner said...

does it take twice the effort to sell 200K vs 400K home?

then why do RE Agents get paid double for doing the same work?

Therein lies the problem...

and that is why outfits like Marlow's will fluorish until the monopoly crumbles from within...

The other problem is that most RE agents never got that huge raise mentioned elsewhere as they only became RE agents in the last 5 years and were not around when you actually had to work to sell a house... these newbies always assumed that RE agents made that much money all the time.. surprise...

4 Percent Realtor said...

Seattle Long Term Owner -

Great Points.

It is just about the same amount of work to list a $200,000 house as a $400,000 house. (However, I have noticed that the more expensive the home the more difficult (snoody) the client).

Another interesting thing is that it seems fairly common for Realtors to reduce their commission for high end homes because they can make more money. My thing is this, now that every home in King County is high end ($400,000+ is average) why not reduce commissions accross the board?

seattle long term owner said...

greed?

that's why competition is good...

I'm sure you'll get more business in the cooling market as people try to save where they can...

keep it up...