E-commerce = in-E-fficiency II (Real Estate)

Let’s get depressed two days in a row…  It is the 10th anniversary of the consumer Web.  We have very good mapping services both on- and off-line.  A wide variety of sites are visited by people from all over North America every day.  Yet when people want to sell a house they almost always are forced to pay 6% to a realtor, just as they did 30 years ago before all of this fancy computer technology was widespread.


Has anyone tried eBay House?  Why doesn’t it work?

29 thoughts on “E-commerce = in-E-fficiency II (Real Estate)

  1. I think it’s because when buying any real estate you cant really do an apples to apples comparison. You have to factor in differences in location, any deferred maintenence, the school district and any other worthy predictor variables to establish a fair present price. And to guard against future devaluation.

    To protect oneself you need an experienced opinion; from someone who has seen lots of transactions and can give you a warm fuzzy that you aren’t making a mistake. That is something you can’t get from Ebay. At least not now.

    Maybe the collabration/information retrieval models for RE internet sales are not quite…….useful….

    Time for a new prototype!

    dc

  2. You can get the warm fuzzy feeling from a $300 appraisal. The value of a real estate agent is making sure all the paperwork and legalities are lined up, dealing with the personalities of the buyer and seller, being at the houses at odd hours to show them, etc. You can do without an agent, but you have to bone up on a lot of details and dedicate quite a bit of time to it; the whole process is a pain–well, it’s a pain even with an agent. A do-it-yourselfer like Phil with no day job might like to sell his own place, but most people would rather outsource some of the hassle. And by the way, 6% is not necessary: there are agents that work for 4% and there are flat-fee agents too these days for the basics, like a multiple listing and basic contract stuff.

  3. I sold my condo, 10 years ago, by paying a realtor $200 to be in the MLS and get a lockbox. I then ended up paying the agent who brought in a buyer 3%. My neighbor next door recently did the same thing with a Help U Sell it yourself service. It probably took him two weeks to sell versus the 5 days or so it normally takes to sell a house in my neighborhood, but probably saved him 10K.

    One does need to educate themselves a bit before they do this though, and a complicated sell involving multiple homes/moves might not be worth all the do it yourself hassle.

  4. Inspection reports and video just don’t deliver anything close to the experience of doing a walk-through. You need both. Looking at not just the house, but the views from the windows, the appearance from the street, the amount of light in the house, the condition of neighboring houses, the amount of neighborhood traffic and noise, curb appeal, and so on.

    The web is good for MLS and for sorting out what you should and should not see to save time.

    As for 6% commission charges, in this day when home prices have risen to the heights they have, that is another matter. For the work being done (in many cases very little), 1-2% is a lot more reasonable, unless the property is especially difficult to sell, and the agent makes a significant effort to sell. I could see some kind of sliding-scale commission rate, or percentage plus bonus to the agent (not agency).

  5. A businessman I know recently sold his house through isoldmyhouse.com. He was quite happy not to use a broker.

    An interesting observation about real estate broker has been made by UChicago economist Steven Levitt, who noted that realtors keep their own homes on the market longer and sell them for higher prices compared to client homes. His theory, which is mentioned in this NYT magazine profile of him, is that broker commissions make the marginal benefit of keeping a home on the market very small for the broker. It’s just not worth working an extra 4 or 5 days for a couple of hundred dollars, although the difference to the seller may be in the thousands. This response from a realty columnist does a somewhat weak job of denying Levitt’s claims.

  6. Often times the video camera shots happen to “miss” the chalk lines on the floor and the “I’ll be back” written in blood on the wall.

  7. In truth, the Realtor’s financial interest is at odds with their clients (buyers OR sellers). The Realtor’s interest is in making the transaction happen…NOW. The longer the transaction takes, the more work they have to do. Because they are paid a straight percentage, the faster the sale, the better off they are. Granted, there are agents that do _the right thing_ anyway, but they don’t necessarily represent the majority of agents.

    One of the problems with FSBO is that Agents representing buyers often don’t like to deal with FSBO sellers, as these sellers are often unwilling to pay any commission on the sale. A couple people above have reported success with paying at least half of the fee, but there are some agents who won’t do that. Again, it is not in the financial interest of the agent to recommend homes that do not stand to provide substantial financial gain for themselves.

    Additionally, the only way most people can get at good, accurate up-to-date MLS data is by using an agent. Most consumer facing real estate sites based on MLS data are limited in the amount of content they can provide and are typically artificially out of date by at least a couple of days, often more.

    I imagine too that most people turn over their real estate holdings infrequently enough that the expense is masked by the fact that a) they don’t know there is another way, b) even if there IS they don’t have the time/ability to do it any other way. Remember, not all home owners are as smart and/or capable as Phil is to understand and grok local real estate law. I imagine, though, a good lawyer could be had to deal with the paperwork in many areas for a good deal less than 3-6% of the home price.

  8. In today’s competitive market most people do not pay 6%, it is more frequently near 4% and many times there is a sliding scale. Nothing is more split up than a real estate commission – right off the bat there is the buying and selling side, then the agents (all operate as independent contractors) and the real estate firms. An agent selling or handling one $400,000 sale every other month (a fairly active agent around here) is grossing about $24k a year and has fairly large auto costs and MLS membership fees and is typically the second earner in the family (don’t forget the Self Employment tax, either). The commission may seem high, but so far that system seems like the best solution so far. As I mentioned, there is a lot of competition lowering commission rates, and it has reached close to the point of zero economic profit for many of the players.

    After the advertising (MLS, newspapers, fax distribution, etc.) costs, there are insurance costs (thanks to state and federal laws there are all sorts of disclosures to be made and liabilities should something go wrong) and the annoying statistic that about 80% of deals fall through. A house sale is a big deal for most people and having experienced negotiators to “insulate” the parties from their emotions can make all the difference.

    Another way to look at it is that a good real estate agent can get you more for your house than the total commission paid, plus reduce the stress and take on the liabilities.

    It depends a lot on the market, your own web of contacts, and the realtor you might use. Some people can be quite successful selling their own homes and get a good price while others using the wrong realtor have a miserable time and get a raw deal.

    It has been my experience that agents smaller real estate firms are less influenced by some of the financial pressure mentioned in previous comments than agents in larger, volume-centric chain firms. Good, old-fashioned word of mouth recommendations from people in the area can help you find an agent that will help rather than hurt you.

    How much of a percentage of a typical company’s budget goes toward marketing? 6%? 4%? I’ll bet a lot more than that. But effective marketing, including creating a “perception of value” and advertising in the most appropriate medium for the target audience for a property, can make a big difference in how fast and what price a house sells for.

    Darn, I would have been more concise if I’d have had more time…

    (I do web and IT work for Realtors and am familiar with dozens of them in my area)

  9. I had a great experience with Help U Sell. In the hot southern California market, where properties sell almost immediately, it makes a lot of sense to utilize a discount real estate agent. My property sold before the open house, even though I priced it fairly high (I thought). Help U Sell does not hold the open house for you, but they talk you through it and give you the materials you need – signs, etc.

  10. Help-U-Sell represented both the buyer and the seller, and I think I ended up paying them about 3-1/2% total. I can’t remember off the top of my head exactly. They still made a ton of money for very little work, but I walked away a happy customer.

  11. Real estate commissions are often somewhat onerous. Especially given the increase in housing costs, which obviously drive up the commission. Out here in MN, they try to get 7%!

    Clearly there are opportunities for technology to improve the efficiencies. A factor which blocks it somewhat is the buyer-pays arrangement. Listing isn’t typically so much work, it is being the buyer’s agent that can be time-consuming. And as a buyer, you don’t have an obvious incentive not to use an agent–you aren’t (directly) paying the comission.

    I disagree (in practice at least) with the prior comments about agency issues and conflicts of interest. I think most listing agents help their clients price the house approriately. In fact, sometimes you have the opposite problem when the seller is interviewing multiple agents–there is a temptation to highball the valuation, to give the seller the news they want.

  12. I’ve got current experience with both sides of this issue: I recently sold my house in San Jose, using an agent (if you’re in that area, email me for his contact info: he’s a real gem compared to the others I encountered in the process), and now I’m shopping for a new home in AZ and NV. Because I’m looking for someplace cheap (I want to buy outright, using only part of the profits from selling), most agents are giving me short shrift: understandably, they’re spending their time chasing the 6-figure deals.

    My experience with the “for sale by owner”-type websites has mostly been mediocre, at best: they’re usually not very user-friendly, often have sketchy information about what’s for sale, and are sometimes designed to get payment from both buyer and seller (“Sign up here to get full details!”). Ironically, one of their saving graces is that they’re not very popular: if they had the listing volume of the MLS, they’d be utterly unusable.

    I think what’s needed is for some real estate pros to decide to band together and try to build a business based on volume, instead of high commission percentage (Which may already be happening: is that what HelpUSell does?). An e-commerce venture absolutely must have the experience of people who’ve learned the gotchas waiting in meatspace if it’s going to succeed.

    Simply putting your house on something like ebay is no good for the vast majority: the transaction is complex enough (especially someplace like California, where the paperwork winds up weighing about the same as a copy of “War and Peace”) that most people will want some sort of professional help. But it’s also true that most of them could do just fine with some sort of “para-realtor” instead of a commissioned agent.

    It’ll probably be a tough market to tackle, though: all those commissions can buy a lot of hot air balloons and TV ads to keep the incumbents in the minds of prospects.

  13. Will you cut you own hair?
    If you were to appear in court – would you try to represent yourself without professional advice?
    Why do people want to save when dealing with their largest investment, when the liabilities involved in home-selling are so huge?
    The answer is probably because most real estate agents are pretty lousy (According to the National Association of Realtors, 900,000 realtors sell about 5.1 million homes annually, which makes it an average of 5 per year), and 90% of agents give the rest of them a bad name.
    Buyers usually do not pay the commission, so only a few buy without a representation of an agent. Most Fisbos’ (For Sale by owners) are willing to pay 3% to the agent representing the buyer anyway, so the savings are not of 6%, but only of 3%.
    A good agent, who sells 40-70 homes or more per year, will usually be able help his clients earn much more than 3% on any transaction.
    We usually charge a minimum of 6% commission, which sellers pay cheerfully when presented with all the facts.

  14. “According to the National Association of Realtors, 900,000 realtors sell about 5.1 million homes annually, which makes it an average of 5 per year”

    This is obviously amateur hour. In England agents work for the vendor only. They are seldom self-employed; they are on salary/commission as full-time employees of agency firms, some of which are local, others nationwide. The fee paid by the vendor to the agent is typically 2%. For sales >

  15. What our realtor did was save us the time of looking at every house on the market, either on the web or in person. Then she gave us advice on how to prepare and price our old house for sale. We feel we got a good deal! She does have an incentive to do a good job. This is the second house Joel has bought with her, and we also recommend her to friends.

  16. When you buy or sell a house, get a lawyer. He charges you by the hour and there’s no question about who he works for.

  17. Many of the comments above are correct and relevant, but they don’t get to the heart of the issue, which is this. Say I am trying to buy a house. Say there are no agents in the picture. What do I do if I want to walk through a place when I’m out looking during the daylight hours? Play phone tag to make private appointments on nights and weekends when the sellers are home? It would be a huge time waste. We recently bought a house and my wife probably saw the inside of 100+ houses. It is just not practical to limit yourself only to nights and weekends (particularly for people who work on nights/weekends).

    The web currently has a marginal affect on real estate buying in that it makes it a little easier to browse listings; the alternative, which is hardly any worse, is to look at printouts of listings, eagerly supplied by agents. When you are on the road looking, printouts are of course vastly more usable.

    A theoretical technological advance that might seriously affect residential real estate would be a method and apparatus by which a seller, who is typically at work during the day, can identify trusted, legitimate prospective buyers, and unlock the house for them on the fly, right when the seller is there. Naturally untrusted parties (such as burglars and pranksters) would have to be denied access. Obviously, this gatekeeping function is done by agents currently.

  18. Just wanted to add that I have been working on a website exactly targeted at the complaints mentioned in this thread: http://www.realtybaron.com. It very much follows the eBay model. Real estate agents “win” customer leads if they submit the most competitive bid (sales commission). The feedback goes a step further in allowing property owners to grade agents on a “per service” level after either the home sells or the listing agreement expires. When property owners initiate an auction, they can specify a minimum service rating which will restrict bidding to agents who exceed that rating on each service outlined in the auction. My hope is that a “perfect” market will form where consumsers can, for example, specify they want an agent who scores at least 85% and pay a commission that is set by the market. Feel free to provide feedback to me from the site (and, better yet, sign up to use it).

  19. Brian…. Does that attorney take you out to show you homes? Does he let you know the instant a great deal comes on the market? NO & NO He gets paid by the hour… and so you get an HOUR. Agents on the other hand, get paid only if your transaction is successful… and you get to determine what is successful. Hire a professional. I know someone who just did, and made 17,000 more than the discount broker told her to list and sell for.

  20. Very good point Stacey D. I haven’t ever thought of it that way before. I want someone who benefits when I benefit. Not someone who gets paid either way.

    I checked out the site you posted. I especially liked the credit information & repair page.

    Abe

  21. i appreciate the help-u-sell supporters, good deal between fsbo and full commission. i like the realtybarron website, yet wished it would pull mls data. If you are agent that sells more than ave. is a pain to fill out.

  22. I support both FSBO and the help-u-sell type businesses (discount models). It is not difficult to sell a property “by owner”, especially given the assistance of a closing company. Most Realtors list your home in the local MLS. Now that homeowners can purchase MLS listings for an upfront flat-fee, individuals can utilize the Realtors most powerful selling tool for a small fraction of the cost. I do not see myself using a Realtor anytime soon given the alternatives.

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