More Bad News for Real Estate Agents

Jeff Bailey reports in the The New York Times today about how an internet site that cuts out real estate agents has grabbed 20% of the market in Madison, Wisconsin. (I think you may need a NY Times password to read the article.)

For $150, this site lists your home. The article suggests that real estate agents have missed out on $17 million in commissions because of transactions done through this site.

My impression is that most “for sale by owner” websites haven’t been very successful. They struggle with the fact that for the buyer, there is no obvious cost to hooking up with a real estate agent since the buyer’s agent gets paid by the seller, not the buyer. But once you have a buyer’s agent, they usually aren’t very interested in showing the buyer “for sale by owner” properties. Perhaps the key is simply for this kind of “for sale by owner” website reaching a critical mass that makes it worth a buyer’s while not to enlist an agent. According to the NY Times article, there are more hits on this “for sale by owner” website than on the official MLS website that the agent-listed properties are on. So that critical mass has been reached.

It will be interesting to see what follows. One might expect that real estate agents in Madison would start to compete on price, cutting their six percent commission. Or, maybe there will be no response at all, just a steady flow of more and more properties towards “for sale by owner.”

Personally, I don’t actually think this is the wave of the future. I think real-estate agents provide a valuable service. What I think will happen is that most transactions will be brokered by real estate agents, but more and more the pricing structure will move to a flat fee for listing properties and then an hourly rate for services provided like open houses and showings. The total fees collected by real-estate agents will fall dramatically and consequently there will be a shakeout with many people leaving the profession and the ones who remain doing much more volume at a much lower payment rate per transaction.

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  1. Dr. Funk says:

    Of course, there is a fairly significant non-obvious cost. If you buy from a seller who doesn’t have to pay two agents, the sale price will be lower.

    A friend of mine is shopping for a home in Chicago and plans to do all his own research then bring along a friend with a real estate agent license so that the agent can collect the 3% and then return it to him.

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  2. Dr. Funk says:

    Of course, there is a fairly significant non-obvious cost. If you buy from a seller who doesn’t have to pay two agents, the sale price will be lower.

    A friend of mine is shopping for a home in Chicago and plans to do all his own research then bring along a friend with a real estate agent license so that the agent can collect the 3% and then return it to him.

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    • HPS Tampa says:

      Better hope your buddy doesn’t get caught doing this. In case he’s not aware it’s illegal for an agent to provide any cash from a Real-Estate transaction to a non agent. That’s abusing the license; which could results in heafty fines and indefinite loss of the license.

      You’d be surprised at what kind of crap an agent would save an inexperienced new home owner from. Example being my sister is about to close on a house, The owner’s only offer was a $2000 landscaping credit (the “flipper’s” weren’t budging on their price so even that was tough to get) then they tried to retract the landscaping credit right before they’re about to sign paper work. the agent found out that landscaping work is required by the HOA and they’re about to file a lien on the property because of it if it’s not rectified soon. Since this was not disclosed, even though it was known by the seller at the time, It just gave my sister an out on purchasing the property but more importantly it’s forcing the D-bag Seller’s to hold their end of the agreement. So don’t think for one second Agent’s who know what they’re doing aren’t beneficial to Buyers And Sellers alike. Had this property not be listed the people selling it wouldn’t have had the exposure which led to my sister buying it. People need realtors and vice versa. It wasn’t realtor’s who caused the bubble to burst, It was the greed of american Home Owner’s/Investors/Bankers etc.. as a whole that caused the problems for which Realtors are bearing the weight of all the blame. Dr. Funk, if this friend truely is a friend; you’d do him the favor of advising him to seek the help of a professional not google.

      Kind Regards

      Chris

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  3. acs says:

    the pending federal antitrust actions against the NAR and other real estate agent trade associations may also have an effect on the final structure of the business.

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  4. acs says:

    the pending federal antitrust actions against the NAR and other real estate agent trade associations may also have an effect on the final structure of the business.

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  5. HMLP says:

    What valuable service do real estate agents provide, other than the MLS? They’re not lawyers, and most of them cannot understand simple addendums to a purchase and sale agreement. They often do not spend any time with sellers other than telling them to get the house in shape for the open house. Appraisals are easily searched online, as are comps. So what is the valuable service?

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  6. HMLP says:

    What valuable service do real estate agents provide, other than the MLS? They’re not lawyers, and most of them cannot understand simple addendums to a purchase and sale agreement. They often do not spend any time with sellers other than telling them to get the house in shape for the open house. Appraisals are easily searched online, as are comps. So what is the valuable service?

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  7. jn says:

    You have to consider the real possibility that web success might lead to protectionist legislation.

    Consider that when new car shopping got started on the internet, dealers lobbied to regulate the sites so that now web purchases MUST go through a local auto dealer in most states. No more internet advantage.

    I doubt that real estate agents will simply roll over.

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  8. jn says:

    You have to consider the real possibility that web success might lead to protectionist legislation.

    Consider that when new car shopping got started on the internet, dealers lobbied to regulate the sites so that now web purchases MUST go through a local auto dealer in most states. No more internet advantage.

    I doubt that real estate agents will simply roll over.

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