Redfin’s Day in Washington

Redfin’s day in Congress was like a lot of days at Redfin: filled with swashbuckling controversy and juicy intrigue, unavoidably goofy and improvisational, tinged with a Quixotic sense of futility.

Mostly it felt like a schoolday field-trip without a chaperone. Going to Congress was fun. The whole place seemed set to a music we couldn’t hear. The halls are filled with handsome young people in impeccable suits, and the clocks are outfitted with lights and alarms to warn of impending votes.

The staffers often seemed elaborately bored by the droning testimony but eager to pounce. Everywhere, everyone seems to know everything that’s going on, tracking bills coming to vote by BlackBerry, watching hearings by Webcast, whispering in one another’s ear.

The whispering was constant and congenial, with the ranking liberal Democrat Maxine Waters and the stolidly Republican chairman Bob Ney sharing a joke while the local yokel-dokels and the legal stiffs rattled on about Grand Rapids, Michigan or obscure points of law. I felt bad for them having to listen to this stuff, day after day, and was relieved to see how well they got on, despite all the reports of increasing partisanship.

It was also hard not to feel a little awe. Most public buildings I’ve been in, usually to argue traffic tickets, are a combination of old-train-station grandeur and the run-down, cut-rate decor of a high-school classroom. I was worried the hearings would be all the latter, with card-tables and government-issue plastic chairs, and a gigantic clock on the wall.

But the hearing rooms are grand, with tiers of committee members arranged in concentric semi-circles above the testimony table. The gallery behind the witnesses was packed to capacity with realtor-pin-wearing supporters and staff attorneys toting binders of committee-member profiles. There were overflow rooms, photographers with gigantic lenses that they still managed to put right in your face, and remote-controlled TV cameras.

Two panels spoke. The first consisted of Department of Justice & FTC anti-trust attorneys and an analyst from the non-partisan General Accounting Office, who were polite but firm in their findings that realtors and listing services violate anti-trust laws designed to protect consumers. The second, which Redfin was on, consisted of six members of the industry, including the President-Elect of the National Association of Realtors.

Each witness read a prepared five-minute statement, getting the gong the second he or she went over (lights on a small display controlled by the chairman and visible only to the speaker turned yellow then red). Surprisingly, many witnesses were cut off with pages of testimony unread. A carbuncular Texas discount broker, talking a mile-a-minute, finished 1:30 early and then looked around for a second as if he couldn’t believe it.

While I spoke, I tried to look deeply into the congressmen’s eyes for effect, then lost my place and kept talking anyway. So I have no idea what I really said. After I was done, it seemed like a long way to go for a speech that was already over. Except it was far from over.

Every congressman except the powerful but soon-to-be-retired Congressman Oxley was ferociously pro-realtor. And once Oxley was gone the entire hearing became a bloodsport, with Redfin in its customary position at the center of the fray. All the congressmen directed most of their questions towards us. As each one lit into Redfin, the realtor crowd moaned with pleasure.

The Democrats of all people cited states’ rights in their refusal to act, while the Republicans seemed intent on protecting the realtors rather than free markets. Their opposition was impenetrably uniform but also outlandishly varied: do online brokers discriminate against those who lack Internet access? Since realtors are often divorced women starting second careers, aren’t we hurting those who need jobs the most? If lawyers’ fees have increased recently why shouldn’t realtors’? If your service is so great, why isn’t your business bigger? Since you’re not out of business, how could you complain?

The Grand Inquisitor was Congressman Artur (yes, that’s how it’s spelled) Davis, a brilliant former prosecutor whom other committee members gave their time to so he could sustain his attack. No one seemed remotely disturbed by the fact that consumers who buy online can be discriminated against without legal recourse, or that MLS rules limit competition.

It was all political theater, as everyone knew what we never figured out: that Congress would leave it to the DoJ to go after the realtors. An FTC lawyer told me before the hearing started that just having companies like Redfin testify was already alarming to the realtor lobby. “They did a big letter campaign,” he said (the committee members often waved letters at us from concerned realtors in their districts).

Everyone was very nice to us afterwards. Chairman Ney came by to ask if we’d ever testified before, and Cindy Chetti, the fantastic staffer who hooked us up in the first place, said that the congressmen were talking among themselves about how fun we were as a witness. A DoJ attorney gave us her card.

This would all be cause for unmitigated celebration if the fellow witnesses hadn’t been so solicitous of us afterwards: “Are you OK? Really? Really? Wow. I mean wow.” Even the intern in the committee office who was watching my luggage looked up from his Webcast when I came in and said, “Oh man.” Only then did it dawn on me we’d gotten into an argument we couldn’t win. The Lending Tree legal team of six lawyers and PR experts felt so bad when they saw I was by myself that they offered a lift to the airport by chartered van.

We drove past the Washington Monument, encircled by 50 pretty flags, and the Jefferson Memorial, lonely in its perfection, and soon we were enveloped in the dense green of FDR Drive along the upper Potomac. It was very beautiful. But we were all already so immersed in our BlackBerries that we could not see to see.

P.S. One weird, funny note. In mangling the answer to one question, we explained how we came to testify before Congress. “We didn’t make any donations, Democrat or Republican,” I said, “We just read an NYT article and called Clinton to tell him we wanted to come.”

The whole room froze, thinking I was casually referring to President Clinton rather than the urbane, knowing attorney/consigiliere for the subcommittee, Clinton Jones (whose name we found on a Web site and who seemed to find it quaint that I wanted to shake his hand before the hearings began).

Puzzled, oblivious, we all just moved on. Mr. Jones whispered into Chairman Ney’s ear, and both of them had a big laugh…

Discussion

  • Phil

    “Radical openness and instant gratification.”

    “As anyone who has voted for Castro will tell you…”

    Someone was really in his element.

    Thanks for the engaging post. Keep tilting at windmills. One day one of them will fall over.

  • grahame ross

    Very well written. If I remember correctly, the Letterman brothers of Seattle were pioneers in offering “unbundled” commissions in the securities industry (1976?), which was initially fought tooth and nail by Mother Merrill, et al. The rest, as they say, is history; brokers adapted and made more money then they could have the “lazy way”, where a “bundled” menu of services was paid for by high fixed transaction fees. The logic of what you are doing is inescapable; you don’t need my encouragement to make it work, but you have it anyway.

  • sc

    Good luck…for the sake of consumers, I hope you succeed…

  • PAUL

    Great post! I’m nearly on the floor laughing. Keep up the good work and fight the good fight.

  • MB

    My personal favorite is the comment in the testimony of ?Investors who put $6 million into a Swedish Web site for dressing up virtual Barbie dolls wouldn?t touch us?. Boy do you have a way with words…

  • PCC

    Regarding 2 of the random questions…

    Question: Does Redfin hurt divorced women since they are highly represented in real estate?

    Response: Are those women or other people living on single or low incomes better served not paying monopolized fees that help prevent many from owning their own home or by providing welfare to realtors through fees that aren’t subject to market worth? I would argue the former.

    Question: Why shouldn’t realtor fees go up if lawyer fees have?

    Response: For one thing, basic rules of lagic make this argument invalid as these two professions are totally different. Apples and oranges. Plus, providing high quality legal representation for valid defense has become more and more complex as our society has become litigious. And people are willing to provide lawyers who will go fishing for money in frivilous or quasi-frivilous lawsuits with gaudy fees for a victory because to lose a case cost the client nothing. (I would remind the questioner that goverment has been looking into regualting lawyers as well throgh tort reform)

    Due to technology, providing adequate real estate representation has become incredibly easier over the last decade due to internet and database advances. A few decades back, a realtor and brokerage had to do a lot more leg work to keep a handle on the market. No most of us can do more market research in one hour in our underwear at home than a good realtor would have been able to do in a couple of days a few years back.

  • CSP

    PCC, it appears as though you understand very little about the real estate industry. Ah nonetheless, the vast majority of the people whining about real estate commissions seem to know absolutely nothing about the real estate industry.

    I honestly wonder if all of these self proclaimed residential real estate experts that were testifying before congress yesterday have ever spent a day working in the real estate industry. Reminds me of the old saying “walk a mile in my shoes…”

    Something might be gained for each of these ?experts? to take the time and get a real estate license, and then go out and try to find a client. After that, put the time and effort in to sell a house, and then come back and lecture all of us about how much we charge.

    However, I must digress and find my way to the original point of my post which is to reply to PCC?s post:

    ?Plus, providing high quality legal representation for valid defense has become more and more complex as our society has become litigious.?

    The last time I checked buying and selling a house as a process has not gotten easier, but rather more difficult. In today?s market my average transaction involves a contract of at least 10 legal pages and 5-10 pages of sellers disclosures, and that is just the offer. It takes the coordination of 4-5 professionals in different industries to pull the final transaction together. 20 years ago, buying a house involved a sheet of single sheet of paper and a handshake. If the lawyers get to charge more because their job is harder, can real estate agents do the same?

    ?And people are willing to provide lawyers who will go fishing for money in frivilous or quasi-frivilous lawsuits with gaudy fees for a victory because to lose a case cost the client nothing.?

    PCC, this is how I knew that you had never worked as a realtor. Do you know what happens if I show you 50 houses and you decide not to move? Or maybe, what happens if I put your house on the market, spend money to advertise it, and then you decide that you don?t want to move? Hint: I get paid absolutely nothing for my time effort and expenses.

    If the lawyers can get rewarded for taking on financial risks in their industry, can real estate agents do the same?

    ?Due to technology, providing adequate real estate representation has become incredibly easier over the last decade due to internet and database advances.?

    Since when does technology provide the representation for the client? Even more curious, what punishment shall we impose on the computer program that violates its fiduciary duties to its clients?

    Database have taken on many advancements and I know because I personally manage the MS Access database for our small humble company. However, at the end of the day, a database is only numbers and letters plugged into fields. It is the experience that the agents have and the knowledge they gain by visiting multiple properties that no computer will ever be able to replace.

    I have test driven today?s technology and I have been disappointed. For example, Zillow.com estimates the value of my personal residence to be less than I purchased it for 3 years ago. In fact if I were to list my property for sale today for the Zillow recommended price, I would lose close to $150K in equity.

    ?No most of us can do more market research in one hour in our underwear at home than a good realtor would have been able to do in a couple of days a few years back.?

    I will agree that the data available to the average consumer by way of the internet is greater than in the past. But you must consider the accuracy of the source and the type of data that you are receiving. To my knowledge the sold property data still isn?t available to the general public unless they would like to visit the local county courthouse and wade through all of the recent sales themselves. Even if you did, the county CRV ?Certificate of Real Estate Value? only states the sales price of the home. How are you to know how many bedrooms and bathrooms the house had? What about square footage, or recent updates? Even with all of that information, the proper pricing of a home takes into account so much more. There are full time real estate agents that don?t fully understand the concept; I can?t imagine how the part time consumer would be able to pull it off correctly, even with all of the databases in the world.

  • PCC

    CSP- I recognize there will always be a need for real estate agents. Having someone guide me through my first home purchase was invaluable. If I were moving to a new city, I would need one to know what the nieghborhoods were like and what was a good price.

    In those situations, a 6% commission may be a good value to me as a consumer.

    You are right, I have not taken the extensive 60 hours of training to become a realtor. But I have been following the market closely in my neck of the woods for years now and I believe I have a pretty good sense of what is a decently priced home and what isn’t. I recognize that Zillow can be all over the map when pricing a house, but I can tell when its wrong when I see the house. I can use tools like Redfin or Seattlehomes to find newly listed home promptly, often faster than if I waited for my realtor to filter it.

    I now a lot of FSBO types get emotional about their homes and tend to overprice them, but to assume people without a realty licese are all a bunch of idiots is to underestimate your client base.

    Coordinating a closing is a mess and I am willing to pay someone else money to do it for me. But lets say a certain house is selling for 100% more than it did a few years back. I would pay twice the commission now. Are you arguing that your job has become twice as difficult in the last few years? Where is the value in that?

    Yes, there is a lot of legalese to sort through when closing a deal. I can use a real estate lawyer who charges (get this!) a flat fee for his or her service. Doesn’t matter if the transaction is 100K or 1 million if both are standard transactions. The same fee for the same amount of work. Crazy huh?

    I recently sold a home and had mutliple offers. Some of the offers where presented very professionally by certain realtors. Some where terrible. Two of them had written their escalator clauses incorrectly. Some of them where representing letters and information to me that, if I took them into consideration, would be complete violations of Fair Housing laws. As you conceded, there are full time real estate agents who don’t know how to determine the proper value of a home. Why shouldn’t consumers be able to shop for different commision rates for realtors with better skills and experience?

    So CSP, I am not argueing that there realtors don’t play a good role for some consumers. What I am concerned about is the inflexible pricing structure your industry trys to artificially enforce on consumers. As I said before, if I want to buy a house and I am unfamiliar with the process and area, paying my representative the 3% is probably worth it to me (paying the seller 3%?, that would depend) Conversely, 6% commission to buy a house that I know well from my nieghbor is not a good value. And I really want to know if you believe that the difficulty of your job has risen at a level comensurate with real estate prices in the last decade.

    Anyone in an industry that employs such agressive rent seeking tactics to stifle free market forces has got know that we all aren’t going to stick our heads in the sand about it. If discount brokerages were allowed to operate on the same playing field and were as terrible for the consumer as your lobby contends, wouldn’t they go out of business? So where is the threat? I know you are supposed to say that you are just looking out for the consumer. But if realtors where really concerned about consumers, they would let open markets determine their fees.

  • CSP

    PCC, lets talk about what is good for the consumers for a moment. I have done some local research through my MLS to determine the value that these “discount brokers” are providing to the consumers. In my regional MLS sellers are less likely to successfully sell their home with a discount broker. Full service brokers sell their listings faster and for more money. The vast majority of full service brokers charge a fee only after the sale closes (remember your lawyer example); the discount brokers I interviewed without exception charged their fees up front. So you tell me?.what is better for the consumer? (up front fees, no service, less successful sales, houses selling for less, and longer marketing times?).

    By the way, I am not afraid of these companies; in fact I welcome them in this market. In the end, their failure will prove the worth of the full service brokers to the general public, and those discounters that make it; I will applaud them for providing a service that fills a niche in the market, even if I don?t think they are good for the consumers.

    ?Anyone in an industry that employs such agressive rent seeking tactics to stifle free market forces has got know that we all aren’t going to stick our heads in the sand about it.?

    That is a pretty hefty charge that is backed up with nothing of substance. I have grown increasingly tired of hearing that NAR is anticompetitive. I have been searching and have yet to see a single intelligent argument as to how they ?stifle competition.? I have heard of local instances where boards around the country have enacted policies that were subsequently removed because someone complained. But how does this have anything to do with the NATIONAL association of realtors. Hint: NAR is a trade group whose primary job is to look out for the best interests of the real estate community as a whole. If it isn?t good for the real estate industry (not the public), then NAR shouldn?t support it.

    I read a recent article by the CFA that claims that realtors are anticompetitive because commission rates haven?t fallen over the past years. I was however disappointed to read that the only proof they could bring to the table to support their allegation was that they had called a bunch of companies and asked what they charge to sell a house. Why couldn?t some real research have been done? Simply asking what is charged doesn?t mean that that is what the average commission rate is. It seems reasonable to me to understand the average commission rate to be the average commission rate charged for all SUCCESSFUL sales in a given area for a given time frame. Commission has its own line item on the HUD1 document signed at closing and a national title company might have been able to provide a better average than just calling and asking a bunch of realtors what they charge.

    Let me help you with some understanding on how commissions work in our industry. The 6% that you claim is charged on both sides of the transaction (?Conversely, 6% commission to buy a house that I know well from my nieghbor is not a good value.?) is only charged to the seller. Once charged, part goes to the listing broker, part to the buyer?s broker, and part to each agent. So just in case people don?t understand?An agent does not earn $6K when they sell a $100K house, they earn much less.

    So to the heart of the matter. Why haven?t commission rates fallen? Well it is fairly simple actually. Business (dare I say it?!?, we are running a business) hasn?t gotten any cheaper, and in fact each agent earns less today than they did 4-5 years ago. The booming real estate market has attracted 100 of thousands of real estate agents over the past 5 years. I heard a statistic recently that the membership in NAR has increased by 50% in that time frame. That means that there are fewer transactions to go around. I can tell you that this year I will earn far less than I did 4 years ago and my expenses have more than doubled in that time frame. If you ask me, I wonder why commission rates haven?t gone up, rather than down. You see, having few barriers to entry into the real estate market has been inefficient for the industry.

    PCC, you seem like an intelligent person, but I am concerned that you have bought into another of my industry?s greatest lies. Whether you believe it or not, selling a home takes more than an entry into the local MLS and a sign in the front yard. The reason that the internet hasn?t lowered the average commission rate (does anybody really know what the real average is anyway) is because a house is not a commodity. It isn?t like buying a CD or booking a hotel room. If buying or selling a house was as easy as clicking a button realtors wouldn?t exist. Sure you can sell your house yourself (not easy but it can be done), but then you can also do your taxes online, or get legal advice from a database. Maybe I missed it, but I didn?t hear about the congressional hearing talking about why the internet hasn?t reduced the lawyers or accountants fees.

  • Sven

    CSP – Let’s pick a better analogy than a commodity type of sale then… How about buying or selling a business?
    I would argue that buying or selling a private business is a much more complicated transaction than buying or selling a home. But I’m not forced to go through a central listing agency or pay a “full service” fee to one person to sell my business.
    As a buyer, or seller, I can unbundle these services to find the most efficient use of my dollar — pay a flat fee to a business valuation service, hire a broker to showcase my business or list it online, hire a lawyer to handle the legal aspects, etc. Or if I’m comfortable doing part of this myself, I can.
    Why not the same with real estate?

  • Kent

    First off, bravo Glenn for both an extremely entertaining post and your refreshingly honest stance on realtor monopolies.

    Secondly, CSP and the NRA you should pay very close attention to the record industry and their struggle with music sharing.

    The record labels fought file sharing because their ignorance of technology blinded them from taking advantage of the inevitable. They continue to fight and miss opportunities where others are taking full advantage.

    Apple on the other hand realized the opportunities and are now capitalizing off an industry they would have otherwise ignored.

    The result is that the record industry continues to experience declining sales, has demonized themselves to millions of consumers and created serious competition for themselves.

    The 6% fee will change, no matter how much legislation is put in place. It is inevitable.

  • CSP

    PCC,

    I appreciate greatly your analogy about business brokerage, in fact I think that it makes a very good point, however one that I don’t think you intended. Just by chance my wife’s uncle was once a business broker and after a few long conversations with him I feel that I know some of the aspects of the business brokerage business. I must state however that I don?t consider myself an expert on the matter.

    Here?s what I do know. As per your example when you sell a company you can split up your services, I would liken this to an owner who is trying to sell their own house. They can pound a sign into the yard, hire a real estate attorney, advertise on websites, and hire a title company to close the transaction. Likewise when you sell a company you can hire a full service brokerage house who will handle the entire transaction for you for a fee (my wife?s uncle worked for one), this would be the full service real estate brokerage. What doesn?t happen in that industry is that the full service broker doesn?t allow the FSBO to use their system to advertise to their clients for free. The sad part is that even though the MLS systems and their data are owned by the members (NOT THE PUBLIC), we still allow the for sale by owners to use our system to advertise to our clients.

    You have the same options in the real estate industry as you do in the business brokerage industry, and many other different service and marketing industries. Maybe I missed it, but I have to read the statute that says you have to list your house on the MLS with a full service agent. In fact, competing reduced services models have been around for years. If you don?t want to hire a full service agent?don?t. That really is your choice.

    You mentioned a ?central listing agency?, I believe you are referencing the current MLS system that is successfully in place throughout the country. Let?s envision for a moment the real estate community without the MLS system. Without the MLS, there is no way to share information with other brokers and no format to foster cooperation with other brokers. Without cooperation a seller would only be able to sell their home to the buyers of their brokerage (dual agency). Buyers would only be able to look at homes that the broker has listed for sale and would undoubtedly gravitate toward that company that had the greatest selection. The sellers would want to list their homes with the company that had the most buyers. Eventually the entire system would perpetuate itself until there was only one real estate brokerage in each area.
    You see the problem isn?t the MLS system. The problem is that the companies who are offering these discounts can?t make it work under the current system. Not because of the big bad full service brokerage keeping the little guy down, but because the services that they provide to the consumer are so greatly inferior that they can?t get enough repeat customers or word of mouth referrals to make it. Well if you don?t like the current system stop whining about it, spend the money and do the work to start your own. If your new concept is so revolutionary that it puts the traditional brokerage out of business, then we will call that progress and a benefit to the consumer. You see that?s the problem though, rather than risk anything financially or God forbid, do some actual work, these discount brokerages just want to run to congress to change the law to make their model work. I know, I know, I asked someone to provide a decent product and to do some real work?how un-American.

  • CSP

    Kent,

    Thank you for the enlightening post about the record industry. I will however defer my comments on the sale of a commodity as compared to the complexity of the sale of a home to my previous posts. Hint: Selling an MP3 for $1 is not the same as selling a house $1 Million.

    By the way, the 6% fee will not change; consumers have options in today?s vibrant and competitive market to list their home for less. The Ritz Carlton won’t go out of business just because people can get a room at the Days Inn for less. Nor will Macy’s go out of business because I can by clothes at Wal Mart. Full service has always been geared to toward a different type of consumer; it isn’t my fault that the full service model is simply more successful than the reduced service models that have existed for many years.

  • Kent

    CSP,
    I don’t expect realtors to go out of business. You are correct, the full service option will always be appealing to some group.

    The point I’m trying to get across is that the industry is changing.

    Technology, namely the internet, has empowered every day people with the ability to do things on their own. There is less reliance on industry experts and much more focus on personal ability.

    Reduced service models like Redfin will continue to experience growth and capture market share.

    Supporting legislation to prevent this growth instead of adapting to the changes is not a good focus of resources.

  • CSP

    Kent,

    Once again thank you for posting your comments. I appreciate that they come in such a polite fashion, Lord knows that from time to time things can get overheated in these conversations (even I do too, shame on me). Now to your post.

    You are correct that the industry is changing. In fact, it changes in many different ways every day. I agree with you that the most successful agents in the future are those that will adapt to the changes in the market. However, that is where our agreement ends.

    Aside of placing active listings online for the buyer to view from their skimmies while drinking their morning coffee, I really don?t see how the internet has changed our industry. Sure Zillow.com came about and has been found notoriously inaccurate by both the real estate community and the anti realtor press. Mapping software has helped people see the neighborhoods and community WebPages tell a prospective resident about the features and benefits of an area, but by in large buyers are still visiting houses before buying them. In fact the team of agents that I work with has only written one offer on a house where the consumer hadn?t physically visited the property. However, it should be noted that the buyer was an investor and was tearing the house down to build a new one. So I guess I will defer to you to tell me how the internet has made the process of buying a house so much easier that professionals should be looking at a reduction in fees. Will you also assert that doctors should lower their fees because webMD exists or that lawyers should reduce theirs (I heard recently that they were actually rising but can?t produce any viable source to say for sure) because I can research case law online now?

    Reduced service models like Redfin?s will neither make much of a dent in the market nor will they fail completely. A realtor?s primary function is a service model, there are always people who want to do things on their own (people change their own oil, that has never put Jiffy Lube out of business). However, to sustain long term growth and success in the real estate industry a company must first have high class customer service. I don?t mean well trained college students in a call center, or a webpage I can go to an email someone for an answer. As a caveat I am still waiting for a reply to an email that I sent to Redfin on Monday. But I am talking about a real expert who I can call whenever I need help or find a house that I want to see. Someone who makes their customers feel as though their entire career is devoted to making their lives? dreams come true. Someone willing to drop everything on Saturdays, Sundays, evenings and holidays to make sure their clients are happy.

    If a company comes about that can afford to attract those types of agents and still charge reduced rates, then I suppose that we will all have to adjust to their model. However, my limited understanding of economic theory tells me that a company can only compete on so many different levels. If a company chooses to compete on price, then they must give up something somewhere else in order to remain profitable. In the case of the vast majority of discount brokers, they give up service. Long term economic viability in real estate is driven by past clients and word of mouth referrals; this is the reason why 75% of new agents fail. If you give up service, your referral and repeat base will just find the next cheaper model and use them. In real estate, you get what you pay for and after clients have gone through the stress and emotion of buying and or selling a house, they understand that what they pay for our services is a bargain. If you disagree you have never seen the effects of what a real estate transaction gone bad looks like.

    Ultimately however, you missed the point of my original post which was: Why does Redfin need to go to congress to complain about the rules of a system that they electively joined. If you don?t like the rules, don?t join the game. And if you need to legislate your business advantage, you model is not strong enough to survive in the long term anyway.

  • http://www.AmericanHomeowners.org Bruce Hahn

    You set a good example by testifying. Chinks are beginning to show in the NAR/state Realtor Assn. lobby.
    It’s not a short term project, but consumers are slowly getting more choice in real estate services, thanks both to innovators and consumers and businesspersons who are willing to fight for consumer choice.

  • CSP

    Bruce,

    I would be interested to know what these chinks that are beginning to show are.

    CSP

  • Matthew

    CSP – Your responses are typical of a person who realizes that their gravy train is about to leave the station for good. The very fact that you tried to make the process sound so complicated and legal amounts to ethical dishonesty.

    I quote: “The last time I checked buying and selling a house as a process has not gotten easier, but rather more difficult. In today?s market my average transaction involves a contract of at least 10 legal pages and 5-10 pages of sellers disclosures, and that is just the offer.”

    1. All those scary legal pages are form documents. It’s not rocket science. If it were so legally complicated then it would require counsel from a lawyer and not a real estate agent. Last time I checked, real estate agents are not bar certified to practice law.

    2. Those equally scary seller disclosures are also form documents. Lead paint disclosure? Form 17? I better get a real estate professional to HELP ME READ since obviously I didn’t learn about that in the 1st grade.

    Another choice quote: “It takes the coordination of 4-5 professionals in different industries to pull the final transaction together.”

    You are trying to justify the 6% commission by including people that don’t share in that commission — smoke and mirrors. Let’s break down the “professionals” involved closing the sale of a house:

    1. Sellers agent
    2. Buyers agent
    3. Home inspector
    4. Mortgage broker
    5. Escrow agent/coordinator

    Last time I checked only 1&2 share in the commission.

    If it is as complicated as you say then why does your trade group (PAC/lobby) spend so much money trying to convince the general public of what all real estate agents believe to be a simple truth?

    Name one other industry trade group that spends more money on PR just to justify their fees. I bet you can’t.

  • PCC

    CSP -You contend in your last response to me that there is no evidence of anti-competitive practices.
    Here is one example evidenced from an article in Money magazine
    detailing rent seeking attempts by realtors in Michigan:

    ****As with bills passed in nine other states including Texas and Illinois, the Michigan bill is being pushed by the state’s powerful Realtor trade group and would effectively force all agents to provide full service. Some discounters would otherwise be willing to offer limited services and charge home sellers much less than the traditional 6-percent commission.

    Elizabeth Boyd, an aide to Michigan Gov. Jennifer Granholm, wouldn’t promise a veto – “we try to stay away from the ‘V’ word,” she said. But Boyd did make her boss’s position clear. “We do not believe the legislation is needed,” she said. “It forces consumers to purchase services they neither want nor need.”***

    It appears the realtor lobby needs to invest more in MI governor races.

    I applaud your attitude to invite competition. I think any entrepaneur who believes he or she is providing the consumer with a fair and high qulaity service should have the same approach. So don’t you also find laws that say consumers may only utilize full service brokerages to stifle competition?

    I can provide examples of laws that prohibit realtors from advertising discount brokerage rates, boycotting of homes offered by discount brokerages by realtors (thereby violating their fiduciary obligation to the client), and of course trying to restrict internet brokerages.

    You are aware that the Federal government has been completing anit-competitive practices investigations about your profession because you try to premptivley deflect this issue by saying “I have heard of local instances where boards around the country have enacted policies that were subsequently removed because someone complained.” Since most laws involving real estate aren’t under federal code, I guess its easy to brush each incident as just a “local” abberation. But you seem to portray the way anti competative practices as being rescinded when John Q. Public makes a phone call to his local realtor and the realtor saying ” Aw shucks, where did this law or practice that hurts my consumers ever come from? We are going to volunteer to stop doing that.”
    In fact, what a review of recent events shows is that the practices get changed only when the Federal Trade Commission starts gathering evidence for anti-trust prosecution of your industry. Only then the practice stops and the realtors lobby desperately trys to get the wording of the settlement against their industry changed so their practices aren’t on Federal record.

    You then go on to defend the 6% commission by saying that it is neccessary because there are too many realtors these days and you can’t make as much money as you used to. I am aware that there has been a huge increase in agents recently (I would wager a significant number of them are real estate investors that got sick of paying full commissions). But the argument that a glut of professionals in your field should translate to increased fees for the consumer is outrageous (but apparently real in practice). If there is an oversupply of workers in a field, a free market would normally dictate that the workers fees should decrease or the number of jobs should be limited to maintain the same per job income. But you seem to think the correct remedy for a glut of professionals is to have your consumers absorb the impact of the problem through increased fees. Thats an incredibly shocking admission.

    I still am curious to know why people think a 6% rate makes sense across the board. If a realtor sells or buys one house for 250K and another for 500K, does the realtor really put only half as much effort into selling the cheaper house?

    I was speaking to someone who use to be a realtor in the early 80s and has been out of the industry for a while. She said that it used to be the case that realtors woudl take 6% off for, lets say the first 100K of a transaction and then a much smaller percentage for the amount after that. The higher the transaction, the smaller that percentage was. This was done because the arduous coordination that you speak of to get a deal done was the same for any deal that was done. She was shocked to hear that realtors try to take 6% across the board these days.

    I am too.

  • http://mynewhomekentucky,com Gary Hodges

    I’ve read through this entire post and ALL the comments. I have to take sides with CSP’s views. I am married to one of those “divorced” but not 2nd careered women you mention. I have to say, not to defend her, or be biased, because I am married to her. I would have to respond by saying; that there is nothing that makes me more proud and humble when I see my wife?s eyes tear up when she tells a 1st time home buyer that THEIR offer was accepted by a seller. You see it?s not really about the money, it?s about providing GREAT service. I have seen her take a complaining neighbor of a home she listed call her and tell her all the problems with the “flyer”, and then dump about all the issues with the owner. She turned that conversation around and eventually it resulted in a home for this neighbors daughter, whom they thought would never be able to buy a home, and it ended up that the parents dream AND the child?s dream all became true because a GREAT real estate agent knew what to do. It’s ultimately not really about the #’s that an agent might make. In fact it?s a superstition amongst agents that to calculate what they might make, once it closes, only defeats the heart of a truly committed agent. I know what it costs to market it, cause I manage the budget of our household. Yet, when I see my wife have a 80% or better conversion rate, I am fully supportive of what she does. It?s about passion and believing in the true meaning of “Home”. In fact, since I met this “2nd career” woman I sensed her passion, her heart. How dare you belittle it. These women, and men who join the ranks from that view will surely be successful, as they are in it for the results of “Home Sweet Home”. No value can be placed on this, you can’t track it statistically. An agent only knows when his/her client is satisfied. In closing, the ‘agent’ suffers in their business no matter if a mistake is made by an attorney, title company, loan officer, loan processor, etc..etc. Think about it, and interview an agent, it?s a relationship you might pay for, but it?s probably the best small investment you will ever make. signed…a proud husband of a real estate agent.

  • PCC

    GH -
    I appreciate your passion for your wife’s career. But if its ultimately not about the numbers as you state, why do realtors try to always take 6%? Why not 10%. Why not do it pro bono? I understand realtors have to make a living. But the cost of realtors participating in a profession that engages in anti-competative practices and attempts to enforce inflexible pricing structures will be that many consumers will percieve them as gougers. Thats a shame for the realtors like your wife, who are probably worth a higher commission. But to pretend that each realtor in the industry warrants taking part in 6% cut of each deal, no matter how different each transaction is, will always seem a bit ludicrous. To suggest (I know you didn’t assert this GH but others have) we need to pay these inflated fees because there is a glut of realtors in the market or because there happens to be a high number of divorcees in the field seems even more crazy.

    I need to see more than an ad saying that realtors have a code of ethics to believe that they have consumers best interests in mind. I need them to show me that they aren’t going to try to limit my options as a consumer to a 6% commission without any evidence to show why 6% is the fairest price for every single residential transaction.

  • http://mynewhomekentucky.com Gary

    Sorry I missed your reply, that was so long ago. I only hope you see this. First, all agents do not charge 6%, 7% or whatever. Sometimes, a broker they hang their license at mandates this, others do not. Secondly, agents do not reap the full 6%, as an example. Normally, the broker receives half of that. Then there is the cost to market the home, if it’s a listing. I’m not even going to go into the long list of what a good real estate agent does do, for buyers or sellers. As far as a buyer is concerned, and in some cases a seller, the commission is negotiable. Just like a lot of other industries. I think that the focus on real estate agents fees is only because its now in the open (what they might potentially receive as a percent of the sold price). I would ask you, how much do you make from the company you work for? I bet you won’t answer that. Why? Because its personal. What if, suddenly, the government, started or threatened to dictate how much you should make? What makes your profession so impervious to the public mandating how much you should make? But, I’m off my point…When you make your salary public, and allow it to be scrutinized by other industries that are trying to make it lower, would you not become defensive? Be honest please.

    Anyways, thanks for the reply. btw, if your ever in the market for Real Estate in Lexington Kentucky I believe my wife will do the job, and truly earn the commission she well deserves, feel free to contact her. Her name is Nancy Ramsey.

  • pilgrim

    So after reading all of this i still didnt find the answer to my question. Mr realestate guy is defending his commission because he works so hard on a sale/purchase, and costs have gone up. OK. Now, all things being equal, if a house is sold/bought for 600k, 6% is a hefty amount of money. 6% of 150k is much less. So why pay more to an agent for a more expensive house to the agent? the paperwork is the same, the effort is the same etc…(remember, all things being equal)…expain that one to me. I agree with a flat fee, period. Redfin is atleast on the right track.