Monday Madness – take a Realtor to Lunch

This is a note from Redfin in response to the post below:

Here at Redfin we have a lot of respect for our fellow real estate agents and this post doesn’t reflect that. The post wasn’t intended to vilify agents but it didn’t communicate the values we try to operate our business by, and for that we apologize.

As a result, we have decided to let our last San Diego blogger go. Redfin Sweet Digs is written by contractors whose sole responsibility is to write commentary about market trends not agents. Our intention for Sweet Digs is to be an unbiased voice of local real estate and until we can accomplish that vision we’ll discontinue the blog in San Diego. (Bahn Lee and Ellie Fields, Redfin Marketing)

Help them understand that it’s time to move on

What auto or insurance salesperson doesn’t envy the fat commission of a Realtor? What housewife doesn’t have a secret fantasy of a glamorous part-time job that brings in the occasional $10,000 commission check? Check? Let’s check again with a reality check.

I know you came here expecting a few belly laughs in the Monday Madness column, but let’s tone it down a bit out of respect for our sales and mortgage friends who will be leaving shortly. The tide has turned and they will be finding other interests and income and we should wish them well.

We’ve seen this before in San Diego. During a real estate boom, Realtors spring up like bright desert flowers after the first rain. During the bust, they fade into the grey background. This creates stress for Realtors, their clients, their companies and the entire industry. Since the time of pioneer developers Alonzo Horton and George P. Marston, San Diego has seen these booms & busts. What does the future hold?

There are at least three reasons to believe that the future will bring more stability to San Diego real estate: a stable population; legislative reform; Redfin and other innovators.

San Diego presently has around 3 million people. Barring disaster, this population will neither double nor halve suddenly as the area population has done in the past. The numbers are predictable for the next decade or two and housing needs can be anticipated. Infrastructure constraints are also predictable, such as road, water, sewer and energy requirements. The massive weight of Federal, State, County and City governments, along with scores of agencies such as water authorities, assures that there will be no sudden changes in the legislative environment as well. With no demographic surprises, the real estate industry can settle into a manageable size proportional to the work to be done.

According to Lori Staehling, San Diego Association of Realtors president, “We have 22,000 Realtors in the county. There were barely 22,000 transactions last year.” According to ordinary folks, this is a system out of balance, out of proportion. One sale per agent? How do they pay for those fancy cars?

Legislative reform and other oversight measures should bring the mortgage banking industry into some reasonable semblance of ethical behavior. This business, like the booms & busts, has bounced from excess to reform too many times in the past. It would seem reasonable that this problem would be fixed now and forever. If industry reforms can’t do it, Big Brother should step in with a big hammer to correct the problem.

A little aside here: It’s easy to think that mortgage lenders and Realtors are evil. It takes more understanding to realize that they are victims just as their clients are. They just wanted to make an honest killing living doing a fun job. They meant well but got caught up in a system that rewards behavior that hurts people. Nobody starts out wanting to hurt people but by degrees people veer off course. Ask anyone on death row.

Finally, the creative energy of West Coast startups (Redfin and others) brings a fresh look at real estate. For centuries, people have had to trust ‘experts’ with major property purchases. Realtors, lawyers, bankers, appraisers and other experts created an industry for themselves and pressed government to lock in exclusive rights in their particular specialty. Buyers and sellers were at their mercy.

Today, buyers and sellers can take control of slightly more of their property transaction with the help of technology. Just like other investors, these people finally have some access to formerly secret data held for the exclusive use of insiders. We can expect this trend to continue, with more and better information available to regular citizens. We might expect contracts and financial documents to be written in plain English, someday, and regular folks would understand what they are signing without a law degree. These trends are powerful, at least in California and the West Coast, and people will demand them.

As a result, Realtors and lenders will have a different role in property transactions. They will guide, explain and help with negotiations. Straightforward standardized paperwork will largely eliminate the most tedious work of Realtors and especially lenders. Clients can search the market on their own with increasing ease. Realtors will spend most time educating clients and some critical time negotiating with or for them. In other documents I’ve discussed the market for foreign buyers, and I expect that in the near future, Realtors will be expected to have a solid foundation in applicable international law and finance.

So there will be fewer Realtors and their education will have to evolve to include more law and finance, and less sales training. They will become professionals rather than sales agents. The pay structure will also evolve toward something resembling that of lawyers or accountants, rather than a flat percentage of a sale. Realtors may be held accountable via some performance measurement criteria yet to be invented. New rules are already in the works for licensed lenders. Changes will be bad for some lenders, great for some Realtors who can charge a premium based upon their performance.

One of the great innovations of Redfin is that agents are paid in proportion to the satisfaction of their clients. Can you think of ANY company doing that today? A flat commission, or any commission arrangement based upon the size of the sale is a ludicrous criteria for remuneration. You can expect such ideas to come thick and fast as West Coast innovative thinkers cast aside the dinosaurs of the realty world.

But let’s get back to your friend, neighbor or church member who happens to be a Realtor or lender today. Take this good soul to lunch. Mention this article and implore him/her to consider a radical remake of his approach, an acceptance of change, or a different career. The sooner, the better- you’ll be doing a great favor despite the inevitable denials and coarse words you receive.

You can follow my East County blog here or here. You’re at Redfin, the unbiased source for local real estate information.

[data from generally reliable sources, please comment on any errors!]