Bay Area: Will New Ways of Selling and Buying Take Over the Real Estate Market?

realestate.gifWhen the market takes a dive, we might expect that realtors would also sink a little; at the very least, they’d need to tread water more vigorously to stay afloat. What’s interesting then is that even as real estate sales weaken, nontraditional real estate companies like Redfin, Zillow, and Trulia are growing. According to today’s San Francisco Chronicle:

Now, although most of the real estate industry wishes it could fast-forward through 2008, these online startups are surviving nicely. Each company recently reported strong sales and increases in Web traffic…..Although these sites are not growing as quickly as they might have during a bullish market, they are at least growing.

People have very strong opinions about companies like these. One SFgate comment writer said “They [real esate start-ups]succeed for the same reason people love to watch car crashes.” Meanwhile, a supporter wrote “I love Redfin and Zillow. Let the Realtors rot wondering why they haven’t sold a house in a year. They charge 6% commission while telling the homeowner that they need to lower their house price. On an average Bay Area home of around $500,000; they’ll make $30,000 for just a couple of hours of work.”

Now, I am not one to opine that selling a home takes just a few hours. I’m not a realtor, but I am sure that it’s not that easy. I would argue though with the idea that “you get what you pay for” when it comes to choosing your agent. Such philosophy came up when CondoDomain posted an article about the possible commission savings with Redfin on an 11.9 million dollar condo. Reader Bill Gasset wrote in response:

When somone that can afford to buy a place for 12 million do you really think they care about saving $239k. If I had that kind of money, I would want the best agent possible representing me. I wouldn’t be concerned about commission savings. I don’t think you are going to find many outstanding agents hanging their hat at Redfin. Just like you wouldn’t see the best doctor or lawyer hanging their hat at Discount Doctors/Lawyers INC.

A few logic problems come up in Gasset’s argument.

1. That rich people don’t care about saving money. Really? How’d they get rich in the first place? How do they stay that way?

2. That quality is synonomous with expense. Say I want a white t-shirt. I can buy one at Armani for $180 or one at H & M for $5. They are both cheap cotton; how, in actuality, would the Armani one be “better”? To return to the topic at hand, we have all seen the multi-million dollar listings whose realtors could not be bothered to offer quality (if any!) photos, or didn’t spellcheck the listing. There is no guarantee that someone works harder for 6% than 2%.

3. That the old way of doing things is the only way. Ask the RIAA who has seen record and CD sales plummet with the advent of the Internet and music downloading. No one really want to pay $20 for a CD that costs about 30 cents to make, and now that we don’t have to, the RIAA has had to (sue us) reinvent the way it sells music– perhaps accepting that there just won’t be as much money to be made anymore.

4. Buyers/sellers in expensive markets need all the help they can get. Enter the real estate start-ups.

5. These internet start-ups include realtors who help with sales negotiation/transactions. To be practicing realtors, they’ve had to pass the same tests any other realtor has. By whose standard then is one “better” or “worth more” than the other?

5. Finally, Gassett is a traditional realtor. I am more interested in the arguments of people not actively benefitted by the demise of competitors.

…So what’s your argument?