Does it matter to anyone that the Redfin agent representing the buyers is not entitled to the commission which he is so generously offering to his client as a rebate? In fact, if the listing agent has any sense, he will file a request for arbitration through his local board of realtors and dispute the validity of the buyer’s agent’s claim to the commission.

Most consumers don’t understand (in fact most agent’s don’t either) the concept of procuring cause. I think some people will be astonished to find out that in real estate the person who gets paid is the person who does the work. In fact it kind of makes sense, if I go to work and produce X number of widgits, I would reasonably expect that I and not someone else would be compensated for the production of those widgits.

In real estate, procuring cause says that the person who STARTS the unbroken chain of events that leads to the consumation of an offer, is the person who is entitled to the commission.

As a member of my state’s professional standards committee, I have overseen many such disputes, and can say with certainty that I have never been a part of a panel that has awarded the commission to the buyer’s agent when they have taken the course that the Redfin agent took in this transaction.

Now before we get to the, “that’s not fair” session, I would like to politely remind everyone that procurring cause is not a new concept or rule. In fact the national association (which Redfin is a member of) established this rule to foster cooperation many years ago. It is not a new rule, and it certainly isn’t optional. Membership in the national association however, is optional, and if I would encourage every company that doesn’t agree with the rules, to either dissociate themselves with the body that made them, or work to change them through that same body. It is sad that we have to run to congress every time we don’t get our way these days.

If a widget only costs $500, you don’t need to charge $50,000 for it, and chances are, someone else is selling the same widget for far less, with no ’special interest monkey’ in the middle of a viable transaction.
Procuring cause (and other pseudo-legalese talk) has nothing to do with the ridiculous amount of commissions the ‘Realtor Cartel’ dictates.
Why do Realtors spend so much time in arbitration and litigation, form special committees, and fending off Congress & The Department of Justice? Because they deceptively RIP PEOPLE OFF. The NAR’s problems are products of the industry’s innate greed. Treat and charge someone FAIRLY for Real Estate services and you won?t have to worry about your ‘procuring demise’.
So don’t hate the new players, hate the new game. Your 6% veil has been pierced.

Kudos to open source inforamtion! Kudos to Redfin!

Jeff,

I don’t recall bringing up the cost of doing business up in my post, but since we are on the topic, let?s have a conversation about the matter with real facts and not just pent up anger and accusations.

First, the national association of realtors is an industry trade group established to further the interests of the real estate industry. Look at NAR like the realtors union, their job is to look out for what is best for the real estate industry as a whole. Their job isn?t to make sure that every person with a website who can?t write a marketing plan or do any real work is able to compete in our industry. If the discounter?s business model is so great, then they will quickly put the full service companies out of business. However, the discount brokers in my market have been around for 10+ years and they still can?t manage to pick up more than a .5% market share. Considering the two largest companies in my market carry a 40+% market share, I don?t really feel that threatened by this brand new revolutionary business model.

I should remind you that membership in the NAR is optional. If you don?t like how they treat your business, fell free to discontinue your membership. If you don?t like how the MLS system works, start a competing model, attract patrons and consumers and put the established model out of business. The sad thing is that rather than do the hard work of starting a viable business and growing it, the discounters keep running to the government and trying to establish their advantage via legislation. Don?t kid yourself; the discounters are in business to make money too, they just happen to want to do it in a different way. Are they any less greedy for wanting to make money, or does greed only apply to full service brokers?

Let?s envision for a moment the real estate community without the NAR or 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.

Jeff, who are you to stand in judgment of the entire real estate community for how much they charge to sell a house. If you don?t like what is charged in the norm, start a company, charge less, and see if you can make it. I can?t think of a single industry that doesn?t mark up the cost of the product they sell. It is called profit Jeff, and it is how a business is run. In fact, without it, you aren?t running a business, you are running a charity. As great as I would feel selling houses at my cost, it wouldn?t do anything to pay my mortgage, and as mush fun as it would be, I wouldn?t last long because without a paycheck I can?t function in society.

I would be remiss if I didn?t state that you missed the entire meaning of my post. By way of recap my point was that Redfin electively joined an optional association, agreed to its rules and are now upset that agents don?t like that they aren?t following them. What is even worse, is that they expect other agents to do the work (show houses, etc.) and then they step in at the last minute, fill out a boiler plate form and collect the commission (interestingly enough, they don?t seem to mind that the fees are charged at the rates they are, in fact their business model fails unless someone else goes out and does the work of listing a property for ?x? percent). All that said, nobody seems to care because they are generously offering part of the money they didn?t earn back to the consumer. How noble.

CSP

Your opinion:
First, the national association of realtors is an industry trade group established to further the interests of the real estate industry.

My opinion:
The NAR is a special interest group whose sole purpose is to insure that a Realtor stays in the middle of every real estate transaction.

Your statement:
Look at NAR like the realtors union, their job is to look out for what is best for the real estate industry as a whole.

My opinion:
A union is formed to look out for the interest of its members, and to insure they receive the best possible benefits from the industry

Your opinion:
However, the discount brokers in my market have been around for 10+ years and they still cant manage to pick up more than a .5% market share. Considering the two largest companies in my market carry a 40+% market share, I dont really feel that threatened by this brand new revolutionary business model.

My opinion:
The cost saving, efficiency related technology to effectively service a discount brokers business and financial model has only been around (and affordable) for about 3 years. It typically takes 5 for IT to root out antiquated and cost intensive business models so things are pretty much on schedule. Traditional real estate brokerages will continue to dominate the 50+ age demographic as well as the few remaining non-PC having, dont know how to surf the net crowd. What you are witnessing is a paradigm shift, one that wont be stopped. Remember travel agents and stock brokers?

Your statement:
If you dont like how the MLS system works, start a competing model, attract patrons and consumers and put the established model out of business.

My answer:
www.openmlsinstitute.org
The Open MLS Institute also seeks to end certain real estate abuses including steering, spooking, pocket listings, withholding purchase offers, and hoarding of listing data.

Its already started. This is a solution to the problem not more red-tape. You need to catch up with the times before they pass you by.

Your question:
Jeff, who are you to stand in judgment of the entire real estate community for how much they charge to sell a house.

My Answer:
I used to own a real estate brokerage, mortgage brokerage, & construction firm. I have closed over 3500 mortgage transactions and worked with Realtors and their brokers-in-charge for 12 years. I have advised and managed residential and commercial syndicated deals in the tens-of-millions. My current real estate portfolio includes properties in 4 states with an aggregate worth that I dont feel the need to mention. In other words, I know what I am talking about. 6%…any % based commission model is financially illogical to everyone but the Realtor/broker.

Your statement:
If you dont like what is charged in the norm, start a company, charge less, and see if you can make it. I cant think of a single industry that doesnt mark up the cost of the product they sell. It is called profit Jeff, and it is how a business is run.

My response:
My current venture (I am a serial entrepreneur with 7 start-ups under my belt) is www.thexbroker.com. Im not a blowhard slinging statements I cant substantiate with a demonstrated solution. Ill leave that to the unions and committees of the world.
Hopefully you find that real profits come from working on your business, not in it. Not from hording information and charging ridiculous fees for it. In any case I am not insinuating you shouldnt make money, Realtors simply need a value for service adjustment and dump the Realtor Tax model.

Think about how the 6% tax excludes some homeowners the ability to market their house via the great NAR and MLS.
Think about how much more equity people would retain, how much more market movement there would be without the 6% hack job.

Realtors sell homes quicker and for more money? Realtors will get you about 6% more for your home and they sell the home quicker by offering the buyers agent 4% to steer them their way. Nice system.

Your statement:
All that said, nobody seems to care because they are generously offering part of the money they didnt earn back to the consumer. How noble.

My opinion:
Much more noble than anything I have seen the NAR do.

Jeff,

Thank you for so eloquently stating my point about the purpose of the NAR. Since we agree that NAR?s function is to further the cause of the realtor and not the consumer, can we stop complaining about NAR doing what is best for the realtor community, even if you may perceive that it isn?t the best thing for the consumer. It should be noted before that comment is taken out of context that I don?t feel that any of NAR?s recent actions or policies have harmed the consumer any more than any other business that sets a policy to protect the interests of their company. After all in the short term it would be better for the consumer if everything was free. It should also be noted that I feel that the betterment of the real estate community as a whole will benefit the consumer greatly, so even though NAR?s job is to protect its members, its decisions will ultimately end up benefiting the consumer.

Unless you can point out a specific policy or practice by NAR that you feel is harmful to the real estate community and therefore violates their original purpose, I will assume that you agree that the problem really isn?t NAR and therefore we should leave them out of the rest of this conversation.

I will disagree that some magic computer is two years away from putting the full service agent on the chopping block. I am a student of real estate technology and whenever possible I spend as much time as I can, reading about and researching new technologies in the real estate business. I have yet to see that magic database, or visual technology that will replace the expertise of the realtor. How do you propose that houses will get shown without realtors? Let?s consider Redfin itself for a moment. Their model fails unless there is a listing agent available to show the property to the buyer, and do the work for them. Unless you are proposing to me that magically people are going to start buying houses sight unseen, at which point I would have to end this entire conversation, as it would appear that you are simply irrational about the matter, and understand nothing about the process of buying and selling houses.

You brought up my favorite topic in connection with your technology point: ?realtors will be replaced like travel agents and stock brokers.? These industries couldn?t be more different, I suppose you also think that the magic internet will put doctors, lawyers, architects, and accountants out of business as well.

Jeff, I must ask how often are stocks traded and airline tickets booked. Once, twice, three times per year? The average consumer buys a house every 5-10 years. The legislative changes to the real estate transaction from year to year in my state require a full days study for the average real estate professional. How difficult is it for the consumer who hasn?t bought a house in 10 years to get up to date on the process and all of the new and different statutory regulations. How much do you think the average airline ticket costs? A couple hundred dollars would be my guess. That is a far cry from a couple hundred thousand dollars, there is a little bit more at stake when you buy or sell a house. How many varying choices are given to a consumer when purchasing airline tickets? Is there more than 10 major commercial airlines operation any given area (maybe?I don?t know)? Currently there are over 30K active listings in the multiple listing service that I belong to, each one is unique in nearly every aspect. Each one of those houses is a choice that must be researched in order for a consumer to feel as though they are comfortable in making a decision? What happens when you purchase an airline ticket or a stock online. The vast majority of the time you receive the item in the mail or your account if not right away in a couple of days. There are more things that can go wrong after an offer is accepted, that some real estate agents don?t know what to do (don?t worry they won?t last in the business), let alone a consumer who may have never done this before. No I?m sorry Jeff, you are going to need to come up with a better example if you hope to convince your readers that the real estate industry will be put out of business just because stocks are traded online.

You talk about the Open MLS Institute, but you need to understand that this isn?t what I mean by start your own MLS. The open MLS institute is attempting through legislation (Maine?) to force real estate agents to place our information in their database. When I say start your own MLS, I mean start your own and compete with the other model and not force the other model to give you for free the information that they have collected and managed. This is almost as ridiculous as MasterCard or Amex going to the government and crying and whining to get legislation to make Visa turn over their database of clients so that they can compete. No Jeff, when I say compete, I mean good old fashioned American competing where phenomenal service, and great prices attracts enough business to have a viable model without whining to the government about the other guy giving you his database.

I applaud your ability to start and build companies. It seems as though you are very educated in the real estate market and it seems as though your personal opinion of realtor?s fees is a little negative. However, I would encourage you to not use a realtor next time you sell one of your numerous real property investments. To a man with your type of experience and knowledge 6% is way too much, in fact anything is too much. You should be finding and buying and selling property on your own. However, you need to understand that just because 6% is too much for you, that is not the case with the other 99% of American consumers.

Since you agree that realtors are able to make a profit, I would like to know what you think is reasonable for a realtor to earn. It appears to me that you feel as though a flat service system would work better in this industry. Jeff, real estate is not the same as mortgage (your current business model is a flat fee mortgage service, no?). If a realtor dumps a $1 million mortgage in your lap you will do about the same amount of work to bring that close as you would a $100K loan. (maybe I am wrong, maybe there is more paperwork for a $1 million loan versus a $100K loan, please educate me here) However, if you want to assert that selling a $1 million house is the same as $100K house I would question whether your real estate brokerage ever sold a property. By virtue of supply and demand fewer people can afford more expensive property. Fewer buyers mean more work trying to find them (especially in today?s buyer?s market). Fewer buyers also mean more money in advertising and more risk since we aren?t guaranteed a commission until the property closes (more risk should return more pay ex: anesthesiologist vs. family practice doc). More money means more emotions and more difficult people to deal with on a whole. As you can see, flat fees just aren?t profitable (sorry, we are running a business not a charity) in our business and therefore aren?t a viable long term solution.

I will wrap up by saying that from your last comments in your last post I noticed that you have a low regard for ethics in business and on that topic we will just have to disagree. In an age of relative morality, if you don?t believe in absolute truth, then there will be no way for me to convince you that what Redfin is doing is wrong.

CSP

Down to THE point.
Consumers are evolving in their search ability to find real estate online. 70%+ seach online for a home before buying. That will continue to grow.
The technology and information databases you use, will be the technology and databases the consumer will use.
In other words, your need and thus value diminish…your tasks are marginalized….much like the stock and airline industries. The advance of technology and information sharing marginalized their value, and their gross numbers evaporated.
The Realtor will suffer similar attrition….hence my comparison.
I dont care to champion every individual cause that continues the current paradigm shift…there are more than enough people like me who are doing their part to make ‘it’ happen. ..see openMLS.

thexbroker.com is a transparent view into the deceptive and preadtory mortgage industry…but with a demonstrated, effective, and proven solution….for the consumer. Wow…For The Consumer…. a true fiduciary relationship…whoda thunk it.

Realtors should charge a practical amount of money to cover expenses and time. ..why some % based model that yields ludacris commissions when you can affford to do business for far far less. Maybe you wouldnt need an NAR if your business model made sense to anyone but your special interest group.

As far as low regard for ethics??? I am the one standing up for the consumer, congratulating Redfin for their vision that benefits the consumer, starting a company that directly solves the predatory lending problem in the mortgage industry…for the consumer, and am encouraging the open exchange of transparent information for the greater good of the people…..while you are proud of your org that defends some illogical pricing model that gouges consumers out of tens of thousands of uncessary dollars by witholding information…and then get upset when a company or concept threatens it? Practice what you preach.

There is no magic computer or pixie dust…I guess you will have to step outside your tiny little box to see and accept what is coming. My guess is that by then it will be too late. Get with the early adopters or get swallowed whole.

Down to THE point.
Consumers are evolving in their search ability to find real estate online. 70%+ seach online for a home before buying. That will continue to grow.
The technology and information databases you use, will be the technology and databases the consumer will use.
In other words, your need and thus value diminish…your tasks are marginalized….much like the stock and airline industries. The advance of technology and information sharing marginalized their value, and their gross numbers evaporated.
The Realtor will suffer similar attrition….hence my comparison.
I dont care to champion every individual cause that continues the current paradigm shift…there are more than enough people like me who are doing their part to make ‘it’ happen. ..see openMLS.

thexbroker.com is a transparent view into the deceptive and preadtory mortgage industry…but with a demonstrated, effective, and proven solution….for the consumer. Wow…For The Consumer…. a true fiduciary relationship…whoda thunk it.

Realtors should charge a practical amount of money to cover expenses and time. ..why some % based model that yields ludacris commissions when you can affford to do business for far far less. Maybe you wouldnt need an NAR if your business model made sense to anyone but your special interest group.

As far as low regard for ethics??? I am the one standing up for the consumer, congratulating Redfin for their vision that benefits the consumer, starting a company that directly solves the predatory lending problem in the mortgage industry…for the consumer, and am encouraging the open exchange of transparent information for the greater good of the people…..while you are proud of your org that defends some illogical pricing model that gouges consumers out of tens of thousands of uncessary dollars by witholding information…and then get upset when a company or concept threatens it? Practice what you preach.

There is no magic computer or pixie dust…I guess you will have to step outside your tiny little box to see and accept what is coming. My guess is that by then it will be too late. Get with the early adopters or get swallowed whole.

Down to THE point.
Consumers are evolving in their search ability to find real estate online. 70%+ seach online for a home before buying. That will continue to grow.
The technology and information databases you use, will be the technology and databases the consumer will use.
In other words, your need and thus value diminish…your tasks are marginalized….much like the stock and airline industries. The advance of technology and information sharing marginalized their value, and their gross numbers evaporated.
The Realtor will suffer similar attrition….hence my comparison.
I dont care to champion every individual cause that continues the current paradigm shift…there are more than enough people like me who are doing their part to make ‘it’ happen. ..see openMLS.

thexbroker.com is a transparent view into the deceptive and preadtory mortgage industry…but with a demonstrated, effective, and proven solution….for the consumer. Wow…For The Consumer…. a true fiduciary relationship…whoda thunk it.

Realtors should charge a practical amount of money to cover expenses and time. ..why some % based model that yields ludacris commissions when you can affford to do business for far far less. Maybe you wouldnt need an NAR if your business model made sense to anyone but your special interest group.

As far as low regard for ethics??? I am the one standing up for the consumer, congratulating Redfin for their vision that benefits the consumer, starting a company that directly solves the predatory lending problem in the mortgage industry…for the consumer, and am encouraging the open exchange of transparent information for the greater good of the people…..while you are proud of your org that defends some illogical pricing model that gouges consumers out of tens of thousands of uncessary dollars by witholding information…and then get upset when a company or concept threatens it? Practice what you preach.

There is no magic computer or pixie dust…I guess you will have to step outside your tiny little box to see and accept what is coming. My guess is that by then it will be too late. Get with the early adopters or get swallowed whole.

Jeff,

What point? I hear a lot of ideas and concepts from you, but most are simply your opinion of the matter. It would help your case immensely if you got around to supporting your arguments with actual facts or examples. Simply having an opinion on a matter never made your opinion right. What makes an opinion something more is your ability to articulate why your opinion is more likely the reality than the opposite.

I hear you saying that the internet is going to reduce the need for real estate agents? How? You claim that the advances in technology will marginalize the value of the real estate professional. How? Allowing consumers to access active listings on the web doesn’t mean that realtor’s will become extinct.

You claim that our technology and our databases will become the publics. The fact is they already have access to our technology; every piece of technology that I use in my business is readily available to the general public with one exception, real estate electronic keys and key boxes. I?ll let you think about the security repercussions we might have if we gave the public access to our electronic key systems. The fact is that any consumer could run out and spend the thousand?s of dollars we spend on technology today if they wanted to. They could buy the cameras, the virtual tour equipment, pay for design and hosting of a website, etc. However, the thousands that they would spend just to sell their house might not be worth it just to save a few lousy percentage points on the listing commission.

You mentioned again the www.openmlsinstitute.com again. Once again, you have stated your opinion on the matter, but have brought nothing more to the readers of this blog. So there is a movement for this or that in this country?so what!! What logical reason do any of us have to believe that the open MLS institute will succeed beyond the fact that you think that it should? As noble as you think their cause may be, I doubt the likelihood of their success, however that is just my opinion. The facts of the matter are the following. Contrary to popular opinion, the data contained in the MLS is not a matter of public record. It is not a public utility and is not the property of the public. The data in the MLS was gathered, entered, and maintained by the members of the MLS, and is therefore the intellectual property of those owners. I would encourage you to site one case where a judicial body has forced a company who has collected and maintained data to turn that data over to a competitor in order for that competitor to gain an economic advantage.

The truth here is that it won?t happen; your rose colored glasses have distorted your view of reality in this matter. That data doesn?t belong to the public, they didn?t collect it, didn?t organize, and certainly haven?t maintained it. There certainly is no judicial precedence for a judge to turn over the data just because Jeff wants it. I am sure MasterCard would like to get a hold of Visa?s private corporate databases too, but you don?t see them running to congress to cry about that because they just aren?t that dumb.

I appreciate what you are doing for the mortgage industry with your latest endeavor. I am sure that there are those in your industry who don?t agree with your business model, but competition is what our country?s free market is here to foster. Much the same, I welcome any viable brokerage to the real estate industry. The problem that I have is that rather than compete in the market, they need to run to the DOJ, FTC, of congress, in order to legislate their business advantage. I?ll ask again, what happened to good old fashioned American competition where hard work and competitive prices made a business successful, not running to congress for a rule change. If you don?t like the game, start your own.

You stated ?Realtors should charge a practical amount of money to cover expenses and time. ..? I will again submit the question to you. Do you feel that it takes the same amount of work to list and sell a $1 million home, as it does to sell a $100K home? Given that Realtors don?t get paid until closing, do you feel that they tolerate the same risk in each scenario? I have already given the reasons for why I don?t think that the two transactions are the same, and I won?t waste page space by restating them. Do you have anything beyond your opinion to support your assertion that they aren?t?

Ethics:

Jeff, the rules are the rules, whether you like them or not. To willfully disobey the rules is unethical. Redfin chose to join NAR and to submit themselves to their rules. (most consumers don?t understand that membership in the National Association of Realtors is optional, there are many real estate licensees in this country who operate a business without joining NAR) For them to willfully and proudly disobey the rules they electively chose to obey is wrong. If you electively submit to something, and then disobey it because that is the only way you can make money, that is unethical. For you to applaud them in that is to say that you agree with their ethics, which in the end leads to the logical conclusion that you as well aren?t ethical. I really don?t think any more needs to be said on the matter.

You insinuated in your post that our industry fails consumers by shirking our fiduciary responsibility to them. I think the exact insinuation was that your open mortgage practices were ?a true fiduciary relationship? which when taken in context insinuates that real estate does not have a true fiduciary relationship. Once again Jeff, we have opinions and conjecture, but no logical or factual support. Can you please shed some light onto which of our fiduciary responsibilities we so openly violate?

The end of your post asks me to step outside my ?tiny little box? and ?accept what is coming.? Since you seem to be the enlightened one, and I am simply a bumbling fool in this real estate matter, can you please send my colleagues and myself this oracle which you have been so blessed to be given. Please however, for the sake of all of the readers in this blog, lets leave the opinions out of the matter and support our assertions with logical and factual statements.

Jeff,

I fear as though you have missed the point of blogging. In case you did not catch it, a blog is an open exchange of thoughts, facts, and ideas between consumers for the benefit of all readers in the blog. From time to time a blog will contain comments or discussions between industry experts or professionals in hopes to educate the readership as a whole. This intent would be lost if you put on a seminar that this readership could not access (what was this claim you made about hoarding information?). Since you refuse to support your opinions with logic and fact, the point of the discussion is lost. I suppose we must at this point leave it up to the readership to decide who has made a more convincing case. Were your opinions more believable or were my opinions backed up facts and logical arguments more believable?

You claim ?Just as you withhold information for profit? I will again submit to the question, what information are we withholding to make these hoards of money that you claim? All active listing data is now available on the internet free for any consumer with a computer to browse. Pending data is not available to the general public, but would in no way enrich their lives. Sold data, while not available from the MLS, is a matter of public record and available for anyone with the time and the desire to view at their local county recorders office. Add that sold data to the terrible records that the county keeps on each individual house and you have your own semblance of an MLS right there at their office. The only problem is that you need to wade through millions of recorded documents to find the data that is often incorrect. Just because we do not publish our more accurate database for the consumer to view in the comforts of their home does not make us data hoarders. I am sorry Jeff, your claim that we hoard information and therefore harm the consumer holds no water. All the information that the consumer needs to access (with the exception of our accuracy) is available to them for free. The fact of the matter is that most consumers do not want to take the time or the energy to find it.

You claim that you have a system that will replace the work of a realtor through technology and outsourcing. You claim that there is a ?realtor tax? added to every transaction. Let us analyze this ?realtor tax? and the effects that technology has had on it over the last 10-15 years. Not that many years ago I suppose (no stats to support, but is a very common complaint) the average commission was at one time 7%. It was reported recently that the average commission rate has fallen to 5.2% (realty times as I recall). That means on a $100K transaction the real estate community earns $1,800 less. Some simple math would tell us that $1,800 / $7,000 equals a 25% pay cut to the real estate community. That is right Jeff, those greedy realtors have already taken pay cuts because of your marvelous technology, in fact a fairly substantial pay cut at that.

This idea of the ?realtor tax? that you brought up earlier was a fascinating one. You said:

?Realtors sell homes quicker and for more money? Realtors will get you about 6% more for your home and they sell the home quicker??

Consider for a moment the gravity of what you said in your post. You claim that all that a real estate agent can do is recoup their fee in the selling price of your home. (the actual numbers from my MLS research come out more like 13%, but that may be a local anomaly) Remember, I did not say this, you did. Consider for a moment that that would make all of the service and all of the marketing that the real estate agent paid for out of their own pocket, free for the consumer. Free service, and free marketing, not a bad deal if you ask me.

Jeff you once again attempt to mislead you readers by not telling them the entire story about how commissions work. You asked me not to try and justify that it costs $12K to sell a $200K house. I will not try to justify the entire $12K, but I will attempt to educate those that do not understand that the listing agent does not get $12K in that scenario (since you were a broker yourself, I am sure that you understand this). In a real estate transaction the buyer?s agent, the buyer?s broker, the seller?s agent, and the seller?s broker are all paid from the listing commission. Because each commission structure is different it is impossible to say how much each party will receive, but since we have already agreed that business people are entitled to a profit, they all deserve a portion of that commission regardless of their actual costs. If you hack up that commission equally 4 ways, then each party receives $3K for their time and effort.

That may seem like a lot of money for what is perceived that we do as realtors, but consider that all of that money is received before taxes. The vast majority of realtors are independent contractors and are therefore responsible for paying both sides of the social security and medicare tax. Because we are independent contractors most are not given benefits like retirement or medical and dental coverage. Last year alone my wife and I forked out over $5K for our medical coverage because as an independent contract we must purchase individual insurance because we do not have access to a group plan of any type. Technology is incredibly expensive today and is necessary for an agent to compete in the market. So Jeff, no I do not think that it COSTS $12K to sell a house, but since we do not earn that much in that transaction, I do not feel as though your argument is valid.

Your last paragraph deals with transparency. Since you really have not elaborated on your point, I am at a loss as to how respond to it. You claim spooking and steering, again since you have not elaborated, I can not respond fully. Except to say that steering (directing a client to a specific area based on their ethnicity, religion, etc.) is 100% illegal. If an agent has done this, and is tried and found guilty of such crimes, they should be stripped of their license as it is evident they are not fit to practice in our industry.

Jeff, I am growing tired of this conversation as you seem to be simply regurgitating what you read recently on CNN or some other realtor hating media outlet. Since you can not seem to back up your arguments with facts or examples, I have nothing more to go on than to say you are simply repeating the thoughts of others and while you claim to be experienced in these matters, you lack the ability to articulate the reasons for your opinions. In the end you are just repeating arguments that lack all merit in order to sensationalize your arguments against realtors whom you obviously hold a vendetta. Each time I have made a point in this thread I have tried to support it with at least one factual or logical example. Since you seem to be unwilling to do the same in order to convince the readership of this blog, I can only assume that you do not have any facts or logic to support your examples and henceforth they can not be true.

What I meant is that this blog would be an inefficient means of communicating ‘the grand plan’. 55 pages of economies of scale, IT integration methods, securities markets, databasing, and Web 2.0 banter is a bit much for a blog, no? Anyone who wants to see all the major points I have made about technologies impact on the real estate service industries need reference theXbroker.com. I hesitate making shameless plugs, but it will be the epitome of how business should be done. If you are a mortgage broker and cannot conduct business according to the pre-set guidelines we have established, you need to change your business model or face extinction.

(And on the contrary, where in these postings is the redeemable proof for your opinions? Like I said, I will post links and references to support my opinions, if that is the wishes of the court…since you obviously take me for naive and confused. If I want to watch yesterdays news on these issues I would watch CNN. ‘The news’ reports what we put out, not vice-versa. Innovation is rarely understood in its earlier stages, and is traditionally fought by the late adopters. So I accept your refusal to realize and understand the changes that are upon these industries. )

cont. Same for Realtors. You are very correct in saying you only receive a sliver of the actual total commissions, THAT is THE problem that the traditional realtor business model, it is a capital and equity draining machine and needs a fixing. Let me draw out another side to the Realtor-Broker business model.

All numbers aside, we are all moved by incentive; the more incentive we perceive something to have; the more likely we are to do it. This is basic human psychology and can be further illustrated by a world renown economist named Steven Levitt (Google him for unequivocal proof if you need).

What is the incentive for a Realtor to sell my $700,000 home for an additional $10,000 higher? At a 6% split model, this turns out to a $300 (max) pre-tax windfall for the Realtor…in other words very little incentive to put in the extra time and work to achieve this sales price. (I am simply showing hard numbers here etc). But it is a $9,300 difference to me…huge.

On the other side, as my agent, what is your incentive to advise me to take $10,000 less because that’s how the offer came in? You only lose $300, still pocketing $20,700 on the same split model. The incentives for you to have me accept the offer is substantial, and at my great expense.

Since I can afford a $700k home, $10k may not affect me that much, so dial it down to the homeowner with a $125,000 home. The $10,000 impact is far greater for the homeowner but you are still driven by the exact same incentive paradox.

This business model is broken in more ways than one and it is destined to fold. If you think 5.2% is ‘bad’, you are in for more disappointment.

Im not talking about ethnicity, race, creed, religion etc. steering, I’m talking about financial steering like the example above, showing your Realtor buddy’s house first, showing the listing that pays a 3.5% buyers commission instead of 3%, cajoling a seller into accepting less $ for their home to complete a quick sale…that sort of steering.

And in the end, I welcome comments as well…Lets filter out Realtor comments, like you filter out buyer agent commissions on public MLS listings…Public MLS sites provided by Realtor.com etc. do not provide 100% of all data. I owned a real estate brokerage (and construction firm) as well and selectively filtered out the same content.

Anyone who wants to see not only my opinion regarding Realtor practices, but also that of the DOJ and the greater consumer voice need only Google ‘NAR vs DOJ’. Assuming that isn’t too technical.

I agree we are at an impasse…good luck, and my offer to enlighten via more efficient means remains open.

Jeff

Jeff,

I see that you are a freakonomics fan. I thought that your arguments were strangely familiar and that I had heard them before. Does writing a book that sensationalizes topics that most people don’t understand make you a world renowned economist? While I have never read the book and do not profess to be the world?s greatest expert on Steven Levitt, I have had the pleasure of tracking him both on the web and in the print / television media that he frequents.

Writing a book never made you credible. My limited study of Steven has shown that he uses more logic in his arguments than actual data. His study of the entire real estate industry took place while looking at 50K real estate transaction that took place in Chicago. (http://www.nytimes.com/2003/08/03/magazine/03LEVITT.html?pagewanted=6&ei=5007&en=c9b022f0cc736e28&ex=1375243200&partner=USERLAND, for those that would like to read it for themselves).

The study while interesting fails to look at all possible angles or solutions and rule them out. I am not a scientist, and have no desire to ever become one, but I would question any research that sets out to prove a particular point, but fails to exhaust all possible causes to that point. If you set out looking for something you will be able to manipulate the data in such a way as to find what you are looking for. A more reasonable approach might have been to try and figure out why the realtors? homes sold for more. Could it be because they understood the market better and had an advantage as to market timing? Could it have been because they understood more of what a buyer was looking for and were therefore able to address that for consumers? What control was used in determining that the realtors? houses sold for more than the average? Average sale price, $/ finished square foot, etc.? Depending on the type of statistic used, a number of answers might simply answer the question. For example: If it was the average sale price, realtors might own more expensive houses in general than the average consumer. If it was the list to sale price ratio, it may been because realtors have more experience and therefore an upper hand in negotiations.

The fact of the matter is that from his experience with them, Levitt didn?t like realtors. He saw them as crooks and set out to prove them as such, found some data, manipulated it to fit his model, and then wrote a book that has made him loads of money (assumed because he isn?t giving it away for free and it has sold a lot of copies).

Steven Levitt is no ordinary dummy, every time he gets a chance; he goes on a television show or writes an article that gets gobbled up by the media, because sensationalism sells these days. He has sold a lot of books and made some money doing it. I will not blame him for that, but I struggle to believe what he has to say because his research on the real estate market is too localized to be applicable anywhere aside of Chicago, and was born out of his personal vendetta with the real estate community.

I think that you and Steven give real estate agents too much credit anyway. I have never once been able to sign an offer for a client. If they choose to make or sign and offer, it is on their own accord, no amount of pushing or cajoling can FORCE them to do something they do not wish to do. At the end of the day a real estate contract is a mutually agreed upon legal binding document between the buyer and seller. The agents can?t make either party agree or disagree with any of its terms.

For Levitt or you to assert that human nature is the only plausible answer for how a real estate transaction is handled is to essentially call the entire real estate community crooks. The truth is that human nature can be overcome and the right thing does get done. While it may not happen all of the time (I have been very clear that I don?t think the agents that break the law should be protected) the vast majority of the time, real estate transactions are handled honestly and fairly. Real estate agents can overcome their human nature much the same as the married man who walks down the street behind a beautiful woman.

You ran through some math for our readers about the incentives to talk someone into doing some they don?t wish to do because human nature is such that the real estate agent wants to simply make a deal. As a fiduciary this would be illegal. If you have evidence beyond your own postulation that it takes place, please turn these agents in to your local authorities as I think they should be the first to go in your upcoming ?real estate extinction.? However, if you have no evidence of this, you are guilty of sensationalism yourself.

The truth about real estate agents:

Our business is a service industry where we assist buyers and sellers in fulfilling their dreams of homeownership. As with any low barrier to entry industry there are plenty of bad apples to spoil the barrel. It is my personal opinion that they should each be stripped of their licenses and not allowed to practice real estate ever again. However, the vast majority of real estate agents are hard working dedicated people who care deeply about their customers and their hopes and dreams. (I wonder if a computer will be able to pull that off, since they will be replacing us?) We have already established in this thread that our services are free, because using an agent recoups at the very least the agents? commission in your sales price.

Our business is driven by repeat and referral business. If I fail to provide the type of service that will satisfy you and bring you back or send your friends, I will be out of business very soon. This concept is seen in the attrition rate of new agents in our business. I have seen rates varying by area and company between 50-75+% of all first year agents fail in the real estate industry. It is a very short sided agent who ?cajoles? his $700K listing to take less and therefore alienates them in the process. It may mean a quicker sale in the short term, but in the long term you and Steven fail to realize that the real cost of this ?human nature? will be in the 10-100?s of thousands of dollars in repeat and referral business. Case in point, my father in law has a client who has purchased and sold 8 houses from him in 22 years, and has sent countless referrals his way. Had he gone for the quick sale in the beginning he would have lost all of this future business. Steven?s research fails to account for the future economic loss of an upset customer and in so doing shows a very one dimensional type of analysis. In the end he found data to support his point, not an answer derived from his data.

CSP

I throw my hands up.
You wanted a logical base to my arguments, I cite a world renowned economist and get right down to the psycho-’logical’ underpinnings of a real estate transaction and now you say this is not good enough.
Let me say this:
I have a healthy respect for a good Realtor, unfortunately they are few and far between.
A computer will never replace a Realtor, but technology will readjust their income models.
If a good Realtor can embrace a new business model, he/she has secured his place in the future real estate marketing and service.
Businesses with an industrial age model and an inforamtion age spin are not going to cut it. It is the integration of information age technologies within the actual fiber of the buisness that causes substantialy favorable changes in efficiency and cost models. Greater efficiency and lower cost equals better customer service, retention, and referrals….so long as the principle driving it all is good at his/her trade.
The bad apples will get thrown out of the basket and the good ones, who recognize these points, will be able to leverage themselves successfully.

Who is CSP? Can I get CSP’s contact information?

Very interesting discussion and while exhausted reading it, I couldn’t help but think to myself, “gosh, our escrow office charges 30% less than our competitors on average and are profitable. And, that’s without subjecting our clients to escrow junk fees–which suggests correctly that our clients (buyers,sellers, refinance folks)actual savings are more.

One of the comments that Jeff made really hit home. Probably because I’ve been saying it for so long: just think how much business would take place if transaction (ALL) fees were lower and higher equity positions were realized by consumers. You want to put some octane into our national economy, that’s a heck of a way to accomplish it.

To the extent that one argues that someone does another’s job, I always found that rather humorous, odd and peculiar. Take a field trip to ANY escrow office and work in it for a week. I think you would find that outside of being a real estate attorney, the most heavily credentialed real estate professionals are residing in escrow offices(LPO’s). Not only will you will find that they do a lot of work on behalf of agents, but also educate them on a variety of issues. To boot: all that for earning the very least in a transaction.

Tim,

An interesting commentary on the topic, I want you to know that I appreciate what you have to say about your industry. In fact my mother-in-law works in an escrow (”title” in my state) office, and has for over 20 years. I know a thing or two about the title industry myself, but I don’t recall that coming up in the discussion that Jeff and I were having.

I applaud your firm for charging less, and think that you should continue in doing so. Each and every person or business should be allowed to set up a business model and earn a living. This is something that Jeff and I established early on in our conversation. However, your complaining about getting paid the least amount in the transaction bothers me. The first thing that I would like to say is that if you don’t like the payment structure in your industry, work to change it. If you are unwilling to do that work, you have not earned yourself the right to complain about how little you are making.

Second your claim that you are the most qualified and least compensated in the transaction is without basis. Every industry has their new comers and their old timers, if you would like to reference the study that shows that on average your industry has more experience than mortgage or real estate sales, I would be happy to take a look at it. If by qualified you mean state appointed credentials, I would wholeheartedly disagree. In the two states that I hold licenses real estate salespersons (brokers require more experience in practice and more state training and tests) are required to attend 90 hours of state controlled curriculum, and then are required to pass an exam on the material. Where as an escrow agent or title closer is only required to have a notary?s certificate, no training, no tests, just a clean criminal record. As I have maintained all along, real estate is a very local industry. Different areas in my own state have different practices and norms and certainly from state to state there are vast differences. As I am only qualified to talk about my state and our practices, I will only tell you how it works here, if you have a different experience, you should happily input yours for the sake of those reading this blog.

You and Jeff both make the ridiculous point that if transaction fees were lower, then the economy would be booming, people could afford more house, and I suppose there would be peace and love throughout the world. I suppose to the same logical end, if Wal Mart sold shampoo for less, or if Pfizer sold prescription meds for less, I would be in better shape as a consumer. Your argument while in the short term is true; it is also unintelligent and really goes without saying. If you charge less for something, that would be better for the consumer.

Lets examine however the effects on a national reduction in all fees for all real estate transactions. In the salary based positions, less profit would mean that jobs would have to be cut in order to maintain the same profit levels (unemployment?). Or less profit might also mean that companies that are running lean right now would be out of business, and that would mean that more people would be laid off as a result. The commercial space that they were leasing to operate their business would be vacated and therefore there would be a drop in profit for the rental management industry. Fewer jobs and less rent also would mean fewer taxes. Fewer taxes collected would mean that the government would have less to give to the poor, and would therefore have to raise taxes again. Rising taxes for everyone means that corporate growth would slow down. Slowing corporate growth means that fewer people will get raises and everyone?s 401(k) will suffer. Suffering investments means less consumer spending and less spend