Editore"s Note
Tilting at Windmills

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March 10, 2006
By: Roxanne Cooper

THE SELF-SERVICE FUTURE....In last week's NYT Sunday Mag, Freakonomics authors Stephen J. Dubner and Steven D. Levitt proclaimed real estate agents an endangered species:

Think back for a moment to 1999. Travel agents still roamed the earth in vast numbers. So did stockbrokers. But their business models were being blown apart, largely by the Internet. The new market for do-it-yourself online securities trading lowered fees so drastically that a full-price stockbroker could simply no longer earn a living. Travel agents were shoved aside once the Internet gave customers the ability to book their own trips and when, perhaps more damagingly, the airlines decided to stop paying the travel agents' commissions.

The Internet is a natural repository for the sort of data that drive the real-estate market. New sites like zillow.com let anyone try to figure out (if imperfectly) what his home is worth; sites like craigslist.org allow buyers and sellers to easily find each other. As those services and ones like them become more popular, it is hard to imagine that the market will allow Realtors to maintain their hefty commissions.

There will always be some home sellers who prefer full-service, full-fee agents, and a handful of these high-end agents will undoubtedly thrive (just as some full-service travel agents and stockbrokers still thrive, except they are now called "travel counselors" and "financial planning specialists," respectively). But more and more home sellers, armed with data from real-estate Web sites and facing a variety of pricing options, will surely choose another route.

Of course, the real estate industry has a powerful lobby that'll throw everything they've got at preventing commission erosion. Also, FSBO sales are much easier to transact during a hot real estate market. Now that the market has cooled, the conversion to self-service home sales will slow. But, like Dubner and Levitt, I think it's inevitable.

What other white-collar, service professions are likely to go the way of the Dodo?

------------------
A Note on SXSW
I'm here in Austin for two terrific, but lesser-known-than-the-Music-Festival festivals --SXSW Interactive and SXSW Film. I'm not likely going to experience much live music between now and Tuesday, but I plan to see Neal Pollack tonight with Amanda and Norbiz ...right after we hit the BlogHer party at Stubbs.

Roxanne Cooper 4:48 PM Permalink | Trackbacks | Comments (91)

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I'm here in Austin for two terrific, but lesser-known-than-the-Music-Festival festivals --SXSW Interactive and SXSW Film.

Damn it, I was supposed to leave tomorrow morning for SXSW, but my flu is still kicking around and I just cancelled my JetBlue flights. I don't think I can get a refund on my conference registration. Sigh.

Posted by: NTodd on March 10, 2006 at 4:54 PM | PERMALINK

Also, FSBO sales are much easier to transact during a hot real estate market. Roxanne Cooper

Spoken like someone who's never actually purchased a house.

FSBO transactions are only done by the same sort of fools who represent themselves in court, only much more difficult.

Posted by: Jeff II on March 10, 2006 at 4:54 PM | PERMALINK

music and book retailers. for that matter, retailers of any non-perishable, mass-produced, easily shippable product. but books and music first.

bank tellers. personally, i only go to a bank teller when making deposits, and that's only because it's as easy as doing the deposit in an ATM. if i could move my two or three sources of paper checks to electronic payments, i'd never go to a teller again.

Posted by: cleek on March 10, 2006 at 4:55 PM | PERMALINK

FSBO transactions are only done by the same sort of fools who represent themselves in court, only much more difficult.

we bought our first house FSBO (7 years ago). we had a buyer's agent helping us, but it was no more difficult than the last house we bought.

Posted by: cleek on March 10, 2006 at 4:57 PM | PERMALINK

Anytime knowledge can be synthesized from widely available data, the professions that once controlled the data, and thus the knowledge, will disappear. TAx accountants, are still necessary, perhaps, for some, but are similarly on the way out, given the availability of internet driven tax programs. Doctors and pharmacists may soon see their fields eroded away, as computers collect and store, data about people, and then synthesize diagnostic answers and the prescriptions to fix things.

Posted by: Chris on March 10, 2006 at 5:00 PM | PERMALINK

Too many people love jingoism. What the Aitch EE double toothpicks is SXSW?

Posted by: Chris on March 10, 2006 at 5:02 PM | PERMALINK

Until now, real estate agents have had two modes:

"This is a hot market, so II don't need your business, so I won't lower my commission"

"This is a cold market, so I'll have to do a lot more work to sell your house, so I won't lower my commission"

There is a role for some hand-holding during the biggest financial transactions of your life, but it isn't worth 5% or 6%, and the sooner that goes away, the better.

Posted by: craigie on March 10, 2006 at 5:04 PM | PERMALINK

On the other hand, never underestimate this Congress' willingness to sell monopoly protection to industry groups. If only they were conservatives, instead of Republicans...

Posted by: craigie on March 10, 2006 at 5:06 PM | PERMALINK

"FSBO transactions are only done by the same sort of fools who represent themselves in court, only much more difficult."--Jeff II

I bought a house in a FSBO transaction last year, and it was incredibly simple. I'm an attorney, so I might know a little more (very little) than the average person about real estate transactions, but I did not note anything that would have been difficult for most people to handle. My sister bought a house in an agent-brokered transaction, and, if anything, it was more difficult to conduct.

Posted by: Gary on March 10, 2006 at 5:08 PM | PERMALINK

we bought our first house FSBO (7 years ago). we had a buyer's agent helping us, but it was no more difficult than the last house we bought. Posted by: cleek

Then you didn't do it by yourself, did you? And you still had to close through a title company. So, other than paying a real estate agent a fee to list and show the house, you still go through the most time consuming and involved aspects of a RE transaction.

In short, unless you happen to work for a title company and have a real estate license, the idea of a truly "self-serve" RE transactions is silly.

Posted by: Jeff II on March 10, 2006 at 5:12 PM | PERMALINK

I haven't reached for a 'Yellow Pages' or other printed phone directory service in about 3 years.


(I hate title companies)

Posted by: wishIwuz2 on March 10, 2006 at 5:17 PM | PERMALINK

What the Aitch EE double toothpicks is SXSW?

south by southwest. big music fest.

Then you didn't do it by yourself, did you?

your words were: "Spoken like someone who's never actually purchased a house." you said nothing about the buyer's side of the FSBO transaction.

i purchased a house that was For Sale By Owner. and it was no different than the For Sale By Builder house I bought two years ago.

Posted by: cleek on March 10, 2006 at 5:19 PM | PERMALINK

you said nothing about the buyer's side of the FSBO transaction.

let me amend that... you said nothing about how the buyer was supposed to be represented. the only difference between the transaction you described and a traditional one was the seller's representation, not the buyer's.

Posted by: cleek on March 10, 2006 at 5:21 PM | PERMALINK

A hot hot market means less advertising and marketing is required. And that's one of the services agents "sell" to buyers.

Posted by: Roxanne on March 10, 2006 at 5:22 PM | PERMALINK

Fortunately it's the stupidest aspects of the job that get replaced. I was a substitute bank teller as a summer job in high school and boy was I first to use the ATM machines -- I know I could be replaced by a computer and that computer would be more accurate than the people who counted out the money, especially me!

On the other hand, any job which requires characterization or interpretation of information, as opposed to simply access to it, will not get replaced by a machine. People will still want advice about which stocks to buy, what expenses they can deduct, and where's the best place for a really really stress-free vacation, and even how best to sell their property. And people still like to browse antique shops and bookstores.

Posted by: Diana on March 10, 2006 at 5:22 PM | PERMALINK

SXSW is South by Southwest, one of the biggest musical/film/multimedia festivals in the country, hosted every March in my beautiful home city of Austin, TX. I'll at the trade show on Sunday, and the Austin Studios open house tomorrow.

Posted by: Constance Reader on March 10, 2006 at 5:22 PM | PERMALINK

Actually, I meant "sellers" instead of "buyers."

Posted by: Roxanne on March 10, 2006 at 5:23 PM | PERMALINK

During last year's home sales boom, the FSBO's left a lot of money on the table because they were selling at yesterday's prices because they did not have the MLM. MLM represented buyers went into a feeding frenzy and bid up sales prices right after the listing. Now FSBO's are languishing on the market because they are priced too high.

Posted by: Hostile on March 10, 2006 at 5:28 PM | PERMALINK

(I hate title companies) Posted by: wishIwuz2

Hate them all you want. But few of us have the time and resources to track down and process the amount of information required. I know I have better things to do with my time.

Posted by: Jeff II on March 10, 2006 at 5:29 PM | PERMALINK

Somebody who can put together a nice internet tour of the house you want to sell for several hundred dollars should do well in an internet based real estate market. Such folks might be called realtors, but they'd have trouble fixing a price anywhere near 6%.

Posted by: duvidil on March 10, 2006 at 5:29 PM | PERMALINK

There's a whole host of legal things that make the real estate transaction more difficult than most, with the title transfers, escrow, etc. As long as that's in place, there will always be people who make their living facilitating real estate transactions. FSBOs generally only succeed if there's some sort of real estate professional involved, either a real estate lawyer or a buyer's agent, who will oversee all of this stuff.

There's some movement to internetize all of this, and the big fight in the real estate industry over the next few years will be who controls the internet-based sale management. My wife used to work for a large title company which has been pouring a lot of resources into attempting to put that process in the hands of the title companies.

And, incidentally, while craigslist is very nice, I really don't see it replacing the MLS anytime soon. Or ever, really.

Posted by: Don Hosek on March 10, 2006 at 5:34 PM | PERMALINK

You can probably get instructions for fixing your transmission online, does not mean you want to do it (if you enjoy it, fine)

I heard Mr Freakonomics touting this on NPR last weekend. He said some incredibly stupid things like "All a real estate agent does is hook a buyer up with a seller." I bought my first house 2 years ago and would not have done it. How many FSBO's want to sit in their houses all day waiting for someone to show up as opposed the the agents having access. My agent (a buyer's agent, btw) was very helpful in showing me things and helping me make decisions. The agency walked me through the closing and the variety of crap one goes through.
The amount of work and research and risk that goes into picking a crappy airflight is a lot less than spending thousands for a house. You can get alot of practice with the airlines, not so much with houses. Very expensive learning curve.

Posted by: Martin on March 10, 2006 at 5:37 PM | PERMALINK

Jeff II:

I don't know about anywhere else, but around here (northeastern mass) there is a non-profit that holds seminars for home buyers.

http://www.mvhp.org/

i have been told by people who have taken the seminars that you won't have any need for a real estate agent.

Posted by: chris on March 10, 2006 at 5:40 PM | PERMALINK

What really needs to be replaced by automation are the title companies. They have no quality controls and treat clients poorly. Title companies do not rely on repeat business from buyers, so customer satisfaction and quality of workmanship are not motivators for them.

Posted by: Hostile on March 10, 2006 at 5:41 PM | PERMALINK

thats not to say that everyone who takes the seminars is an expert, of course ;)

Posted by: chris on March 10, 2006 at 5:41 PM | PERMALINK

If you know any young people who are looking for careers that can't ever be be outsourced or digitized, and if they are good with their hands and have a good business sense, you ought to encourage them to consider the building trades.

Posted by: DBL on March 10, 2006 at 5:43 PM | PERMALINK

The truth is the title company does all the work during the real estate transaction FSBO or not. They guarantee the title, process the money transfers and record the deed. All the realtor does is show people around the place and put out a few flyers.

Now some of these services are valuable. Buyer are often put off by people showing their "own home" as they don't feel free to talk about it candidly. Also, realtors can give relocating buyers advice on new cities etc and arrange all the showings etc. However in the days on $300K starter homes in most areas along with frequent moves, 5%-6% is way, way to high.

Realtor's are maintaining these commisions not by providing a service that is worth the prices, but by controlling the information (RMLS listings) and controlling the buyers (buyers agents). I had my house on the market FSBO for 6 months in a hot market without any offers. Some realtors would call and then refuse to bring by buyers when they learned it was a FSBO even after I offered them a 2% commision. When I got close to my move date I listed it with a realtor and it sold in 1/2 hr.

Posted by: Adventuregeek on March 10, 2006 at 5:45 PM | PERMALINK

The question is: what does a real estate agent do?

I suppose they have these functions:
*Connect buyers and sellers.
*Make parties aware of relevent laws pertaining to the transaction (guiding clients through paperwork).
*Recommend individuals with expertise in specific areas (brokers, assessors, contractors)
*Help clients understand the dynamics of the neighborhood

What am I missing? What of these things cannot be done on the internet? How do these things require a full blown realtor? Why not a series of 1 hour sessions with a legal and financial expert? (This would cost several thousand dollars instead of several tens of thousands of dollars.)

Posted by: Saam Barrager on March 10, 2006 at 5:45 PM | PERMALINK

Chris said, "Doctors and pharmacists may soon see their fields eroded away, as computers collect and store, data about people, and then synthesize diagnostic answers and the prescriptions to fix things."

I've been helping to design nursing algorithms for trauma care, and it's going well. I hope to be fully replaced in the initial trauma assessment within 10 years. However, most medicine is still based on educated guesses and intuition. Scary, isn't it? The level of sophistication in pattern recognition required is, at this time, too high for any software. When you get sick and try to diagnose yourself, you'll figure that out. Also, most pills work in a range of about 10-15% above placebo. Prescriptions alone rarely 'fix things.' Part of this misconception is driven by direct to patient advertising, but I digress.

Another reason why Realtors might go the way of the dodo is the erosion in their credibility as a whole. As more of them say meaningless things like "just froth," or "best time to buy" or that now is suddenly a buyer's market, or that housing prices have never declined nationally (outright lies), you start to wonder whether any of them have the integrity to work to get you the best deal.

Posted by: Bad Shift on March 10, 2006 at 5:47 PM | PERMALINK
What am I missing?

Manage and smooth relations between buyer and seller, and assist in negotiations to reach a deal.

Posted by: cmdicely on March 10, 2006 at 5:52 PM | PERMALINK

If you know any young people who are looking for careers that can't ever be be outsourced or digitized, and if they are good with their hands and have a good business sense, you ought to encourage them to consider the building trades.

While "digitized" in the sense of being moved online into pure software is clearly not possible, it is, I think, foolish to assume such jobs could never be automated and displaced.

Posted by: cmdicely on March 10, 2006 at 5:54 PM | PERMALINK

"What other white-collar, service professions are likely to go the way of the Dodo?"

Paid blogger?

Sorry. Couldn't help it.

Posted by: Quaker in a Basement on March 10, 2006 at 5:58 PM | PERMALINK

> What am I missing? What of these things
> cannot be done on the internet?

I am no fan of the practice of real estate sales, but if you are moving to a new area a good agent (and there aren't many) is invaluable. For one move, we went through 3 agents with terrible results. The 4th took us to 6 houses, asked us if we liked each one and why/why not (usually as much to do with the neighborhood as anything), and from then on took us only to listings that fit with our requirements AND personality. That was an invaluable service; it would have taken us months of searching in the new city (with the rent clock ticking) to start understanding the structure of the neighborhoods.

Cranky

Posted by: Cra on March 10, 2006 at 5:58 PM | PERMALINK

Title companies do not rely on repeat business from buyers, so customer satisfaction and quality of workmanship are not motivators for them.Posted by: Hostile

Not true. Buyers and sellers do not, as a rule, choose their title company, unless they are foolish enough to acting as their own agents. RE firms choose the title company. If a title company isn't doing the job, the RE firms can go to another title company. There are a number of them out there.

Posted by: Jeff II on March 10, 2006 at 6:04 PM | PERMALINK

we bought our first house FSBO (7 years ago). we had a buyer's agent helping us, but it was no more difficult than the last house we bought...

I think this clarifies things a bit. With regard to the real estate brokerage industry, it's not so much that the web has obviated the economic rationale for brokers, so much as the web has significantly lowered costs, and reduced their pricing power.

It truly is absurd to pay someone, say, 5.5% to merely list a property. Listing a property is simply introducing it to the marketplace. Craigslist can do that for you for free.

But procuring a buyer is a different animal altogether, especially in a normal or cool market. So, I largely agree with Levitt, but I think we're moving from a world of 5 and 6 percent real estate commissions to one of 2 or 3 percent real estate commissions, with nearly all of that going to the buyer's agent.

Posted by: P.B. Almeida on March 10, 2006 at 6:07 PM | PERMALINK

cmdicely correctly pointed out what are perhaps the most valuable services an agent provides. Real estate transactions are very fragile things, and tend to fall apart at the slightest bit of trouble. They need to be nannied though. Also, the potential for fraud is quite high.

While anecdotally speaking many people sell their homes by owner with no difficulty, I would venture that statistically speaking most transactions encounter situations where having a professional with a fiduciary responsibility to their client is helpful, if not vital.

Posted by: trex on March 10, 2006 at 6:14 PM | PERMALINK

Thots, for what they're worth, on some of the alleged dodo professions:

1. Realtors. I hate paying 'em, but the MLS reaches way more buyers than I even could if I tried selling my house myself. And, I would never have time to show the house, answer dozens (hopefully) of phone calls from buyers, etc. So, they do provide a valuable service--but I don't thing the value is 6%.

2. Docs. Anyone who has specialized knowledge in a particular field has probably experienced this when talking to a "civilian" about that field. Even very bright, well-informed civilians fall short in terms of their understanding. For this reason, they often can't separate the important things from the non-important things. So it is, I think, with on-line medical diagnosis. I may be able to list all sorts of symptoms, but how do I prioritize them? What about those things that may be symptoms but I don't recognize them as such? Or properly sort out the symptoms in combination illnesses? In short, I'm not a doc but I don't see self-diagnosis replacing professional diagnosis and care. Except among the foolish, perhaps.

3. Pharmacists. This one I can see. No longer does the person behind the counter fabricate the meds from various raw chemicals hidden back there. He or she essentially puts pills in and labels on bottles. This can easily and efficiently be done in a central location, with the product shipped to the patient. Still, there will be somewhat of a need, if only for (a) meds that are needed immediately, and (b) legally restricted or highly sensitive meds that cannot or should not be outside of a controlled environment or sent across state lines.

Posted by: JRP on March 10, 2006 at 6:14 PM | PERMALINK

There is a role for some hand-holding during the biggest financial transactions of your life, but it isn't worth 5% or 6%, and the sooner that goes away, the better.

Agreed. Assuming a $500,000 price tag, Cranky and others, do you really think the agent is providing you with $25,000 to $30,000 worth of value? I don't.

I'm surprised there hasn't been some discount real estate agent business model introduced into the system. "$1000 and I'll sell your house" or "$2000 and I'll show you 5 houses that meet criteria x, y and z, then 5 more that meet criteria x', y' and z' (per Cranky's point that the agent refined the next set of houses based on feedback from the first set).

I suppose that the lack of such a company (discount real estate agents) might indicate some costs of which I am unaware that would prohibit such a company being profitable--such as licensing fees or RMLS listing fees. Does anyone know more about that?

Posted by: Edo on March 10, 2006 at 6:14 PM | PERMALINK

In short, I'm not a doc but I don't see self-diagnosis replacing professional diagnosis and care.

Not to mention the fact that only Docs can prescribe medicine. Does anyone really think that we'll move to a model anytime soon where people can self-prescribe medicine? I don't. I wish I could, but I don't see it happening.

Posted by: Edo on March 10, 2006 at 6:19 PM | PERMALINK

My last home purchase was totally screwed up by the title company. That was ten years ago, and I have no idea who that company was. I am not sure what the connection is between realtors and title companies, unless it has to do with receiving a check sooner rather than later. The point is, that whatever title companies do, making sure the loan is filled, the title clear, all the paper work is properly filled out, etc., could be automated. I am pretty sure the things title companies do after the sales transaction are already automated. Paying property taxes, for instance, almost certainly is not done by a person checking contracts and the calendar.

Posted by: Hostile on March 10, 2006 at 6:19 PM | PERMALINK

The interesting potential trend I saw in the article was the couple in Chicago (IIRC) who set up a menu style real estate buisness with flat fees, for example $X to list on MLS, $x per showing, $x for title company, $x to run ads in real estate mags, $X to print flyers and so on.

Seems like a good way to go, have a house in one of the hot markets where it pretty much sells itself on day of listing then you don't pay much. If it takes longer and you need 200 color flyers printed it costs more.

Posted by: eric on March 10, 2006 at 6:22 PM | PERMALINK
Does anyone really think that we'll move to a model anytime soon where people can self-prescribe medicine?

Consumers? No. A less exclusive group than currently, or with the notional prescriber just signing off a form created interactively by the patient working with sotware? Quite possibly.

Posted by: cmdicely on March 10, 2006 at 6:30 PM | PERMALINK

Well, in California, no one has mentioned that the real estate agents actually draft the contract for sale. Despite the fact that they all use the same form, it is a legal contract, and in other states lawyers actually do the work.

Considering the prices of houses now, and the risk to a buyer of losing the down payment over a dispute over lapse of contingencies, well, for most people drafting the contract yourself is quite a bit risky.

Moreover, when the inevetable disputes arise post inspection/pre-closing, its the agents who keep the principals from flipping out at each other and blowing the deal.

However, that said, one would expect the total cost to drop a bit to reflect the ease within which, for example, buyers can access the multiple listings on their own.

In other states in which lawyers are required to do the drafting, other than marketing what do the agents actually do?

Posted by: hank on March 10, 2006 at 6:33 PM | PERMALINK

Eric,

D'oh! Thanks for pointing out that ala carte approach from the article. I've now read it. Apparently there are discount agents. However, I live in a fairly hot real estate market (the SF Bay Area) and I've seen little to no evidence of such a discount service. "discount" mortgage brokers, sure, but no discount real estate agents.

Posted by: Edo on March 10, 2006 at 6:42 PM | PERMALINK

There will still be professionals to help out with various aspects of real estate transactions. But they no longer will be able to command 6% commissions (to be divided among several agents). It's like travel agents; they haven't completely disappeared, but they can no longer claim 10% of every ticket sold.

Posted by: Joe Buck on March 10, 2006 at 6:52 PM | PERMALINK

Not sure really, but I saw a piece on outsourcing at Businessweek.com quite recently which estimated that another 42 million jobs could be vunerable.

It being Business Week, they were quite pleased at the prospect...

Might be a good time to check into becoming a plumber, a hairdresser, or an auto mechanic.

Posted by: CFShep on March 10, 2006 at 6:57 PM | PERMALINK

JRP:

I think you're right about pharmacists. Already some (most?) medical insurance companies are encouraging patients to do prescriptions by mail. If the trend holds, I think we'll see the pharmacist disappear from the mom-and-pop drug store (along with the stores themselves). We'll probably see a sharp cutback in pharmacist staffing at the Eckerd's/Walgreen's type stores. The Wal-Mart level of centralized, on-site service will thrive, as will prescription by mail.

Posted by: Quaker in a Basement on March 10, 2006 at 6:58 PM | PERMALINK

Re:SXSW. If you're still around on Tuesday night, don't miss the Digital Convergence Party. I'll be there with the Flogiston Eye, but you'll have to be at the party to find out what it is. (It's the future of immersive computing)

bp

Posted by: Floman on March 10, 2006 at 6:58 PM | PERMALINK

> Cranky and others, do you really think the
> agent is providing you with $25,000 to
> $30,000 worth of value? I don't.

By no means. Nor should the payment continue to climb as the price of the house increases (within limits; I acknowledge that selling a $5 million mansion is a specialized skill). Flat fee seems reasonable to me.

Cranky

Posted by: Cranky Observer on March 10, 2006 at 7:02 PM | PERMALINK

Pharmacist is already obselete, except for an artificial monopoly enforced by the government.

Posted by: mac on March 10, 2006 at 7:07 PM | PERMALINK

Well, in California, no one has mentioned that the real estate agents actually draft the contract for sale. Despite the fact that they all use the same form, it is a legal contract, and in other states lawyers actually do the work.

I'm pretty sure you can get pretty much the same form, along with instructions on which bits to include and exclude for certain effects, in any of a number of self-help legal books from Nolo Press and other places.

Given the rather limited degree of original work on the contract that, in my understanding, individual agents do, I'm not sure that would be all that much different, in effect, for that function.

Posted by: cmdicely on March 10, 2006 at 7:08 PM | PERMALINK

Cranky,

Good to hear that we are on the same page in principle. Having said that, I do agree that in certain cases (relocation, atypical homes, etc.) that agents can provide valuable services.

Posted by: Edo on March 10, 2006 at 7:08 PM | PERMALINK
I'm pretty sure you can get pretty much the same form, along with instructions on which bits to include and exclude for certain effects, in any of a number of self-help legal books from Nolo Press and other places.

FWIW, that's exactly what I did. No real estate agent was used in my transaction.

Posted by: Edo on March 10, 2006 at 7:09 PM | PERMALINK

This issue resonates with me, as a graphic designer. Sure, my industry has lost a lot of business from people who think they can do it themselves as long as they have a computer and a word-processing app. But most of those clients weren't worth having if that's how little they value branding and design, and there are still a lot of people who believe that some skills and experience are worth paying for. This is why I pay an accountant to do my taxes, a contractor to make repairs, and an agent to sell my house. Lots of people DON'T need to spend the money on a professional, but sometimes expertise is worth the expense.

I'm in the Bay Area too, and when I bought my place I couldn't possibly have handled all the negotiations and paperwork by myself. As Hank noted, here in CA I wouldn't feel comfortable taking on the risk.

FWIW, there are discount RE firms around here. My current home was sold through Assist2Sell, which is offers the a la carte things that have been mentioned. However, I think it's worth noting that in my neighborhood the homes listed through the discount firms take much longer to sell.

I've been interviewing agents to sell my place, and one argument for paying the full commission is that if a buyer's agent has a choice to present 2 properties to their client, and one will get them a full 3% and one only 2%, that agent have an incentive to promote the one that will net them more money. It might be unfair, but it's something for me to think about.

Posted by: snarktini on March 10, 2006 at 7:10 PM | PERMALINK

Watch William H. Macy in Fargo and tell me why we go to some kitch palace to pay some clown in a plaid sportcoat to tell us what car we want to buy. If I were one of these Korean or Chinese car companies coming to the American market I'd cut that whole layer of fat and sell through the internet only.

Posted by: wks on March 10, 2006 at 7:25 PM | PERMALINK

In Iowa we have a company that will sell your house for a flat fee ($3700 is what I remember). They do the advertising and paperwork but you have to show it yourself. We would have bought through this company except the one house we made an offer on was not accepted. I asked their broker what he would charge to represent us in an FSBO deal -- $1500. (This company had to fight with the full service agencies to get approved but might represent the wave of the future.)

We wound up buying a house through a regular real estate broker -- it was by far the best deal we found (a Queen Ann built in 1890 and recently remodeled). The real estate agent we ended up working with said he would have to charge a regular commission on a FSBO. I would never try buying or selling a house without some professional help on the paper work. Trying to get a lawyer to do anything for a fixed fee is a joke and trying to find a decent one when you've only been in a place a year is impossible.

Both here and in Texas where we came from 4 years ago all the agents represent the seller who pays all the commissions. So the fees are not a buyer's issue unless you use a buyer's agent (unusual expect for expensive houses). That is you pay the listed price plus a few hundred in buyer's expenses (e.g., survey, title search, loan fees) plus any negotiated expenses.

-- Thain

Posted by: thebears on March 10, 2006 at 7:26 PM | PERMALINK

but I don't think the value is 6%

Here's the breakdown of that 6% in a typical (if there is such a thing) co-brokered transaction:

3% to listing broker
of that, 1.5 % to listing agent

3% to selling broker
of that, 1.5% to selling agent

So, for a sale of a $200,000.00 home:

Commission : $12,000.00

Listing broker: $3000.00 before taxes
Listing Agent: $3000.00 before taxes
Selling broker: $3000.00 before taxes
Selling Agent: $3000.00 before taxes

Listing Agent Expenses:

Transactional

Virtual Tour w/photos: $120.00
Advertising: $400.00 (just a guess)
Signs, gas, phone, time, etc

Yearly

Yearly Desk fee: $ 20,000.00 (or more for major franchise, less to nothing for an independent)
Yearly Board Dues: $2000.00 (probably varies wildly)
Yearly Realtor.com fees: $500.00 to $2000.00

The average agent commission nationwide is around $2000.00 IIRC. Also, once the desk fee is paid off, the broker usually only takes 10%.

Posted by: trex on March 10, 2006 at 7:41 PM | PERMALINK

Many of you seem to be confusing listing and selling your home with the necessity of doing the closing and financial paperwork. This is the difficult part. You can't just go on line and download forms for this or buy a how-to book about it. Again, no one has the personal resources, skills, or legal authority of a title company or lending institution for these parts of the transaction, and I'm not aware of any state that has done away with these yet (or would want to). Ever talk to someone who had a title search done incorrectly? If the "pros" can screw this up, and they do from time-to-time, what makes you think you can take on this task?

And though there are standard real estate contracts, these are almost always amended, as there is no such thing as a standard real estate sale. This is why self-serve real estate transactions aren't just around the corner.

Posted by: Jeff II on March 10, 2006 at 7:42 PM | PERMALINK

I read a rather amusing article in a realtor trade magazine about a (local) campaign to essentially trash the FSBO "brand." Clever bit of marketing.

Certainly middlemen/specific hired expertise can be very helpful in some circumstances (if perhaps not justifying current rates). It was just a definite piece of work - you know, the dropped insinuation there, the carefully placed doubt there . . . there's a definite future in politics for someone . . . .

Posted by: Dan S. on March 10, 2006 at 7:44 PM | PERMALINK

On the short list of professions to be eliminated through technology: economist, pundit.

Why pay for fact-free opinions when you can get them for free on the Internet.

Posted by: alex on March 10, 2006 at 7:44 PM | PERMALINK

What other white-collar, service professions are likely to go the way of the Dodo?

How about, um, I dunno ... journamilists?

Posted by: The Confidence Man on March 10, 2006 at 7:45 PM | PERMALINK

Further to cm's comment, indeed, there is quite a bit of checking the boxes that occurs on the CA form, however in a real estate market in which there are multiple bidders, the particular "boxes" which give the prospective buyer "outs" (ways to get out of purchasing the home after tying it up in escrow) are hardly "routine."

Of course, the question is, is it worth it? Hard to say, as no one knows going in whether their particular deal is going to be simple or not.

Moreover, there are probably, literally thousands of real estate agents who barely have any more clue on what boxes to check than the average client, so there you have it.

Because I can't resist, I have one more opinon on this topic, directed at all of the usual suspects who routinely insist on how great the "market" is at accomplishing tasks and how bad government is.

That opinion is that I can't think of anyone less well served in any service industry than a buyer of a home by his agent (at least in California).

The reason is that the entire process makes it "appear" that the buyer's agent is looking out for the buyer's interests. In fact, other than some very, very basic interests, my experience in California has been that what should be the major interests of buyers is completely ignored by thier agents.

Once the process begins, the buyer's agent has every incentive to get that buyer to buy a home as quickly as possible, for as much money as possible.

This is understandable from the perspective of the seller's agent, but buyers are routinely sold out in almost every transaction.

The only way to fight this would be to keep as a secret from your agent what you could actually afford. Although theoretically possible, it is hard to do in practice.

You will never hear the following anecdote, at least in California: "Well, we thought we would need to spend about $800,000, and it would have been a bit of a stretch, but our agent turned us on to this great neighborhood in which houses were going for $600,000, so he saved us all that money and now we are in much better shape."

The reason you are never going to hear that anecdote is that it never happened. Once a buyer's agent figures out what the absolute maximum is that you can afford, you are going to see those houses and ones which are slightly more expensive.

Becuase the agents know that current lending practices allow loans to be funded, essentially no one in the process is making any effort at all to sell you that hypothetical $600,000 house when they know you could somehow afford an $800,000 house.

Not that there is any governmental fix for this, but its worth it to point out the massive inefficiencies in the market.

Posted by: hank on March 10, 2006 at 7:51 PM | PERMALINK

Supermarket checkout.
Bank teller.

Posted by: cdj on March 10, 2006 at 7:52 PM | PERMALINK

Right wing bloggers, though I suspect their demise won't have much to do with self-service and everything to do with aneurysms caused by overstrenous circle jerks.

Posted by: Amanda Marcotte on March 10, 2006 at 7:59 PM | PERMALINK

So, for a sale of a $200,000.00 home

Ahhh...the vision of a $200,000 home...now that's a fantasy.

How about a slightly more realistic number for your calcs (at least in CA's SF Bay Area):

So, for a sale of a $500,000.00 home:

Commission : $30,000.00

Listing broker: $7500.00 before taxes
Listing Agent: $7500.00 before taxes
Selling broker: $7500.00 before taxes
Selling Agent: $7500.00 before taxes

yeah, $3,000 per person seems almost reasonable; $7500 however, does not.

Posted by: Edo on March 10, 2006 at 8:04 PM | PERMALINK

Supermarket checkout. Posted by: cdj

I hate it whenever I'm forced to patronize a store that doesn't have these.

Posted by: Jeff II on March 10, 2006 at 8:06 PM | PERMALINK

Ahhh...the vision of a $200,000 home...now that's a fantasy.

Sorry, that was a mid-western figure. I don't know how you guys in CA even afford homes.

Posted by: trex on March 10, 2006 at 8:10 PM | PERMALINK

wks -

Franchised car dealers probably could be replaced, except for the fact that they have tremendous political influence on the federal, state and local level and will fight to the death against any attempt to allow direct manufacturer-to-customer sales if one of the Chinese automakers enters the US market.
About 20 years ago Porsche actually did float the idea of making direct sales and its dealers threatended to sue the company out of existence. Needless to say, the idea sank like a stone, even before the legislators got involved.

Posted by: Peter on March 10, 2006 at 8:37 PM | PERMALINK

"I bought a house in a FSBO transaction last year, and it was incredibly simple. I'm an attorney, so I might know a little more (very little) than the average person about real estate transactions, but I did not note anything that would have been difficult for most people to handle. My sister bought a house in an agent-brokered transaction, and, if anything, it was more difficult to conduct."


I could imagine a lot of people who could say the same about business deals, less the inclusion of attorneys. But would it be wise?

My wife was an agent who couldn't stomach the issues. Through her, I learned that you don't even need a high school diploma to be an agent. Ten points for the non-agent side. However, I also learned about the amazingly long list of potential liabilities, and the case evidence upong which they are built. Few things are as terrible as a ticked off buyer going after an unsuspecting seller after the deal has done. And the case law on real estate goes back hundreds of years. Very tough to defend yourself against an innocent mistake made contrary to so much legacy. And the Internet will not save somebody from using the wrong adjective to describe a feature of the house.

Posted by: anon on March 10, 2006 at 9:37 PM | PERMALINK

1) Reading all the comments about real estate transactions, it is not that software will replace professions altogether. It will cut out large quantities of relatively easy work, leaving the technical core that really does require expertise (for example the legal documents for a 500,000 transaction).
It went unmentioned, but much of the information-transmission functions of teachers could be handled by far smaller staffs of teachers combined with computers. However, the socialization functions (and the babysitting ones) would still remain.

2) The way we are organized as a society, anyone whose position is outsourced or eliminated through advanced technology or simply eliminated through efficiency has every motivation to dig in their heels and try to hold on by whatever means possible. And larger institutions have the capacity to use their current monetary power to bend the political process to maintain their position.
This goes on at every level from individual up to large organizations and entire industries. Microsoft, for example, is a technological organization that completed its job (creating a standard operating system, word processor, and few other programs) long ago and stays in existence solely as a "landlord" of intellectual property rights.
It would be wonderful if we could find some way to change the rules so that the costs of technological change don't come down so much on one set of necks.
In other words, if we as a society as a whole recognized that we are all served by these technological changes and would support those whose positions in society are eliminated.
A very rough analogy would be the fact that when we build a new highway, we pay for the land we take for it.
Up till now, we have handled this on a devil-take-the-hindmost basis, but when the pace of technological change reaches a high enough pitch (ie when we outsource to India all the computer programmer jobs that the steelworkers were supposed to retrain for), three bad things happen:
1) People have no similar-enough job to retrain for.
2) More and more people and companies and institutions spend more and more of their time fighting change that overall is beneficial.
3) Since we assume that anyone who can't get out of the way of the juggernaut of technological change is too stupid or lazy, we won't notice if we reach a point where we outsource/replace with technology so many jobs that there are not enough left to go around.

Posted by: kevinrooney on March 10, 2006 at 10:00 PM | PERMALINK

I agree on car dealers going the way of the dodo. The biggest barrier is actually a network of state laws that forbid car manufacturers from selling directly to consumers. By law you have to go to a dealer. It would have been like airlines being forced to sell through travel agents. You can bet car companies would cut out the dealer network in a second if they could.

Posted by: david on March 10, 2006 at 10:09 PM | PERMALINK

kevinrooney: when the pace of technological change reaches a high enough pitch (ie when we outsource to India

You're confusing people being displaced by technological change with offshore outsourcing. They're quite different.

Without technological change, which inevitably puts some people out of work, we'd still be living in the pre-industrial era (or the stone age). Due to the increasing scarcity of natural resources, we need technological change just to keep up, let alone increase, our standard of living.

By contrast offshore outsourcing serves no such purpose. It's simply labor arbitrage practiced by MNC's - get labor as cheap as you can.

Posted by: alex on March 10, 2006 at 10:28 PM | PERMALINK

"You can bet car companies would cut out the dealer network in a second if they could"

Won't ever happen. Car dealers have one of the strongest lobbying groups of any trade organization. They *own* many state legislators.

Posted by: Peter on March 10, 2006 at 11:30 PM | PERMALINK

I have purchased real estate all over America. Here are some simple rules that work for me:

1. If you are pre-approved for a loan (no cost to do so) have a good real estate attorney and know an excellent home inspector, plus look at a serious amount of properties - at least 30 to get to know the market, you can BUY a property without an agent. The attorney can write the offer and review the title. The home inspector should be a professional engineer. Total cost around $1000.

Then you offer a competitive price LESS the buyer broker commission (you have earned this yourself).And always buy the 1 year home warranty. It's chump change compared to the commission you earned yourself.

2. Selling a house - list it with a broker after you interview at least 3. Have them bring comps, inspect your property and tell you what needs to be fixed up to make it saleable, and very roughly estimate what they think the house will SELL for, not the listing price they recommend.
DO NOT sign with any agent on the first visit.

Agents that tell you to invest a bunch of money to fix it up are not going to represent the property well (unless all 3 tell you your house is a handyman's special). Don't sign up longer than 6 months, 90 days is even better. Price your property to sell. Setting the list price too high eliminates potential buyers and especially use 9,999 pricing.
449, 499, 299. Worst pricing point example 151,500 - never shows up in the under 150K list and nobody looking under $200K will want your house. Ask the broker/agent for a MARKETING plan for your property. Advertising, listing, Virtual tour, digital photos, etc. Get references for each broker and CALL THEM. Best agent I ever used got a glowing recommendation from a homeowner who insisted on listing his property for $125K more than it sold for but the agent predicted the sale price before the contract to list was signed. He still worked his tail off to sell it, and got two offers within 60 days.

Recommendation:

Make your money by BUYING without a broker, but make sure you get compensated. Never sell without a broker you will never get full home value. Price your house smartly ahead of the market. In a flat or declining market, consider what action you would take in 45 days if your house is still on the market - then take that action immediately. Chasing a declining market down is a bad strategy. Multiple or drastic price cuts are tough to explain in a buyers market. Then make your listing agent earn the commission.

Posted by: Art on March 10, 2006 at 11:32 PM | PERMALINK

Sorry, that was a mid-western figure. I don't know how you guys in CA even afford homes.

We make a ton of money selling porn to the mid-west.

Posted by: craigie on March 10, 2006 at 11:57 PM | PERMALINK

I don't know about California (we just think everyone is crazy out there) but in Iowa and Texas all the real estate commissions are paid by the seller. As a buyer, if you decide to buy a home listed by a broker then the seller must pay the commission to the broker (whatever it is) because she has a CONTRACT with the broker to list the house. If you happen to be working with an agent then the two agencies will split the commission, otherwise the selling broker gets the whole, pre-agreeded upon commission. I'm not a lawyer but I can't see how a buyer can bypass the listing contract until it runs out.

If you buy from a FSBO or a fixed-rate broker then the buyer still pays the same price as they would on a brokered deal. What the seller pays will be different in but why should the buyer care?

One thing I have heard repeatedly from various friends who are in real estate as well as the fixed fee broker was that lots of people first list their home as FSBO and wind up listing with a fixed fee agency or a traditional broker after they get sick of hearing it dissed by prospective buyers.

So I repeat, it don't make no never mind how the home is being sold to the buyer except that at least with a broker he has someone with money to sue if the deal gets messed up.

Posted by: thebears on March 11, 2006 at 12:07 AM | PERMALINK

"What other white-collar, service professions are likely to go the way of the Dodo?"

Stock brokers. But that's pretty much happened already.

Posted by: gundryggia on March 11, 2006 at 12:20 AM | PERMALINK

kevinrooney: when the pace of technological change reaches a high enough pitch (ie when we outsource to India

You're confusing people being displaced by technological change with offshore outsourcing. They're quite different.

Without technological change, which inevitably puts some people out of work, we'd still be living in the pre-industrial era (or the stone age). Due to the increasing scarcity of natural resources, we need technological change just to keep up, let alone increase, our standard of living.

By contrast offshore outsourcing serves no such purpose. It's simply labor arbitrage practiced by MNC's - get labor as cheap as you can.

Alex,
Thank you. I was imprecise. I meant physical technology and social technology (such as outsourcing, which requires a new level of global coordination). And yes the two processes are distinct and they support and encourage each other.
My point is that both changes, in technology and in the distribution of work around the world, are beneficial for us, but threaten the social role (job/corporate profits) of specific groups. And the way we are organized as a society puts those groups, from real estate agents to car dealers to Microsoft, in a position where what is good for each individual group is often the opposite of what is good for all of us. When we figure a way to reverse that, we will be much better off.

Posted by: Kevin on March 11, 2006 at 12:38 AM | PERMALINK

Insurance agents. Adjusting gets farmed out to independent contractors, who are already much in evidence.

I'm pretty much of the opinion that any job/function which can be moved to the internet is ripe for outsourcing and that the two trends tend to converge.

Posted by: CFShep on March 11, 2006 at 7:10 AM | PERMALINK

Here in the OC, California, I work with real estate agents on a frequent basis, and I am frequently startled at how horribly inept many of them are. They all advertise as specialists or experts, but many are just greedy boobs who uncritically parrot undigested conventional wisdom and fail to master the details of their trade. The fixed commission system, rising housing prices, and low cost of entry have dramatically raised the number of agents, and most of them are as incompetent as an average Bush political appointee.

I'll grant that there is a great need for expertise in any real estate transaction, but it's not being provided by the current system, and the price is far more than it is worth.

Posted by: Aeolus on March 11, 2006 at 8:38 AM | PERMALINK

I don't like pumping my own gas, I can't imagine wasting my time trying to learn all of the stuff to do to sell a house when there is a good chance I'd make a mistake (yes, I know, they do to, but they can be sued), and I'd rather be doing a billion other things. Nor do I find it fun to spend my time on ebay. Americans are really being trained to spend their time being consumers at every turn, and that includes dicking around on the internet buying stuff. But then, I had a secretary by the time I was 24 and I still don't think it is a convenient or intelligent use of my time to type my own paperwork either. Go ahead, enjoy wasting your life doing your own buying and selling.

Posted by: christine on March 11, 2006 at 8:43 AM | PERMALINK

Anyone who wants to do the short form can just read Art's comment at 11.32 pm. Buying, I always work with an agent because they will let me read last week's multiples and I can get familiar with hundreds of properties in my price range. YMMV.

The FSBO "brand" is already trashed. Just yesterday I drove past some land "For Sale" and I thought- interesting land, but FSBO means it's not really for sale. 95% of the FSBO you check out will be above the market you find in the multiples, and usually the seller is not "motivated".

Shouldn't the internet also use BWOT=big waste of time?

If you don't know what a title company does and how you can write them out of the picture for all eternity, you're probably not ready to be your own agent.

Posted by: serial catowner on March 11, 2006 at 9:18 AM | PERMALINK

Anyway, I say let's put the "pharmacists" out of business. For years they've dispensed a variety of deadly drugs, and drugs that become deadly when wrongly prescribed, like antibiotics for viral flu.

Now suddenly pharmacists don't want to fill birth control prescriptions- well, to h**l with that!

And I'm saying this, not only as an angry patient, but also as an RN who has had lots of opportunity to see just how much help the pharmacist really is.

The simplest thing is to stop buying from your local pharmacy which, trust me, is going to run out of the medication you need just when you need it the most, and buy online. But in addition we need to contact state legislators and demand that online sales be made easier and safer, now that the "pharmacists" are so disastrously failing the big test.

Posted by: serial catowner on March 11, 2006 at 9:25 AM | PERMALINK

Much of this discussion is too absolute - realtor status quo is great, or realtors should become extinct. I think the comments about the inevitable drop from 6% commission to something much lower are right. And it's going to mean a lot of second rate realtors are going to have to find other work (just like travel agents five years ago). Commissions are already pretty negotiable if you are selling your house, though realtors are all required to deny that.

If you live in Seattle, redfin.com is an interesting example of the type of technology that may finally force realtors to give up their 6%. Zillow.com is probably going to roll out services that will do the same, but they have many bugs to work out first.

I've never recovered from selling my first home. I was so irritated giving my realtor 3% for doing relatively little work while giving the lawyers who drafted the contracts got a relatively minor sum from their hourly rates (in New York City most real estate contracts are drafted for each transaction).

Posted by: Drew on March 11, 2006 at 9:35 AM | PERMALINK

Regarding online pharmacies, they may work fine for medicines taken on a regular basis but aren't helpful if you've just gotten a prescription that you need right away. For that, a local pharmacy is essential.
It's sort of like DVD rentals. Netflix is fine if you plan ahead for things you'd like to see. But if it's the evening, you're bored, and decide to watch a DVD tonight, there's no substitute for a local rental store.

Posted by: Peter on March 11, 2006 at 11:15 AM | PERMALINK

I don't like pumping my own gas, . . .Posted by: christine

Can you cook? Do laundry? Mow the lawn? Shop for yourself?

Like self check-out at the grocery store, self-serve gas is definitely a time saver. Nothing chaps my ass more than having to wait, and wait sometimes, to get a petrol fill up in Oregon. Stupid.

Posted by: JeffII on March 11, 2006 at 12:35 PM | PERMALINK

Let's see.I really don't care for real estate agents as a group.But most people as a group suck.There's good individuals in any group.How many houses have any of you purchased or sold.Real estate agents have usually done many transactions which is why they have value.The same as doctors and other professionals.Thats the word professionals.In you want a job done well you go to a pro.Title companies provide services that individuals really can't do
themselves,like providing title exams and title insurance.So maybe we could start by getting rid of all the lawyers.Oh by the way that commission you guys talk about is normally split by the listing agent and the selling agent unless by chance there one in the same person.

Posted by: frodo on March 11, 2006 at 1:08 PM | PERMALINK

As a former real estate broker (every kind of real estate you can imagine) I can tell you most real estate people more than earn their commissions.

There are easy deals, and then there are very time consuming and difficult ones. The fixed commision structure makes no distinction between them, it seems to average out to a fair wage (most of the time).

I live in California and residential real estate transactions have become much more complicated (mainly because of detailed disclosure laws) over recent years. The relatively low entry level requirements for a license results, in my opinion, in some clients winding up with a 'greedy boob' for an agent. The successful agents, and I mean successful over the long term, are hard working professionals who bring a lot of talent to an increasingly complicated transaction, and sales, process.

Most of the posts here that talk about how easy it is to work without an agent were coming from the buying side, not the selling side. Not surprising. It's the sellers who get the most benefit from using a realtor, and who are usually responsible for paying the commission.

Successful real estate people work long hours, most weekends, and are only paid if the sale in completed. Not a lot of people are willing to work that hard, and pay desk fees, etc, with no guarantee of payment.

As for title companies, at least here in California the competition between them is fierce. If they don't perform in both courtesy and result, they don't get business. Successful real estate people almost always have close working relationships with certain escrow officers that are based on quality of service, service that directly transfers to the clients.

Some people can build their own houses, boats, etc. Most people prefer to hand over the time (and frustration) to a professional and get it done faster and easier. No doubt new information systems are changing the business, but those systems do not, and will not, eliminate the human need for an intermediary.


Posted by: OtterBill on March 11, 2006 at 3:52 PM | PERMALINK

In Freakonomics there is a chapter on real estate agents. Basically it is not in the agents economic interest to get the seller the best possible price. 20K extra for the seller is only $300 for the agent. Agents want to get you a decent price but really they want to move your house quickly. When agents sell their own homes, the houses stay on the market longer and sell for higher than when they sell clients homes.

Posted by: 6% for what on March 12, 2006 at 10:53 PM | PERMALINK

Real estate agents aren't going anywhere, and the freakonomics author is a wingnut. I've interacted with him directly, and he's hardly one of the best and the brightest. He's very reactionary, actually.

Posted by: Jimm on March 13, 2006 at 3:08 AM | PERMALINK




 

 

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