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March 10, 2006
On the Future of Real Estate Agents
In last Sunday's NYT Magazine devoted entirely to real estate, the authors of Freakonomics argued for the inevitable extinction of real estate agents:
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.
Trulia CEO Pete Flint couldn't disagree more:
At the end of the day, we still need a professional to help us make sense of all the information available to us both off and online and to carry out all the duties necessary when buying or selling a home. Ask yourself this, do you really have time to learn an entirely new profession on top of your own life responsibilities to buy or sell one house? How much is your time worth? I have looked at the data and crunched the numbers. At the end of the day, the real estate agent is worth every penny.
Let the debate begin.
Freakonomics in Real Estate [John Cook's Venture Blog]
Endangered Species [NYT Magazine]
Comments
I think RE Agents will always be around but their role may shift. As buyers and sellers have more tools at their disposal I believe that the role of a real estate agent will be more more varied. In addition to full service, piecemeal services will be offered to supplement the work that one will do on their own.
I also think that the fee structure may change drastically. We are starting to see this already as many brokers will list a place for less than 6%. I think there will continue to be downward pressure on the commission structure if prices stay high as more people question the value they are getting for a $30k, $40k, $50k+ commission.
Posted by: Anonymous at March 10, 2006 9:27 AM
Real estate brokerage may be yet another service that splits between a high-end, luxury, boutique, etc. level of service where you pay for quality and a low-end, discount, bare-bones level of service on the cheap.
Posted by: DN at March 10, 2006 9:31 AM
I THINK THE REAL QUESTION IS, "WHY DO MOST BROKERS STILL LIVE WITH THEIR MOMS?"
Posted by: FREAK at March 10, 2006 9:38 AM
It's not all about 'looking at the data' and 'crunching the numbers'. One reason some people in NYC are not interested in working with brokers is due to the petty, sleazy tactics which they often resort to (pressuring people to sign quickly, threatening to find another buyer, providing misinformation, etc). While you can argue all day about their their ability to sell an apt for a higher price, more quickly, etc. the broker community has to face the problems which exist in their practices. And how they contribute to a truly unpleasant, chaotic and unnecessarily frustrating experience for buyers and sellers alike.
Posted by: Anonymous at March 10, 2006 9:48 AM
I think that the NYT article makes it very clear that, whether you think real estate agents and the services they provide are worthwhile or not, they are most certainly not "worth every penny" of a 6% commission. A lesser commission, perhaps.
Posted by: naomi at March 10, 2006 9:54 AM
just my opinion but i feel like every real estate agent i have worked with were not very educated. I also felt that i had a greater knowledge of the local real estate market than they did. Overall i hate to say this but 90% of real estate agents are not that swift and really should be working in Mcdonalds.
Posted by: sebbie at March 10, 2006 10:25 AM
ditto 10:25
Posted by: Anonymous at March 10, 2006 10:33 AM
The problem is that since the boom every one got a Real Estate License and there are a lot more brokers/RE agent out there. So many people end up with a bad agent. I do think there are still many good agents out there who know the market and know the area they are selling. But many Sellers have also become very greedy and are blown away by some of these fancy sales pitch and brokers giving them big #'s that they ended up going with a agent who is full of hot air. I always think stick with the Realtor who knows the area. In Brooklyn we are now starting to see Manhattan Brokers comes to Brooklyn..
Posted by: Anonymous at March 10, 2006 10:50 AM
Can't be bothered to look it up, but isn't Trulia a real estate, zillowish thing on the West Coast looking to take over the world? I'm certain this guy is just being smart and not looking to call out the REBNY and their cousins. Like when Travelocity and Expedia said, "Oh, there will always be a place for travel agents" and then laughed all the way home.
Posted by: Anonymous at March 10, 2006 10:50 AM
There is no question the effect that the internet has in increasing consumer knowledge of the market. Even reading the NYTimes every week I wasn't able to keep up with the market price in each neighborhood in the way I can with the mapping programs like Trulia. (I'm sure it helps that prices are rising more slowly than they were a year ago...)
Once you don't need a realtor to set a good price there is really not much more you need them for except for that 'exclusive cache' that comes with being on the Corcoran listings. It's impossible for me to believe that Corcoran is going to get me a sales price 30-40K higher than I can on my own. (Especially considering the Freakonomics arguments of how agents actually undercut the seller's position in order to expedite a sale at any price- a practice I've witnessed first hand.)
Posted by: Preston at March 10, 2006 11:16 AM
anonymous 10:50:
Surely it's quicker to type 'trulia.com' than the paragraph you just posted...
Posted by: Preston at March 10, 2006 11:17 AM
Some people can and will and always have successfully been able to sell their own properties. I have twice. And once through a realtor.
Have never bought a FSBO - in 4 purchases.
No way a good percentage of people would be able to market, show, negotiate and deal with all the legal forms alone - without a realtor.
Also success in selling on own is the quality of product you are selling and the market you are selling into.
Posted by: Anonymous at March 10, 2006 11:25 AM
11:25-
I feel the same way- I can't imagine using a broker to sell but I appreciate a broker when I'm buying. Rightly or wrongly I believe that certain agencies have weeded out some of the crap that you come to expect (rightly or wrongly) when it's FSBO.
I suppose that perception of lower quality on FSBO will change as it grows in popularity.
Posted by: Preston at March 10, 2006 11:46 AM
With real estate prices as high as they are in NYC, the 6% commission is absolutely absurd. Even 3% is rediculous. I just can't think of any other job where people can make so much money by doing so little - and this is pretty much unskilled labor!
In some parts of upstate NY, houses average $60,000 or less. And brokers are doing just fine up there making their $3600 commission.
The difference is, now in NYC, everybody and their dogs are real estate brokers. Everyone is chasing those big commissions, so a lot of people I would guess aren't making any money at all.
Furthermore, do we, as a society, want so many people working as real estate brokers? Wouldn't it be better if these people were doing jobs where they actually produced something?
Posted by: veggieburger at March 10, 2006 11:55 AM
I dislike most brokers because of their sleeziness but think that there is probably going to be a place for them always. You are never going to purchase a house by looking up the description on the internet and ploping your credit card number. Someone will always be needed to show the house, screen the potential buyers for those just kicking the tires, do a qualitative analysis of the sales price etc.
Unfotunately, I think that its a service is worth about $30-$40 per hour in today's labour market (assuming you need a slighly intelligent person to do the job, but no rocket scientist). That is in my view how brokers should be compensated. Certainly not the $30, $40 or $50 thousand that the brokers charge on a $1,000,000 place. By the way, I am trying to sell my place and just love how the brokers tout the 6% numbers like that is still the norm . I am also a lawyer, by the way, and see real estate transactions regularly. The norm I have seen is 3% for exclusives, and 4% for co-brokes. I wouldn't even start discussing the situation with any broker that starts off telling me that 6% is the norm, but that they will cut me a deal at 5% -- they are clearly just out to rip you off and will probably conduct the negotiations in a way that sells you down the river.
Posted by: Anon at March 10, 2006 12:01 PM
11:17: I do indeed know what the site looks like, just not what their business plan looks like. I'm in VC so when I meant "look it up", I meant do a little digging. Trust me, that takes longer than writing a few sentences. - anon 10:50
Posted by: Anonymous at March 10, 2006 12:04 PM
I sold my last building for $65,000 more than the brokers were telling me it was worth using Craigslist. And I didn't have to pay a commission!
Posted by: veggieburger at March 10, 2006 12:04 PM
I sold a building for a guy who tried (and failed) to sell it on his own. I got him more money then he'd hoped for AND my commission! Yee-ha. That's the way it's supposed to work...
Posted by: Anonymous at March 10, 2006 1:34 PM
When we bought our place in Flatbush in 1986, I remember wondering at closing why the seller didn't just cry or rant or jump across the table and strangle the RE agent, who did absolutely nothing but drive us up to "our" wreck of a house in his scuzzy old car and mope silently while we looked around...but that was a lot more than the OTHER agent did (the one with the "listing agency," whom we'd never met until closing)...he did absolutely NOTHING! (except, possibly, type the listing out once or twice). They split the nice fat fee, and it was the easiest $ I've ever seen anyone make (except maybe those lucky folks that sink a basketball for a big prize)...
Posted by: Brenda at March 10, 2006 3:13 PM
The Freakonomics argument is idiotic. They completely disregard the fact that any broker worth their price is more focused on repeat business (and therefore getting the best deal for their client) than on selling a house at any price. And if people can't find a good broker, that's their own problem.... not an inherent problem with brokers.
Posted by: Anonymous at March 10, 2006 3:28 PM
What bull. 6% is an outrageous sum for adding a boring-looking, usually incomplete listing on a broker website and setting up some ads on Craigslists and the NYTimes. I could do that much myself ("learn a whole new profession?? my friend became a broker and got a couple fat commissions on high-six-figure sales within four months! the only thing to "learn" is how to network to get listings), and anything else could be handled by an appraiser and a real estate lawyer, both of which will be necessary anyway and both of which can be hired for a nominal (FIXED) fee. even more so than lawyers, real estate agents really are "walking transaction costs," making the market less efficient - as well as artificially inflating prices due to the nature of the commission. We need to pas legislation to free up the information that brokers have, so that others may introduce some competition into the market, and the broker can go the way of the Dodo.
Posted by: Anonymous at March 10, 2006 4:02 PM
If you sell your place on your own,I suggest offering a flat commission to buyers' agents of 2%.
That way you don't miss out on potential customers who don't surf the web (or NY Times) themselves.
Of course, if you get two offers, one with broker and the other without, if the prices are equal, you can pick the no broker option and pay no commission.
Posted by: Ebomb at March 10, 2006 5:43 PM
Most of the people who try real estate brokerage last about 6 months. And most real estate agents aren't backing up the Brinks truck. This is a tough, TOUGH job. I don't hear anyone complaining about 26-year-olds making $500,000 bonuses on Wall St. Real estate agents are lucky if they make $60,000 a year. The ones that make over $100,000 a year? It ain't luck. Skills, baby. And the worst, least-ethical behavior I've seen on this job? Buyers. Buyers are liars.
Posted by: Anonymous at March 10, 2006 5:58 PM
anon 5:58,
Do you have ANY examples of when buyers were less ethical than real estate agents?
Posted by: veggieburger at March 10, 2006 7:57 PM
Sure. Are you aware of how often buyers will move forward on two accepted offers? Or how about this one: A buyer I dealt with recently came out on top in a bidding war. It took a while to get the contract over to his attorney. The day the contract landed on his attorney's desk, the buyer lowers his offer by $30,000. His bidding war competition was long gone.
Nice. Do you know how many bald-faced lies I've seen on co-op applications?
Sure, there are some scum bag real estate agents out there. Most of the people I've worked with in this industry are honest and hard working. It's my opinion that people are hugely insecure about real estate transactions (it's the most expensive thing most people will ever own); naturally and understandably, people freak out about real estate deals. Everyone's convinced they either bought too high, or sold too low. Who's fault is it? The real estate agent, of course...
Posted by: Anonymous at March 10, 2006 9:35 PM
it is fascinating to me how every single profession in our society is castigated and hated. real estate brokers, lawyers, wall street bankers, teachers (we don't pay them enough), doctors (if they make a mistake), what profession is loved? writers, well james frey showed us what a real liar is, so please please leave real estate brokers alone, everyone is just trying to survive and you will find bad apples in every single profession out there, including stay at home mom's, priests and rabbis.
Posted by: Anonymous at March 10, 2006 11:34 PM
Well said!
Posted by: Anonymous at March 11, 2006 5:30 PM
Do brokers in and around park slope use mls listings yet??
Posted by: Anonymous at March 11, 2006 11:51 PM
Please don't group lawyers and doctors with brokers. I don't know that they are all "professions." Clearly all are occupations, but only two of those are professions. A 2 month real estate course does not a profession make.
Posted by: anon at March 12, 2006 6:28 PM
I am a real estate broker in Salt Lake City and I'll let you know my perspective...
First, there are major differences between agents and brokerages. A good brokerage puts the client first and centers all of their business practices around providing the very best service for their clients. In my market I believe the brokerage I work for is the only one that does, but that's a different discussion. It sounds like many of you have worked with agents who were not good agents.
Good agents fight to protect property rights and lobby the local legislatures about taxes and low income housing. They also get very involved with city planning and expansion efforts. They help their communites with awareness campaigns and organizing local charity events. Good agents do much more than market homes. They make their communities better by being involved in many ways.
As far as selling homes. Good agents don't sell homes. No agents do. Only a home owner can sell a home. Good agents help to establish the very highest price a homeowner can sell for. They don't try to sell a home as fast as possible. Agents who sell homes the fastest also probably list them for less than they should. Good agents help the owner establish the highest possible price.
Then the good agent markets the home everywhere possible. Not just on the MLS system. The MLS helps other agents and even the public (through websites feeding off the MLS) find homes for sale. But the good agent also markets through magazines, newspaper ads, "Just Listed" postcards, open houses, virtual tours, networking with other agents, signs and sign directionals and riders, interior design consultation, color flyers, and prominent and enhanced placement on the top real estate websites.
Then the order a preliminary title report to check easements, encroachments, judgements and liens that may be on the property so they can help the seller deal with those issues (hopefully before an offer is presented). They go through the disclosures with seller and make sure all the paperwork is handled.
Then they take calls and emails every day, including nights and weekends, about the property. Sometimes one home can generate over 100 calls per day from neighbors (yes, they call often), buyers, and other agents. This includes setting up showings, scheduling tours, getting feedback from buyer's agents about what their clients thought of the property, and much more.
Once an offer is presented they help negotiate the price and terms, they schedule inspections and appraisals and disclosures being signed and addenda- all the way through closing. And if the property does not close for some reason, even after months of work, the agent does not receive any compensation.
After closing a good agent still takes calls. Calls from appraisers wanting information about the property for use in their appraisals, calls from neighbors, calls when their are any problems after the buyer moves in (and this happens all the time). The good agent also helps a client through any mediation, arbitration or litigation that arises from the sale of the property, providing paperwork, written phone logs, inspection information, and such.
Good Realtors have value for home sellers, buyers, and everyone else who enjoys better city planning, lower property taxes, property rights, providing low income housing, or for anyone who enjoys the appreciation in price or quality of life they are receiving by buying the right home with the help of a good real estate professional.
Posted by: Greg at March 12, 2006 8:04 PM
WHY THIS DOESN'T APPLY TO NY REAL ESTATE: Keep in mind that New York City (and brownstone Brooklyn) does not have the MLS (Multiple Listing Service) database that realtors across the country use. That means that buyers and the agents working with them have a hard time knowing what’s out there. A lot of the smaller, older realty companies (the ones that would offer to list your property for less than 6%) do not “co-broke” or share your listing with other agencies (that way they hope to make up the extra percentage by bringing the buyer themselves). The smaller companies, however, do not have the money for a decent website (a must for attracting buyers), floor plans, professional pictures, etc. – all of which are vital to getting exposure – and eventually the highest price. For coops – forget it! There much more involved than just getting the price you want. The most important being substantiating the finances of your potential buyer – it is all to easy to let a month or so pass from offer to submission of the board package only to find out that the buyer doesn’t have the money in the bank, etc. Your home is often the biggest financial investment you will make – and there are many horrible, costly pitfalls that can come from trying to sell your place yourself especially in this softening market. My family has been in the business for years, so I know. By the end of the day, a good real estate agent from a good company will more than earn your business -whether by finessing potential buyers into a bidding war or taking your frantic call at 9pm when they’re trying to put their kids to bed. Keep in mind that the huge increases we’ve seen in our property values has in large part been driven by the realtors. Taking 6% off the top for someone who has gotten you your asking price or more (Corcoran recently got me $30K over ask for my coop) is a fair price for their efforts.
Posted by: Cindlewhite at March 14, 2006 1:18 PM
Main Entry: pro·fes·sion
Pronunciation: pr&-'fesh-&n
Function: noun
1 : a calling requiring specialized knowledge
Whether it takes two months or two years being a real estate broker is a profession which does require specialized knowledge.
Perhaps you all have dealt with terrible brokers but like I said you probably had a terrible experience with a doctor, lawyer, teacher, or the worst a priest GOD forbid.
Posted by: Anonymous at March 14, 2006 4:19 PM
I think real estate agents earn every dollar they get. Many deals fall apart after hours, days, weeks even months of work.
Boston Real Estate
Posted by: Janet at March 15, 2006 5:08 PM
I am shocked by how bitter some of you seem. You sound like you stink at sensing people or you live in a world of stereotypes. Have you been so stupid to get burned by these "sleaze bag brokers" over and over? No one to blame but yourself. Every profession has idiots. Real Estate is a profession. School does not a profession make and some families purses don't run that deep. Work ethic, knowledge, dedication and heart ,ake a profession. I am a free lance artist, with a BA and an MFA who was told I would never be able to own on my income. I now own in Ditmas Park, Brooklyn and Beacon, NY and half the time I am considered middle to lower class economically. Now I want to help other artists and lower income families find housing and to educate them on how important it is for us. I have a college degree, am very well read, compassionate and truly believe in maintaining a neighborhood's uniqueness. I bust my butt for every client (my part time job has become full-time) and I devote week after week after week of time, energy, being a therapist and negotiating for people to make sure they have the best possible experience. My homes are all I truly have investment wise and they are my havens in this NYC. I've read a ton of great comments and all of those seem like have they a greater knowledge of the business and well, people in general. Please educate yourself on what you're talking about before you make these sweeping generalizations. Be a true radical.
Posted by: t at March 15, 2006 11:54 PM
I'm a Realtor in Richmond, VA and I'm in absolute shock to read some of the ignorant comments people have made about Realtors. I have to agree with other agents who have posted on this site. People hate the fact that they get up and punch the clock everyday, while the Supervisor tells them when to take a bathroom break and eat their lunch. People hate Realtors, lawyers, doctors, and NBA stars for one simple reason; they wish they could do what we do! The fact of the matter is I love my lawyer and doctor and I've even dated someone in the NBA! Like minds attract! If you think all Realtors are stupid, scum-bags, and worthless, mabye you should take a deeper look in the mirror, because after all, it was you that attracted and trusted that Realtor.
Posted by: Anonymous at March 21, 2006 10:14 PM
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