5.14.2007

Be Careful What You Ask For- the Flip Side of the Redfin Argument

GUEST ARTICLE by That Real Estate Guy

It should be noted and stated loudly that the same folks who would bring down the NAR or redefine the industry as they put it are the same people who hate and want to bring down Wal-Mart. Not sure what I mean? I’ll explain…

WAL-MART

Before Wal-Mart, the streets were lined with mom and pop shops- from the corner drugstore to the large department stores that had been family owned and operated for years in their communities. When Wal-Mart came along, the nation rejoiced and flocked to the big discount store to buy many of the same products they were getting at the stores I just described, but they were obviously lower quality, lower quantity; you name it, it was lower than just the price. Little by little, the old mom and pops fell off one by one. This phenomenon has been noted on popular shows and your local news. You’ve seen it for yourself when you visit your old hometown only to see the old fashioned drug store sitting vacant on the corner. The reality was explained away on major news networks as capitalism at its best, and the way of the world much the way CBS has done.

NAR is much the same as the mom and pops as the National Association of Realtors is made up of 1.3 million independent contractors (every day average people, mostly sole-proprietors) who already work to the advantage of their individual clients. Realtors assess the situations of all clients and are generally reasonable with them in their listing or buyer commissions. Realtors negotiate their price and sometimes settle with a reduced commission to build a stronger trust with the client because the clients’ needs were put first.

Mom and pops of yesteryear were much the same way. They knew their clients personally and by name most of the time, and knew when the O’Brians needed a helping hand and let them pick up a few essentials on credit until next month. The O’Brians would be grateful and would remain customers for life.

Somehow today, the same folks that would redefine our industry are the same folks who hate what Wal-Mart has done to the landscape of downtown main street- they’ve basically rendered them useless as the independent owner could not compete at volume discount pricing. The Anti-Wal-Mart lobby jeers at the idea of “one more Wal-Mart” while the Capitalists applaud. Slowly over time, the competition has faded away and we really aren’t sure if we’re getting every day low prices at the Wal-Mart because we really have nothing to compare it to. We simply have to pay for quality.

But again, the Anti-Wal-Mart Klan would have you believe that tearing down the network of 1.3 million independent contractors of the Real Estate Industry would fix what may or may not be wrong with it. I would argue that the industry is fine. There is room for argument about real estate practices (such as the argument of dual agency), but fundamentally, the industry could not be more diverse in its current state. Another example of this phenomenon is the oil industry. I remember when independent gas stations were competitive and abundant, creating the kind of competition that kept prices in line. Today, we have roughly five major suppliers around our cities basically deciding what we pay. Let’s face it, tearing down the independents of our country is fast becoming the way of the land; and to be honest, it is scary. Last I checked, there are no discount gas stations opening up, nor an outrage over the fact that real gouging is taking place on a daily basis. Are we going to continue this vicious cycle? I pray not.

THE MEDIA SPIN

I would say to online vendors such as Redfin, pay your dues- your Realtor dues. Be a member of the Board and agree to the CODE OF ETHICS and we’ll work with and trust you; join the list of the already competitive 1.3 MILLION independents in the industry. Work within the guidelines that have already proven to work countless times a day when Buyers and Sellers shop their list of local professionals and make their choice based on their needs. The bottom line of what this is all about is that companies like Redfin want to practice real estate without paying to be a Realtor and following the Code of Ethics. I noticed this was omitted.

The title of the 60 Minutes Story says it all about the spin that the media has already begun to spew- (“Chipping Away at The Realtors’ 6%”). The last time I checked, I only charge 3% of the transaction, and the buyer’s side (the other Realtor) charges 3%. So you aren’t chipping away at 6%, you’re simply chipping away at my little old 3% that I earned by being married to my client for 30, 45, 60, or 120 days or more. You’re chipping away at my ability to earn the trust of my individual clients (the O’Brians) by giving them back what I see is needed to make a sale work. When bringing a buyer to the table, many listing agents already discount the buyer’s side anyway, so the Redfin argument is moot on the so-called 6%.

CBS was also bias in the fact that it brought one couple from the discount side, versus clients from the 1.3 Million agents around the country to say exactly the same, only at least 1.3 millions times over. Another telling moment of the interview was: "Redfin very proudly says that they returned in rebates $3 million last year to its buyers," Stahl remarks. "You can't boast of anything like that." "Absolutely not," Arends acknowledges. "I don't know how to answer that one." I have the answer to this question- ONE POINT THREE MILLION INDEPENDENT AGENTS can boast a hell of a lot more than 3 Million dollars saved- we save it in equity at purchase, we save it in profit at sale, and you know what? We save it in rebates too. I’ll need a bigger calculator for that one….

Redfin is a tic tac in scale to 1.3 million Realtors in the United States, who are all independent voices and advocates for their clients- and Redfin aims to “redefine” 1.3 Million small businesses, 1.3 Million opinions, 1.3 Million consumer advocates that proudly stand up for their clients daily! Are you kidding me? We don’t need to defend ourselves. The DOJ needs to buck up and get the fact that 1.3 Million voters/agents/human beings make up NAR and those 1.3 Million voices know a little more about “the O’Brians” than a faceless machine that is designed to spend even less focus on consumer advocacy- the small fraction of those complaining or having problems with Realtors are guarded by the local Boards and Real Estate Commissions, we are already held to a higher standard than those that are not members of the Board and believe me, we are held to account!

Commission levels of 3% (standard in Texas) per agent were set to protect consumers from gouging. In the past, that number has remained the standard regardless of the market or home prices. With the home prices spiking, protecting the seller’s equity has become even trickier and even more needed. Realtors have never been MORE needed, yet all we hear is how they need to reduce agent income. If your profit margin on your home is $80 grand, then why are we debating over $2,400- how is that a price gouge? If I had $80k to net on my home, the last thing I would be doing is attempting to go it Wal-Mart style.

REFORM: Redfins needs reform to be able to compete with 1.3 Million agents that make up NAR

Redfin does not scare me nearly as much as this so-called reform many say this industry needs. Why does it need to be reformed? The reality is, the MLS is a product of NAR- not an open source code for any and all to access, much like Zillow’s product offered. Let them build and develop their product the way NAR has done.

Imagine a world with five different NARs and you have the world as envisioned by Redfin. Are you telling me that Redfin is going to allow the other four Redfin-type companies to list on their version of the MLS? Consumers are not best served by this business model that forces home buyers to search four, five, maybe six online listing systems. It’s like the BCS- the MLS may not be the best system in the entire world, but it does work!

CLOSING

NAR represents 1.3 million diverse independent contractors that practice real estate under one code of ethics and one common application of fair Real Estate practices that safe guards consumers. The alternative is to “redefine” ourselves into a corner where we go back to having numerous Listing Services, a lack of industry standards and an overall discord in Real Estate. The alternative is not even viable.

I would suggest that all Realtors throw away the talking points and simply say that all 1.3 Million of us already guard your interest, less than 100 say otherwise.

NAR is not something you just change without affecting the 1.3 Million Mom and Pop voices (who only average $47,700 per year) within it; you don’t just do that because a tic tac says so.

Be careful what you ask for!
That Austin Real Estate Guy

15 comments:

Austin Realtor's Wife... said...

TREG-

I agree completely! The 1.3 million Realtors in America (which doesn't even take into account the commercial agents or Real Estate Agents who aren't NAR affiliated) should use THIS as their talking points memo, not the halphazard notes issued previously.

You're right- Redfin's not dangerous, they should simply have to compete FAIRLY with other Realtors- they should follow the same code of ethics, pay the same dues and use the current MLS system.

Thanks for guest writing- great article!

J.Fin said...

WELL SAID! I too agree that this should be the quintessential memo for Realtors- get the word out that (1) Redfin is NOT a competitor, they're just playing unfairly (and the Dpt of Justice is promoting it), (2) Redfin IS like Wal-Mart- low prices, low service. What'd people expect- to pay less and get more? Riiight.

Austin Realtor's Wife... said...

http://activerain.com/blogsview/98623/-CBS-News-Magazine Mike talks about the egregious factual errors in the CBS piece- worth the read!

Anonymous said...

Wow! why did CBS not interview you? It never really struck me that NAR is 1.3 million individual businesses. Point well taken. I guess one could say you really should shop around for the best Realtor- oh,they do say that! I can totally relate the wal-mart/oil company idea, its so true!

Anonymous said...

It is precisely your "why should WE reform" attitude that had Mom and Pop filling out job applications at WalMart. The so-called "quality service" that you claim is lost from redfin is tantamount to a tic tac freshening a septic tank. The NAR business model has always been based on coercion; that buyers and sellers do not have complete information on homes and therefore need agents. In the internet age, all that agents can do is exactly what the label on an Advil bottle can do. The difference is that now the NAR cartel cannot horde complete information from consumers and is scrambling to counter websites like redfin and buyside. The 6% model is dying and it is only going to become easier, popular and more cost effective for consumers to use these websites. Unlike mom and pop the internet isn't going away anytime soon, because saving money is always in style.

Austin Realtor's Wife... said...
This comment has been removed by the author.
Austin Realtor's Wife... said...

>The NAR business model

NAR is not a business model, it is an association made up of 1.3 million independent Realtors (including discount brokerages). I don't think the author's point was that discount brokerages are bad, rather they offer less.

>The so-called "quality service" that you claim is lost from redfin

There was no mention of anything wrong with Redfin other than the fact that they want to practice real estate without conforming to a CODE OF ETHICS or paying Realtor dues. If they play nicely, they could be great competitors in the world of cut-throat discount brokerages which will eventually cut each others' throats, leaving the full service brokerages standing.

Aww- your verbage sounds eerily familiar and I'm pretty sure I know who you are. How cute- what a cute little tic tac Spinner you are- thanks for stopping by and contributing your one cent! :)

rsmLifestyles said...

Beautiful post. As one of the 1.3 million club I appreciate your clear cut analogies. With the possible exception of your statement regarding the BCS, you've got it right! But since this isn't a Pac 10 Football issue, I'm willing to let that one slide. Fair competition between agents is a great thing. For the consumer's sake I hope it stays that way.

TREG said...

Awesome, I am glad you read the details. Regarding the BCS, we cannot always agree! Gah!

But thanks for the note, send your friends to read it, I hope it helps to put some things in context for all who are not so in the loop.

TREG

Reid Stewart said...

We will be distributing this article to our agents as required reading. We frequently read news and select a monthly "required reading" article. Thanks for the clear writing- the team will love it!

prime_minister said...

This is my first time in the RE (buyers) market. My criticisms of agent compensation are rooted in the understanding that a (physical) buyers agent can only do minimally more than what I can do, but at a 3% clip. I actually enjoy searching for houses, and with the multitude of web services available I feel it is unnecessary to use a buyers agent. However, if I make an offer on a home and the seller is using an agent then I am penalized to the point of paying their agent twice over (or using dual agency). And, if I found a FSBO (non co-op) home and tell my buyer agent to show it then I am the one who has to pay him off, right? Where is the incentive for a buyer to NOT use an agent?

With buyside, they act as merely a liaison/secretary between myself and the seller, but at a much more reasonable cost. Sure, they don’t email me MLS listings in the area/price range that I want but that information is easily found on sites like trulia and google base. What code of ethics is needed to simply supervise a transaction? What amount of service do I lose by using a web-based buying agent? Probably not much, but the rebate that I gain by doing this simple work myself will essentially lower the price of the house, allow for instant upgrades or cover closing costs.

I’m pretty sure you don’t know who I am; I followed a link on bloodhound. Even though I don’t agree with your post, I appreciate your passion for the work and understand that this type of dialogue is both healthy and necessary as the RE industry transforms. --tictac

kris said...

>With buyside, they act as merely a liaison/secretary between myself and the seller, but at a much more reasonable cost.

If a secretary is what you want, then you and buyside will be very happy together.

>but the rebate that I gain by doing this simple work myself will essentially lower the price of the house.

You keep telling yourself that, because I highly suspect that your "secretary" has not broken a sweat studying your local market, advising you on market trends and comparable sales, or explaining the differences in those comps based on their past personal viewings of those homes. How hard did your secretary pound the negotiating table on your behalf to get you the best price? By the way, did your secretary happen to mention that the home you just bought resides in a subdivision with a history of cracked slabs, cut trusses, or polybutelene plumbing? What's that? It doesn't matter, just think of how much you "saved". By the way, you probably didn't know this, because your secretary was unaware (too busy taking another order in triplicate from a guy in Duluth), but the home you really wanted just sold without even hitting the MLS and the on-line sites in your Favorites folder because the agents put their respective clients together and negotiated a sale prior to MLS entry. You may call it collusion, but we call it a professional network. No worries, just remember how much you saved.

The "simple work" to which you refer looks simple when things go smoothly. Have you ever seen a home burn to the ground during escrow, a principal die before the deed was transfered, non-disclosure challenges involving neighborhood sex offenders, mold, or past structural issues? I have. Your secretary would have had their hands full!

For the record, PM, Anonymous, or whatever your moniker du jour may be, I have no issue with you or any buyer opting for the do-it-yourself route. You may perceive value and savings using your Girl or Guy Friday, and that's great - for you. Many others will understand that success, savings and value are not simply measured by one's fee for services. Having a "supervisor" for your transaction may be adequate for you. Others, believe it or not, appreciate the knowledge, experience and expertise a fiduciary brings to the table. This is what makes the world go round.

Your secretary doesn't know you or the names of your children or your pets, and they don't really care. You may not care either, and that's okay. They do not care about your future business because they, personally, will never hear from you again. When your next email comes in, they will be busy filling in blanks for that Duluth fellow and your order will be routed to the next available operator. You may not care, and that's okay.

There have always been discount agents, and there always will be. I respect your decision, but in return I do not think it inappropriate that you respect the work I do and my chosen business model.

TREG said...

PM
I can appreciate that you can search google, trulia- ever wonder who lists those homes there? Ever wonder who busted their butt getting listings to list there? Ever wonder who took the pictures? Scheduled the virtual tours, ever wonder why you can even find homes online? You guessed it. Because we put them there- Realtors

Oh, and by the way, I hate to bust your bubble, but Realtors invented the discount Brokerage. You were right when you said saving money will never go out of style, we've been saving people money for generations, and yes, even at a discount.

Thanks.
TREG

P.S. NAR is still not a business model. NAR is 1.3 Million business models.

prime_minister said...
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prime_minister said...

>I highly suspect that your "secretary" has not broken a sweat studying your local market, advising you on market trends and comparable sales, or explaining the differences in those comps based on their past personal viewings of those homes. How hard did your secretary pound the negotiating table on your behalf to get you the best price?

This is the argument that I disagree with most. First of all, comparables, trends and other local market info is all available on the web. A well-informed person can make a sound judgment on how much they believe the house is worth given market conditions, comparables, etc on their own. Second, the decision to accept an offer is made solely by the seller and I doubt that any buyer agent can affect the absolute lowest figure a seller will accept. What my secretary will do, however, is inform me of counteroffers, communicate with selling agents to work out differences and me give the requisite advice, just as any pricier agent would. These arguments are backed up with NAR statistics (2006): 53% of buyers want “help in finding a home” from an agent, while only a combined 21% want “help with price negotiations and paperwork.” People know how much they are willing to spend, and if an agreement cannot be made they simply move on (especially now, with so many homes on the market). It sounds like the deficiency in this industry is that people are unable to locate homes on their own. But, with the internet…

> By the way, did your secretary happen to mention that the home you just bought resides in a subdivision with a history of cracked slabs, cut trusses, or polybutelene plumbing?

Would that not be included in the home inspection? If not, I see that as the only advantage that a traditional agent could provide. However, that information would come from some kind of database and thus available to any type of agent, traditional or not.

> the home you really wanted just sold without even hitting the MLS…because the agents put their respective clients together and negotiated a sale prior to MLS entry.

I’m not sure where you live, but in most of the country it’s a buyers market. If what you described is a common practice then so be it, but there are many homes to choose from and ignorance is bliss.

> The "simple work" to which you refer looks simple when things go smoothly. Have you ever seen a home burn to the ground during escrow, a principal die before the deed was transfered, non-disclosure challenges involving neighborhood sex offenders, mold, or past structural issues?

Mold and structural issues would be noted on the home inspection and would be dealt with before the transaction takes place. Web agents see this paperwork just as traditional buyer agents do, and if need be, specific discrepancies can be shown to buyers via the seller’s agent. As far as your other “doomsday” scenarios, my current home is just as likely to burn down, and we’re all dying, right? Why worry about things that are a) unlikely to happen and b) controllable by no one?


I understand that we simply have a difference of opinion – you believe the value added when using a traditional buyers agent offsets the financial gains of web-based agents (or is not worth any perceived risk). Some people will pay for the former and other people will save from the latter. But to imply that discount brokerages will not have their client’s best interests in mind is irresponsible. For any licensed professional, a relationship is driven by the desire to both earn a profit and have a satisfied customer. The entrepreneurs who started these rebate websites have every incentive to create customers for life and keep a good reputation, especially in such a budding niche of the market. The reason we are having the discussion, however, is because the amount of true work and information that is needed for anyone to purchase a home has become extremely reduced. The “you get what you pay for” argument in the industry is becoming less and less credible as the quality and quantity of information available on the web continues to grow.