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Imagine There Are No Agents


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2007 Jul 8, 2:09pm   10,240 views  101 comments

by Patrick   ➕follow (61)   💰tip   ignore  

imagine

Imagine there are no real estate agents anymore. Just buyers and sellers directly dealing with each other, with maybe a clerk/lawyer who handles all the transaction paperwork for $500.

Buyers and sellers would be richer by tens or hundreds of billions of dollars currently burned for the "services" of agents who are serving themselves.

Can this wonderful dream ever become a reality? How can we help it happen?

Patrick

#housing

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14   TechGromit   2007 Jul 9, 2:05am  

Malcolm> Don't count the real estate agents just yet. The travel agents are a good example, although travel sites weakened the Travel Agents hold on the travel market, those that adapted to the changed business environment are coming back stronger than as ever. Those real estate agents that can adapt themselves will thrive. And those that resist change will disappear.

15   Malcolm   2007 Jul 9, 2:16am  

Or they have morphed to becoming the customer service reps at Expedia. Sometimes you do need a live person, and me personally, I'd like advice on planning trips so it would be nice to have a long term relationship with a travel agent as opposed to the purely transactional interface online.

16   Malcolm   2007 Jul 9, 2:20am  

OO Says:
"If the market comes down 50% in nominal price, I am willing to double the agency fee for a qualified one. "

That sort of happened but backwards. As prices more than doubled it became quite easy to find agents for half price. Most people who give it any effort at all can craft a way to sell for under 4% as opposed to the traditional 6%.

17   sylvie9   2007 Jul 9, 2:57am  

With technology it is merely a matter of time. The public perception of agents is not positive after the run up in prices over the last few years. Many lied and conned people motivated by greed. Long time agents knew this cycle was short lived and were well aware of the fallout to come. There was am influx of people from other industries becoming agents saturating the market with non qualified fly by night realtors. You know the kind that jump in when the pickings are easy? The whole industry was rife with fraud up to and including appraisers, originators, loan officers, est. Thank god for the tightening going on now. I'd like to see the home buyer do most of the sale process themselves.

18   Chuck Ponzi   2007 Jul 9, 3:19am  

Randy,

I appreciate your well thought out response, especially about Seller's agents, and I believe you're right on wrt their future role.

However, I believe that we'll see a different role with buyer's agents. Since the current process involves a % paid to the buyer's agent, I believe that there will be 2 things happen:

1. Buyers will begin to get a % of the transaction from the buyers' agents out of the agent's fee. (most can already get as much as 2/3rds of the agent's commission). I don't believe this will go away because the process is the status quo, and it benefits buyers as well.
2. Some buyers (most notably mentally frail and first time buyers) will still need and want substantial hand holding. Their buyers' agents will still probably retain their entire %.

Seller's agents, on the other hand will probably reduce listing commissions due to the lower cost of marketing and open visibility.

Overall, sellers will likely pay lower commissions, but that would likely be to their agent, not the buyers' agents. There is still a financial incentive to bring in a buyer with a higher commission.

Like in economics, follow the incentive, and that's where we'll go.

Chuck Ponzi

19   GammaRaze   2007 Jul 9, 3:23am  

The answer is, obviously, the Internet (you know, the series of tubes.)

Whoever establishes a NASDAQ like system, while taking into account everything an agent does today and makes it available in easy to read document format will provide an alternative.

It is happening for cars, so why not for houses?

Also, just like CarFax, may be there is a need for something similar for houses?

There is also a need for impartial inspectors and appraisers.

I can see such a system coming, along with some major changes to the way houses are built.

For example, in the 21st century, why aren't more houses built on the assembly line? Early in the 20th century cars were still custom built and costly and unreliable. That is what we have in houses today. Somehow, factory-built houses have become synonyms for mobile homes, but it doesn't have to be.

We are missing out on a lot of efficiencies. Maybe the bubble has to totally burst before something emerges.

20   HARM   2007 Jul 9, 3:39am  

Imagine there's no Realtors,
It's easy if you try,
No HELOC below us,
Above us only sky,
Imagine all the FBs
living for today...

Imagine there's no MLS,
It isn't hard to do,
Nothing to borrow or overbid for,
No specuvestors too,
Imagine all the buyers
living life in peace...

You may say I'm a dreamer,
but I'm not the only one,
I hope some day you'll join us,
And owners and renters will live as one.

Imagine no commissions,
I wonder if you can,
No need for greed or information hiding,
A brotherhood of man,
Imagine all the buyers
Sharing all their data...

You may say I'm a dreamer,
but I'm not the only one,
I hope some day you'll join us,
And owners and renters will live as one.

21   HARM   2007 Jul 9, 4:09am  

Randy, totally agree with your position re: buyer's agents. Their job is unnecessary, adds little-to-no value, and the financial incentives are completely misaligned with the buyers (who they are purportedly representing). Sellers agents add enough value (marketing the house, dealing with buyers, transaction ppwork, hassles, etc.) to justify their existence, but at the full 6%? Doubtful. 1-2% or a flat fixed-fee is the rule in most other countries, and can be here too --if the NAR/MLS cartel can be broken. Hopefully Help-U-Sell, Redfin, PropertyShark, Zillow, etc. will gain enough public and political support to erode their information stranglehold. We'll see...

Houses will never be anything near identical substitutes. There will always be a large amount of asymmetrical information in a house transaction. This is where agency becomes valuable.

Yes and no. One could argue that mass-produced cookie-cutter developments today are chock full of IDENTICAL substitutes. Sure, owner A's faux Spanish McMansion is .2 miles closer to the freeway than owner B's, but does that really represent a huge difference? The asymmetry and lack of direct substitution comes more into play in older neighborhoods with lots of inventory pre-dating cookie-cutter mass construction (c. 1950s). In my neck of the woods (greater Pasadena), sure there are lots of turn-of-the-century Craftsman that it may be hard to find an *exact* substitute for, but not impossible. Actually even these "unique" Craftsman houses were by-and-large kit-built homes that were ordered from a Sears catalog --the pre-fab houses of their era.

Your house is less "special" than your Realtor would have you believe.

22   SP   2007 Jul 9, 4:13am  

Speaking of realtors' extinction... after a year of slow business, my friend's wife, (she of the Main Street Media fame) has reportedly "quit" her job with the RE agency. She now plans to focus on her kids education.

Don't feel sorry for her though - they are flush with her husband's IPO money, so it is not like their lifestyle will take a hit or anything. I think the only setback is that she seemed to bask in the attention she got as a hotshot RE-"insider" from other women at parties.

SP

23   astrid   2007 Jul 9, 4:24am  

Good agents, like good salesmen, will be employable for a long time to come. But a probable majority of agents are basically the Best Buy salesman who's been on the job for 6 months. He/she is not telling you anything you can't find out with 5 minutes of Googling.

24   HARM   2007 Jul 9, 4:25am  

OT,

But I attended Surfer-X's party this Saturday, which was really more of a house-warming than blog party. I can personally attest to the fact he did not catch a falling knife and got a phenomenal deal on the place. We should all be so lucky.

One of ladies at the party happened to work for D.R. Horton and mentioned she & hubby just bought in early '05 (not exact peak, but close). She mentioned that Horton has already drastically trimmed staff (down to around 7,000 from peak of 10,000) with more cuts possible. She thought the downturn might last another year, but no longer --for her city, that is (Ventura). She wasn't so sanguine about other locales: Riverside, San Bernardino, Palmcaster, etc. Oh, and here was the kicker --they got an option-ARM on their place. But, unlike all those *other* suckers out there, she claimed to be aware of and financially "prepared for" the eventual reset. As she was very pregnant with twins, I thought it best not to probe any further. Don't want have a miscarriage on my conscience ;-) .

25   sfbubblebuyer   2007 Jul 9, 4:26am  

I spent the whole last week not worrying about housing or work or anything at all, basically. 9 day weekend!

As for getting rid of Realtors, well, you're always going to have ill-educated buyers and sellers out there who want/need the services a realtor provides, so I don't think you'll ever see the demise of them.

The real problem with housing isn't the realtors, it's the funny money that got funneled into this. Once that dries up, the shine will be off being a Realtor and they will be back to being perceived as used house salespeople. Ask any long-time real estate agent and they'll tell you about the tough times in the industry. We'll probably see 50% of realtors try to go into other work after spending the next year woefully underemployed.

26   Vicente   2007 Jul 9, 4:28am  

The problem you will run into, is the entrenched bureaucracy and legal barriers thrown in your way. Every state will have their own system for handling sales, and if you aren't an approved and certified person to take part in that process......

Every little squeaky wheel in this process will trumpet that their role is ESSENTIAL, and if you take them out of the way who will you turn to for help? Not that suing any of these people does any good when the process goes wrong now. But anyhow you have an uphill battle.

If you wanted Federal intervention to untangle this mess, they would only make it worse. Probably end up with a bill with 57 other things added onto it.

I for one would welcome anything that is leaner than what we have now.

27   Vicente   2007 Jul 9, 4:34am  

I should add, it would be nice to see a potential service like this, with a transparent and understandable set of fees. The current system involving a percent of the sale price so heavily, encourage agents to find way to inflate the price.

On the other hand something like fee of X per square foot of house or of yard, would be more transparent and fixed. And this would reflect perhaps that doing lawn-care and staging for a larger house or lot, would be more work. You get the idea.

28   DinOR   2007 Jul 9, 5:25am  

@HARM,

Loved your rendition! Finally... Patrick.net has a theme song. Sorry I missed X's party, that HAD to be fun! We "had" to be in Vegas on their 2nd hottest day in recorded history. I was determined not to have to come back to OR and admit I spent it in an air conditioned (and somewhat cheesy) "theme bar". I could only take about 2 hours at the pool though and when my fore arm accidentally touched the aluminum lounge chair it felt like splattered cooking grease!

In sfbubblebuyer tradition of the "9 Day Weekend" we came back through Gerlach, NV (host to Burning Man) and crossed over on Hwy 447 not realizing we were in Eagleville CA!? How can anyone hate Reno that much?

29   astrid   2007 Jul 9, 5:31am  

Hourly commission is the way to go on the buyer's side.

On the seller's side, maybe some sort of combination of flat listing charge and commission at completion of the deal.

30   StuckInBA   2007 Jul 9, 5:57am  

I agree with most of the views here. Buyer's agents will be going the way of travel agents. The process has already started.

I was passing via Blaney in Cupertino, and the board on a house said
"SOLD - For 1%".>/b>
Upon inquiry, I was told by friends who had visited the open house that the selling agent was telling everyone that if they chose the same agent as buyer's agent, the commission will only be 1%.

This trend will increase, no matter which direction the market goes.

31   StuckInBA   2007 Jul 9, 5:57am  

Yuck. Sorry for the messed up tags.

32   skibum   2007 Jul 9, 6:19am  

I think it is going to happen by itself Patrick. Like travel agents, modern technologies are disrupting the normal business models of realtors.

Malcolm,

Randy addressed this a bit already, but I'll also add in general that the Realtor Mob (ie, the NAR) is putting up a darn good fight to keep these changes from happening.

The DOJ Antitrust division keeps an active investigation on various local and regional/national Realtor groups:

http://www.usdoj.gov/atr/public/workshops/rewcom/213351/9.htm

Also, the NAR is one of the largest campaigin donors in local, state and federal politics, and they wield enormous clout in preventing legislation being passed that would allow changes towards a more competitive market.

33   surfer-x   2007 Jul 9, 6:36am  

HARM, good seeing ya! Hopefully next time Mrs Harm can make it also.

34   SQT57   2007 Jul 9, 9:20am  

have often wondered why Federal employees and military personnel pay federal income tax.

I'm not sure they all pay the same tax structure the rest of us do. My father-in-law is career military and a good portion of his income isn't taxed. I'm not exactly clear on how it's set up, but he gets an "allowance" for housing and other costs that isn't taxed. I think the untaxed portion is a good half of his pay.

35   sfbubblebuyer   2007 Jul 9, 10:33am  

Well, it looks like CNN at least has finally found the Credit Suisse ARM Reset Schedule. And with there being no Spring Bounce this year, it looks like we might actually be getting past the denial stage.

That means it's time for anger! I bet the local news gets pretty interesting in the areas getting hit first. Ouch!

36   Malcolm   2007 Jul 9, 11:36am  

Skibum, I agree it won't be smooth, and a lot of the higher end properties will probably be represented one way or another just because it will continue to be a required hipness to market homes like that through agents. I can't help but wonder though, what would have happened if Zillow had offered free ads for sellers when it was a sellers' market. It was critical timing window that was unfortunately missed but could have totally upheaved the industry.

37   Malcolm   2007 Jul 9, 11:47am  

Yes, I'd say we are through the denial stage SF. I think we've skipped the anger stage and moved straight to the compromise stage. Acceptance should be the last one and we can call that one when we hit bottom which will come when sellers accept the value of their house and actually sell.

38   Patrick   2007 Jul 9, 12:51pm  

HARM, your poetry brings tears to my eyes, and I hope it brings tears to realtors eyes too, only for different reasons.

Patrick

39   ColoradoBear   2007 Jul 9, 1:40pm  

skibum, thanks for the link.

Check out the other dirt on realtors (not TM) on the DOJ site:

http://www.usdoj.gov/atr/public/workshops/reworkshop.htm

and

http://www.usdoj.gov/atr/public/workshops/rewmajor.htm

The paper titled "Nine Pillars of the Citadel" is informative.

40   PermaRenter   2007 Jul 10, 1:01am  

http://biz.yahoo.com/ap/070710/dollar.html?.v=11

AP
Euro Hits New High Against U.S. Dollar
Tuesday July 10, 10:17 am ET
Euro Soars Through $1.37 Mark, Trading at All-Time High on Concerns About U.S. Housing Market

FRANKFURT, Germany (AP) -- The euro soared through the $1.37 mark for the first time on Tuesday, trading as high as $1.3716 amid concerns about the U.S. housing market.
The 13-nation currency hit the new high before falling back a bit. It was up from the previous record high of $1.3682 it bought on April 27 and above the $1.3623 it bought late Monday in New York.

The dollar's drop came as U.S. stocks fell in early trading as Wall Street nervously awaited a speech from U.S. Federal Reserve Chairman Ben Bernanke and reacting to troubling forecasts from the retailers Home Depot and Sears.

Bernanke is expected to speak on inflation later Tuesday in Massachusetts, and any indication that he believes price pressures are rising could heighten worries about a possible interest rate increase and give the stock market a jolt.

Meanwhile, Home Depot Inc. and Sears Holdings Corp. offered disappointing financial outlooks that raised concerns about whether corporate America's future performance will give stocks the boost investors have been hoping for.

41   skibum   2007 Jul 10, 2:56am  

ColoradoBear,
Yeah, I've taken a gander at those pages from the DOJ before. What I find most interesting is that the DOJ has a LOT of information about shady collusive Realtor practices, but they are unable or unwilling to pursue the issue further than to provide generalized "recommendations" like suggesting states repeal laws on their books requiring minimum broker services or banning RE commission rebates. It just seems like the DOJ has no teeth when it comes to this issue.

42   jrjonsie   2007 Jul 10, 3:10am  

I would love to see this happen. These are the obstacles that I see personally and possible solutions. In short I think people need to feel confident in doing the process on their own.

1 - As someone who hasn't purchased a home before, I feel uncomfortable with all the details and steps simply because I do not know what they are or how to bring them to pass.
The solution to this I believe could be a free online resource that provides a detailed step-by-step guide on what you need to do to buy or sell a home.

2 - Documents. Man it seems like there is so much paperwork involved. How do I know what documents I need and what information is pertinent to my situation in those documents?
Again, it would be nice to see a free resource for these documents as well as instructions on how to use them properly. I've seen websites out there that sell the documents but I don't feel like throwing down $20.00 per document when I don't even know that I'll need them.

3 - Getting around the Realtor. This is a tuffy. A few things. First we need to have a good searchable database for people to post homes for sale and to look for homes to buy. The MLS is really great but we really need something that costs less and circumvents the realtors. Now we have things like craigslist or perhaps local classifieds both of which are quite good but the search capabilities are mediocre. My favorite property search engine is PropertyPoint 3 from Windermere.
For those properties that are listed with a realtor already, I think the best thing to do is approach the seller directly. You can sometimes get this information from tax records or heck just knock on the door (assuming it's not investor unoccupied). Tell them you're interested in the home but won't work with a realtor. Many people would be tickled to knock 5% off the price and drop the realtor.

43   skibum   2007 Jul 10, 3:32am  

OT, but it looks as though slowly, but surely, the "other shoe" is starting to drop on the subprime MBS mess:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aFS746x.HOnc&refer=home

Now that the Bear Stearns disaster has put the spotlight on the ratings agencies, S+P is finally responding. It looks to me like, as expected, they are going to retool the credit ratings of these bonds in dribs and drabs, probably to avert mass panic.

I like this analyst's comments:

``S&P's actions are going to force a lot more people to come to Jesus,'' said Christopher Whalen, an analyst at Institutional Risk Analytics in Hawthorne, California. ``

44   skibum   2007 Jul 10, 3:36am  

Overall, it appears to be a pretty interesting day in the markets - we have the S+P subprime bond "opening shot," Bernanke continuing to try and walk that fine line between keeping the economy afloat and giving lip service to "fighting" inflation, and we have crappy earnings reports from the REIC: DR Horton, Sears, Home Depot.

A straw poll - does anyone think the national housing mess will ever substantially affect the "Fortress" in the Bay Area? To me, nationally, things are only getting worse. But anecdotally, the Fortress areas continue to hold up. The gap is widening more and more.

45   sfbubblebuyer   2007 Jul 10, 3:53am  

Skibum,

Yes, it'll hit the fortress. Just like the price jumps started in the 'fortress' and rolled out, now the price declines are rolling back in. Remember, two years ago Gilroy was part of the Bay Area according to realtors. Now Palo Alto, Atherton, and maybe Cupertino are the Bay Area and everything else is not.

46   EBGuy   2007 Jul 10, 4:57am  

Skibum,
OT, but it looks as though slowly, but surely, the “other shoe” is starting to drop on the subprime MBS mess
I was thinking the same thing -- enough to motivate me to finally look at the 401k accounts and attempt to "sanitize" them last night (yes, something I should have done 6 months ago). The only thing that really seemed to jump out at me was the Pimco Total Return Bond Fund (already down 1% this year). But that is probably because I am overinvested in equities (whenever I see "financials" as a large percentage in some of my funds I start to get queasy). Ah well.... long term right?
From the Pimco Investment Update:
Overweight mortgage-backed bonds—Mortgage-backed bonds remain an attractive source of high-quality incremental income compared to credit-sensitive corporate bonds.

Anybody got strong feelings about Fidelity Balanced Fund (FBALX)?

East Bay Anecdote:
Walking past a church that was having a wedding, there was a guy outside yammering away on his cell phone. The only part of the conversation I caught was: "Nobody is buying homes right now".

47   sa   2007 Jul 10, 5:05am  

it may hit fortress only slightly considering there are people in this blog who are interested in fortress. more interest --> more demand.

48   skibum   2007 Jul 10, 5:10am  

EBGuy,

I'll admit that unlike a lot of the other posters, most of my mutual fund dollars are in Fidelity not Vanguard. I'm concentrated in FSEMX, which is a low-cost index fund. There's always the temptation to let the "inner bear" take over and start worrying about having any money at all in the stock market, considering the continued onslaught of bad economic news, but then again, somehow, the market up to now has continued to shrug off each piece of bad news and continue it's onward and upward slog.

49   e   2007 Jul 10, 5:12am  

Remember, two years ago Gilroy was part of the Bay Area according to realtors. Now Palo Alto, Atherton, and maybe Cupertino are the Bay Area and everything else is not.

Sounds like this post I wrote the other day:

http://www.burbed.com/2007/06/30/nick-testa-redefines-the-bay-area/

That said, if you're expecting a 20-40% haircut in the Fortress, I don't think you should hold your breath.

50   skibum   2007 Jul 10, 5:14am  

it may hit fortress only slightly considering there are people in this blog who are interested in fortress. more interest –> more demand.

sa,
You may be right about the "Fortress," but your reasoning is nonsensical. Just because this particular blog has a lot of interest in the area, that doesn't signify anything about overall demand other than for those on this blog.

Your comment is akin to saying the posters on the "Vida Blue Baseball Card Blog" all are interested in Vida Blue's rookie card, and therefore the demand must be great. But maybe the general population doesn't give a rat's a$$ about Vida Blue.

51   ConnorG   2007 Jul 10, 5:14am  

Sorry if a little OT, but I'm moving back to the Palo Alto/Menlo Park area in the near future and could use a point in the right direction. Thanks in part to this blog, my wife and I won't be looking to buy in the near future, but we're having a hard time locating a 2BR house with a yard to rent. Outside of craigslist, where should we be looking?

52   sa   2007 Jul 10, 5:17am  

jrjonsie Says:

1 - I feel uncomfortable with all the details and steps simply because I do not know what they are or how to bring them to pass.

2 - Documents. Man it seems like there is so much paperwork involved.

3 - Getting around the Realtor.

i bought a house from owner (FSBO). i hired a closing/contract agent for around $600 and there aren't many documents. it's just the realtor's way of scaring people ("oh all the paperwork"). there are a ton of online resources. just start through the process by looking for banks (good ones) that can loan you the money, they will guide you through the paper work and people needed.

for getting around realtor, buy FSBO houses. not sure what can be done if you like a house listed by realtor.

53   sa   2007 Jul 10, 5:29am  

skibum

i was only referring to the blog for obvious reasons. i do know quite a few folks who would like to be there. just a general observation.

on the other hand i would like to know if houses in bay area is really expensive compared to areas like NY. sure NY has financials, silicon valley actually got to be big?

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