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I think he makes a good point about a few brokerages controlling the market in most areas...It does seem that there's like two or three big ones that have 90% of the listings...
Nope it's not that simple either.
Most consumers only have an illusion of choice.
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The first distinction is when the buyer and seller are BOTH from that area.
Out of town buyers (relocating, new to area, etc) simply will not have an objective
basis to choose a broker or an agent. They're stuck with taking the 'advice' of others.
Left on their own they'll choose a Broker name they're familiar with much the same as
they'll do when choosing a muffler shop for their car because it's a name they're familiar with.
This is WHY national brand names (franchises) have been developed.
The specific agent (or muffler mechanic) they end up with? Mostly happenstance.
---
The second distinction to make is the dollar value of the properties in play;
both as a raw number but also as compared to the median home price in the area.
It has been argued that the dollar amount of direct costs (T&M) incurred by an agent
to sell a used starter home in a tract development are the same regardless of what price
the house will sells (higher or lower median price market).
This reality is how many higher priced homes (and markets) will have more flexible arrangements
on commissions either as a lower rate altogether or a fixed fee + commission, etc.
Regarding the Travel Agency comparison: The traditional REA model will not go the way of the travel agent, and is unlikely to be disrupted by an actor such as Uber-for-Real Estate.
Think hard about it; Redfin has been around since 2004. Zillow has been around since 2006. FSBO's or flat rate agencies have been around for far longer.
None of them have disrupted the model notably.
If you're planning a vacation, you have a choice of a few legacy carriers and various discount actors, and most consumers know exactly what they're getting with each one and worst case scenario, they're surprised to pay $30 for a carry on. A rental car is a rental car, and a hotel is a hotel and you can look at google maps to see where it is and what it offers.
What people miss is that for every Travel Agency that closed as a result of the internet, there is an Insurance agency that didn't.
The REA model is much more comparable to an insurance agent than a travel agent.
Regarding Uber: Uber came about because the cab industry didn't change with the times. Most cab companies didn't have a decent website, much less the ability to book online. You can list and sell your house from a cell phone, without an agent. Most people don't do that because its difficult enough and complicated enough that it isn't worth it.
People buy on average how many properties in their life? 5? I would agree that the marginal utility of an agent goes down with every transaction under your belt, but one every 10 years isn't going to cut the mustard for developing a competence and confidence to manage the sale (for most people.)
Quote:
Originally Posted by luv4horses
Most people would have a fit if we went to a fee for service model for buyers' agents. I can see it now. 30 min tour of town, $75. 60 min tour, $125. Each house visited for <30 min, $60. Each house visited for 30 to 60 min, $100. Writing of offer, $350. Asking questions of listing agent, $50 per (includes being available to relay the answer to buyer). Looking up data @$60/hr. Office fees, $100 per hour. Etc.
Listing agents? They potentially do a whole lot less work. Photos $200, enter data into MLS, $200, site visit and suggestions, $200. Evaluating offers? $200-500. Setting up and tracking inspectors, appraisals, specialists? $200. Networking? $0 to $5000 to more if they are actually doing this.
These are all minimums, just making a point that folks don't always know where their money is going.
Yes, this is what I think people miss about human nature. Most people are perfectly willing and content to defer costs as long as they can, to save money in the short term, etc...Why pay now? I'll worry about it when I sell. I have two family members on (different) Condo HOA boards, and they can never get anyone to commit to a long term fix, they always want the 5 year one...Human nature for many folks.
Nope it's not that simple either.
Most consumers only have an illusion of choice.
---
The first distinction is when the buyer and seller are BOTH from that area.
Out of town buyers (relocating, new to area, etc) simply will not have an objective
basis to choose a broker or an agent. They're stuck with taking the 'advice' of others.
Left on their own they'll choose a Broker name they're familiar with much the same as
they'll do when choosing a muffler shop for their car because it's a name they're familiar with.
This is WHY national brand names (franchises) have been developed.
The specific agent (or muffler mechanic) they end up with? Mostly happenstance.
---
The second distinction to make is the dollar value of the properties in play;
both as a raw number but also as compared to the median home price in the area.
It has been argued that the dollar amount of direct costs (T&M) incurred by an agent
to sell a used starter home in a tract development are the same regardless of what price
the house will sells (higher or lower median price market).
This reality is how many higher priced homes (and markets) will have more flexible arrangements
on commissions either as a lower rate altogether or a fixed fee + commission, etc.
None of what you say says consumers don't have choices.
All you are saying is that consumers make convenient choices.
I agree.
Both buyers and sellers are well advised to do their homework.
Market prices are based on "Whatever the market will bear."
Routine decisions that exclude research into skills and fees certainly help "make" the Brokerage market.
This article has been discussed on here before. There are many issues with the article as they aren't comparing apples to apples.
First of all, real estate agents in England are for the most part employees. Since they are employees, they get paid every single month regardless of sales. As a result, brokerages act like a traditional business and only hire agents when they actually need them. That is NOT the current US model.
The current US model is independent contractors, in an all-or-nothing model. As a result, you have about 60-70% more agents than most markets require. This forces fees UP (yes counter-intuitive) because all of those people need to cover their business costs over fewer transactions. Your base business costs are a certain amount regardless of transasction volume. I'm sure y'all can do the math and if you spread those costs over 7 transactions vs. 50 transactions, you need to charge those 7 people more to get them covered.
The American consumer is very susceptible to spin and "use now pay later" is very popular. Paying nothing up front, but paying a higher amount later is their chosen model. Consumers do indeed choose to pay more money for the privilege of not paying anything. In England, that is not how it works. There is an upfront fee that is paid to initiate services, like a retainer. Since the brokerage won't lose money, they can charge less later.
Consumers can scream all they want about cartels and such, but it really is all about basic math specifically probabilities, risk vs. reward. The reason the all or nothing commissions don't dip very much is because of math. Math is not a forte of our nation, so other theories are thrown out instead that are conspiratorial because heaven forbid we actually crunch some numbers and do some analysis on why the system is the way it is. Consumers do indeed choose to keep it the way it is because they don't want to take the short term risk and pay agents as they go along. They would rather pay more and delay the payment until the last minute paying more.
That is why 80% of the market still uses real estate agents. 20% do some sort of FSBO/limited rep model because they crunch the numbers and they don't like the way the math looks. It really is that simple. No mass conspiracy.
The NAR sleezes. Do everything they can to avoid increased competition or lowering of fees.
I'm not a big NAR fan and I don't pay any discretionary money to the lobby arm of the association but I doubt they do anything that any other trade association doesn't do. The truth is that they do some very good things, too, not the least of which is taking the lead on the COE and the means by which they can be enforced. What specific examples are you thinking about?
Same Same stuff that's been said thousands of times before.
But, they did come up with a creative new idea.
"A third theory is that the industry is less competitive than it looks. In most areas a few big brokers handle most transactions. They set high fees, which lure ever more people into the profession: between 1998 and 2005 the number of members of America's National Association of Realtors grew by 67%. These agents waste time competing with each other for the exclusive right to sell each home, sapping productivity."
i.e. more agents lead to less competition....
That's not what it's saying. It's saying that in most local markets, a few big brokers have a near-monopoly position. Adding indie realtors to a market doesn't mean those few big brokers aren't going to get almost all the listings and have exclusive listings that don't make the MLS database.
Note the article is from May 5, 2012. Much has changed since then. The Economist has the best journalism on the planet, but this is old news.
Err.... What exactly has changed since 2012?
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RE: The Travel Agency or Uber Comparison
