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Posts Tagged ‘for sale by owner’

The chatter has has been for years that the rise of the Internet would have real estate agents suffer the same plight as that of travel agents and stock brokers and be passed over in favor of discount, do it yourself websites. If people can find a home on the Internet, the reasoning was, why would they need an agent? Certainly, non-traditional brokerage, for sale by owner websites and discount models have become prominent, but they have not supplanted brokers. In an efficient market, if the efficacy of those models were so strong, one would expect brokerage to suffer a mortal wound.

And yet real estate brokerage has not declined. One can even make a case that brokers themselves have harnessed the net enthusiastically, with blogs and  personal websites with home search functions. With apologies to Mikey and Life Cereal, they like it.  How can this be? I’ll offer my observations here.

  • You can’t click on a house and buy it. You have to see it, walk through it, smell it, and sit in it. And few do that without a licensee present.
  • Few do that without a licensee present because most buyers don’t want the seller around when they look.
  • Even when the seller is present, most of the time they are deplorable salespeople. I have an interest in a non-traditional company. Believe me, commission “savings” is more than counterbalanced by ineptitude, lack of objectivity, and absence of professional advice. Many a seller has lost tens of thousands in sales price in order to save a few thousand in fees. Penny wise, pound foolish.
  • A trip or a security can be purchased online in 5 minutes. Real estate takes weeks and sometimes months.
  • Travel and securities don’t require an appraisal, title search, certificates of occupancy or engineer inspections.
  • Travel and securities are cash transactions that can be done with a click; real estate is seldom a cash transaction and even when it is, it requires far more due diligence. See prior bullet point.
  • At the risk of sounding Darwinist, overall real estate professionals are a tough and resourceful sort. This is a hard business. Brokers and agents the world over embraced the new technology and made it an advantage. They adapted, survived, and many thrive, even in this down market.  
  • In the same vein, good agents sell more property than mediocre agents. Good agents won’t take a pay cut to work for a discounter. Better agents work where they’ll earn more.
  • Brokerage is more than bird-dogging for a house. Who saw the house first is immaterial, and handling the shifting landscape of the transaction requires representation. People know that a few percentage points is a bargain for what they get in return, anecdotal horror stories aside.

    Interestingly, some of the non-traditional enterprises such as Foxton’s and Iggy’s House that endeavored to harness the net and gain market share via discounting failed spectacularly. The market is efficient; these concerns should have thrived if the models were viable. They weren’t. If the Internet were going to kill our business, it would have years ago. Until people can buy real estate for $500 immediately without seeing it, consumers will need our services. And that is a good thing.

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    US News is hosting a debate of sorts on the value of using an agent. The person on the side of not needing agents is a VP of forsalebyowner.com, a site whose point of view should be obvious. I have a skin in both games. I will repost my comment here:

    Ah, if all agents were good for is to be the database of homes for sale like forsalebyowner.com. Then, buyers could all yell “I saw the house first” and save themselves (or the owner, we never know which) 6%. Too bad it never works out that way except in anecdotal examples and grossly flawed studies like Freakonomics author Steven Levitt ‘s hack job at Northwestern.

    A few facts which you don’t need a study to grasp:
    1. Most people simply stink at selling anything, especially their own home.
    2. For Sale By Owner sites have never been able to specify exactly who saves the 6% when you cut out the agents. Is it the buyer or seller? Answer: whichever one they are addressing.
    3. Even though the internet and other innovations have utterly devastated the livelihoods of travel agents, stock brokers and others, Mr Healy himself admits that commissions have risen over 50% since 2000. The market is efficient, Mr. Healy.
    4.If selling homes is so easy, and presumably foreclosures are even more popular among buyers than regular homes, why do banks list their REO’s with a a broker? Because they know what works and what doesn’t. And a title firm and attorney can’t sell an REO without brokerage.
    5. As a matter of fact, every successful title company and real estate law firm (and mortgage company) has strong relationships with brokers and agents.
    6. Every discount and gimmick “business model” like Foxtons and Iggy’s house has flopped.

    I have a skin in both games because I run a full service firm and a FSBO assistance firm. I have a front row seat to plenty of FSBOs who sabotage their own deals left and right. Who is right for FSBO? About 5-10% of the market. The rest need a broker.

    The Levitt study I allude to is economist Steven Levitt’s conclusion based on his study of the Chicago MLS data for several years that agents sell their own homes for more money because they take more time to wait for a higher offer. Anyone with half a brain knows that correlation doesn’t equal causation and that, all things being equal, older, stale listings will sell for less. I have corresponded with Mr. Levitt and he has admitted to me that the study never truly accounted for distress sales, loss of jobs, divorces, estates, or other conditions which suppress price and shorten time on the market. He only passively acknowledged that agents would likely be better at staging, pricing right to begin with, being flexible with showings and taking delays and extensions with more tolerance than the average Joe.

    But beyond that, for every anecdotal example I have ever heard on a successful for sale by owner, I have heard another where someone goofed big time on the buying or selling end and got hurt financially.  My question as to who really saves money with in a for sale by owner will never be answered, because there is no answer. If the buyer saves the commission, then what good was it for the seller? If the seller saves the commission, how did the buyer benefit?

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