The mother of all price fixing cartels has just been busted.
Now, if only consumers can alter their slothful home selling habits, we will all benefit.
Under pressure from the Justice Department, the National Association of Realtors reached a settlement that will allow Internet based discount brokers to have access to all home listings. (Wall Street Journal, 5/28/08, page B1)
It is a testament to the raw political power of this industry that they were able to fend off the discounters for as long as they did. But remember:
- This is an industry active in all 435 congressional districts, with a treasure chest of PAC money to chum the waters.
- This is the industry that carved out a half-million in exempt capital gains on home sales, and allowed for up to a million of home equity debt…on up to two homes….to qualify as a deduction.
- This is the industry that works hand-in-glove with the title insurers to make the buying or selling of a home virtually the only industry exempt from competitive pricing pressures.
Now you have to do your part.
What You Can Do
Next time you put your house up for sell, you must resist the impulse to have your cousin or uncle or college roommate handle the listing as a “courtesy”. This is where the inefficiencies compound.
If you have a close-knit social structure that binds you to a traditional, full price Realtor, you have to make a decision. Not only are you obligating yourself to being overcharged and ultimately paying a penalty that can easily run into five figures…serious money…you may also be chained to a very marginal producer.
There are productive agents who sell dozens of houses a year and have the pulse of the market. And there’s your uncle Bob, who “dabbles” in real estate, with maybe one closing every 18 months.
In time, the low-cost discount brokers will dismantle this colossal inefficiency. The Internet is a creator of opportunity and abundance, but very destructive of the legacy industries that fail to adapt.
There is simply no rational reason to have over one million Realtors.
Or lawyers, for that matter.
A million doctors…now that would make sense.
Because of the low threshold of barriers to entry, anyone can get through the gate.
Ever hear the story of the highway patrolman in California who flags down a speeding motorist? Routinely, he asks the driver for his real estate license. The driver says….”don’t you mean my driver’s license?
The patrolman responds “not everyone in this state has a driver’s license”.
What We Did
We chose the new paradigm when we sold a property in Austin a few years ago. We found a discount Realtor (who had full access to the local multiple listing service) who took the listing commission for half of a percent, leaving 2.5% for the eventual selling agent.
The national average for combined listing/selling agents is a shade over 5%, so the selling agent received their normal share. After all, they produced a qualified buyer.
The listing agent simply put their for sale sign in the front yard, and told us they would let us know if any offer materialized. My daughter and her boyfriend were responsible for open houses and all showings.
But even when Realtors charge the bloated full commission, owners end up doing the grunt work of showing and maintaining the property, so this was not a terrible imposition.
After a few low ball offers and several months passed, we found our buyer, and our listing agent helped us through escrow and closing.
It was relatively painless and not all that different from the full price version.
Except for the many thousands of dollars saved by shaving a full 2% off the tab.