The Times has a delightfully devastating story about upheaval in the real estate broker business asking whether we are seeing the last stand of the 6 percenters. We can only hope.
The Times story focuses on Redfin, a new brokerage in California and Washington only, unfortunately, that will list sellers’ homes for $2,000 flat and will rebate two thirds of its commission (thus usually 2 percent of the selling price) to buyers. Redfin does all this — how else? — by taking advantage of the internet and of the monopolistic pricing of multiple listing service members.
The Times reports that some sellers’ agents refuse to show homes to people coming from Redfin. I’d call that anticompetitive and perhaps even antitrust behavior. Watch and I’ll bet that MLSes will get opened up and then, once any of us can list and find homes on our own, the whole game is over. Bye-bye overpriced agents.
I will guarantee you that as soon as this post goes up, whining real estate brokers will come in — as they do every week here, here, and here — and mewl about how they provide such loving service and get you better deals. Bull. The Times cites Freakonomics:
“It’s a case where nobody wins,” Chang-Tai Hsieh, an associate professor of economics at the University of California, Berkeley, said of the current system. Mr. Hsieh, who has studied real estate commissions, said that they did not vary much from 6 percent and did not generally change in good times or bad. He said it was a form of price fixing, but an odd one. “Consumers pay a lot of money, and even the people who do the price fixing don’t win,” he said. “So it is a colossal waste.”
Traditional agents spend very little time brokering a deal, Mr. Hsieh added. Most of their time is consumed looking for new clients, which is of no benefit to consumers. An agent working for a salary, he said, would be freed of the need to prospect and would thus be more inclined to focus on negotiating.
Others agree. Steven D. Levitt, an economics professor at the University of Chicago, found that commissions did not align the interests of agents with those of their customers, a conclusion he recounted in his book “Freakonomics.” The agent has little incentive to get a few thousand dollars more for a homeowner, he wrote, because it will not much improve the commission. It is far more important for an agent working on commission to get the deal done and move on, he added.
The story points out that apart from a few star sellers, the agents themselves don’t get rich, either. Wake up, agents, your days are numbered. You might want to consider a management career at — dare I say it? — Burger King.