The monopolistic hold big real estate agents have had on information — on access to use multiple listings services — has been blown open at last thanks to the Justice Department’s antitrust settlement with the National Association of Realtors.
Kiss your 6 percent commission good-bye, Ms. Agent! Competition is on the way.
The only reason — only reason — that Realtors could hold onto their high commission for such little value and work is that they kept information away from the marketplace, making it inefficient. To quote Umair Haque (sorry, no link; I’m pulling this from my manuscript):
Competitive advantage is fundamentally about making markets work less efficiently. One catastrophically effective way to do that is to hide and obscure information – to gain bargaining power relative to the guy on the other side of the table. . . .
A world of cheap, abundant, always-on interaction, where value is shifting to the edges, demands a fresh understanding of what’s truly strategic and what’s not.
Here’s a quick example. Where orthodox strategy advises hiding information and making things less liquid, what does edge strategy advise? Exactly the opposite: release information bottlenecks and make things more liquid.
What Craig Newmark realized is that listings — for sale, for rent, for hire — are the property of the market. By making that efficient and extracting the minimum value from it, craigslist grew huge. When Craig spoke with our students at CUNY recently, telling them about some of his other activities, the students asked him why he wouldn’t maximize the value of craigslist, then sell it for billions, then use that fortune for his philanthropic investment. Craig said that he believes he is doing more good leaving the internet dividend he created in the economy. Buyer and seller, directly connected by craig or by Google, keep more money from transactions. The middlemen — agents and newspapers — suffer but more people benefit.
This new economy can now come to real estate sales as information become freer. Oh, it’s not fully freed yet. But I do believe that the combination of this settlement and what it does to empower discount players and the depressed real estate market will combine to finally shove dynamite up Realtors’ rears.
Couldn’t happen to a nicer bunch. A 2008 survey by the British Journalism Review found that estate agents in the UK are the least-trusted profession, worse even than tabloid reporters; only 10 percent of Britons trust them.
Freakonomics demonstrated how real estate agents’ interests are not aligned with their clients. “A real-estate agent may see you not so much as an ally but as a mark,” wrote Steven D. Levitt and Stephen J. Dubner. They cited a study that found that real-estate agents keep their own homes on the market an average of 10 days longer than homes they represent and sell them at prices 3 percent higher. Levitt and Dubner explained that it’s more efficient for agents if they can get you to sell quickly, even though, from your perspective, that is clearly a less efficient marketplace because it doesn’t get you maximum and true value. “Here,” they wrote, “is the agent’s main weapon: the conversion of information into fear.” That is to say, the control of information leads to inefficient marketplaces. But in the long run, Zillow is becoming far smarter than the smartest agent because it knows more thanks to the aggregation of our data about sales. On the internet, more information equals more value.
The Times said:
Real estate agents earned $93 billion in commissions in 2006, with a median commission of about $11,600, Justice Department officials said. Internet brokers, offering pared-down services, provided average rebates of 1 percent on commissions that normally ran 5 or 6 percent, translating into thousands of dollars per sale. . . .
The National Association of Realtors, with more than 1.2 million members, said that the settlement was “a win-win” for both the real estate industry and consumers. It noted that the association admitted no wrongdoing and paid no fines or damages as part of the deal.
Laurie Janik, the [National Association of Realtors] general counsel, said in a telephone interview that the settlement would have no real impact on home buyers or sellers.
“I don’t think they’ll see anything different,” she said. “This lawsuit never had anything to do with commission rates, or discount brokerages.”
Bullshit. Competition is coming. Information will get freer. Rates will decline. Homes will be worth more. A more efficient marketplace is good for buyer and seller but not middleman. We’re finally headed in the right direction. The Times concludes:
Norman Hawker, a business professor at Western Michigan University who organized a symposium on the Justice Department litigation as a senior fellow for the American Antitrust Institute, predicted that the settlement would ultimately mean a drop in sales commissions of 25 percent to 50 percent as a result of increased competition.
“It’s pretty clear that there was an enormous amount of discrimination against brokers who were trying to use innovative business models,” including discounted fees and virtual offices on the Internet, he said. “There are lots of entrepreneurs who have been looking for a green light in the form of this order to begin offering discounted rates. It has the potential to be a big step forward for consumers.”
When I write posts decrying the wasteful sloth of real estate agent commissions, I invariably get a cadre of agents – more often, actually, their defensive husbands – saying I just don’t understand the value they bring. I say that if they have to explain their value, then it is empty. They do not deserve 6 percent commissions and soon they won’t get them. Heh.