MAJOR win for the Online Real Estate Industry

NEW -> Contingent Buyer Assistance Program
[quote author="GrewUpInIrvine" date=1212048523]I think that it is great that MLS is being opened up...the old system was too reminescent of a monopoly...and I think that this will force greater competition which will benefit the end consumer... instead of some real estate person telling me that they are entitled to 6% of my million dollar sale. I'm sorry, but that is BS. I'd love it if real estate agents started an hourly billing, instead of a 6% contingency. I'd pay $100/hour for a good realtor... and lets see, 100/hr vs 60K on a percentage basis... that'd be almost 600 hours between the buying and selling agents? Sorry, they don't work those kinds of hours on an individual sale.</blockquote>


For realtors to be switched to 'hourly' pay rather than commission, the entire structure of the real estate sales system would have to be overhauled.



When you hire a realtor, they are 100% responsible for ALL costs involving the sale of your house. They pay for the MLS listing. They pay for their ABILITY to have access to put up that MLS listing. They pay for ALL marketing materials - from the sign out front, flyers, magazine ads, newspaper ads, staging, etc... all of it comes from their pockets, with no guarantee they are going to actually sell the home.



Then they are responsible (and accountable) for all the legal disclosures regarding the property. If something is not properly disclosed, they can get smashed in court decades later. That is a very real risk in this area, where homes are thrown together by companies who pay below minimum wage to their workers.



Then the sales part starts, where they have to actually sell the home to perspective buyers. Networking with other industry professionals is huge in this, putting it in the forefront of buyer agents minds. You pay (many times) for the years of experience and NETWORK of that realtor to get the home sold. People would be amazed at the percentage of home that are sold ONLY due to the existing network of individuals the realtor keeps.



Am I a realtor? No way jose. I really, really hated the 'realtors' who got into the business over the past few years. Used car salesman and slimeballs. But guess what - the easy money is LONG GONE, and so are the slimeballs.



An experienced, professional realtor cannot be compared or replaced by an online service. Especially not in this market environment. Maybe when the boom was on, but not now.
 
Just a few things people might not be thinking about... I used to work at an MLS and here is my perspective. I'm a mechanical engineer now so I no longer work at an MLS just so ya know.



1. In order to HAVE a market for anything there must be a TRUSTED source of data. The New York Stock Exchange is the trusted source of data when you are buying and selling stocks listed on their exchange. Without a trusted source of data you don't know what you have and each individual in the market is working with a different set of information. This isn't good for buyers, sellers, or anybody trying to get a commission in the middle because nobody has a stable common ground where they can conduct business. It ends up being like the black market and you aren't sure what quality you get for the price or if it is the real thing. Without a trusted source there is no authoritative way to determine the value of your goods in comparison to other goods other than trial and error which isn't going to work very well if you only buy and sell about 3 to 7 homes over your lifetime.



2. Access to the property is a HUGE issue. You can't buy and sell homes without taking a look at the goods in person. Sure you'll see the nice photos on the net and all the hype about how this place is the best thing since sliced bread. HOWEVER, is that just a smoke screen? You don't know until you get there in person and take a look around the place. Then the issue is how do you get into the property? If you don't have NOR or agents then that means nobody is filtering the people coming to your home. Anybody could show up and say they want to have a look around. How do you know they are serious buyers with the cash to go forward? The bottom line is people don't want joe random coming by to have a look at the property just for fun. This is your personal space and I would hope that people who want access to the home come with a qualified professional.



3. Lock boxes. The best time to show a home is when you are not home, even if that means you need to leave the house on the weekend. In general buyers don't make a favorable impression of a property when the home owners are there. I've looked at at least 40 different homes inside and out in the last 2 months and I sure didn't feel good about any where the owner was home. That means you need a lock box and key at the property. How is the buyer going to come and take a look? Get the lock box combo from an online site? Are you going to assume open houses will sell your home? Right now, the MLS and local association of REs control the lock boxes.



4. Lots of MLS companies post the data for everybody to take a look at. If you go to www.metrolistmls.com you can see all of the public listing information for EVERY home for sale that is inside of the Metrolist MLS database. They make all the latest and best info freely available to the public. You can't see the agent only info but that stuff isn't important for buyers. That means you've got the trusted source handing out trusted info. When people move they generally pick a target city or area and look there. It isn't a nation wide deal and who cares what is for sale in NYC if you are looking in Irvine. That means Redfin will be your secondary source of data or maybe your "desired" interface to the data... but it won't be the 100% real thing and you'll want to still check the MLS public site to confirm what you are looking at. So if the MLS makes data public the only advantage to an online site is the way they package and format the data. You'll still want the MLS info for your target area.



I don't think the RE agent is going away anytime soon.
 
Yes ur explanation does make sense, but the model of % commission is expensive, given the way online sites are coming up with less expensive fee structure as well as flat fee structure, it doesn't make any sense to pay 6% on a half million dollar home. Agents have to adopt to new model and come up with their own fee model. Almost all the info is available online. If someone wants to do their own homework then they don't need to pay fees based on %. But defn if someone else doesn't have anytime or don't know how to gather all the info, welcome to pay these fees. I believe agents won't be going away but there will be lots of changes in the fee structure and it must be based on an individual need not flat out 6% or something, no matter who does the work.
 
Nah, realtors deserve almost 1% of GDP ...

<A href="http://calculatedrisk.blogspot.com/2008/05/brokers-commissions-riding-double.html">http://calculatedrisk.blogspot.com/2008/05/brokers-commissions-riding-double.html</A>
 
[quote author="maple" date=1212117542]Just a few things people might not be thinking about... I used to work at an MLS and here is my perspective. I'm a mechanical engineer now so I no longer work at an MLS just so ya know.



1. In order to HAVE a market for anything there must be a TRUSTED source of data.

4. Lots of MLS companies post the data for everybody to take a look at.



</blockquote>


So you think that by paying "brokers" thousands of dollars that this information somehow transforms into "trusted" and still public?



First, have you seen some of the slop that gets put in listings? complete fabrications, little white lies, etc. From what i've seen, "brokers" don't do anything to insure the accuracy of listings. Are you saying that somehow you are not going to need a home inspector if you use the "trusted brokers website"? so we will save the the $300 inspection fee in exchange for our $6000 in broker fees?



Second, how much more distorted do you think that house listings would become if people DIY and paid $200 to a service like the FSBO website in Madison WI, or just put up an ad on Craigslist (or some other site that was an open-source clearinghouse that became the defacto standard)? And wouldn't this solve the "openness" problem also? People aren't going to want to have people come look at their house who are pissed off about misrepresentations, it is a waste of everyone's time, including the sellers.

<strong>

I'm quite curious to hear what you have to say</strong>
 
[quote author="awgee" date=1212032607]



Why can not the NAR sell to whomever they wish or not sell to whomever they do not wish? When did private property rights become social property rights? It is the realtor's property. Can you not sell your medical services to whomever you wish? Should you be forced to provide non-emergency medical service if you think it is bad for your business? </blockquote>


Wow agee, didn't know that a "moderator" was that ignorant of the law.



No, you can not discriminate your medical services, highly illegal. Similar to the laws opening up the "exclusive" country clubs. If you accept money in exchange for services your "private" country club is subject to antidiscrimination laws. That's why Hillcrest in LA doesn't accept any money in exchange for services, only members can buy things with script.



You can't hoard what you have and chose your buyers, you have to treat all potential buyers equally, or you have to take your goods off the market.



That's the law of the land and that's the way it's been for at least the last 40 years.
 
[quote author="alan" date=1212141654][quote author="awgee" date=1212032607]



Why can not the NAR sell to whomever they wish or not sell to whomever they do not wish? When did private property rights become social property rights? It is the realtor's property. Can you not sell your medical services to whomever you wish? Should you be forced to provide non-emergency medical service if you think it is bad for your business? </blockquote>


Wow agee, didn't know that a "moderator" was that ignorant of the law.



No, you can not discriminate your medical services, highly illegal. Similar to the laws opening up the "exclusive" country clubs. If you accept money in exchange for services your "private" country club is subject to antidiscrimination laws. That's why Hillcrest in LA doesn't accept any money in exchange for services, only members can buy things with script.



You can't hoard what you have and chose your buyers, you have to treat all potential buyers equally, or you have to take your goods off the market.



That's the law of the land and that's the way it's been for at least the last 40 years.</blockquote>


Moderator? Huh? Moderator of what? Ignorant of the law? Yeah, I guess so. I am not an attorney, nor do I claim, nor have I ever claimed to know much about most law. Are the moderators of this forum expected to be legal experts? IR, Graph, et al., do you moderators claim to be legal experts? Alan, was that supposed to some kind of put down? Because it was uninformed, presumptuous, and just plain stupid.




I have a private tax practice and I discriminate. If I do not care to work with someone, I don't. Are you an attorney? You sound like you know something about this law?
 
No worries awgee, Alan has become quite the troll as of late. (but I still disagree with you and think it should be open-source) :P
 
Enough with this 6%, already. If there was only ONE person involved in the transaction and s/he is receiving the whole 6%. I will say that is too much. But we're talking a seller's agent, a buyer's agent along with their brokers. Thereafter, the tax man gets half and someone have already mentioned the out of pocket expenses. If you can find only ONE agent to represent the buyer and seller, you might be able to cut the 6%. Good luck.



Hey, in the end. It's a free market. If you don't like to pay 6%. Then shop around.
 
reason. Just because I want to sell my house doesn't mean I want to subsidize a realtor and assist them in making a living. I want to put the most cash in my pocket, and the percentage paid out to a realtor (yes, and their broker) is money out of my pocket. Do you think we don't understand that the broker usually takes 40-50%? (We do.)



I don't particularly care that the realtor has to split his/her commission with a broker. He/she chose this profession and knew the pitfalls. The whole thing just results in a jacked up price tag on a home...because I, as a seller, am going to pass that 5-6% loss right on to you, the buyer. And voila, inflated price.



I think the whole system needs an overhaul and I'm glad to see that open-sourcing the MLS might contribute to it.



On the sale of a 500K condo, a 6% fee is 30K. As a seller, I lose 30K. You end up paying 30K more. Even with the breakdown, I'd like to see what kind of hourly rate that equates to.



IR2, have you ever broken down a client transaction into what you actually earned if you were an hourly employee ?



Here is what I see....on a 500K sale, 30K commish. 15K to both sides. If broker takes 50% (which may be high, might be 40%) that means $7,500 to realtor. Forget about the "after tax" crap. So if the realtor worked 100 hrs for JUST YOU, and no one else during those 100 hours (LOL), he/she earns an hourly rate of $75.00 an hour. Even if they spent 200 hours dedicated to JUST ONE client, it's $37.50 an hour. Not too shabby.



Yes, I know there are flyers to buy, MLS to pay for (which could get cheaper now !) etc...but these are business expenses that should be accounted for ahead of time.



I found my own home that I purchased and I did it on the internet without any help from my realtor. I know I've discussed it before but the reason she didn't show it to me when I was searching, was because it was only a 2 1/2 % commission. I figured that out at the closing table. See, one bad apple can spoil it for the whole bunch!



My .02cents. Flame away.
 
Where to begin on this thread? Hmmm... too many issues to deal with in one post, obviously.



First and foremost, I think that awgee's post #12 rings most true. Negotiate your terms. No single solution will fit everyone's needs. Be clear about what you want and you can get it.



1. You have the right to say no.

2. You have the right to ask for a cost breakdown to see where your money is going.

3. You should put in the extra time up front to find someone you trust, and then listen to them.

4. You can do just about any form of payment that you'd like... flat-fee, bonus incentives, sliding scales, and hourly-rates are all already available, and are there for the asking. I can go into detail later on why %-based compensation has become the norm.



(FTR, I know that many attempts at a wide-spread hourly rate solution have been made, and all that I know of were very quickly defeated by arbitrage. Very good in theory but very tough in practice.)
 
What does the broker do for their share of the pie?



The broker is the one on the hook should anything go awry. They are responsible for all of the actions of the agents that hang their licenses with them. They are a form of insurance policy to make sure agents are adhering to proper standards of conduct. For that they get a piece of the action. Each agent is an independent contractor, who may hang their license with whomever they choose. The broker splits vary from brokerage to brokerage. The broker pays for all of the overhead and expenditures are all over the place. Newbies have to earn their stripes and give about 50% to the broker. Rainmakers get much better deals, up to 95% I believe with some big-name brands.



Personally, my family has been in RE since before I-5 went down to San Diego. GrandmaRealtor is still an active broker in her late 80's in SD County. Although I have access to that license and others (my wife has her broker's license, as well) I choose to hang my license where I do because of the whole package, not just the final split. If I hung my license with MrsIR2, yes, we could keep 100% of the paydays, but the downside would be that my clients wouldn't have the backing of an 800-lb gorilla complete with legal info, better placement of ads in news, tv, net, etc., and overall brand advantage. As a small independent brokerage I fear that I would be swallowed whole by the big boys who spend about $1M/week on ads (that you all know and love here!) Big brokers also pay for training to make sure agents are aware of potential implications of legal changes, CYA measures, and lots of "best practices" info as well.



Getting back to the point: How does this affect the end-users (buyers and sellers)? Maybe it doesn't, from what I'm reading of your comments. It <u>should </u>be assuring better quality service and serve as a check and balance to make sure deals are put together the right way.



I'm sure sell4you could chime in here too.
 
[quote author="Trooper" date=1212156909]The whole thing just results in a jacked up price tag on a home...because I, as a seller, am going to pass that 5-6% loss right on to you, the buyer. </blockquote>


Like taxes and surcharges, who actually "pays" the commission depends on the relative slopes of the supply and demand curves. During the bubble demand was steeper, and buyers effectively paid a greater percentage of the commission than sellers. Smaller commissions would increase peoples' willingness to trade, and volume would pick up, if slightly.



[quote author="IrvineRealtor" date=1212159370]I can go into detail later on why %-based compensation has become the norm. I know that many attempts at a wide-spread hourly rate solution have been made, and all that I know of were very quickly defeated by arbitrage. Very good in theory but very tough in practice.)</blockquote>


I'm very curious to hear your take when you have the time. You wrote "arbitrage" but I read "free market."
 
First, Troop makes a good point, how much do they make per hour? I bet IR2 has broken it down by the hour minus the expenses. Hell, any good commission based person should do that, or they have no idea how valuable their time really is.



Second, I think Troop is being far too generous to the broker. Many of the better RE firms, ReMax, currently payout 95% plus they collect an office fee. So, on a $500k home, 3% = $15k, 95% = $14,250, -$250 (half a month's office fee, 50 hours = 2 weeks) = $14k, and the total for 100 hours = $140 a hour. Not too shabby is putting it mildly. At 50 hours a week, and five transactions a year of $500k = $25 dollars a hour, or just over $65k a year. Keep in mind that the top agents do the majority of the business, and the schleps would love to have 5 transactions a year. The top are making three figures a hour, while the schleps are making less than the high school student who just handed you your double-double, fries, and diet Coke through the window of In and Out.



So... here was my idea to solve this dilemma... do a contract tier based service pricing. It would be tier 1 premium, tier 2 mid-range, and tier 3 you get what you pay for, which is not much. Also, it would be price recommended based. I.E. I say it will sell for $500k, and after 60 days if it doesn't then by what the price is reduced, so is the commission on the seller's agent side, $500k = 3% = $15K = 10% price drop = -$3k (gotta still pay the buyer's agent) = $12k. This right here would eliminate any Kool-Aid drunk agent, and any WTF pricing seller. 120 days + another price drop = -% of the price drop. This would motivate an agent to slap a Kool-Aid owner across their head so fast, they wouldn't even have time to figure out how much they would make if the seller would not be realistic.



Here is a snippet of my ideas for sellers...



Tier 1: You get to pay 6%. The agent advertises like mad, front page, color, spell checked with a fine toothed IHB comb, and in every media source possible. They pay the buyers agent the 3%. Everyone on IHB would know this place is for sale, as well any Nigerian scammer. Open houses would be 8 hours or more Saturday and Sunday. You would feel like the only listing this agent has, er you might be. Staging is mandatory. No one wants to see your crap, so put it away, they want to visualize their crap there, not yours. Professional pictures by a professional photographer is mandatory, and the listing will not be posted until there are photos. They might even have a buyer before you list the property, and you should pay for that.



Tier 2: You get to pay 5% and the buyer's agent will get the 3% part, and the seller gets the 2% part. The agent advertises, but no front page stuff. IHB will know it is for sale, but the Nigerians will be too busy calling acpme. Open houses would be limited to one weekend day or every other weekend for the two days. You would know the agent has other clients, or would know that they are busy from 5-9 for their shift at In and Out. You still can't leave your crap out, because no one wants to see your crap, so hide it in the addict. The photos will be done with a digital camera, and no people, or dogs taking a crap will be in the shots.



Tier 3: You get to pay 3% and the buyers agent will still get the 2% part, but the seller gets the 1% part. Advertising will consist of a Craigslist ad, and maybe an OCR classified ad. If the broker is feeling generous, they might throw in a spot for their Saturday RE section of the OCR. Open houses will be on a Saturday or a Sunday, from 1-4 pm by an assistant, if they have one, and never on a holiday weekend. Good luck in getting a hold of them, as they will be too busy with their Tier 1, Tier 2 clients, and their shift at In and Out for you. You can leave your crap out, but you have to pay an extra .5% for that, again... no one wants to see your crap. The photos will get uploaded some time, but they may be from a camera phone, and may include your dogs humping in them. Seriously, I am too lazy, but this has actually happened. Good luck getting a buyer's agent to show a home at 2%. Yeah... that is still the reality.



Each one of the tiers would have the same length of time of market/price drop/commission drop for all the tiers. This would make agents be in the best interest for sellers, and not take on BS sellers or price homes at WTF pricing.



IHBers, what say ye? And, buyer's agents are next...
 
<em>First, Troop makes a good point, how much do they make per hour? I bet IR2 has broken it down by the hour minus the expenses. Hell, any good commission based person should do that, or they have no idea how valuable their time really is.</em>



Did you notice that he didn't answer the question ? :smirk:



Now, I'm not saying there isn't a need for realtors...but IMO, the pricetag for their services is out of whack. Yes, IR2, I realize I can negotiate with you all day long, but if the buyers agent see's that 2 1/2% number....will they show my house ? Some will, some won't.....and that's where the monopoly comes in.



And my hypothetical was an agent earning a possible $75.00 an hour on only a 500K transaction.....on a million dollar transaction, that's $150.00 and hour ! WTF!
 
[quote author="Trooper" date=1212175941]And my hypothetical was an agent earning a possible $75.00 an hour on only a 500K transaction.....on a million dollar transaction, that's $150.00 and hour ! WTF!</blockquote>


Um, $75 a hour as an independent contractor isn't great money. If it is after expenses, self-paid benefits, the double social security then maybe. But in general, call the Geek squad I think they charge $75 or $85 hour with a 4 hour minimum and no guarentees. Even the lactation consultant for LA's DWP made $50/hour and that was guaranteed for showing up, not requiring a successful sale to actually get paid.
 
[quote author="Daedalus" date=1212162657]I'm very curious to hear your take when you have the time. You wrote "arbitrage" but I read "free market."</blockquote>


Where there is a broker that is an hourly biller and a broker that is paid out of closed transactions, what is to stop the buyer from using the "free" service of the latter up until finally buying the home, and then switching to the former?



That is exactly what has happened before and the businesses I know of got tied down quickly with legal issues regarding what constituted "procuring cause." That is why there is so much language in Dept of Real Estate (DRE) forms about what constitutes procuring cause. Coupled with reduced billable hours, fighting legal battles quickly drained the coffers and they were squeezed out.
 
[quote author="graphrix" date=1212163685]

Tier 2: ... You still can't leave your crap out, because no one wants to see your crap, so hide it in the addict. </blockquote>


When I have people touring my house, I always take my white powder with me :-)
 
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