Real Estate

The residential real estate business needs digital disruption

  • Last Updated:
  • May 19th, 2019 4:50 pm
[OP]
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Aug 2, 2010
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The residential real estate business needs digital disruption

No kidding!!! An article from the Washington Post today, which is as applicable to Canada as the US. I've been harping on this for years (Cue all the agents who say they deserve the high commissions even though the task is easier than 10 years ago yet the prices have more than doubled). Click the quote below to read or read the article reproduced below. Emphasis in bold is mine.

'consumers, when they buy or sell a house, pay fees of about 6 percent, which is sometimes triple the rate in other countries, such as Australia (2 percent), Singapore and the Britain (both 1.5 percent).'

The residential real estate business needs digital disruption

Washington Post
By Jonathan Friedland May 17 at 7:00 AM
Jonathan Friedland manages brand, communications and policy at Rex, an online real estate broker.

When President Trump addresses the National Association of Realtors on Friday afternoon in Washington, the mood in the ballroom at the Marriott Wardman Park Hotel no doubt will be celebratory. But the bonhomie at the gathering will mask troubles in the residential real estate industry, one of the last meaningful sectors of the U.S. economy yet to be radically transformed by advances in computing and communications.

Instead, the industry remains one in which many of the nearly 1.4 million realtors in the United States struggle to make a decent living. Big brokers such as Coldwell Banker, Century 21 and Re/Max are struggling with slowing growth and a worsening tug of war with their agents over commission income. And consumers, when they buy or sell a house, pay fees of about 6 percent, which is sometimes triple the rate in other countries, such as Australia (2 percent), Singapore and the Britain (both 1.5 percent).

Residential real estate’s organizational and incentive structure reflects a different era, when most business was local and consumers weren’t empowered by technology. The industry has protected its interests through the Multiple Listing Service, or MLS, a collection of local organizations that control physical access and data relating to homes for sale. Through a phone-book size set of bylaws, the service requires both sellers and buyers to work through realtors and shun those who don’t abide by its rules. These MLS organizations are controlled by local realty boards and, ultimately, the National Association of Realtors.

Over the past few weeks, two class-action suits have been filed against the association, MLS and big brokerages such as Realogy, Re/Max and Keller Williams. The homeowners’ suits argue that MLS has used these rules to keep fees at 6 percent, the same level as in 1960, despite the huge rise in the value of real estate over the same period, even adjusting for inflation. MLS rules and regulations, the suits say, inhibit competition, thwart innovation and are in violation of the Sherman Act.

The Realtors’ association says that plaintiffs are “wrong on the facts, wrong on the law and wrong on the economics” and that the Multiple Listing Service promotes efficiency and "is in the best interest of home buyers and sellers.”

Why should people care? Residential real estate is a $1.5 trillion annual industry in the United States. When people buy or sell a house, which they do every seven to 10 years, the process is highly stressful (right up there with getting married and divorcing). When presented with the terms of a real estate transaction, buyers and sellers understandably have gone along with them — as they must, in the absence of ready alternatives, but billions of dollars in homeowner equity have been sacrificed along the way.

High fees charged by realtors also suppress transaction volume, and the economic knock-on effects are considerable in the related mortgage, insurance and contracting industries, while also limiting labor mobility and reducing the tax take by municipalities.

Ironically, though the Multiple Listing Service keeps fees high, that hasn’t translated into handsome returns for many realtors. Drawn by glamorizing TV shows such as Bravo’s “Million Dollar Listing,” there are far too many realtors for the number of homes being bought and sold. There are more realtors in the United States now than in 2008, during the last housing peak.

Because the number of existing homes sold in the United States has been stuck at 5 million to 6 million annually for the past decade, the median gross income of realtors has been falling, down from $55,000 in 2012 to $39,800 in 2017, according to the national association. The lion’s share of profit seems to be going to realtors handling luxury properties in New York, San Francisco, Los Angeles, Seattle and Miami … the kind depicted on Bravo and HGTV.

As the class-action suits wind through the courts, Internet-age companies that aren’t part of the MLS, such as Zillow, Opendoor and my own company, are slowly chipping away at the status quo from a variety of angles. The residential real estate industry might not be a tear-down, but it’s definitely overdue for a complete renovation.
16 replies
Deal Addict
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Dec 16, 2015
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Psstt... we’re launching this disruption soon. Pm me if you’d like an equity stake. 0.01% equity for $10M.
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Dec 10, 2008
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The comission structure is totally wack, at least from the buyers perspective.

As a buyer, I have to:

- Find a home
- Do a virtual tour
- Drive by the property multiple times
- Research schools, zoning, etc.

Then I "have to" get a Realtor to simply open the door

...and from there I have to:

- Do one or more viewings in person
- Get a home inspection
- Get a mortgage broker

I'm basically paying someone 2.5% of the house's value just to open the door and maybe run a few comps? Absolutly crazy.
[OP]
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Redsanta wrote:
May 17th, 2019 1:00 pm
Psstt... we’re launching this disruption soon. Pm me if you’d like an equity stake. 0.01% equity for $10M.
Great. PM bizplan
Member
Aug 14, 2007
422 posts
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Ottawa
I have been selling and buying properties myself for a while, the reason is simple, I don't see real estate broker have any value added to my transition. I am willing to pay for the lawyer, since they are actually helping me to ensure the transition is completed legally, and they are only asking for less than $2000. For broker, buyer and seller agents are both asking for $25,000 for a million transition. I don't see what they bring to the table, are they doing more work than lawyer?
Member
Nov 16, 2013
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Mississauga
audiorichard wrote:
May 17th, 2019 1:56 pm
I have been selling and buying properties myself for a while, the reason is simple, I don't see real estate broker have any value added to my transition. I am willing to pay for the lawyer, since they are actually helping me to ensure the transition is completed legally, and they are only asking for less than $2000. For broker, buyer and seller agents are both asking for $25,000 for a million transition. I don't see what they bring to the table, are they doing more work than lawyer?
No. Nothing more than what Google can do for you
Jr. Member
Oct 21, 2013
112 posts
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Brampton, ON
RCGA wrote:
May 17th, 2019 1:04 pm
The comission structure is totally wack, at least from the buyers perspective.

As a buyer, I have to:

- Find a home
- Do a virtual tour
- Drive by the property multiple times
- Research schools, zoning, etc.

Then I "have to" get a Realtor to simply open the door

...and from there I have to:

- Do one or more viewings in person
- Get a home inspection
- Get a mortgage broker

I'm basically paying someone 2.5% of the house's value just to open the door and maybe run a few comps? Absolutly crazy.

You are not paying only to open doors. You are paying to do the negotitations, paperwork, make sure the deadlines are not missed, liabilities, risks, advertisements and for their time.

There is no good way to put a price tag on someones service. Thats why sometimes its better to go with market rate. And that is the prevalant rate in market. And had been for years.
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DealsFreak wrote:
May 19th, 2019 10:54 am
You are not paying only to open doors. You are paying to do the negotitations, paperwork, make sure the deadlines are not missed, liabilities, risks, advertisements and for their time.

There is no good way to put a price tag on someones service. Thats why sometimes its better to go with market rate. And that is the prevalant rate in market. And had been for years.
The buyer's agent isn't really negotiating. They're just the middle-man between you and the seller.

The lawyers and the seller's agent will make sure that deadlines aren't missed. Does the transaction require a 4th person to keep track of deadlines?

What are some risks that the buyer's agent takes on?

What are some "advertisements" that the buyer's agent does?

There's a great way to put a price tag on someone's service; it's called an hourly rate.
[OP]
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RCGA wrote:
May 19th, 2019 12:32 pm
The buyer's agent isn't really negotiating. They're just the middle-man between you and the seller.

The lawyers and the seller's agent will make sure that deadlines aren't missed. Does the transaction require a 4th person to keep track of deadlines?

What are some risks that the buyer's agent takes on?

What are some "advertisements" that the buyer's agent does?

There's a great way to put a price tag on someone's service; it's called an hourly rate.
REBBA does not allow that, along with other compensation arrangements that would benefit the consumer, such as flat rate + commission % of sale price over listing.
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Feb 15, 2018
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DealsFreak wrote:
May 19th, 2019 10:54 am
You are not paying only to open doors. You are paying to do the negotitations, paperwork, make sure the deadlines are not missed, liabilities, risks, advertisements and for their time.

There is no good way to put a price tag on someones service. Thats why sometimes its better to go with market rate. And that is the prevalant rate in market. And had been for years.
Oh no! Are you telling me realtors are worth more than lawyers. A lawyer goes to university for 7 years and an additional year of articles. A lawyer knows more about liability than a million realtors put together, yet he charges less.

There are two ways to value a realtors time:

1) Hourly pay (not the most efficient)
2) Fixed task fees would be the most efficient way to compensate realtors, since all the tasks they perform are well known, standardized, and there is a huge body of data to draw benchmarks from. So, it would go like this: $200 for submitting an offer, $90 for a counter offer, $100 per home showing e.t.c. Even lawyers have standard rates for certain routine transactions.
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canuckstorm wrote:
May 19th, 2019 1:08 pm

2) Fixed task fees would be the most efficient way to compensate realtors, since all the tasks they perform are well known, standardized, and there is a huge body of data to draw benchmarks from. So, it would go like this: $200 for submitting an offer, $90 for a counter offer, $100 per home showing e.t.c. Even lawyers have standard rates for certain routine transactions.
As much as I'd want this to be the case, it'll never happen because Realtors would never make anywhere near what they make now.

No amount of line items will ever amount to $10,000+ in fees.
[OP]
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RCGA wrote:
May 19th, 2019 1:21 pm
As much as I'd want this to be the case, it'll never happen because Realtors would never make anywhere near what they make now.

No amount of line items will ever amount to $10,000+ in fees.
That but even if they were open to it those arrangements are illegal under REBBA.
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Feb 15, 2018
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RCGA wrote:
May 19th, 2019 1:21 pm
As much as I'd want this to be the case, it'll never happen because Realtors would never make anywhere near what they make now.

No amount of line items will ever amount to $10,000+ in fees.
Volume will help them make up for the lost gravy. Imagine the following scenario:
10 offers per week: 10x$200 = $2,000
10 Showings per week: 10x$100=$1,000
2 Listings per week: 2x$500=$1,000
----------------------------------------------------------
total = $4,000 per week or monthly = (4.33x$4,000) = $17,320 per month.

Give brokerage 15% = $2,598 and you are left with $14,722. Take away vehicle, home office expenses, insurance, professional development and membership dues, and you are left with $11,000/month. Not bad for a job that does not require college but just a mickey mouse online course taking no more than 2 months. I am currently taking the course and it is not even as rigorous as some easy 3 credit electives I took in university to boost my GPA. Yet, as a professional it took me years to crack the 6 figure mark.

The problem with my proposal is that people will actually have to work for their money. However, other professions have to grind and burn the midnight oil.
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eonibm wrote:
May 19th, 2019 2:30 pm
That but even if they were open to it those arrangements are illegal under REBBA.
Maybe it is up to us the new guys entering into this field as moonlighters to try and drive change from within by lobbying for a more free market approach where realtors can come up with whatever comp structure they like. Dont know about Ontario but here in Alberta I have been looking at joining some brokerages, once I am done my course, that just charge me a flat fee for each transaction I conduct. That is a start. We want to bring more efficiency to the industry and drive out the rent seekers who will not innovate.
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eonibm wrote:
May 19th, 2019 2:30 pm
That but even if they were open to it those arrangements are illegal under REBBA.
So if I hired a lawyer, they couldn't bill me hourly to perform many (all?) of the tasks an agent performs?

A lawyer can come with me on a viewing, right? The listing agent opens the door.

A lawyer can draft an agreement of sale, right?

A lawyer can navigate the close on my behalf, right?

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