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Will real estate consumers begin comparing hourly fees to savings?

What’s a familiar story about agents vs "for sale by owner" properties doing "above the fold" on page one of the New York Times?  Because:

"The
findings [– that "One City’€™s Home Sellers Do Better on Their Own –] fly in the face of studies by the National Association of
Realtors. The group has said that houses sold via its members’ local
multiple listing services get a 16 percent premium over homes sold by
their owners."

The timing of the story is also important because it echoes a Wall Street Journal headline this week cautioning
"What You Don’t Know About Real Estate May Cost You."

One of the stunning findings in research conducted by the AARP and
Consumer Federation of America is that "Only about one-quarter of
respondents knew that they can negotiate broker commissions."
Apparently another WSJ story three years ago which advised consumers
that "It Pays to Negotiate Your Agent’s Commission," has had little impact (despite a reference to The Real Estate Cafe’s 100% rebate model 😉

So how can an enlightened homebuyer or seller compare the
value added by real estate agents versus their level of effort and cost of doing
business?  One of the researchers in the NYTimes article concludes that
real estate consumers will begin asking for time sheets:

"…sellers [and homebuyers?]
will begin to examine more closely the cost of all the small tasks
handled by agents. To justify a $12,000 fee on a $200,000 house, he
said, "you’d have to have a very high hourly rate" for an agent’s work."

Another industry critic, Mark Nadel, says that kind of disclosure could help deliver an
estimated $30 billion annually in consumer savings.  Yes, existing
fee-for-service business models like The Real Estate Cafe would benefit
greatly from such a regulation, but if "unit pricing" is now commonplace in
supermarkets why not require similar transparency in real estate so
homebuyers and sellers can compare effective hourly rates? 

Want to see time sheets for our past clients and compare their total hourly fees to savings last year?  Ask our competitors — traditional full commissions or competing rebate business models like Redfin — for the same information so you can compare hourly fees and savings side-by-side.  (Our goal is to help you save so much money, you’re GLAD to help save a life as well.)

$60 Billion question: How do consumers uncouple real estate commissions?

Cnn_overpaidpoll051805_1Steven Pearlstein of the Washington Post hit the real estate cartel with a one, two punch today writing a hard-hitting column entitled, Realtors Aghast At Notion of Competition, then hosting an hour online discussion where consumers — 84% of whom feel that real estate agents are overpaid according to a recent CNN/Money poll — underscored the importance of the DOJ and FTC’s "laudable campaign to bring price competition to one of the last outposts
of cartel-like behavior
."

After more than a decade of advocating industry reforms it’s a pleasure to have the press championing the cause and for Pearlstein to respond to my question during his chat:

Boston, MA:
Does the negotiate your own fee, "bring your own broker" (BYOB) compensation
plan you suggest in the final paragraph of your column require the uncoupling
of the traditional two-sided real estate commission? That seems to be
the glue that holds the MLS together and commissions artificially high. How
do consumers as a group or individual buyers and sellers get there from here?

Steven Pearlstein:
Well, that’s the $64,000 question (or should I say the $60 billion one, which
is what brokerage fees were in the U.S. last year). I think it will require
some changes in state and federal laws (such as on whether brokerage fees
can be financed), professional codes of conduct and a change of heart at
the National Association of Realtors. If there is no change, however, the
system will eventually change on its own as Internet brokers gradually increase
their market share and lower prevailing commission rates.

Will Pearlstein and others in the press follow-up with more coverage?  Will consumer advocacy groups, like the Consumer Federation of America, once again champion commission reform particularly the ability for buyers and sellers to finance fees outside the traditional two-sided commissions?  With their support, new groups like the National Association of Real Estate Consultants can move the industry towards a tipping point where "The next major revolution in real estate," as the former chief economist of the National Association of Realtors once predicted, "will be fee-based services replacing the blanket commission pricing that has dominated the industry for so long."

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