There’s always something to howl about

The Economist asks “Why is it so expensive to buy or sell a house in America?”

This is in an article titled “The great realtor rip-off”.

The comparison to estate agents in the UK is especially interesting. They make half the commission and close 3 to 4x transactions.

The article mentions NAR by name and only refers to MLS in passing as ex-cartels:

The business used to operate like a series of local cartels. In a typical area, a handful of brokers controlled a shared database of available homes, and limited their cheaper rivals’ access to those listings. In 2008 in the United States and 2010 in Canada, regulators struck deals with realtors to open up these databases. Yet since then the average commission has actually risen, from 5.0% in 2005 to 5.4% in 2011, according to REAL Trends, a research firm.

“Used to”, huh?

Its a great read as it sums up the state of the industry succinctly and in no uncertain terms, but it could have done a better job of laying the blame at the feet of the MLS concept itself. If there were no MLS/NAR creating $8bn of “economic waste”, it seems to me Bloodhounds would be the brokers and agents left standing, as is apparently the case in UK.

9 Comments so far

  1. Sean Purcell May 8th, 2012 7:51 am

    Interesting article John. Lucky for most agents, few of their clients read The Economist… 🙂

    I wonder about a couple of the things: what is the average home price in the UK? One Commenter referenced that it was much higher, which could account for some of the difference in commissions. The author also notes that UK agents do 40-50 transactions/year vs. 7 for US agents. If the volume is so low, wouldn’t that explain why the price is so much higher? It requires collusion, of course, but basic supply & demand still at work.

    I’ve said before that the entire model is no longer relevant, and the pricing structure borders on fraud. I’ve yet to institute my own ideas, however, so I can’t say with any accuracy whether clients are ready to stop being fleeced…

  2. Johnny Brooks May 8th, 2012 11:52 am

    Homes just like any other large ticket item are bought on the supply and demand theory. If buyers did not see the value, they will not purchase.

  3. Michael Cook May 8th, 2012 12:36 pm

    I think the agent collusion is a big issue as well. Its very similar to a union, which for better or worse is extremely ineffecient. They definitely will not tour homes that are not offering a 3% commission. They will put in their contract that the buyer must make up the difference if they buy a home offering less of a commission. That silences the buyer pretty quickly.

    Here in New York City, realtors do absolutely nothing, some times they dont even bother to show up to tour the home with you and they get 6% with pricing easily comparable to the UK.

  4. Allison Wax May 8th, 2012 3:42 pm

    Very interesting article. I wonder if the author had a bad experience with an agent?

  5. John Rowles May 8th, 2012 4:56 pm

    @ Sean: I left a longer comment on the original article that goes into more detail, but at the end of the day I believe that it is the MLS system itself that is the root cause of US buyers paying an agent double what a UK buyer pays an estate agent.

    The short version is that the raison d’être of the MLS is to fill the trough with $8bn in “economic waste” at the expense, literally, of home buyers.

  6. Minerva May 16th, 2012 2:21 am

    Interesting post. This is really a good opener for those who are still wondering what’s happening now.

  7. Caroline Lubers June 3rd, 2012 7:11 am

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  8. Malia Meenderman June 7th, 2012 1:03 pm

    Very interesting…… I wonder if agents in the UK are so easily sued as we are here in the US? I also think we still have a tremendous number of agents who sell real estate part time (how this is even possible, I do not know) which brings down the average sales per year number. Further more, we do have quite a few agents (especially in the boom times) that were just ‘trying it out’.

    No doubt the industry (including the MLS) is due for major changes.

  9. Bianca June 11th, 2012 2:18 pm

    This is a very interesting article and it does sound like he had a bad experience with an agent.