I’ve been sitting on a post from Jeff Corbett, The X-Broker, for a few days. Jeff Argues that Realty.bots will eliminate buyer’s agents. This actually ties in with recent announcements that major brokerages will be feeding listings to Realty.bots like Trulia.com and Google base. I get the idea Jeff thinks these are good things. I think he’s mistaken.
Start here: Jessica Swesey at InmanBlog asked:
If the DOJ wins and NAR is forced to retract policies, what is the likely chain of events to follow? Who wins and who loses?
My reply:
If the DOJ tries to play pirate with the current system, the big brokerages may go all in-house, which they could easily do already. Then there will be no small brokerages.
Jeff objects to this, but it’s not an unreasonable proposition.
Note, for example, the the overwhelming majority of listings in Tucson are held by one brokerage — Long Realty. Who gains more from the cooperative system imposed by the TARMLS system — Long or all the little brokerages competing against it? If Long pulled out of TARMLS, what would happen happen to those smaller players?
In Phoenix, the market is dominated by Realty Executives and by RE/Max, Keller Williams, Coldwell-Banker and Century 21 Franchises. If they pulled out of ARMLS, either in isolation or by forming a new big-boys-only MLS system, brokerages like mine would be wiped out overnight.
Too much of this debate is beside the point. Pundits simultaneously attribute too much and too little importance to the MLS. From a professional’s point of view, Realty.bots are not comparable to MLS systems, and they probably never will be. They are good for window-shopping by consumers, not for searching by professionals. But wresting control of the MLS away from brokers, somehow forcing them to produce content against their own interests, will not change anything that matters in the practice of residential real estate representation. The reason for this is simple: What is wrong in residential real estate representation has nothing to do with the MLS itself.
We’ll come back to that. First: Buyers buy from the selection that is available to them. This is true of everything that gets bought. I wrote about this in November. The MLS is not a universal inventory, and there will never be a universal inventory. However, if major brokers were to pull out of the MLS, it might not hurt them at all. They would sell their own in-house listings, occasionally reaching one-off co-op agreements on houses listed with other brokerages or with by-owner sellers. This is how things worked in the United States until the mid-1950s, when brokers worked out the idea of a manageable MLS system. The net effect for the consumer would be just like shopping at Lowe’s instead of Home Depot: This is what is available to us here.
This doesn’t seem likely to me, but it’s far from impossible. In the neighborhood I live in, mega-producer Bobby Leib could pull out of the MLS all on his own and still sell every one of his avidly-sought listings for top-dollar. The people most benefitted by the MLS system are the small brokerages, not the big ones.
But at the same time, big brokerages jumping on the Realty.bot bandwagon is not evidence of their endorsement of Realty.bot ideals. To the contrary, the Realty.bots provide brokers — large and small — with excellent opportunities to double-dip their own listings, and, failing that, to use those listings as bait to snag buyers for other listings, their own or those listed by other brokerages.
Do you understand this? The Realty.bots are not “freeing” buyers, they are the Judas Goats leading them into the worst kind of representation arrangements. Whatever brokers may say about the equity of dual agency, it remains that the seller will have had 90% of the broker’s beneficial advice before the buyer even appears on the scene. The buyer may consent to dual representation, but there is no way the buyer can achieve equal representation in that circumstance.
Glenn Kelman from Redfin.com phoned me Friday evening. He was mad at me, and he wanted to try to iron out our differences. I don’t know that we made any headway, but I’ll give him credit for initiative. While we were on the phone, I asked him what he thought would be the single most important reform to be made in the real estate industry today. He said it would be liberating the MLS system, so that anyone could do what they want with the data.
This is not even close, from my point of view. The most significant defect in the way that we conduct the real estate business in the United States today is that buyers do not have true representation. We’ve made enormous strides from the days of sub-agency, but as long as they do not pay for their own representation — with the buyer’s agent’s compensation coming from the listing agent’s sales commission instead — buyers will continue to be less than ideally vigilant about guarding their own interests, and sellers will continue to have the upper hand.
This is not even that difficult a problem to solve. It amounts to lenders agreeing to accept a slightly different arrangement of numbers on the HUD-1. Instead of allowing up to 7% sales commission, paid by the seller, they would allow up to 3.5% commission paid by the seller to the listing agent and up to 3.5% paid by the buyer to the buyer’s agent. (Want to know the reason for the ubiquity of the “6% commission”? The lenders allow it.) Other reforms could flow from this. Sellers could stop trying to bribe everyone on two legs, and buyers could learn to negotiate commissions, just as sellers have. Without the co-broke, MLS systems could blossom into true advertising media.
But: None of these benefits will come about by undermining buyer representation. Despite their good intentions, the Realty.bots and the angry young men are likelier to make things worse for buyers, not better.
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Technorati Tags: blogging, disintermediation, real estate, real estate marketing
Jeff Turner says:
Greg, from a pure consumer point of view, this is exactly why I don’t believe the Realty.bots are on the right track. I’ve been sitting on a post idea for two weeks and this post has pushed me to go ahead and write it. No one wins if buyer representation is not enhanced and strengthened by the changes!
March 5, 2007 — 8:06 am
Dave Barnes says:
Manhattan (New York) has no MLS. Somehow people keep selling and buying.
March 5, 2007 — 8:48 am
Cathleen Collins says:
Two comments:
First, a supporting opinion that the proponents of “liberating the MLS” are stuck in the past. The RE industry (at least in AZ — I can’t speak to anywhere but here) already operates with the assumption that consumers who want to find their own home are already engaged in the search. “Socializing” the MLS, replacing association rules with government rules, won’t do anything to help Mr. and Mrs. Home Buyer. (As Greg demonstrates in this post, such public intervention will indeed hurt the consumer, and eliminate competition rather than foster it.) The serious, crucial work of a buyer’s agent goes into full swing once the buyer identifies the home she wants. It’s my job to help her get that home… and this includes so much that no MLS will ever be able to address — such as a professional analysis of the current market for that specific home, which needs to be considered in the offer; the condition of the house; the buyer’s financial ability to keep the house; an objective assessment of the house’s ability to satisfy the buyer’s wants and needs (No kidding – I had this conversation with a client, “I know you really love the community pool and free wifi, but a two bedroom condo is not a good housing solution for your family. Preteen boys and girls shouldn’t share a bedroom. “) Houses are not fungible, and each buyer is unique. It takes a skilled, feet-on-the-ground professional to facilitate the fit. The only people who can doubt this value proposition are people who have never provided this service and have not had a good experience with a good buyer’s agent.
My second observation is that a shift in lending practices to finance buyers’ independent representation, which Greg describes here, needs to be recognized by the courts. If I’m representing the seller, and a buyer wants to save the cost of professional representation, the court cannot assign an implied dual-agency to me. I need to be able to zealously and ethically represent the interests of my selling client without a bleeding heart jury feeling sorry for the poor buyer who tried to save himself the cost of representation by poorly representing himself. No one in a civil suit would ever think to save money on attorney’s fees by not hiring an attorney for himself, but rather expect to be helped out by his opponent’s attorney.
March 5, 2007 — 12:07 pm
JeffX says:
Your post deserves a comprehensive response Greg, which I will post soon (ive been moving, *ugh*)… until that time I would like to clarify that I don’t think ‘realty.bots’ will ever replace buyers agents…instead, ‘they’ will (do) marginalize, disintermediate, etc a BA’s ‘traditional’ work load and as a result foster the growth of alternative BA biz models (thus commission structures).
BA’s should position themselves to accommodate this growing paradigm shift of consumer enlightenment…
March 5, 2007 — 2:47 pm
Grasshopper says:
Greg,
This may be a topic for separate blog because it’s BIG. You alluded to the fact that “big brokerages are jumping on the Realty.bot bandwagon,” even referencing the Joel Burslem’s post on The Future of Real Estate Marketing (recent announcements that major brokerages will be feeding listings). But are you aware of what these big brokerages are really doing?
For one, they are upsetting many of their franchisees. Think about it. As an independent contractor working under a franchise brand name, we organize and pay for the marketing of our inventory (online and in print). We do this to generate leads for our independent companies. Consumer sees us, or our inventory, calls the number, or sends an email–we get the lead. We do the work, we get recognized, we get rewarded for our efforts. As it should be, right?
Now, take a closer look at what’s happening with the partnership between Realogy and Trulia, or Google. Take a look at the way the inventory is displayed on these sites. You may notice that none of the links go back to the actual independent franchisee website–but rather to the corporate site only. What’s more, take a look at the logos being used. Do you see any reference to the DBA of the independent contractor? No, just the corporate brand name with no credit going to the real data aggregator/contributor (franchisee). It may cause you to ask “who owns the listing data here–the franchisor or the franchisee. Lastly, I challenge you to find on the Trulia or Google Base sites any reference to the independent franchisee (e.g. website, email, phone number, DBA, etc.)
Do you see? Do you see?
Does anyone see?
Like I said, this topic may be worthy of a separate blog post crafted by the master hound himself–or not. Just a thought….
March 5, 2007 — 2:51 pm
Grasshopper says:
Oh, BTW, I called Trulia and they told me I could use my company logo with my DBA for a fee. The same fee may or may not include a link back to my site.
March 5, 2007 — 3:35 pm