by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

Mark Nadel‘s ground-breaking paper on traditional real estate commission models has been published in an abbreviated form in the Cornell Real Estate Review.

Nota bene: I embedded the wrong link for the Cornell version of the paper. It’s fixed now.

Technorati Tags: compensation for buyer representation, disintermediation, real estate, real estate marketing

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

When I walk into a supermarket, the first thing I look at are the floors. If they aren’t buffed to a blinding glow, I walk right back out. Why? Because if the manager isn’t staying on top of the floor maintenance, he isn’t staying on top of anything else, either. Without doubt, I am “protected” by vast armies of federal, state and local food cops, but it turns out that they are not willing to get food poisoning in my place. If I fail to guard my own self-interest, the courts might make me (or my heirs) whole — after-the-fact. But nothing can protect me if I won’t protect myself.

Surely you effect many similar sorts of “consumer protection” in your own behalf, possibly believing in your heart that the laws can protect you, yet exercising caution to protect yourself even so. But consider this: If, when selecting electrical equipment, you had to choose between oversight by government functionaries or the Underwriters Laboratories — but not both — which one would you choose?

If you said government, you can stop reading now. You’re hopeless. For those still with us, what we’re doing is exploring the implications of doing away with real estate licensing laws. And if that idea makes you shiver, you can settle down: No matter what I say, the real estate laws are not going to be repealed any time soon.

But imagine for a moment that your neighbor’s mother introduced an old friend to the FSBO seller up the street. This is brokerage, introducing buyer to seller. The principals are unrepresented, but they can do everything they need to do — in Arizona, at least — at the offices of a title company. Nothing unlawful has occurred — until grandma takes a finder’s fee from either the seller or the buyer.

At that point she is in violation of real estate licensing laws. She can connect buyers with sellers all day, every day — provided she does not get paid for doing so. The purpose of the real estate licensing laws is not to protect buyers and sellers from chatty grandmas, who Read more

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

My own personal experience with For-Sale-By-Owner sellers is pretty limited. I’ve never farmed them for listings, so I know nothing of that part of their lives. I’ve called a bunch of them to try to show their homes, but only once have I successfully gotten into one with my buyers. Mostly my experience consists of unreturned phone calls. Not a huge tragedy: The houses I’ve called on were almost always insanely over-priced. Actually, I have seen quite a few FSBOs — after they were listed by professionals and professionally-priced.

This has led me to believe that newspaper reporters live in a different universe. I’m pretty sure that most FSBO stories have unhappy endings, but you’d never guess that by reading the papers.

The New York Times coughs up another example today, this one based on a study done in Madison, Wisconsin. The story doesn’t concern FSBOs, but, rather, an alternative discount listing service, essentially an MLS-less real estate brokerage. The claim of the study is that sellers willing to sell into an artificially limited pool of buyers do as well or better than the sellers of Realtor-represented homes.

Is it true? Who knows? There’s not enough data to judge. Apparently the study measures sold homes. What about the homes that didn’t sell, or didn’t sell until they were listed by a Realtor? The authors of the study claim they were able to account for differences among properties, but this is simply an invitation to endless quibbling. In the end it doesn’t matter. Value is at once a matter of subjective perception and a practical, real-world trade-off. If you believe your time is best spent changing your own oil, you’re probably not my ideal client.

As you might expect, the study was done during the boom, when you couldn’t get a yard sign posted before the home sold. It is also reasonable to expect that newspapers all over the country will pick up the story, since it offers such amazingly bad advice in the current market.

More: Galen Ward speculates on agent skill sets, Glenn Kelman finds still another foot to shoot: Redfin is useless for Read more

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

This is me in today’s Arizona Republic (permanent link):

 
Consumer is the loser with real estate licensing, broker argues

We’ve been talking about real estate licensing laws, admittedly an exercise in futility. Whatever arguments I might make for repeal, it remains that the Arizona Department of Real Estate is not going to dry up and blow away like tumbleweed.

But here’s an important question: Who do real estate licensing laws benefit?

If you thought of consumers, that would be incorrect. The model legislation for real estate licensing laws in every state was written by the National Association of Realtors. The purpose of these laws is to artificially limit entry into the real estate business, with the objective being to artificially raise the prices paid by consumers.

The fact of the matter is that virtually all government regulation of commerce exists to limit supply, thereby raising prices. This is not an unavoidable consequence, but since regulations are either written by or heavily-influenced by the regulated industries, the alignment of government and business in one conspiracy after another against the consumer is a nearly-universal outcome.

As we discussed last week, another key beneficiary of real estate licensing laws is the real estate broker. Real estate salespeople must be licensed, but in order to work, they must also “hang” their licenses with a real estate broker, another category of license.

The broker will take a bite out of every dollar his salespeople bring in. It is not an exaggeration to say that a broker’s license is a license to steal.

It gets better. Real estate brokers have managed to get themselves exempted from IRS income reporting and withholding regulations. In any other business, the boss has to withhold taxes. Taxes are vile, but the reporting and withholding requirement discourages careless hiring practices. There is a significant cost to adding employees, so employers will not take a chance on just anyone.

Not so real estate brokers. Adding a new Realtor costs virtually nothing, so many brokerages are packed wall-to-wall with thoroughly incompetent agents — haphazardly trained but licensed by the state to wreck your financial life forever.

If you think these laws and regulations benefit Read more

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

You just can’t make this stuff up. Redfin’s Glenn Kelman:

At lunch with Cynthia and a local real estate baron, we heard about a new tactic for getting a deal on a property. Rather than offering a lower price, ask the seller to handle closing costs, which can run up to $10,000 or more.

How long have they been doing real estate? And today they discovered that they can negotiate the closing costs?

Recall that Kelman claims that Redfin agents are better negotiators. I mentioned closing costs when discussing why that claim might not be true:

A complicated negotiation might result in a higher reported sales price but a better overall deal for the buyers — for example, repairs or even remodeling, seller concessions, no out-of-pocket costs, etc. These are the types of arrangements more likely to be made by more-experienced agents.

A question their clients — and their clients’ attorneys — might ask: What else don’t they know?

In a word: Yikes!

Technorati Tags: disintermediation, real estate, real estate marketing