Realtors’ bubble may be bursting
IF YOU HAVE ever sold your house, chances are you had to pay somewhere around 6% to real estate agents. You were robbed. And the people who robbed you are, naturally, determined to keep on robbing you and everybody else for as long as possible. But some people are starting to push back.
The purported reason we have real estate agents is that they perform needed services. To some extent, they do. If you’re selling, they show your house to buyers. If you’re buying, they advise you what to look for.
For both, they navigate you through a complex transaction. That’s all well and good.
The trouble is that in most places, the agents have formed a quasi-monopoly by agreeing within the industry to charge a fixed commission. It’s almost impossible to find a real estate agent who will offer to sell your house for less than the going rate.
In most contexts this practice is called price fixing, and it’s illegal. The agents usually have more subtle ways of doing it. Regulations are usually set by state boards, which themselves usually consist of real estate agents. They typically pass regulations barring rebates or forbidding agents from offering a la carte services or flat fees.
In most cases, regulation isn’t needed. Agents may compete with one another for customers, but they need one another to drum up business. If you’re selling a house, you need other agents to bring customers to your door.
“One can get ostracized very easily,” says Albert Foer of the American Antitrust Institute, “if one is seen as a price cutter.”
Some of the fees collected by agents are legitimate. But some represent pure parasitic leeching. Comparing the fees charged in countries with less-powerful real estate agents suggests that fees in the United States ought to be about half as high as they are. Given that these commissions amount to at least $60 billion a year, that’s a lot of blood being sucked out of the home market.
OVER THE LAST couple of years, there have been signs that the customers aren’t willing to hand over thousands of dollars anymore. Why? One reason is the hot housing market. As prices get higher and higher, agents earn more and more without having to do more.
The second is the rise of the Internet. In most markets, broadening access to information has increased competition and reduced prices. Think about, say, the way you can search for used books online, or buy plane tickets without going to a travel agent. The Internet revolution has left real estate mostly untouched.
Some online competitors are trying to cut the real estate agents out of the action. The Realtors association is fighting back by denying those firms access to its databases of homes for sale. In some cases, the consumers are taking matters into their own hands. Last week, Jeff Bailey of the New York Times reported that some good folk in Madison, Wis., have taken it upon themselves to create a thriving for-sale-by-owner website and an alternative listing service. Sellers can list a house for a rock-bottom fee of $150.
Real estate agents are naturally furious. “It’s a commission-avoidance scheme,” sputtered one who works for Wisconsin’s largest real estate broker. As if when I sell my house I have some patriotic duty to fork over a chunk of the sale to a third party.
The phrase itself -- “commission-avoidance scheme” -- is revealing. You’ve heard of mobsters hitting up store owners, but rarely do they have the gall to complain that merchants who go to the police are running a “protection-money-avoidance scheme.” In the real estate agents’ minds, they’re not the ones running a scheme. The schemers are the people buying and selling houses to one another. A free market, in other words. How sinister!
