10+ years ago we had other "agents" that made a lot of money, e.g. "Travel Agent" in Travel&Leisure industry. Then internet came along and now we have 1,000's of websites that have replaced what Travel Agents used to do...
For Real-Estate I think MLS is just a start a small piece of the puzzle, someone very smart is going to disrupt the whole industry and make many billions of dollars.
I basically agree, but I will say that when we bought our house and the (FSBO) seller turned out to be a flake and/or an outright nutcase, the realtor we were working with earned every penny of his 3%. I won't go into what he did for us because some of it may not necessarily have been legal for someone who's not an attorney to perform. Let's just say it took a lot of hustle to hold the seller to his commitments and make the deal happen according to the contract... especially when some of the flakiness turned out to be our own fault, due to the (in)actions of our mortgage lender.
Most of the other realtors I've dealt with fit your description perfectly. Nowadays, my thinking is that they're like airline pilots -- most of the time you can take them for granted and even think about how to replace them with automated processes, but when things start to go wrong, you may find yourself appreciating their work more than you thought you would.
The entire Real-Estate industry is ripe for disruption.
Exactly why are we paying 6% to "agents"?
(We bought our house with them.)
"We’re full-service, local agents who get to know you over coffee and on home tours, and we use online tools to make you smarter and faster. More than 10,000 customers buy or sell a home with us each year."
That's pretty much what any brokerage is. The only difference is they pay their people salaries. Any agent that can actually substantially sell and earn would strike out on their own and get their brokers license.
In less that 30 seconds, you can begin the process of listing your home with no contract or fees and includes MLS syndication.
The app auto-dispatches photography, drop-ships signs and lock-boxes, and starts the documentation management process.
At anytime you can reach out to your agent via phone, chat, or email.
When offers come in, they are displayed in "easy to understand" language and you can review then with you agent/listing account manager anytime.
When closing time comes, we dispatch a notary to the home and you exchange everything at the home. Super easy. Super convenient.
How we make money:
We retain a small fee at closing. When you go to buy your next home, we rebate that fee back to you when you use one of our vetted affiliate agents.
It is a win win. We keep the small fee and the agent "rebate" is essentially the acquisition fee for the guaranteed buyer. Agents don't waste their time working leads that will most likely not close (which is part of the reason why big commissions exist) and home sellers save thousands of dollars.
We operate in Colorado right now using brute force but V1 of our app will be released in January of 2017. We will be servicing Washington, Colorado, and Minnesota as of Februaury.
www.bluematchrealty.com
But if your house is sold for $100,000 you'd pay $6,000 or $3,000 to Redfin. The whole thing is just the biggest currently running scam that I can think of and someone will come along and totally disrupt this entire industry of scammers :-)
I'm sure there are little things that go on behind the magic curtain, but definitely something that could be automated in a b2b fashion.
The worst part of it all - all that money is spent basically to protect the seller so they can wash their hands of the whole deal once the house is sold. There is very little to no buyer protection in the real estate world.
Here you can sell a house privately, and the only fees you need to pay are the solicitor for conceyancing - the fees are around the same when buying or selling, between £500 - £2000. They will just do the paperwork, check there aren't any issues with the deeds, and do minor contract negotiations, and register the sale.
The purpose of an agent here is really just to have a shop where they can advertise your sale, take clients and guide them around a house (but TBH I'd rather just look myself without an agent as they don't add any value in my experience), and do a bit of management between the buyer and seller. For this they'll usually charge 0.5% - 3% (to the seller), but if you want to do it yourself you can just advertise on sites such as Zoopla.
Agents mainly do two things:
1. If selling they can put your house into MLS.
2. For buyers they can let you into a house.
Being able to do these things requires NAR membership, a state license, and other fees and cost real estate agents thousands per year. Also driving meetings clients at houses takes gas and time. Also your 6% commisiion is paying for all the other people that the agent spent gas and time on who did not buy a house.
Would you be willing to advertise in the news paper that your house is for sale and leave the doors unlocked so that random people could check it out?
About the only thing a buyer gets out of the whole deal is a title search to make sure there are no outstanding liens on the property - and they have to pay for that themselves!
But what if someone steals the appliances? That is actually a problem for new construction.
Also, agents for basic residential purchases where the property is about as mundane as it gets provide very little value. However good agents will do proper diligence by inspecting the public records for the property. That part may be disruptable with software and an ambitious enough records maintenance effort. But good agents who do their jobs properly are well worth 6% (and, by the way, that 6% is frequently split two ways, so each agent gets 3%). Of course my bar for "good agent" is much higher than Joe Coldwell or Jane Keller-Williams. "Good" agents know local and state regulations very well and do diligence to inspect the public record and work closely with well qualified inspectors to get the best (lowest for buyer, highest for seller) price they can. Most agents, especially for "big box" brokers do basic humdrum contract paperwork and have a very basic approach to disclosure and negotiation and don't add much value. They're ripe for disruption.
Australian here: on my last house sale, I did a deal with the agent where if he got a price above a quite-high threshold that he would get 3% instead of his usual rate. This was seen as a remarkably generous offer, unheard of in the industry.
I've only once seen someone use a buying agent: husband and wife were both hospital doctors with three young active kids and they figured they valued their time enough that they would pay for a real estate agent to short-list properties for them.
I wonder what is so much more difficult about real estate in the USA that it requires so much more in the way of services.
Kind of an aside; what's the motivation for buyer's agents to get good inspectors or the lowest price possible? They're getting a percentage and they're motivated to make sure the deal falls apart. Although, as a buyer it's not like I knew good inspectors, anyway. The best I could do is read their sample reports and go off of my own (sparse) knowledge of home construction.
When people buy a new home and move they typically need to get new utilities, health and car insurance, doctors, dentists, furniture, appliances, etc... They need to decide where they're going to shop for groceries, which restaurants they want to explore, what activities they're going to get into.
You are wrong about the amount of time she spent, and wrong about the industry being ripe for disruption. Spending 10 hours on four deals is not physically possible, or you have the luckiest, worst realtor in the history of the broker business.
Many have said the same thing about the industry, where are the results? Realtors are not still in business because of information asymmetry. Redfin has tried, and they have not succeeded. In fact they ended up moving towards the historical model. That tells you something.
I'll let you in on a secret, you can sell and buy any house you own or want yourself! It's called For Sale By Owner and many people do it. You can also negotiate on commission.
But be careful, because there are a lot of laws in place in RE, to protect buyers. It is heavily regulated. You could make a mistake and fail to disclose something that could end up costing you HUUUUGEEE.
What you get with a good realtor is a ton of service. Just the other day I drove 25 minutes each way to go make sure a homes thermostat was on and the house was warm when the temperature dropped. I was doing a favor for a realtor I know, that is selling a house for a family in another part of the country.
A good realtor will do things like that for you. And it's often a thankless job. The house I did that for might not even end up selling, the realtor may not even get a commission and it ends up being a lot of free work.
A good realtor knows attorneys, handy men, plumbers, electricians, landscapers and is a tough negotiator. A good realtor will market your property to a wider audience than would be easy for you to do yourself.
There are a lot of things that can go wrong and disrupt a sale, often times at the last minute. Those connections can save a deal. I've seen it countless times.
The reason the real estate broker business hasn't been disrupted is because it's a service business, it's not a product and its difficult to reduce it to something that scales and can be automated.
There is a large graveyard of startups that have tried.
I gave up my real estate license because of the sentiment you are expressing here, and the amount of competition that was willing to put up with it. It's a crap job in my opinion, it benefits the customers much more than the agents in all but the really hot markets.
"Spending 10 hours on four deals is not physically possible, or you have the luckiest, worst realtor in the history of the broker business."
In lots of cases there simple isn't anything to do. I saw the house, did my own research on it, went to see it, did more research, did more research and then called my Realtor and said "Make an offer." Is that worth $43,000? Why would she make $43,000 for few hours of work? I bought two houses this way, my first and last call to my Realtor (personal friend of mine) was "Here's our offer on the house, send it in." One offer was immediately accepted, the other one went back and forth 3 times over two days.
The simple fact that charging based on percentage of the sale is theft, there is no other way to put it. There is one other "entity" that does this and this is Government with Sales Taxes (also theft :-) ). Can you tell me one good reason why Real Estate Agents do not simply charge by the hour?
There's a study which draws similar conclusions:
> Our central finding is that, when listings are not tied to brokerage services, a seller's use of a broker reduces the selling price of the typical home by 5.9 to 7.7 percent, which indicates that agency costs exceed the advantages of brokers' knowledge and expertise by a wide margin.
https://stratechery.com/2016/opendoor-a-startup-worth-emulat...
It's a solved problem to make a system that stores information about home listings and transactions. Other countries have done it. Yeah, houses are annoying because of all the weird combinations. But the thing is just a CRUD app.
This system still exists because of organizations that are based on information asymmetry. A small group of experienced people could make a really, really nice platform for sharing real estate data in a month and it would never get anywhere.
After that is the extremely entrenched business interest in the status quo - a lot of people are making money off the current system, and any real disruption is going to cost 95-99% of the real estate industry their jobs.
As noted elsewhere, the level of regulation is such that even offering better data to buyers/sellers has a lot of regulatory overhead, including physical offices with real people.
This problem is hard to solve at the root because each MLS is independently owned and heavily influenced by the National Association of Realtors and local governments. As an active RE investor myself, I'd love to work on a problem in this space.
As an aside, I'm working on a RE investment product that solves challenges similar to this one and I'm looking for RE investors to join me. If you're interested, shoot me an email at hello[at]myname.com.
disclaimer: I am affiliated with rew.ca (a competitor on the west coast)
Right now I'm only pulling from a couple of different RETS services but already it's hellish. Regular short term schema changes, terrible lag in pulling data (10+ minutes to pull 30 listings!), low API limits (cut off for pulling image URL's too fast but they won't give a limit - just saying "if we feel it's too much", so pulling images lags for hours as I have to be extra careful. Also no option to pay extra to speed up). That's before you get to matching up fields across multiple MLS's or dealing with weird crossover effects (MLS X cannot be shown in Y from RETS #1 - buts that fine in RETS #2).
In fact, I will give you all my money right now anyway, I'm going to go live in the hills far away from it all.
- There are over 900 regional MLS providers each with different schemas.
- You use RETS, a complicated, non web standards interface for downloading data.
- MLS data is plagued with errors and denormalized data making queries difficult.