With apologies to William Shakespeare, a recurring suggestion for solving the real estate crisis seems to be eliminating commissions for real-estate agents. Firms like Help-U-Sell and Zip Realty offer either reduced commissions, or services for fees, as opposed to commissions. For people who have a high level of comfort with their own understanding of the legal and ethical pitfalls of real-estate transactions, these are acceptable options.
The latest salvo in the commission war was a recent article [http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/02/02/ED4C1BP3O5.DTL] in the San Francisco Chronicle by Al Lewis, author of OOBonomics: 12 ‘Outside Of the box’ Ideas to Improve the Economy. He’s promoting the idea that buyers should get a $1,000 tax credit, which they can use to pay a real estate agent (even though the commission on a house with a median price in the San Francisco Bay Area would be about $15,000). Sellers would apparently still pay their 3% commission.
The fact is, commissions frequently depend on the Realtor. One of our first DBNR sales was through a Realtor. She listed the property and found the buyer, and she had no qualms about insisting on both commissions (the price was so low that we ended up compensating her more than appropriately). A friend of ours was able to get more cash out of the sale of her townhouse recently because both Realtors kicked in $1,000 from their commissions.
It’s not clear what Lewis’ qualifications are to talk about the real estate industry, since his primary job is in the health care industry (he’s in disease management, which has something to do with chronic care on a grand level). Admittedly, he speaks the truth when he says the real estate industry is a cartel, but there are multiple reasons why you hire a real estate agent for a fee, and not by the hour.
The old saw about airline pilots comes to mind. Pilots aren’t paid to fly the plane; that’s a fairly simple process. They’re paid to fly the plane when something goes wrong. Granted, there are too many rules and regulations around real estate these days (and the deluge isn’t stopping), but are consumers going to know enough to protect themselves during transactions they may make only once every few years, if that? Probably not.
Furthermore, there are a lot of activities a Realtor does that are transparent to the buyer, such as coordinating the result of a multitude of service providers in a transaction. In that way, they’re like actors. If they’re good, you don’t see the mechanics behind what they’re doing.
A few years ago, during the technology revolution, there was a lot of talk about the Web enabling buyers and sellers to get rid of the middle man. Well, guess what — there was a reason the middle man was in there. He was a trusted intermediary that had, through experience, gained insight into the pitfalls of the sales process. Realtors have the same kind of insight plus enormous local area knowledge.
More recently, CNBC broadcast a report about the current administration vilifying people who fly private airlines as being elitist. That’s one way of looking at it, but the people who do it (notwithstanding their carbon footprint) can bypass the mess at our nation’s airports and be much more efficient, effective, and productive in their work.
The point is, it depends on your perspective. From my perspective, Realtors earn their money. This is one part of the real estate structure that we shouldn’t be tinkering with.
