Jeff Bailey reports in the The New York Times today about how an internet site that cuts out real estate agents has grabbed 20% of the market in Madison, Wisconsin. (I think you may need a NY Times password to read the article.)
For $150, this site lists your home. The article suggests that real estate agents have missed out on $17 million in commissions because of transactions done through this site.
My impression is that most “for sale by owner” websites haven’t been very successful. They struggle with the fact that for the buyer, there is no obvious cost to hooking up with a real estate agent since the buyer’s agent gets paid by the seller, not the buyer. But once you have a buyer’s agent, they usually aren’t very interested in showing the buyer “for sale by owner” properties. Perhaps the key is simply for this kind of “for sale by owner” website reaching a critical mass that makes it worth a buyer’s while not to enlist an agent. According to the NY Times article, there are more hits on this “for sale by owner” website than on the official MLS website that the agent-listed properties are on. So that critical mass has been reached.
It will be interesting to see what follows. One might expect that real estate agents in Madison would start to compete on price, cutting their six percent commission. Or, maybe there will be no response at all, just a steady flow of more and more properties towards “for sale by owner.”
Personally, I don’t actually think this is the wave of the future. I think real-estate agents provide a valuable service. What I think will happen is that most transactions will be brokered by real estate agents, but more and more the pricing structure will move to a flat fee for listing properties and then an hourly rate for services provided like open houses and showings. The total fees collected by real-estate agents will fall dramatically and consequently there will be a shakeout with many people leaving the profession and the ones who remain doing much more volume at a much lower payment rate per transaction.
and 
. You can also watch it on 
As a consumer first and real estate agent second, I’m not surprised many in the public have a negative view of real estate agents. If an MLS listed property sells quickly, the seller naturally feels the price might have been too low. If the listed property doesn’t sell, the agent is not doing the job. It’s very difficult to “prove” you’ve done your job.
I’ve always felt properties sell primarily on the basis of having a competitive price. After all, buyers compete to have first opportunity to buy, and sellers compete with similar properties in the neighborhood. The value provided by real estate agents is help with pricing, (You should always get at least three opinions), day to day management of the selling process, (returning phone calls, scheduling showings, being there for trades people),help with making the property look as good as it can, (Sell this House! and other TV shows), and providing access to a stream of well screened buyers, (the MLS).
Since most real estate agents will provide free help with pricing (a CMA) in hopes of landing the (lucrative) listing, a consumer would be foolish not to get that information, arrive at a price, and try to sell their property on their own first. If that fails, then consider listing with an agent. It’s possible the property didn’t sell FSBO because it didn’t get enough exposure, the pricing wasn’t competitive, (yes, agents often make misjudgements), seasonal factors, or bad luck.
Lastly, the 6% commision model is little incentive for agents to get the highest price for the seller or lowest price for the buyer. I continue to think an hourly fee, based upon actual work provided, is the fairest of all. I just don’t think the public is ready to accept that model.
As a consumer first and real estate agent second, I’m not surprised many in the public have a negative view of real estate agents. If an MLS listed property sells quickly, the seller naturally feels the price might have been too low. If the listed property doesn’t sell, the agent is not doing the job. It’s very difficult to “prove” you’ve done your job.
I’ve always felt properties sell primarily on the basis of having a competitive price. After all, buyers compete to have first opportunity to buy, and sellers compete with similar properties in the neighborhood. The value provided by real estate agents is help with pricing, (You should always get at least three opinions), day to day management of the selling process, (returning phone calls, scheduling showings, being there for trades people),help with making the property look as good as it can, (Sell this House! and other TV shows), and providing access to a stream of well screened buyers, (the MLS).
Since most real estate agents will provide free help with pricing (a CMA) in hopes of landing the (lucrative) listing, a consumer would be foolish not to get that information, arrive at a price, and try to sell their property on their own first. If that fails, then consider listing with an agent. It’s possible the property didn’t sell FSBO because it didn’t get enough exposure, the pricing wasn’t competitive, (yes, agents often make misjudgements), seasonal factors, or bad luck.
Lastly, the 6% commision model is little incentive for agents to get the highest price for the seller or lowest price for the buyer. I continue to think an hourly fee, based upon actual work provided, is the fairest of all. I just don’t think the public is ready to accept that model.
The article struck a nerve. It is the most-emailed NY Times article in the last 24 hours, and the third-most emailed article in the last week.
The article struck a nerve. It is the most-emailed NY Times article in the last 24 hours, and the third-most emailed article in the last week.
By the way, there is another burgeoning FSBO market out there, one much much broader than the Madison site, one that I am waiting for some economist to tackle. It’s called Craig’s List.
By the way, there is another burgeoning FSBO market out there, one much much broader than the Madison site, one that I am waiting for some economist to tackle. It’s called Craig’s List.
There’s too much noise in Craig’s List. It would take too long to clean up the data.
There’s too much noise in Craig’s List. It would take too long to clean up the data.