The National Association of Realtors has more than its fair share of adversaries, including the U.S. Department of Justice (which is suing the N.A.R. for anti-competitive practices) and the Consumer Federation of America (whose executive director recently told the N.Y. Times what he thinks of the N.A.R.: ”Because the industry functions as a cartel, it is able to overcharge consumers tens of billions of dollars a year. Consumers are increasingly wondering why they are often charged more to sell a home than to purchase a new car”).
But here’s the best indicator yet that the N.A.R. is in serious trouble: they’re wasting their time attacking us.
The N.A.R. continues to take issue with the part of Freakonomics arguing that the typical Realtor isn’t necessarily looking out for her client’s best interests. Here’s how the N.A.R. website sums it up:
The authors argue that real estate agents could get higher prices for home sellers by urging them to keep their houses on the market longer. But they don’t because agents would not make enough in additional commissions to justify the extra time on the market.
Then it continues:
Levitt and Dubner assume real estate businesses are built around one-time transactions. In fact, successful professionals build relationships with customers for life. Homeowners move once every seven years on average and are likely to use an agent they have used before.
Even if the N.A.R. is right — and even though it doesn’t acknowledge the actual basis of our argument (i.e., the empirical work done by Steve Levitt and Chad Syverson in this paper) — they’ve chosen an awfully shaky idea upon which to build an argument. If indeed “homeowners move once every seven years on average,” and accounting for the fact that many homeowners leave the area (they are, after all, selling their homes), it would seem that the typical homeowner might have the opportunity to re-hire the same Realtor about once every ten years. Is that really a reason for a Realtor to “build relationships with customers for life,” and to refrain from exploiting them? I can see using this argument for dentists, or for auto mechanics — they see you often enough to want to offer a certain level of transparency and accountability. But for Realtors?
This reasoning is almost as bad as the last fun fact floated by the N.A.R, which prompted one blogger to go so far as to compare the size of the Freakonomics brain and the N.A.R. brain. As you can see here, one of the brains is considerably larger than the other. That said, with a sample set of 2, it’s possible that our brains are, respectively, tiny and tinier.
But the really important news about Realtors is this: someone in New York has finally launched a website, brokerate.com, that allows consumers to rate Realtors in terms of knowledge, courtesy, and effectiveness. I have a feeling this kind of information will prove remarkably helpful to the average home-buyer or -seller.
My only question is this: When will someone do the same for NYC contractors? Half the people I know who have done renovations in N.Y. have a nightmare story about their contractors; as soon as some clever folks start up www.contractorate.com, that problem may soon be on the way out too.
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I found Levitt and Dubner’s findings quite interesting. It makes sense that realtors wait longer when they sell their own homes and wait less time when they sell client’s homes. I’m not so sure if it is points to “not looking out for their clients’ best interests.” There are many other things they do which do add value to people who don’t have the time, the energy or the knowledge to attempt to do this important transaction on their own.
I’m wondering if perhaps they are more willing to take risks with their own homes than with their clients’ homes. The risk I refer to is in the holding out for a better offer and losing a legitimate offer. My impression of realtors is that they are very cautious when advising their clients. If you are selling your own home as a realtor, then you can likely afford to wait a little longer and risk losing qualified customers. My neighbor across the street sold his house and they held out for a better offer (probably against their realtor’s wishes). When they got the better offer, the buyer’s appraiser felt that it was too much and so they had to knock $40K off their price… particularly since the market is softening out here in San Diego. Just a thought.
— jnavajaDubious contractors aren’t just limited to NYC. Out here in Suffolk County, admittedly not too far from NYC, there’s an electrical contracting company that uses “We show up” as an advertising tagline. When you think about it, the fact that such a claim is viewed as an effective advertising slogan is somewhat disturbing - shouldn’t “showing up” be taken for granted?
— prosaThere is a web site / community in Seattle known as Judy’s Book (http://www.judysbook.com/) that enables people to review and rate service providers in all kinds of domains, including realtors (http://www.judysbook.com/cities/seattle/Real-Estate-Agents/*/p1/9/). Um, I can’t access much of the site at the moment, but I would suspect they may have some listing for contractors (in Seattle, of course).
— gumptionIf you do a good job of rating contractors, you will be sued for libel and/or slander and the the judge will rule against you.
— wkwillisI base this assertion solely on the fact that it would be easy enough for some group to do this and they haven’t.
As an example, I propose the Better Business Bureau. Think that they rate businesses? And why not?
On the other hand, with the Internet and offshore data centers, maybe you can set up some kind of Better Business Bureau that actually does rate businesses?
We can publish negative information about ordinary consumers and be protected against mistakes, why shouldn’t we be able to publish negative information about businesses? Landlords can collect and share information about tenants, why not landlords?
Why should judges protect businesses and not consumers or renters?
I have sold only two houses and each time I was greatly apprehensive about getting the houses sold. I had another house on line, either under construction or an offer made, and I wanted the sale to get on with it. I have a PhD in economics, but even with your evidence about realtor bias and the advantages of waiting, I doubt that I would have waited any longer. Same thing when I sold the condo my mother-in-law was living in — although I negotiated heavily with the buyer, I was in no mood to wait. I haven’t read your article — how do you control for the anxious-homeowner-wanting-to-move-on versus the realtor viewing home as investment property effect on perceptions of time?
— mikejAs a proper Devil’s Advocate I’ll put up arguments on both sides…
While it may be true that one might not use the same realtor more than 1-2 times in 10 years, the best way to grow your business is via word-of-mouth. Serve your customers well and they’ll tell their friends, and they’ll tell their friends, etc.
Well, one might hope it would work out that way. Alas, the other way to go is to be exactly the type of realtor described here — sell quick, give lousy service, and move on. One realtor totally dominates our neighborhood and we know that she doesn’t treat her clients well — but she plasters the place with advertising so much that everyone simply assumes she must be good.
Heck, she even charges an extra 1% commission because “it will provide an incentive for buyer’s agents to show the house to their clients”. One might think that implies that she’s splitting the extra commission, but no — she keeps it all herself. She just doesn’t bother telling her clients about it. Sad, so sad…
— goneflyinStephen, you make a good observation of the trend towards greater per-transaction dollar amounts and constant moving rates (once every seven years) means the incentive to look out for longer term interests weakens.
One point you might consider though is that since the percentage commissions have stayed relatively constant, agent productivity has dropped like a lead balloon. That means that the average number of homes each sells is entering ridiculously low amounts (2-3 homes per year). Since each agent is doing a lot less (but still getting paid relatively similar amounts per year) wouldn’t they now have the time to leave homes on the market and maximize both their client’s and their outcomes?
On brokerate, it certainly is a step in the right direction. We are doing similar things with Homethinking.com but also allow consumers to compare agent sales histories and see exactly what each agent has achieved; think of it almost as an objective resume.
Our thesis isn’t that all realtors are bad, or even necessarily overpaid, just simply that alot are and that transparency will help shine a light on those better agents and also, of course, on the dark corners of the industry.
Best.
— nikiscevakNiki Scevak
Founder - Homethinking.com
What Craigslist did to the classifieds in San Francisco, this site promises to do to realtors:
http://homerentalexperts.blogspot.com/
— AelstroThe NAR blog attacks Freakonomics on their blog, but I doubt they will allow any kind of debate to transpire on their turf. I’ve tried commenting on the issue of FSBO commissions they mentioned shortly prior to that, and they refuse to accept my comments, probably because much of what I discuss potentially refutes the findings of their research. For example, Texas A&M did some interesting research on the subject of discount brokers, and the numbers don’t look anything like the differences that NAR claims for FSBO sales.
http://www.flatfeemlsmarketing.com/2006/05/04/so-what-is-a-realtor-really-worth/
— milancoleDiscount brokers and FSBOs aren’t the same thing. What’s your point?
— BoJacksInteresting observations on an industry that is going through a tidal wave of change and new trends. I think the take away for the real estate industry (and NAR) is that they need to step up and deliver more value added services and technologies that both buyers and sellers will value.
New web 2.0 technologies such as blogging, podcasting, tagging, networking provide a more effective marketing effort that reaches out to the online and mobile consumers is but one example.
When real estate agents and brokers can deliver services that consumers can’t or don’t have the expertise or energy to use, the justification for commissions goes by the wayside.
This helps to make the perceived value of real estate agents value that they bring to the table much clearer and makes everyone happy campers.
You can read our thoughts on NAR vs. Freakonomics on our real estate blog. http://blog.realestatebuzzbox.com
p.s I read the book last year and my own favorite observation was on child seats and are they really safe? Great book guys.
— Real Estate Buzz BoxThe realty is For Sale by Owner is the fastest growing sector in the real estate industry and that scares (or it should) the crap out of realtors - maybe not individual realtors but certainly the association as a whole. The Canadian Real Estate Association (CREA) has been running an anti-FSBO campaign all summer – “FOR SALE BY OWNER is not for this owner” – give me a break. The usual crap – we are trained professionals, we screen our clients (BS), we professionally market your home - blah blah-blah. If I was a Realtor the opportunity that the internet provides for significant FSBO growth would scare the crap out of me. The fact is thousands of homeowners have successfully sold their homes and saved literally thousands of dollars in real estate fees. Realtors will tell you that FSBO isn’t for everyone, they will even resort to scare tactics to steer you away from FSBO - but for the homeowners that are successful the savings are significant. Did you know that there was 91 BILLION dollars paid last year in real estate commissions!!!! So you truly appreciate the magnitude of that number, that is 91 BILLION dollars in lost homeowner’s equity. One FSBO site in Wisconsin facilitated $300 million in FSBO sales and generated $300,000 in related FSBO fees associated with those sales – real estate commissions on those sales would have been $18,000,000! I have done some research (internet based) into the FSBO phenomena (Google returns 38 million sites based on a search for “FSBO”). While the general concept remains intact (home owners selling their own homes) the approach, presentation, fees, options, etc literally run the gambit. The most noticeable consistency I noticed was the overall unprofessionalism and downright ugliness of most sites. Some were so ugly it was shocking - they looked like sites developed by Grade 3 students. From my experience in sales and marketing you only get one chance to make a good first impression - most FSBO sites miss the mark significantly on this point. I did however come across a few sites that have embraced the concept - one in particular was actually FREE! While many FSBO sites claim to offer “FREE FSBO” there is only one that I came across actually delivers on that claim. The site is http://www.freefsbo.com - they offer a Free FSBO Kit that includes a professional lawn sign that actually looks good (and modern), a free online listing complete with unlimited pictures, full feature sheet and some FSBO tips that were somewhat helpful. The bizarre thing is the FSBO Kit, as advertised, is actually free. There is no bait and switch, nothing underhanded whatsoever - there is no “upcharge” to put in your contact information, no fee to expedite the listing, no fees to upload pictures, or any fees to get a “better” webpage. The way they do this is simple - they sell your name to companies that want to solicit business from home owners - big deal. I have certainly gotten less for more. No idea who buys this information, I suspect moving companies, legal forms, mortgage brokers - I’m sure realtors are likely lined up to buy this information (I would be if I were a Realtor). I personally don’t have a problem with it. Please note they are very upfront about what they do. Anyways - just an opportunity to get something for nothing - pretty rare these days :). PS, I signed up, my webpage was active within 3 days and I received my lawn sign via UPS within 5 days and it cost me nothing. Apparently the war is heating up - http://news.com.com/Real+estates+Net+turf+war/2100-1038_3-6099762.html?tag=html.alert.
— markamp