Why hasn’t the real estate industry been Ubered by Google and Zillow?

It is annoying to pay the nation’s highest taxi fares here in Boston, which is why we love Uber so much. But it is presumably even more annoying to pay 6 percent to a realtor to sell a condo in Cambridge that, thanks to the Federal Government’s free money policies and the traffic gridlock that makes commuting from the suburbs ever more possible, will be gone within a few days.

There are a limited number of dwellings in the U.S. Zillow and Google already pretty much have complete databases of where dwellings are. Why do realtors still exist?

The New York Times ran an editorial yesterday “How Segregation Destroys Black Wealth” about how realtors, in addition to driving up our housing costs by 6 percent, also discriminate on the basis of skin color (but not in the positive right-thinking way that the New York Times suggests in other situations). The wise members of the Times Editorial Board (themselves nearly all white, but of course that is not a sign of discrimination) suggest that relief from this pernicious discrimination will come via the intervention of the Great Father in Washington following a “federal housing discrimination complaint.” There was no suggestion of simply banning realtors. If Amazon.com (happy to sell to everyone, regardless of race, but the Times still hates them) or a similar neutral server farm were doing the selling instead of prone-to-bias humans, wouldn’t that help us achieve racial justice? (and also save us about 5 percent!)

31 Comments

  1. G C

    September 16, 2015 @ 12:37 am

    1

    I am not sure of the details, but I believe the realtors have managed to get a variety of state laws passed which limit competition from non-realtors and protecting their profit margins. Access to the MLS was highly restricted at one point, for example, and even now, the information from aggregator sites is stale.

  2. J. Peterson

    September 16, 2015 @ 1:11 am

    2

    Redfin’s MLS data is generally up to date (within a day) in our area. That said, they haven’t been able to eliminate the agent model completely, and instead offer a “rebate” (computed by some mysterious formula) if you purchase through them. Regardless of the Internet, real estate transaction fees in the US are double or triple other countries.

    In the Bay Area, you have a mob of agents fighting over a handful of listings, eager to sell them a few days later to Chinese investors. The investors turn them into rentals to collect their visa for starting a $1M+ “business” in the US. Is this happening back east as well? I’ve heard similar stories about Manhattan apartments.

  3. Ed M.

    September 16, 2015 @ 1:20 am

    3

    Phil,

    I recall reading s recent blog post of your regarding moving to a new house. Did you use a realtor? Why? What was your experience like? I have always rented, so I have no experience with realtors.

    I suspect what CG suggests is true. Much like car dealerships, realtors have perfected regulatory capture.

    –Ed

  4. Fazal Majid

    September 16, 2015 @ 3:29 am

    4

    The realtors have an unwritten policy of discriminating against those represented by discount brokers like Redfin. In a sellers’ market like San Francisco, and presumably Boston, it makes a critical difference. Illegal, yes, but hard to prove.

    The part I don’t understand is why sellers don’t switch to second-price auctions, the same way spectrum auctions were conducted. Game theory says it is optimal for the seller, and there would be no need for the rigmarole that offers are, and thus go further towards eliminating the need for buyers’ agents. Sellers’ agents still have a role to play as most of their value comes from marketing and making the property look good so it attracts the most bids.

  5. paul kramarchyk

    September 16, 2015 @ 3:35 am

    5

    For Sale By Owner — I’ve sold three homes in my life, all within a few weeks of going on the market. Never lost money on a sale, never made a fortune either. I’m not a flipper. My sell price has always been what I consider to be fair market value after I survey the local market for recent sales (not list price). No realtor involvement, none, ever. Realtors measure rooms, make all kinds of notes, and tell you they’ll get back to you with a market value appraisal. It’s all high priest hand waving and incense to make it look like you’re getting your money’s worth for their service. If you put your ego and greed aside, and drive by a few recent sales, coming up with a fair sell price is not hard. My sell price is what a willing buyer will pay today. Not six months from today. Or a year from today. Today.

    Beware Zillow — Zillow uses internet bots that scan MLS listings and maps the info into their database. Problem: a developer four towns east of me listed spec homes being built in a new development. The development and street names were not yet on any map. Zillow mapped these new homes on to my street since it has the same name as one of the new development streets not yet mapped. I live in a different town, four zip codes away from the new development. Zillow doesn’t care. And thus far it’s been impossible to get Zillow to move the new listings off my street. I talked to the developer about the problem, he says Zillow is impossible to work with and not worth the aggravation.

  6. valley dude

    September 16, 2015 @ 4:10 am

    6

    Realtors don’t just discriminate against discounters; they discriminate against anybody outside the immediate area. My neighbor, who is herself an agent, in order to actually be able to get her own offers taken seriously (prior to her becoming my neighbor), had to move her office from the East Bay to Palo Alto and do business in the area for a while — basically, join the monopoly — in order to get her own offer accepted locally (Los Altos). In other words, she had to put herself into a position from which she is now able to deliver future buyers to my former neighbor’s former agent.

    I’m optimistic that this business model will eventually be crushed. The incentives are just too high and aggressive operators like Uber who are not afraid of lawsuits can do business while the suits work themselves out. Property can change hands; (reduced) commissions can be paid; transfer fees can be paid to the county; etc.
    It’s just a matter of time.

    One of the non-technical problems to solve seems to be screening buyers so that only legitimate buyers can get access to lock box codes. From the buy side, pretty much the main thing an agent does for you is get you into houses you want to see, when you want to see them. (I don’t count “present your offer” as a service to the buyer, because it’s all pre-approved or all cash anyway; what they’re doing is presenting *themselves* to the other agent in order to display their colorful feathers^W^Wability to deliver future deals, per my first paragraph.)

    This seems like an opportunity for somebody like LinkedIn. If I’m a seller, and a potential buyer finds me on LinkedIn and s/he seems like a legitimate buyer, that would at least partially make me more likely to give them the lock box code. Anybody else use social networking to screen potential buyers for random stuff? I do this for run of the mill (< $1K) items I'm selling on craigslist and it seems eminently doable for somebody to screen home buyers and present them to potential sellers.

  7. Thomas Cooper

    September 16, 2015 @ 7:41 am

    7

    Since time immemorial, people have claimed that if you “eliminate the middleman” you will save lots of money. It isn’t true.

    We should eliminate the barriers to entry and market frictions the realtors’ lobby has imposed, but don’t think that the matching and negotiating service that realtors provide is worthless.

  8. Anonymous

    September 16, 2015 @ 9:00 am

    8

    All,
    I’ve been a scum sucking agent for over twenty-five years and want to say most of you are delusional. You say it should be easy to sell a home via Internet without any middle men because you sell junk on Craig’s List? Sure. Try it out and tell me what happens
    You suggest less government regulations over who can and cannot sell real estate? Ok, so you want even more idiotic people out there trying to wrangle a real estate sale??
    You say we (agents) usually have cash or nearly cash offers, all full price of course, just waiting to be signed, so all the agent does is present himself?? That’s the biggest laugh of all. Maybe in a few red hot markets, but never typically.
    Here’s the reason you cannot eliminate me: you’re all human beings. Try to work out a deal with an asshole buyer when you’ve already moved three thousand miles away and he is refusing to close over a dripping faucet…
    If Phil doesn’t want to pay 6%, fine. Go get a discount broker and try them out. Or better yet, do it himself.
    And don’t whine that we don’t want to cooperate with Redfin or other cheapy firms. Would any of you want to go to work and be made to take a pay cut simply because someone thinks you should?
    Shut up and pay me. I’m worth it. Not thanks to any government regulations or powerful lobby, but thanks to every one of the people reading this blog. Because you are all human beings. The weirdest and most unpredictable animals on the planet.

  9. bjk

    September 16, 2015 @ 10:38 am

    9

    The big brokers will cut deals with the portals to funnel all the leads to the big brokers. Then the agents will essentially work as sharecroppers working the big brokers leads. All the part-time agents will go out of business because they won’t be cost-effective for the big brokerages, who want to drive more deals per agent. Buyer agents will cease to exist because independent agents will disappear.

  10. Marco

    September 16, 2015 @ 12:20 pm

    10

    Anonymous is right. Selling a house is pretty straightforward if you do your homework, but it is a lot of work, especially if you do the research and really get to know the market, and have an idea of how to really set your home up for sale. And he is right selling it a house from out of town is a spectacular pain in the rear. As in most things, if you do the work you can pull it off, but if you dont want to manage the ads and leads then look around and get a good realtor.

  11. tekumse

    September 16, 2015 @ 12:58 pm

    11

    First of all the average realtor is 65+ lady. She is not hip with the technology so no wonder the MLS listings took forever to get online and every area has their own format. The old ladies love faxes and actual paper books with all the listings. The public records are kept by counties, townships, parishes, etc in all kinds of stupid formats and often not quite up to date. Why would the local government worker push to get them in electronic format and lose their job to file and keep them? And this is just tip of the iceberg. Try getting the federal government to provide you with flood data for your area. The process is byzantine and result are on floppies in file formats that you have not heard of.

    Think modern technology can save you. Try getting any support or even just try to buy commercial use of Google maps. You local DMV is a model of helpfulness compared to Google.

  12. Izzie L.

    September 16, 2015 @ 3:22 pm

    12

    I think the Freakonomics guys analyzed the increased return provided by agents and it was negative. Most agents (quite logically for them) spend most of their time and effort getting new listings.

  13. J. Peterson

    September 16, 2015 @ 3:57 pm

    13

    In some markets, the commission no longer reflects the effort required. Selling a $300K house in a slow market requires more effort than selling a $3M house in a hot market, yet the second sale pays the agent 10x. Granted, getting that hot $3M listing may have required more effort, but it doesn’t add value for either the buyer or seller.

  14. AlanC

    September 16, 2015 @ 3:59 pm

    14

    Much like programmers there is a great difference in the value of agents. The agent who told me that one of the houses I was interested in was in a “better” location (they were all less than a km apart, all about the same price and all seemed the same to me) earned her 6% when 20 years later my (her choice) house was worth double what the other choices were.

  15. G C

    September 16, 2015 @ 4:10 pm

    15

    AlanC, this is an excellent point. I feel the realtors add value, for sure. 6% seems a little rich, especially on higher priced properties. The weird thing is that competition amongst realtors seems terribly fierce. But the price never changes. Weird.

  16. Smartest Woman on the Internet

    September 16, 2015 @ 5:27 pm

    16

    @Valley Dude: Anybody else use social networking to screen potential buyers for random stuff?

    Do you ask the potential buyer for their LinkedIn and Facebook name before you proceed with the sale?

  17. Smartest Woman on the Internet

    September 16, 2015 @ 5:32 pm

    17

    Over the past 25 years, I purchased four houses – 1 FSBO, 1 estate sale, & 2 foreclosures. I never used a buyer’s-side real estate sales weenie. Of course, the seller’s agent liked it that way since she didn’t have to split the sales commission. Simply closed as usual at an agreed-upon title agency for very little cost to me as the buyer; one purchase cost me just $10 to close.

  18. Andrew

    September 16, 2015 @ 10:04 pm

    18

    I worked on one of the early real estate agent disintermediating startups. It failed, of course, and for a lot of reasons, but I learned a few things along the way.

    Many of the comments here are flat out uninformed. The average Realtor(tm) is not a 65 yo woman. Agents are not generally afraid of technology. MLS has traditionally been a closely held database of value, but there are consumer services that can get you in now, and getting delayed data out is obviously easy.

    Also, agents don’t get 6%. That 6% is split four ways: listing agent, selling agent, listing agent’s office, selling agent’s office. So a $500k sale nets an agent $7500, before expenses (including MLS membership, advertising, etc). It still often too high, but it isn’t $30k. Most markets don’t have $500k sales, and most agents don’t sell one house in a month. They may be overpriced, but they aren’t objects of income envy.

    There are many things wrong with the agent model for selling real estate. The seller’s interests are not fully aligned with the agent’s (the sketchy but legal business practices are a good example). I still think the industry is due for some serious restructuring, but Anonymous is right that there will always be humans, laws, and complications involved. The agent model will be hard to shake.

    Agents feel the hot breath of change on their necks, but it’s been “coming soon” since at least 1998.

  19. valley dude

    September 17, 2015 @ 12:54 am

    19

    @Smartest Woman – they reply with their normal email and I paste their names in to LinkedIn. It takes 30 seconds and is a great way to qualify potential buyers. A CL buyer with a regular job at a company nearby seems to be quite a bit less likely to flake out on a deal than a random kid trying to save a few bucks, or what have you. This principle seems like it could be leveraged for other purposes. Airbnb making sellers put up profiles of themselves would be another example of a mechanism designed to increase trust between buyers and sellers, thereby increasing sales.

  20. Anonymous

    September 17, 2015 @ 1:28 am

    20

    All,
    We aren’t talking about buying a used Lifecycle on eBay. We are talking about spending (and often borrowing) tremendous sums of money. This is complete different emotional level for the average person.
    Granted, a veteran buyer who has moved ten times over the last twenty years and bought homes every other move could probably pull off the deal without me, provided the seller knows what they’re doing. But mainly it comes down to just getting along, and these crazy mammals known as humans simply cannot seem to make that possible. I’ve seen sellers balk over a buyer’s choice of closing attorney and I’ve watched buyers lose fantastic deals because they couldn’t stop asking inane questions (engineers are the worst; sorry, Phil!).
    True story: I had an elderly man introduce himself to me at a country club and proceed to tell me all about this grand property he owned and wanted to sell but was hesitant to list with an agent because he knew so many (agents), he didn’t want to offend anyone. So, he told me if I wanted to look at the land, he’d be happy to show it and if I had a buyer, he’d gladly pay a commission,
    Reader’s Digest version of the rest: I spent three hours one afternoon letting the old fart give me a tour. I made one phone call to a prospect and by the next evening, had a six million dollar offer for Old Fart. After looking over the offer, OF asks about my commission and without hesitation I look him right in the eye and say seven percent. He quickly follows up by asking: “How much does that equate to?” and again, looking him straight in the eye, I say: “Three hundred ninety-nine thousand dollars.” Old Fart’s much younger wife loudly gasps and without ever losing eye contact with me, OF draws in a deep breath, pauses, and finally says: “I can do that.”
    The deal closed in less than thirty days, I collected nearly 400 grand in commission and Old Fart and much younger wife still think I walk on water.
    Moral of the story: I should have asked for ten.

  21. Anonymous

    September 17, 2015 @ 1:38 am

    21

    Edit:
    I should have stated the actual sale price came to 5.7 million. Hence, the seven percent commission that came to $399K. (There was an adjustment at closing for an acreage allowance)
    Typical real estate agent: always saying something and then having to amend the story!
    Last utterance: if one is smart, has a Type A persona and can adapt to many different types of people, one can make a whole bunch of money selling real estate. So cry all you want, us dumb agents and our six percent ain’t going ANYWHERE. EVER.
    Human beings and deals with many moving parts NEED us. Desperately.

  22. Layfield

    September 17, 2015 @ 5:09 am

    22

    very useful contents . Keep on updating…..

  23. Elsa Dorfman

    September 17, 2015 @ 3:05 pm

    23

    WOW. I loved this thread. Is 22 responses in such a short time some kind of record for PG? I liked the guy who listened to his realtor and after 20 years made a bundle. What was the difference between his choice and his realtors recommendation? A highway? A mall? A good school? the traffic? the ambiance?

  24. Alan Cima

    September 18, 2015 @ 2:35 am

    24

    It was a SF Bay Area home, so everybody made a bundle – mine was just bigger. No mall, but changes over time in school, ambiance, highway, traffic and a few other things were probably the rank order of the factors. I’ll never know how much it was expertise or chance. Oddly – given the discussion on this board – it was a 65 year old women and she passed away a few years after the sale.

  25. Anonymous

    September 18, 2015 @ 3:54 am

    25

    Layfield,
    Want a few real estate agency tips? Here you go…
    *Find a good agent and stay loyal. Tell the agent if he/she sincerely gives you their best effort you won’t leave them for another agent, just like Rod promised Jerry McGuire.
    *Never, ever ask the agent that’s representing you in a purchase: “What’s your commission if I buy this property?” That question makes agents go flaccid quicker than Hugh Heffner bedding a Playmate without his Rx.
    *Choose an agent to sell your property with one and only one pertinent question: “How many properties (similar to yours) have you sold in the last three years?”
    *Do NOT fall for the agent who espouses their incredible knowledge and use of all the latest in technology to sell your home. Normally an agent talks about their extraordinarily tech savvy ways because they don’t want to answer your one and only pertinent question.
    *Do NOT hire a brand new agent nor the agent who went to high school with your cousin. (Again, see one and only pertinent question)
    *Never, never, never tell the hotshot agent that his/her competitor, usually a less successful agent from the same area, has agreed to take your listing for a significantly lower commission. You will accomplish two things (both big mistakes): You’ll clearly demonstrate that commission is your number one priority while giving said hotshot agent a perfect intro to bashing you behind closed doors i.e. telling other hotshot agents that you’re trouble. And believe me, you will absolutely get blackballed, particularly if your home is located in a suburb that isn’t a hot market. You NEED the best agent. (See one and only pertinent question)
    *Final tip (I saved the best for last): Offer your agent a juicy bonus for a quick sale at your price. Nothing matters more to 99% of real estate agents than cold, hard cash. The agent that tells you a bonus doesn’t interest him/her is either a fool or a liar. Or both.
    Good luck! Oh yeah, do not forget one and only pertinent question

  26. valley dude

    September 18, 2015 @ 6:09 am

    26

    A few years ago it would have made sense to ask “why hasn’t the ridiculous rent-seeking taxi industry been crushed by the Internet?” and the correct answer would have been “it just hasn’t happened yet.” The question is now, “why hasn’t the ridiculous real estate industry been crushed by the Internet?”, and the answer is, it just hasn’t happened *yet*.

  27. tekumse

    September 18, 2015 @ 9:50 am

    27

    Andrew, I have seem the actual membership demographics for 2 very large East Coast MLSs. You have no idea how many retired people think they can be agents and get some income. Or save some expenses for themselves and their family by keeping the commission. Most of these have 1 transaction every other year but they pay as much MSL dues as the guy with the highway billboard. My neighbor is a very successful 51 year old agent and just admitted he has not even opened the MLS phone app I helped him install since this is too small and confusing to use. I am not saying he is a typical case but one look at the pictures of many of the listing will tell you the tech level of most realtors®.

  28. Mark

    September 18, 2015 @ 2:45 pm

    28

    Valley Dude,
    Anonymous clearly explains why the real estate industry hasn’t (and will not) be “crushed”.
    A taxi ride is a far cry from a five hundred G home purchase.

  29. Anonymous

    September 19, 2015 @ 4:13 am

    29

    tekumse,

    You are confusing total amount of agents with good/great agents. That’s like saying there’s millions of kids playing baseball every year and trying to compare that to a Major League Baseball starting nine.
    In every MLS system, there are about two to four great agents out of every one hundred “agents”. (But I will grant you, the very best are rarely ever retirees)
    That fact has always been a major problem in real estate sales. The licensing requirements are so lax nearly any person with half a brain can pass the tests required to earn a license to sell real estate, and since the other barriers to entry are relatively low, there are almost always hundreds and hundreds of losers out there trying to sell in every market.
    Another group (besides the retirees) that cause problems are the “lunch bunch” lady agents who merely want a license to get out of the house every day. These imbeciles are probably the worst of all groups since they mainly drive fancy cars and wear the latest fashions, thus tricking the unsuspecting and ever idiotic general public into thinking they actually are competent, when in fact they aren’t.
    In my area, you have lunch bunch ladies, a handful of retirees, a large consortium of high school grads who embarrass themselves in so many ways it’s actually sad and then a few actual winners out of that motley crew.

  30. Anonymous

    September 19, 2015 @ 4:18 am

    30

    Sorry for double posts, but I wanted to also say the best idea I ever heard for culling out all the loser agents was for every MLS system to charge $10,000 a year in membership fees. They’d drop like flies if that were the case, leaving cream of the croppers like moi to dazzle you with my ability to extort six percent and make you thank me profusely while doing so…
    At least then we wouldn’t be viewed as a group of complete idiots, which is precisely what at least 90% of all real estate agents are today.

  31. Glen Raphael

    September 27, 2015 @ 2:35 pm

    31

    When I sold my home in 2004 I used ZipRealty which at the time was an upstart discount broker competing on price. I paid just under 4% and the property sold for the asking price within a week (this was in Silicon Valley just before the bubble popped; the asking price was $680,000). ZipRealty saved money in part by not having “an office” – the realtors work from home or out of their cars.

    The company still exists but was bought in 2014 and no longer explicitly advertises that they discount and/or kick back commissions, so I’m not sure what happened.

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