NYT: The 6 Percent Solution: Skip Real Estate Agents

The New York Times
September 17, 2005

The 6 Percent Solution: Skip Real Estate Agents
By DAMON DARLIN

Stan and Gloria Wakefield are no fools. They built their three-bedroom
house 12 years ago in Ponte Vedra Beach, Fla., an oceanside resort
community dotted with golf courses and picturesque inland waterways.
The real estate market in the area, near Jacksonville, took off and the
house, overlooking lagoons, rose in value to nearly $1 million. "This
house has appreciated almost obscenely, " said Mr. Wakefield, a retired
naval intelligence officer.

What the Wakefields did next should scare real estate agents
everywhere.

They decided to put their house on the market this year, and concluded
that the house would sell itself. So why pay a real estate agent a 6
percent commission? They tried negotiating a lower commission with
prospective agents, who stood to make about $60,000, but the best they
could get was 4.5 percent - and 5.5 percent if the agent had to share
the commission with a buyer's agent.

They chose instead to list their property with one of the many real
estate services that are challenging conventional brokerage firms, in
this case, Assist2sell.com, an agency that charges a flat fee instead
of a commission. The Wakefields had an offer within six days and sold
their home for $985,000, paying a $10,000 fee to Assist2sell and
$14,775 to the agent who brought in the buyer, for a savings of about
$30,000 over a conventional broker.

"Enough to pay off the boat," a 26-foot pocket cruiser, Mr. Wakefield
said.

This is subversive stuff. Homeowners across the United States are
figuring out that they do not need to pay what agents demand and they
may not need an agent at all. At the same time, technology is giving
consumers tools to nearly circumvent the agent. If enough people try
it, agents are at risk of losing a good portion of their commissions -
$100 billion last year.

So, agents are doing whatever they can to keep home sellers from paying
less.

Anyone who wants to know how to outfox them first has to understand
where they derive their power: information. They know the market - or
presume to know it - and help set the price of your house. They serve
as the go-between and, again presumably, know how far you can push the
other side.

(Note, however, that agents don't always push for the best price.
Steven D. Levitt, co-author of "Freakonomics," and Chad Syverson, both
University of Chicago economists, found that real estate agents have an
incentive to persuade their clients to sell their houses too cheaply
and too quickly because a few thousand dollars more in price won't
yield them a significantly higher commission.)

But more than anything else, agents control access to the Multiple
Listing Service, where all the houses for sale in a community are
listed. The M.L.S. is the most powerful tool in real estate because it
informs the widest pool of buyers that a home is for sale. Not open
houses, not fliers, not big ads in the newspaper. "The M.L.S. is king,"
says Brett Weinstein, an Oakland, Calif., discount broker who prefers
to be called "a full-service reduced-fee agent."

The M.L.S. is also a tool that agents use to protect their commissions.
The problem for agents is that some of their colleagues are offering to
list houses for a small flat fee, sometimes for less than $500. You
sell it yourself, though you would be obligated to pay a 3 percent
commission to any agent who brought you a buyer - in essence paying
that agent for all the Sundays spent showing other houses to clients
who never bought anything. That half-price deal is dangerous enough for
a full-commission firm. But it gets worse.

In every community there are agents who open the M.L.S. to the public
on the Internet (erealty.com has a fairly comprehensive list, or you
can go directly to realtor.com, the Web site of the National
Association of Realtors). They do it as a service to clients who want
to buy a house - 70 percent of homebuyers now peruse listings on the
Internet, the association's most recent survey says - as well as to cut
their costs of showing clients the paper listings. Some even rebate
part of their commission to buyers who do their own research on
prospective homes.

But some buyers just freeload. (The Internet has a way of encouraging
this behavior.) They can search the M.L.S. for a house with no
brokerage firm listed, meaning it's being sold by the owner, and then
work out a no-commission deal directly with that owner. So you can see
where this is headed. If agents want to protect their commissions, they
have to restrict access to the M.L.S. to sellers who are working with
them, not going it alone.

Local realty groups have tried suing agents or brokerage firms that put
"for sale by owner" listings in the M.L.S., accusing them of copyright
infringement. Those agents have countersued, charging restraint of
trade. Then two years ago, the Realtors association found what it
thought was a better solution. It passed rules that essentially allowed
a local M.L.S. service to block access to the listing service to any
brokerage firm who discounted commissions or who posted listings for
homeowners who intended to sell their own houses. The antitrust
division of the Justice Department cried foul. This month it sued the
Realtors' trade group, asserting that the rules stifled competition and
hurt consumers.

The Realtors changed the rules just as the federal case was filed. But
J Bruce McDonald, deputy assistant attorney general, said that the
group's policies continued to discriminate against innovative brokers
and "stifle competition at the expense of home buyers and sellers."

In a news release, the Realtors association said it was "at a loss to
understand" the Justice Department's legal action. "Many of the changes
incorporated in the new policy are in direct response to concerns they
have raised over the course of the two-year investigation," it said.

The Justice Department and the Federal Trade Commission have
successfully fought state real estate boards that tried to limit
consumer choices by imposing service requirements or forbidding
commission rebates, but the fight goes on. Realtors have lobbied for
and won state laws that prohibit commission rebates to buyers and
require minimum levels of service, like requiring that an agent handle
all negotiations or house showings. Federal regulators can't fight
that.

Aaron Farmer, a discount real estate broker in Austin, Tex., has
battled local and state realty boards to offer cheaper services. The
Justice Department and the F.T.C. intervened to help him. Nevertheless,
he has had to raise his fees to $700 from $600 because of the minimum
service levels required by a law recently passed by the Texas
Legislature. (Eight states have enacted such laws, accepting the real
estate industry's argument that they are needed to protect consumers.)
"All of these fights are over the M.L.S.," he said. "They don't want
price wars."

But price wars are coming. No doubt about that. Here are a few
suggestions on how to take advantage of the changing environment to
sell your home with minimum services from - and fees to - a broker:

Set the price

Being a nosy neighbor is still the best way to know the market. Walk
though every open house and find out later what the house sold for.

For the shy or decorous, technology offers an alternative.
Homesmartreports.com will give you a sales analysis of your home based
on prices for comparable homes in the immediate neighborhood. The $25
report is far more useful than cheaper versions from Domania.com (free)
or Equifax.com ($7) because it gives you greater confidence that its
high and low estimates are accurate by indicating the strength of your
local market and by noting anomalies like a high number of foreclosures
or house-flippings, where homes are bought with the idea of fixing them
up and quickly reselling them.

Homesmartreports plans to offer a service for home buyers, too, that
would provide an unlimited number of reports over a 30-day or 90-day
period so you can get a better idea of how much to offer for a house.

Get listed

Some of the new sales services try to sidestep the M.L.S. As listings
proliferate openly on the Web, the M.L.S. may one day be less
important. But for now, in all but the hottest markets, it pays to get
into the M.L.S.

Almost every community has a discount broker who will charge $300 to
$800 just to type the information about your house into the local
ML.S. (Some will also take pictures of the house to run with the
listing.)

There is one caveat: If you list there, you may be obligated to pay a
commission to the buyer's agent, which is usually set at 3 percent. You
can, however, build that commission into the price of the home, so the
buyer actually pays it. Or, if the housing market is particularly hot
in your area, you may be able to write into the contract that the buyer
is responsible for paying his agent's commission.

Hand off the annoying stuff

For many sellers, the hardest part is all the details: staging the home
for showings, holding the showings and handling all the paperwork and
the negotiations. Many discount brokers offer an =E0 la carte menu of
services, which can quickly add up to more than a set commission.

Paperwork is not that hard to do if your discount broker gives you all
the preprinted forms. (You can probably foist some of that work on the
buyer's agent, who is really working for you anyway.) Alternatively, go
with a sales service that for a higher fee of about 1 percent of the
selling price will handle everything. But these services often don't
include an M.L.S. listing.

As for stagings and showings, watch a few shows on the cable channel
HGTV, like "Sell This House," to learn how decluttering or putting on a
fresh coat of paint will raise the value of your home.

Re: NYT: The 6 Percent Solution: Skip Real Estate Agents

This article unbelievably inaccurate!

First of all, the "MLS" is the "Multiple *Listing* Service." "Listings"
are homes that are LISTED with a broker. If you are listed, you will be
in the MLS. There are absolutely NO For Sale By Owner properties in the
MLS because they are NOT listed. Duh.

The MLS was created so agents could show each other's listings. If I
have a house listed and want to tell other agents about it, so they can
show it to their buyers, I put it in the MLS. It is a system that was
created BY BROKERS in order to advertise to OTHER BROKERS. It was never
meant to be a public database on the internet, but that is what it has
become, due to sites like Realtor.com and other MLS websites. Now For
Sale By Owners (FSBOs) are screaming to be included. It's not a FREE
service folks! Why would I, as a Realtor, want to pay for a system that
was created for me to sell my listings and allow FSBO's on there for
free? My sellers pay a commission for the right to be included in the
MLS. Darn tootin' it is a successful system! But why should brokers be
required to share that with folks who don't want to pay them?? That
makes NO sense! That's like a roadside produce stand wanting to bring
his goods into the supermarket, to sell directly to the shoppers,
because that's where the most shoppers are! Would the supermarkets
allow that? No!

Secondly, the MLS was meant to sell listings and service buyers who are
working with agents. The MLS allows all properties which are listed -
including discount brokers. What the National Association of Realtors
and brokers don't agree with is web-based companies who just use the
MLS information to get buyers to come to their website and then the
web-based company "sells" the buyer or seller lead to the brokers. How
is that fair? That company has no listings of their own and have no
buyers that they are working with - they just use the MLS information
to squeeze money out of the brokers. If these companies are allowed to
flourish, charging brokers 30-35% of the commission, how are
commissions going to go down? These companies only want to squeeze
money from the brokers - they have no interest in saving the consumer
money. However, THESE are the companies that are actually starting the
anti-trust complaints. This article would have you believe that agents
don't want competition from valid discount brokers. Bull! There have
been discount brokers around for ages and we know there is enough room
for minimal service and full service. It's the internet "lead
generators" like Lending Tree and others that we don't want to share
with. All they are are middle men to the middle men and they aren't
truly helping ANYONE.

Finally, buyer agents are BUYER AGENTS. THEY DO NOT WORK FOR THE SELLER
UNDER ANY CIRCUMSTANCES. That this article states "You can probably
foist some of that work on the buyer's agent, who is really working for
you anyway.) " just shows how ignorant of this process this author
really is! The buyer agent has a signed contract or state laws
requiring that they are to protect the buyer's interests and work in
the buyer's best interest at all times. As an Accredited Buyer
Representative, I have had to deal with many seller's who are under the
assumption that I will take over. Sorry, mister. You don't want to pay,
you won't get the service. My buyer knows darn well that THEY are
paying my commission, because the seller has worked it into the asking
price.

And, furthermore, sellers ALWAYS work the 6% commission into the asking
price. If the house should be $250,000 they'll list it for $265,000 to
cover the commission. And they will get it, because all of the prices
in the MLS are set that way. When a FSBO tries to get the same
$265,000, the saavy buyer knows that the seller isn't paying the 6% and
will lowball him. Of course, it is different in various buyer or seller
markets, but overall, that is the case.

Experienced agents aren't worth the commission for the lawn sign,
showings or the newspaper ads - any seller can do that. Their worth
comes from the fact that they have built an awesome system to service
their clients (MLS), have hundreds of transactions under their belt to
forsee and evade problems, work with buyers, so know the repairs and
staging that need to be done for the seller's particular market to get
the best price and have networks of lenders, title companies,
contractors, municipalities, home inspectors, etc to keep a deal going
smoothly and keep it together, by keeping emotions out of it. The most
important functions an agent has are behind the scenes and occurs
before the house hits the market and after it has an accepted offer.
Unfortunately, most people don't see or know about this and assume that
all agents do are the marketing aspect of the sale. There are rare
instances where a house sells itself and everything goes without a
hitch - which keeps the myth going that agents aren't needed. But, more
often than not, my clients - both buyers and sellers - tell me, "Thank
you. We couldn't have done it without you." If that wasn't the case, I
couldn't, with good conscious, do what I do.

This guy has no idea what he is talking about.


--
kristin
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Re: NYT: The 6 Percent Solution: Skip Real Estate Agents

On Tue, 27 Sep 2005 16:57:20 -0500, kristin
<> wrote:

>
>This article unbelievably inaccurate!
>
>First of all, the "MLS" is the "Multiple *Listing* Service." "Listings"
>are homes that are LISTED with a broker. If you are listed, you will be
>in the MLS. There are absolutely NO For Sale By Owner properties in the
>MLS because they are NOT listed. Duh.
>
>The MLS was created so agents could show each other's listings. If I
>have a house listed and want to tell other agents about it, so they can
>show it to their buyers, I put it in the MLS. It is a system that was
>created BY BROKERS in order to advertise to OTHER BROKERS. It was never
>meant to be a public database on the internet, but that is what it has
>become, due to sites like Realtor.com and other MLS websites. Now For
>Sale By Owners (FSBOs) are screaming to be included. It's not a FREE
>service folks! Why would I, as a Realtor, want to pay for a system that
>was created for me to sell my listings and allow FSBO's on there for
>free? My sellers pay a commission for the right to be included in the
>MLS.
Do you charge sellers to be on the MLS is their homes don't sell? If
not then they were MLS listed for FREE.

>Darn tootin' it is a successful system! But why should brokers be
>required to share that with folks who don't want to pay them?? That
>makes NO sense! That's like a roadside produce stand wanting to bring
>his goods into the supermarket, to sell directly to the shoppers,
>because that's where the most shoppers are! Would the supermarkets
>allow that? No!
>
>Secondly, the MLS was meant to sell listings and service buyers who are
>working with agents. The MLS allows all properties which are listed -
>including discount brokers. What the National Association of Realtors
>and brokers don't agree with is web-based companies who just use the
>MLS information to get buyers to come to their website and then the
>web-based company "sells" the buyer or seller lead to the brokers. How
>is that fair? That company has no listings of their own and have no
>buyers that they are working with - they just use the MLS information
>to squeeze money out of the brokers. If these companies are allowed to
>flourish, charging brokers 30-35% of the commission, how are
>commissions going to go down? These companies only want to squeeze
>money from the brokers - they have no interest in saving the consumer
>money. However, THESE are the companies that are actually starting the
>anti-trust complaints. This article would have you believe that agents
>don't want competition from valid discount brokers. Bull! There have
>been discount brokers around for ages and we know there is enough room
>for minimal service and full service. It's the internet "lead
>generators" like Lending Tree and others that we don't want to share
>with. All they are are middle men to the middle men and they aren't
>truly helping ANYONE.
>
>Finally, buyer agents are BUYER AGENTS. THEY DO NOT WORK FOR THE SELLER
>UNDER ANY CIRCUMSTANCES. That this article states "You can probably
>foist some of that work on the buyer's agent, who is really working for
>you anyway.) " just shows how ignorant of this process this author
>really is! The buyer agent has a signed contract or state laws
>requiring that they are to protect the buyer's interests and work in
>the buyer's best interest at all times. As an Accredited Buyer
>Representative, I have had to deal with many seller's who are under the
>assumption that I will take over. Sorry, mister. You don't want to pay,
>you won't get the service. My buyer knows darn well that THEY are
>paying my commission, because the seller has worked it into the asking
>price.
>
>And, furthermore, sellers ALWAYS work the 6% commission into the asking
>price. If the house should be $250,000 they'll list it for $265,000 to
>cover the commission. And they will get it, because all of the prices
>in the MLS are set that way. When a FSBO tries to get the same
>$265,000, the saavy buyer knows that the seller isn't paying the 6% and
>will lowball him. Of course, it is different in various buyer or seller
>markets, but overall, that is the case.
>
>Experienced agents aren't worth the commission for the lawn sign,
>showings or the newspaper ads - any seller can do that. Their worth
>comes from the fact that they have built an awesome system to service
>their clients (MLS), have hundreds of transactions under their belt to
>forsee and evade problems, work with buyers, so know the repairs and
>staging that need to be done for the seller's particular market to get
>the best price and have networks of lenders, title companies,
>contractors, municipalities, home inspectors, etc to keep a deal going
>smoothly and keep it together, by keeping emotions out of it. The most
>important functions an agent has are behind the scenes and occurs
>before the house hits the market and after it has an accepted offer.
>Unfortunately, most people don't see or know about this and assume that
>all agents do are the marketing aspect of the sale. There are rare
>instances where a house sells itself and everything goes without a
>hitch - which keeps the myth going that agents aren't needed. But, more
>often than not, my clients - both buyers and sellers - tell me, "Thank
>you. We couldn't have done it without you." If that wasn't the case, I
>couldn't, with good conscious, do what I do.
>
>This guy has no idea what he is talking about.

Re: NYT: The 6 Percent Solution: Skip Real Estate Agents

Sellers don't get charged ANYTHING unless the house sells. So all of my
services - market analysis, staging, advertising, paperwork,
negotiating, etc. - are "free" if you look at it that way.

How many other business models can you think of where you can get 6
months or more of services and not have to pay unless they are
successful? The only one I can think of is lawyers and that is only on
certain cases.


--
kristin
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