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Internet-Based Realtors Win Monster Settlement
coondoggie writes "Until today, most Internet-based real-estate brokers were considered second-class citizens, and their clients were left in the cold. But perhaps that will change with today's news that the Department of Justice has reached a proposed settlement with the National Association of Realtors that requires NAR to let Internet-based residential real estate brokers compete with traditional brokers. NAR has agreed to be bound by a 10-year settlement, under whose terms NAR will repeal its anticompetitive policies and require affiliated multiple listing services to repeal their rules that were based on these policies." Here's the whole settlement document on the DoJ's site.
Yes, it's ridiculous.
My wife is a Real Estate agent (not a broker; there's a difference) and there is a ton of work she does for her listing clients, often including spending hundreds of dollars of her own money, sometimes over a thousand, to pay for preparing the house for sale and marketing the home. I've also donated many hours of my own time ripping out old carpeting, taking down wallpaper, painting, and doing various light carpentry jobs for her clients.
Her clients also get her experience. I've seen a number of For Sale By Owner homes, and they never look as nice as my wifes listings. People just don't realize that you have to clean your home and make repairs before you try to sell it. Otherwise, it looks like run-down junk, and buyers will treat it accordingly. First impressions are everything, and you need an agent who knows what to spend money on and how much to spend, so that you get the best return on your last-minute fix-up dollar.
All of that is before the house even goes on the market. Once it's on, there are endless phone calls, viewing arrangements, and follow-ups that have to be performed; it's definitely a full-time job. Once an offer is negotiated and accepted, there's even more phone calls and work to do meeting with inspectors, dealing with lawyers, and making sure the deal doesn't fall through. It's just a steady stream of work, and if you've already got a job, you don't want to do the agent's job too.
Finally, all of the buyers know that you're not working with an agent, and since they're probably selling their home as well, they know just how much you're saving. 99% of the time they'll deduct that amount from what they would otherwise offer you, figuring that you wouldn't have gotten the money anyway, and why should you get a free ride? It can't be for your time; agents don't do anything, right?
It's a lot more than who pays who. One basic problem is that agents are paid on a percentage of the sale. Let's say a property is worth $500,000 and the commission is 3% to each agent (seller and buyer). The seller's agent knows that if he can get the seller to sell for $450k, he only loses 10% of his commission and he'll make the sale with nearly no effort. Hence, the interest of the seller's agent (in terms of pay/effort) is to make the seller accept any price even if it's low.
On the buyer's side, it's even worse because if the buyer pays more, the agent gets more, so there's clearly no incentive for the buyer's agent to help his client bring the price down *if* the client is buying anyway. In the end, both agents' *only* interest is to get the property sold, no matter what the price and the interests of the clients. It's as simple as that.
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The landlord will never pay the fee, because there is always someone who will step in and pay it for them, because of the permanent housing shortage in NYC. "As of April 2005, the rental vacancy rate in New York City was 3.3%, making it one of the tightest housing markets in the United States. (A vacancy rate under 5% is considered an official housing emergency under New York state law. Nationally, the rental vacancy rate is approximately 10%.)" The apartment scene in NYC is out of control, for $2000 a month which will get you a small studio in Manhattan or a small one bedroom in Brooklyn, this is what you pay: "In addition to a security deposit, some landlords also want the first and last month's rent. Tack on a broker's fee and a prospective renter for that $2,000 apartment is out of pocket nearly $10,000 just to get the keys to the place."
We are all just people.
That's actually not accurate. Realtors are members of the NAR. It does not have a bearing on their level of licensing. I am a Realtor. I have a salesperson's license. My broker is also a Realtor. By the way, while it can be beneficial to have a trade association (like the NAR) for the purposes of constructing a fair and organized market (though that is really a subjective measure), lots of the "benefits" (eg: code of conduct, pledge of fairness, listing services) are either redundant with existing structures or not implemented in a helpful way.