In the last 15 years, coincidently since the advent of consumer Internet, there has been an ongoing ‘perfect storm’ in the economics and dynamics within the real estate industry. Specifically;
- home values and resale prices have risen dramatically
- buyers make extensive use of the Internet when shopping for a new home
- realtor commission rates have remained stable at around 5%
So, the formula that falls out of these conditions is:
Higher home prices X higher buying efficiency (read: Internet) X stable percentage commission rate = realtors earning more while doing less ‘real’ work (activities directly aiding a seller or a buyer).
IF there were an award for the most inefficient industry (I should create one!), real estate brokerage services would absolutely be on the short list. In our not-so-populous Canada, there are some 90,000 “realtors” vying to list and sell your home. In case you don’t follow the industry, “realtor” is the new consumer friendly-term for “agent”.
It’s not that realtors don’t work hard or invest significantly in their businesses, they do, it is what they are doing and why they are doing it that creates the massive inefficiencies. Herein lies the problem: a realtor’s primary job is to either market your home or help you find the right one to buy, however, those are not the activities they spend the majority of their time and (your) money. Just look in the real estate section of any newspaper and you’ll see what I mean. In one recent example in the Halifax Herald, Sunday, October 26, 2008, the real estate section had 86 residential listings from realtors, each with a picture. Five of the listings had a picture of the home and the other 81 had only a picture of the realtor. Remember, these are suppose to be advertisements intended to help market homes listed by the agents. I don’t know how you operate but, most rational people, in shopping for a home, don’t pick their homes-of-interest based on who the listing agent is. IF the goal of advertising a home in the newspaper is to get the attention of would-be buyers then why do agents market their faces versus a picture of the home? The only possible reason is that realtors are attempting to market themselves to future home buyers or sellers, and they are using their current listings as a means to get future ones. The only thing wrong with this is that it is horribly inefficient.
Lets get back to Agent MLS.
Consumers can’t buy what they don’t know is for sale, so getting their attention is the critical first step in any potential sales transaction, including selling a home. Here is the key question: How do consumers shopping for a home become aware of the home they eventually buy? You guessed it: MLS. Research shows that the vast majority of home buyers use the Internet/MLS to shop for homes. And so they should. The research doesn’t answer the specific question about which advertising brought the home to the attention of the purchaser, but it’s reasonable to assume that MLS is the culprit here again the vast majority of the time.
Would you pay an agent 5% to ‘sell’ your home if they didn’t agree to put it on MLS? If the home is not on MLS it is effectively a private sale (or a “FSBO”, a for sale by owner as the realtors call it).
Short Sale Foreclosure