I just wrapped up 5 days at SXSW Interactive. It was a fantastic conference with many great workshops, panels and discussion events related to technology, business, the internet and social networking. Much of it was relevant to the real estate business and small business in general, which surprised me.In fact, I attended two discussion workshops dedicated to real estate.
The first was “Making the Move from California to Austin“. Lots of good interaction, insight and questions regarding the differences between the larger California cities (the Bay Area in particular) and Austin. There were many Californians in attendance and it was fun to hear why so many feel drawn to make the move to Austin. I could say more, but that’s not the topic of this article.
The other real estate related event I attended was titled “Can Web 2.0 Kill the Real Estate Industry?“. This one surprised me because I actually got pretty worked up and steamed at how completely uniformed those are who dismiss the real estate agent as an obsolete, useless tour/taxi driver. It’s extremely irritating to listen to people who don’t know what they don’t know speak as if they know everything.
Interestingly, the folks in the audience who had actually purchased or sold a home recently defended real estate agents and said they greatly valued the services received. This sentiment is reflected in the internal surveys we sent our own clients after the close of each sale, which uniformly rate the experience as a very good one (whoa, I need to update that page on our site!).
Anyway, the discussion that took place stirred up some thoughts regarding my profession, what we do and how we are paid, and how the internet has changed things. Since I wasn’t able to fully make my points in a couple of short soundbites during the open discussion, I’m going to expand on my thoughts here.
So, with almost all MLS listings online and so much information available to real estate consumers nowadays, why is it that an agent is still needed? Why can’t we just be replaced by the internet? And, as one grouchy know-it-all complained about repeatedly, why should the listing data be controlled and disseminated only through private MLS Associations with strict rules on how the data is used and displayed online? Why isn’t all this MLS listing data free for the public to see and use?
I’m going to answer those questions, and others, by starting at the beginning – with the Seller.
Everything Begins With the Seller
Let’s say that Ms. Home Owner is happily living in Austin TX, working in an industry she loves, doing well, and one day she gets an unexpected job offer that will require her relocation out of state. The offer is too good to pass up, so she makes plans to move in two weeks and sell her house.
At this point, the house is not on the market. Ms. Home Owner considers keeping it as a rental, but she really doesn’t want to be a landlord. She’s busy preparing her move and getting ready for her new job. She has neither the time nor the expertise to sell her home on her own, and she doesn’t have any local family or friends who want to buy it. She decides to hire an Austin Realtor to list the home for sale so she can focus on other things.
The Realtor she hires is a member of the Austin MLS (Multiple Listing Service). Let’s take a quick look at what an MLS is. From the National Association of Realtors:
“In the late 1800s, real estate brokers regularly gathered at the offices of their local associations to share information about properties they were trying to sell. They agreed to compensate other brokers who helped sell those properties, and the first MLS was born, based on a fundamental principle that’s unique to organized real estate: Help me sell my inventory and I’ll help you sell yours.
A Multiple Listing Service (MLS) is a suite of services that (1) enables brokers to establish contractual offers of compensation (among brokers); (2) facilitates cooperation with other broker participants; (3) accumulates and disseminates information to enable appraisals; (4) is a facility for the orderly correlation and dissemination of listing information to better serve broker’s clients, customers and the public.
A multiple listing service’s database and software is used by real estate brokers in real estate …representing sellers under a listing contract to widely share information about properties with other brokers who may represent potential buyers or wish to cooperate with a seller’s broker in finding a buyer for the property or asset. The listing data stored in a multiple listing service’s database is the proprietary information of the broker who has obtained a listing agreement with a property’s seller.
The Austin MLS is a Broker-to-Broker member service. An MLS listing is, in short, an offer from one Broker to another to bring a purchase offer. It was never meant to be a publicly advertised database. The internet obviously changed that. But still, the information, or “data”, contained in the MLS listing becomes the property of the Broker and the MLS once entered. The seller can, however, dictate to the listing agent certain parameters regarding the content of the data.
How Much Control Does a Seller Have Over her Listing Data ?
An MLS listing in Austin is required by MLS rules to have at least one photo. If a seller, for some reason, wanted to display only 1 photo, then the “data” would reflect the owner’s wishes. Likewise, many of the fields in an MLS listing can be left completely blank per MLS Rules. There are “Required” fields, and “Optional” fields. So, only a basic set of data is required to be present in an MLS listing.
Also, when entering an MLS listing, the agent can, if the owner wishes, say “No” to the check boxes asking Yes/No for inclusion in Realtor.com, AustinHomeSearch.com, or IDX Participation. (listings displayed on other agent’s websites). And, even if “Yes” is chosen for those other sites, the address can be withheld by selecting “No” for the “Address on Internet” field. The owner can instruct the listing agent in how all of this is handled.
In fact, if the seller so chooses, she can say “I don’t want it listed in the MLS at all, just find a buyer some other way”, and the listing would not even appear in the MLS or any of the aforementioned public websites. So, in this way, the Seller – the owner of the home the listing data describes – has full and complete control over that sales listing data and information from the start. If a seller somewhere doesn’t decide to sell, there is no data to begin with. The data belongs to nobody else without consent of the owner/seller.
Of course, as listing agents, we will want to include the listing in the Austin MLS with as many good photos as possible and as much information as we think appropriate to the sales and marketing effort. But the point I’m making is that the data about the home and the listing, and how it is used, is entirely controlled by the seller and her listing agent under the umbrella of the agent’s MLS Rules, should the agent and seller decide to include the listing in the Austin MLS. I recently sold a listing without the MLS, so not every home requires MLS or internet exposure to sell.
OK, So What’s the Point?
I lay this out so it might be easier to understand how stupid it is for some loudmouth knucklehead in a real estate discussion workshop to be talking about Ms. Seller’s home and it’s listing “data” as if that information and data is public and belongs to him. And he’s angry he can’t have it. Some seem to believe that the MLS ought to be a public utility, containing data freely distributed to others to do with as they please.
But it’s the seller’s home and she alone can decide when to sell the home, whether to do it herself (FSBO) or hire and agent, whether to hire a full service or flat fee or reduced fee agent, where and how it will be marketed by that agent, how much information will be shared and how it will be shared, how the home will be shown, who can see the home, how they get in, when they get in, and even the financing terms and conditions she’s willing to consider.
Ms. Seller exercises this level of control by hiring a Realtor who belongs to an MLS which provides the framework and set of rules that facilitate this level of control. This level of control is good for the seller and the real estate industry. This system insures that the home will be marketed and sold under a pre-established set of rules and guidelines by agents who are subject to established standards and ethics and who use standard forms and processes to bring the transaction to successful fruition.
There are heavy fines and penalties for being sloppy with the data, or entering inaccurate MLS data. Appraisers and banks rely on the data to value homes. Your loan and/or your buyer’s loan depends on this system of valuation and the reliable data it prvides..
So when some loudmouth knucklehead in a real estate discussion workshop declares that Ms. Seller’s listing data, and that of the thousands of other sellers in Austin, and the U.S., ought to be his to plaster all over the internet in whatever form or fashion he thinks will be profitable to him (seller privacy be damned), and that he ought not have to disclose or display on his site who the listing Broker is because the listing Broker is irrelevant to the process (Broker merely obtained the listing), then I just have to shake my head and shout out loud, as I actually did in the workshop, “why do you think you deserve free use of this data when you’ve invested no money or time to create it?”.
Moochers have no free entitlement to this data, either free or paid, to use it in any manner not authorized by the seller and her Broker via MLS rules. It just ain’t no more complicated than that.
Listings Should all be Online with Buyer (Looker) Reviews
As if it wasn’t bizarre enough that “disruptors” think they should get free use of the listings procured through the efforts of Realtors, and that those same Realtors who should then be cut out of the process, there also arose discussion of the peculiar notion that all listings should be displayed online and subject to the “reviews” of buyers who have toured those homes. A sort of Yelp, or Trip Advisor for individual real estate listings.
Oh Jeez. Really? As a seller, do you want people who saw your home but didn’t want to buy it, or perhaps who made a low-ball offer that you rejected, going online and leaving anonymous comments about your home for other potential buyers to read? Do you? And there would be no limit to what they could say about your decorations, color choices, personal items, family photos, etc.
I ask, would that be beneficial to your sales effort? If so, how? Remember, these are people who saw your home but didn’t want it. Or maybe they haven’t seen your home at all, or don’t even live in your state, and have just taken up the hobby of commenting on the online photos of MLS listings. Perhaps they amuse themselves and their friends with snarky comments about your home. To whom, I ask, is this “right” owed?
You should be frightened that there are data aggregation engineers/marketers who want to take the MLS data of your home for sale and put it out there on the internet to be used in this fashion. Luckily, the dues we pay as Realtors to our associations and MLS provide the funds to fight this sort of nonsense in court, and protect you, the seller, from having your privacy violated in this way. You just want your house sold, not to have your listing used in some Web 2.0 Social Commenting website, or to generate traffic and ad revenue for the sites who view your listing data and photos as a well to be tapped for their own purposes.
As a seller, I’d say to such an internet commenter, “you didn’t like my home? Fine. Shut up. Go find a home you do like and buy it, but don’t be making online comments about my home”. And I’d say something similar to the web surfers who think they might have valuable insight to offer about a home they’ve never seen.
This “Listing Review Functionality” is what the “Free MLSers” think would make things more helpful for buyers, so they could better evaluate properties, by, as one attendee put it, “leveraging crowd-sourcing technology” into the home search process. Oh brother.
With regard to this notion, as I listened to this gibberish, all I could think to myself was “my God, are individuals becoming incapable of evaluating their needs and making their own decisions without consent and ratification from anonymous internet masses”?
Are we, as a people, becoming so unsure of ourselves that we can’t assess our needs, evaluate our options and make decisions independent of anonymous reassurance from the internet?
Yes, I read car reviews. And I think gathering information is good, and listening to the opinions of others is valuable and helpful in many ways in life, including relocation and seeking a good neighborhood and home. But again, this goes back to the seller. It’s the Seller’s house and the seller has no obligation to subject herself, nor her sales listing, to the anonymous scrutiny of non-buyers on the internet. It’s just stupid to think that would benefit sellers in any way, and it’s the seller who controls the listing and the information, so it would have to be sellers, listing agents and our MLS who decide this would be ok.
Commissions and Uncompensated Effort – Are Realtors Paid Too Much?
Fiftyfour percent (54%) of the listings that departed the Austin MLS in January 2010 departed as failed sales efforts. They were either Expired or Withdrawn listings. Think of all the color fliers printed, the staging paid for, the virtual tours created, the time and effort expended by listing agents to acquire these 971 listings and enter them into the Austin MLS and market them at open houses and property tours. And not one penny was earned by any Realtor for all that effort. 971 homes, marketed for free, no commissions earned.
Let’s talk about all the buyers that didn’t buy in January but who were driven around and shown homes. We don’t have a way to track this with regard to number of showings, but the miles driven, gas burned, and time spent was all absorbed by Buyer Agents for zero compensation in January.
We don’t ask buyers to pay us up front. We don’t ask people to chip in for gas. Consultations are free. Our time is free. You can search for weeks, months, or years with an agent – FOR FREE.
This is the way the consumer wants it. Sellers don’t want to pay a commission or fee if the house doesn’t sell. Buyers don’t want to pay up front for the time and expense required to consult with them and show properties. Realtors only get paid at closing. We earn a “Success Fee”, if it were termed properly. In between each success fee is a whole bunch of uncompensated effort, which is ok with me, I’m not complaining. That’s the way our business and compensation is structured. It works for us.
But, as a Seller, when you see your Realtor’s commission of $9,000 on your settlement statement, you only think of it in terms of the amount you are paying and the work and effort you observed for the sale of your particular home. And sometimes it seems too much, especially on a quick sale, or if things went smoothly.
But the average agent nets 43% of Gross Commission Income (GCI) after expenses (per broad national agent survey conducted by Keller Williams Realty), so the agent really earned $3,870 net from that $9,000 the seller paid. From that $3,870 must still be paid self-employment income taxes, health insurance, and the cost and expense of all the aforementioned uncompensated efforts that are a required part of the business.
Where did the other $5,130 go? It was burned up paying dues, fees, commission splits, E&O insurance and the myriad expenses related to all of the efforts that didn’t result in a sale. The uncompensated efforts required to remain in business.
Yet the same loudmouth knucklehead in the discussion seminar who thinks all the MLS data should be his for free, to bastardize and put up on the internet for his profit, with all your house details Ms. Seller, to do with as he pleases … that same guy thinks Realtors are overpaid and don’t deserve the commissions we earn.
The Realtor Pay Perception Gap is easy to understand. You paid $9,000 to your Realtor, but he receives only $3870 net, before taxes and insurance. Greater awareness of these financial realities would go a long way toward helping people understand what they are paying for when a commission is paid. In short, ask not what you paid your Realtor, ask what it costs for a good Realtor to remain in business so that he or she is available to you when you need her. If we could charge a deposit to every buyer and seller before lifting a finger, commissions could be cut in half. But the consumer doesn’t want it that way. Nobody is ever going to pay up-front fees. So our Realtor Commission system is exactly what the consumer wants it to be.
Online Rating Systems for Realtors and Homes
And the workshop discussion got even better. These guys (the I-Want-Free-MLS-Data-And-Realtors-Are-Paid_Too-Much people) think we need an online rating system for homes. As I pointed out to them, again, out loud in the workshop, “we already have a rating system for homes. It’s called Expired and Withdrawn Listings. That’s your rating system”.
The market rejects homes that buyers aren’t willing to buy under the prices, terms and conditions sellers are willing to accept. That’s simple, clean and pure. You don’t need to know what some internet moron thinks about the wallpaper, the neighborhood, or anything else. The home is either Active and available for purchase, Expired or Withdrawn, or SOLD.
If you like an available home, buy it. If you don’t keep looking. That’s your rating system. If the home you liked got bought by someone faster than you. That’s your rating system.
And these guys think we need Internet reviews for Realtors also, so Realtors can be rated so buyers and sellers can have more information to help them pick an agent. Well, we already have a really good rating system for Realtors too. It’s called “they didn’t last the first year”. It’s called “they haven’t sold a home in two years”.
It’s called an INTERVIEW, where you, as an intelligent individual ask simple questions such as, “how many homes have you sold in my area in the past 2 years”? Or, “how many buyers have you helped buy a home like the one I want, and what is your process for helping us make a good decision”? And you ask these questions of Realtors recommended by your friends, family, and co-workers. That’s your rating system.
Then you listen to the answers of 3 to 5 different agents, and you’ll know which one is right for you. A “Yelp for Realtors” can’t possibly provide you the high-touch, face to face information you can obtain by asking about 5 simple questions.
Instead, the average real estate consumer, 70% of them, selected their Realtor because he was the first one to respond to an email or phone inquiry. That’s it. Return your calls fast, and you’re deemed good enough to hire by the average real estate consumer. We are taught this at real estate seminars, and there are products available to enable us to be super fast responders. A rating system isn’t going to help the selection process given this reality. Consumer just have to get smarter in how they pick an agent, and stop allowing the bad ones to survive just because they respond to an email in 30 seconds.
So, Will Web 2.0 Render the Full Service Real Estate Agent Obsolete?
No, because Buyers still need to be driven around and shown properties and they still want good advice. The smart ones know that the good advice they want is best obtained from experienced agents who know the neighborhoods, the homes and the schools in the areas the buyer likes. Just ask Redfin why their “internet only” model failed and they now drive people around, just like the traditional agent always has. You can’t sell homes you know nothing about while sitting in front of a computer in a call center.
Sellers will always be too busy to want to self-market their homes. They will always want the aforementioned benefits provided by an MLS system. They will never collectively dump the tight reins and control of an MLS system for an Open Source internet listing service with no rules or protocols for controlling the data, showing the home, submitting offers, etc.
They will never want to deal directly with buyers and will always prefer a buffer between them and the buyer. They will always want and need guidance and advice with regard to home preparation, staging, contract negotiation, and the ancillary decisions and considerations that come with selling a home and moving. They will continue the value and benefits of a fiduciary relationship with a competent Listing Broker.
So, no, I don’t think the internet, or Web 2.0, is going to kill the real estate industry.