The always contrarian and interesting Freakonomics co-author Stephen Dubner, a former editor and a regular contributor to the New York Times Magazine was interviewed by Tom Acitelli of the Real Deal in their very cool podcast interview series format. Freakonomics also runs a very good blog.

The author states that brokers aren’t as necessary to real estate as you might think and forces beyond their control may soon spark changes in brokering. Its all about inefficiency. Freakonomics sparked controversy in the past for claiming that real estate brokers want the sale price to be set lower so they can move the property fast and the incremental benefit of a higher commission is not the motivation. I took issue with some of this logic in a prior post.

One of the weaknesses of their argument is the idea that all brokers can be lumped into one category. Its analogous to a national housing bubble. The markets are segmented and locally based. He provides an example of how the pricing varied widely when he was pricing his own house for sale and the idea that the low priced house would have moved more quickly and the over priced version would have languished and not achieved his price. Its all about access to information he indicates. I suggest that housing will not be treated as a pure commodity like coffee sugar or cocoa unless the buyers are pure investors. A large percentage of the population will need to be hand-held (self-included) in a sale. The broker does provide other anecdotal feedback, not all of it a sales pitch. The difference today versus a few years ago is the idea that more people are better informed before they speak with a broker for the first time. Its not a zero sum game.

However, I do think the days of the majority of eal estate brokerage firms being full service are numbered, and over time, different types of services will evolve. The full service service broker will remain and dominate but there will be more options to buyers and sellers. I would suggest that in a falling market, full service firms, as a percentage of market share, will rise as sellers will be less willing to experiment with unproven services, which have proliferated during the recent housing boom.



4 Responses to “Freakin’ Out Real Estate Brokers”

  1. BillGCT says:

    As we enter into a “Buyer Friendly Market” we will see a change in some of the marketing practices that have popped up within the last few years. The rock bottom brokerage firms may seem less a bargain and atractive to homeowners competing with other sellers that are marketed with more savvy and exposure to a shrinking or at least hesitant buyer pool. Full service firms will also adjust their focus, perhaps devoting more time to agent training and support to better serve the client and getting away from the un-neccessary and often usless “bells and whistles” like “concierge services”, etc. Seasoned, trained and ethical real estate agents and their firms are worth their weight in – if not gold – certainly dollars.

  2. Keith L. says:

    Here in Los Angeles the changes are closer to a normal real estate market. Many homes lasting up to 30 days on the market. The good ones still get scooped up in 8 days etc.

    Here in California the amount of disclosures and required paperwork is daunting. Not to be taken lightly. A RE Agents’ work begins in earnest once the buyer and seller reach that place of agreement on price.

    Land is unique. Discount brokers are not giving the service that a homeowner needs and has come to expect for the benefit of all parties in the transactions.

  3. Holden Lewis says:

    I would suggest that in a falling market, full service firms, as a percentage of market share, will rise as sellers will be less willing to experiment with unproven services, which have proliferated during the recent housing boom.

    I totally get your point that, in a slow market, people will want to hire experienced, full-service brokers. Yes, a lot of sellers will want to do that. But many sellers will want to keep as much money as possible. Especially in markets where prices are falling, these sellers will hire fee-for-service brokers, for two main reasons:

    a) The sellers will want to keep as much of their money as possible. When prices were shooting through the roof, sellers felt like it was “found money,” and they were more free to share it with real estate brokers. As the size of their capital gains shrinks, a lot of sellers will want to keep as much of that gain as possible — by hiring fee-for-service or discount brokers.

    b) Some sellers will say, “Hey, I can do most of the agent’s job, and I care more about selling my house than the agent does.” These are sellers who believe that if a job is worth doing, it’s worth doing yourself.

  4. Chris B. says:

    I found that chapter interesting. It doesn’t surprise me that an agent will spend more time on their own home…its human nature. But lets not forget that the sellers of the homes have a say in whether a bid is accepted or not. Many people buy a home and sell a homes with some overlap, and don’t feel like waiting if a viable offer is made.

    As far as discount versus full-service: I guess different strokes for different folks. If someone is competent to price there own home they may feel like they don’t need an agent…or they may still want their home listed on MLS. But IMO most people are not competent to price their own homes(even if they think they can).

    But FSBO is a rapidly growing trend. The amount of “public” information available online is amazing…and whenenver there is more information the “middle man” will suffer.