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Freakin’ Out Real Estate Brokers

The always contrarian and interesting Freakonomics [1] 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 [2] format. Freakonomics also runs a very good blog [3].

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 [4].

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.