The article Owners’ Web Site Gives Realtors Run for Money [NYT] talks about for sale by owner or FSBO web sites [Google] but specifically FsboMadison.com.

This quirky site has been surprisingly successful, but don’t be misled. Apparently they are not doing it for the money…they get about $150 per listing. Their site sees more web traffic than the local MLS and have earned about $300,000 since the beginning. If they collected a full commission, they would have amassed $17.3M.

Madison is home to the University of Wisconsin and a city where the percentage of residents who graduated from college is twice the national level. It is also a hotbed of antibusiness sentiment, which turns out to be the perfect place for a free- market real estate revolution. Bucking the system is a civic pastime here.

Interactive Map of Sold Homes by FsboMadison.com, created by the Center for Real Estate, University of Wisconsin-Madison.

And Now…Discount Real Estate Brokers
I’d say that discount real estate brokers, like discount stock brokers, are here to stay and serve a niche. I am doubtful that full service brokers have much to worry about because they service a different market altogether. As we enter a more challenging real estate environment, I suspect that order takers, like Foxtons will see their growth cool more sharply than full service companies.

In fact, brokers that will do well in the changing environment will be those that actively market and sell the properties that they represent. There won’t be a lot of room left for order takers. Foxton (formerly YHD) changed their commission structure from 2% to 3%. Perhaps the services demanded from clients could not be provided at 2%.

UPDATE: Another variation on the discount brokerage theme is the flat fee commission with a la carte service. Once such company is (can we come up with a better name?) Help-U-Sell [North County Times].

Webmaster’s note: I remember visiting the Madison campus (from a rival school), to go to college football games, dining on Bucky Badger Dip at Jocko’s Rocketship before kickoff…but I digress.

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4 Responses to “Stickin’ It To The Man (Or Woman) And Pocketing The 6 Percent”

  1. John Philip Mason says:

    There will always be and should always be alternatives available to consumers in each and every market place. Competition introduces new business models and ideas, increases efficiency and maintains healthy markets. But the debate of full service versus do-it-yourself, or some hybrid thereof, seems to fall into two camps. On the one hand you have people who insist that various matters require and deserve nothing less than the full services of a “professional”, while others pride themselves on their ability to be all things and all people to themselves. And it doesn’t matter whether we’re talking about changing the oil in your car or working on a deal worth millions of dollars. Yes, I know there is a significant difference in the financial value of these two examples, but I’m talking about the personal satisfaction one obtains from having made the “right choice”, from their prospective.

    Now in the case of changing your oil, it’s fairly simple to calculate the cost of the materials (assuming you have the tools and work space) and compare that to what your local garage would have charged you for the same service. The remaining difference would then be weighed against your perception as to the value of your time and/or satisfaction, and every person would arrive at their own value for this factor. But in the case of a real estate deal, how does a FSBO (for sale by owner) know if they sold their property for more or less than a broker could have netted them (after a commission)? While we have heard that no two properties are exactly alike, this is also true for each and every deal, as sellers and buyers can have different motives, strategies, etc. As such, it can be very difficult to sort this out.

    While I don’t have actual statistics for you, I have made the following observations in my work as a real estate appraiser:

    • The contract price on FSBO deals tend to be more erratic. That is, that all too often these deals are selling at the higher or lower end of the price range, within their respective markets. So in these cases either the buyer is overpaying or the seller is underselling. • The percentage of unsold (expired, withdrawn, etc.) FSBO listings seem to exceed the unsold ratio in the broker represented market. Typically these people will tell you they “decided not to sell” (which translated means they didn’t get their price). • The number of days on market also seems to be greater for FSBO properties. You know those properties in your community that have a for sale sign on the lawn for so long, it’s time to repaint the sign?

    If my observations reflect what’s actually happening in the market overall (and I don’t think I’ve imagined them), then the FSBO market is less efficient than the broker represented market. And all of this in light of some major factors (which we don’t have all day to discuss):

    • Buyer’s agency, where an agent has a fiduciary responsibility to you, the buyer. This is becoming more popular as buyers realize that seller’s agency or dual agency is like going into court and letting the lawyer for the other side represent your interests. • The increasing complexity of life in general and real estate in particular, especially here in New York. I wish any lawyers reading this would consider doubling the size of their conference rooms, to accommodate all the parties present at real estate closings. • The increasing legal liability associated with life in general, and real estate in particular, especially here in New York. This may explain why kids are less inclined to open up a lemonade stand these days.

    There should always be alternatives available to consumers in each and every market place and all parties should welcome the competition. But, the participants will have to arrive at their own conclusions about the value of the services provided, in the context of their definition of satisfaction.

    Question – Does anyone have statistics showing the average selling price per square foot of broker versus FSBO properties? There would need to be enough data (sales) for it to be meaningful.

  2. pcampbell says:

    “You get what you pay for” is not a meaningless saying but is based on the experience of people, probably, over the milleniums. In any service required it is generally is worth contracting an expert in their respective field, unfortunately, expert is used a bit too loosely these days. If one is going to do it yourself and it requires time, energy, research an educated buyer or seller in any commodity. Time is in short supply today. Then there’s ” a doctor should never be his own physician.” Objectivety is difficult when one is involved.

  3. NP says:

    It is true that there will always be a need for good quality real estate agents; as John says some people will always prefer to use the professionals. Some homeowners don’t have the skills to sell their own home others don’t have the time.

    FSBO should be seen as welcome competition in the real estate industry and will hopefully result in poor agents having to lift their game and provide a better quality of service to their clients.

    For those owners who do have the necessary skills and time FSBO is a great way to sell a property. The savings in commission are significant and many owners report that the sale process is less stressful and takes less time. Websites such as smartvendor make it easy for owners to sell their own home by providing value for money advertising packages.

  4. Robert says:

    I don’t doubt the value of using full-service brokers. Selling real estate is complex and time-consuming.

    However, I purchased my house 4 years ago for $185,000. At the time, full-service brokers charged 6%.

    Now I am looking to sell…and the house is currently worth $450,000 (almost 2.5 times higher). Full-service brokers still want 6% for the same amount of work!!!

    When I asked two brokers about this, they couldn’t give me an answer. They also said that if a home was listed at 5% (2.5% each side) or less, they wouldn’t show it to their buyers because they wouldn’t make as much money. They are, in essence, controlling the price through tacit collusion. They are essentially operating as a cartel, like OPEC.

    I find this outrageous. The brokers have become extremely greedy and highly unethical in their business practices!

    The good news is that, since this industry is so far out of whack with natural supply and demand, a new paradigm will surely emerge. Whether it is Zillow.com, or some other entity or entities, the brokerage industry is sure to change substantially.