Thursday, March 02, 2006 | When San Diegans sell their home with the aid of real estate agents, they have traditionally expected to pay about 6 percent of the final sales price in commissions to those agents.
The median-priced home in San Diego County, according to the National Association of Realtors, is currently $569,900. Six percent of that is $34,194.
Some experts say that’s money people are simply throwing away.
Computerized listing services, sophisticated Internet-based tools that help home buyers find the home they want, and Web sites that act as online marketplaces for home sellers and buyers, are changing the face of the real estate industry for ever. As these tools evolve, and as consumers become more and more savvy about the home-buying process, many people within the industry wonder what will happen to the role of the Realtor.
“If you’re a helpless little old lady, you need a real estate agent, but if you know how to read, and you’re able to set aside a few days to walk yourself through this, you can save a ton of money doing it,” said John Karevoll, chief analyst at San Diego-based DataQuick, a real estate information service.
Needless to say, any claim that real estate agents are an unnecessary expense is hotly contested by Realtors.
The technological advances that have entered the market are welcomed, not feared, said Vince Malta, president of the California Association of Realtors. Realtors offer a valuable service that more than justifies their commissions, he added, and they are not going anywhere.
“We were given a life expectancy of three years after the Internet reached its fruition, and guess what? We’re still around, and we’re strong as ever because people realized the value that we provide in a transaction,” Malta said.
But analysts and even some Realtors said that the current state of things is untenable for real estate agents. At the very least, they said, agents will have to evolve to suit a changing real estate market where companies like Craigslist.org and Ebay.com will compete directly with the old guard of realty companies.
Indeed, some Realtors said they have already seen their roles change in the time they have been selling real estate. Consumers are using tools like www.zillow.com, an online home valuation service, to become better informed about the market and their own properties before enlisting a Realtor, said Peter Toner, a La Jolla Realtor.
Toner, who set up his first Web site in 1998 (“Everybody thought I was crazy”) said he’s seen the real estate profession change notably in the last decade.
“Most real estate agents now, I believe, think of themselves more as counselors than sales people,” Toner said. “Because there’s so much information out there, it’s not uncommon now for buyers to approach us and say ‘These are the ones I want to go see.’ “
As the role of Realtors changes, then, the issue of commissions becomes an obvious sticking point. If buyers and sellers are spending more time in front of their computers, researching properties and performing amateur valuations on their homes, then perhaps it stands to reason that they should pay less commission to their real estate agents.
Gary Painter, director of research at the University of Southern California’s Lusk Center for Real Estate, said there’s been increasing pressure for Realtors’ 6-percent commissions to decline for many years. That pressure is building as the real estate market cools and as Internet-based tools like Zillow.com come to fruition, he said.
If Realtors are going to be providing less of the expedited services that can now be done by individuals online, and those resources become available to everyone, he said, then Realtors are actually providing less service to clients and therefore should be paid less.
“As people get more confident, and as these become more user-friendly, then I think you’ll see more people moving toward them,” Painter said.
Adam Rappoport seems to agree. The San Diego Realtor and entrepreneur owns G & R Realty, a real estate agency in San Diego that is hoping to cash in on sellers who think 6 percent is an unreasonably large commission to pay. Rappoport said he does exactly what any other Realtor does, but for a 1-percent-flat commission rate.
While Rappoport agrees that there is still a vital role for a Realtor to play in shepherding buyers and sellers through the process of selling a home, he said that there’s no reason why Realtors should charge so much.
He said the reason why Realtors have managed to hang on to their commissions is not due to their expertise, or their training, but has a lot more to do with the way Realtors sell their services to their family, friends, neighbors and acquaintances.
“The basis of residential real estate is to take advantage of personal relationships,” Rappoport said, “I’ve had friends, people I’ve known for 15, 20 years, and I’ve gone to them and said ‘Look, I can save you money, here’s my testimonials.’ I can wave $20,000 in their face, and their buddy’s wife has a sister whose best friend’s a Realtor and if she doesn’t use her she’s going to get pissed, and they literally throw money away.”
Unsurprisingly, Realtors took offense at Rappoport’s suggestions, and Painter pointed out that commissions based on personal relationships also tend to be smaller, as friends and family expect a better deal from people they know.
Painter said that the reason real estate commissions have remained at their traditional level is because of intense pressure by the industry to protect its interests. Real estate industry groups have fought tooth and nail to protect the information that makes them more informed citizens than the Average Joe, he said. By limiting access to the Multiple Listings Service – a database that lists all the homes for sale in a certain market – real estate agents have built themselves a safeguard that has proven hard to breach.
But in today’s wired world, companies are lining up to offer that information and plenty more besides.
Zillow.com, Dataquick.com, Zipealty.com, EBay.com, Craigslist.com, ipayOne.com, Realtor.com and Trulia.com are just a few of the companies who have set their sights on Realtors’ commissions, and Dataquick’s Karevoll said he estimates that currently some 20 percent of home sales are already made without the consultation of a Realtor.
Spencer Rascoff, Zillow.com’s chief financial officer, said his company is not commenting on rumors circulating that it will eventually offer a full range of services to home buyers and sellers, thus circumventing Realtors altogether.
But Zillow.com’s founders Rich Barton and Lloyd Frink are famous for taking on another industry – the travel industry. The $30 million they invested in Zillow came largely from money they made on their other big venture – Expedia.com.
And we all know what happened to travel agents.
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