Ten trillion times a tiny loss is a huge loss . . .

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

I have been devoting a lot of my time to some ascendant ideas in Real Estate loosely based on the Web 2.0 model of internet commerce. The ideas are ascendant, but they’re not necessarily good. I weigh in on the skeptical side for now, but I’m watching all this with interest. I’ve been wrong before.

Of all the fascinating things I’ve seen, the most impressive was the painstaking deconstruction of the redfin.com numbers. We can scale those results any way we want and they still stink. Any brick ‘n’ mortar accountant could do the math. As with Web 1.0, it doesn’t matter how many different ways you shout down the numerical analysis, ten trillion times a tiny loss is a huge loss.

So: One procuring cause lawsuit–and there are apt to be dozens… One negligence lawsuit–and the business model is proudly based on negligence… Emongoo.com is actually in worse shape, since they’re taking quite a bit less money but openly promising legal advice. The aggregators and sites like zillow.com are probably safe–though possibly not profitable. But sites attempting anything like agency have the same legal exposure as B&M brokers, but with a lot less money to cover the losses.

It’s an interesting problem…

Here’s another one:

The real estate industry has always been about seller representation. This was true historically, but it’s still a huge source of lawsuits among the old-timers. The idea of dual-agency–itself a huge fount of lawsuits–is an attempt to cling to double-commissions in the age of buyer agency.

But here is where we’re headed, at least for now: In the world of redfin.com, emongoo.com, HelpUSell, etc., buyers will have full representation, but many sellers will be essentially unrepresented.

The immediate knee-jerk answer to this would be to make buyers pay for their own representation, but, of course, now more than ever buyers arrive at the closing table with no cash at all. Good income, good credit, but little or no cash.

So why should sellers pay for the buyer’s agent? For the same reason they always have, agency law be damned: For the introduction.

So how does this shake out?

On the one hand, sellers might think they can hold their own hands. I think they’re mistaken, and I think the promises emongoo.com is making are a very funny flavor of lawyer-bait.

But on the other hand, buyers know they need help, know they want it, and know they can’t pay for it.

So: What next?