Category: Disintermediation (page 36 of 43)

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

I had email late last night night from Mark Nadel, author of the AEI-Brookings Joint Center white paper on real estate commissions that has been cited lately by the Freakonomics blog and by weblogs all over the RE.net:

Greg,

I wish I had discovered your BloodhoundRealty blog earlier. If so, I would have referenced you in many of the footnotes of my 75-page law review article (including almost 400 footnotes) criticizing the traditional broker commission rate structure. If and when you have the time, I would love to get any criticisms, corrections, suggestions, etc., that you (or any of your readers) might have to my piece.

It is posted [here] and has been recommended by the Freakonomics blog.

Keep up the good work and I will be including appropriate references to your work in the revised version of my article.

Take care,
Mark S. Nadel

That’s very sweet, and I hope he’s writing notes like this all across the enblogged globe, most particularly to Our Lady Ardell.

For my own part, I think we are about to witness a revolution. BloodhoundRealty.com is at a de facto flat fee for buyer representation right now, and we’ll be rolling the idea out in stages starting tomorrow. In the short run, I think we’re gong to take a lot of business. In the long run, I think the co-broke is going to settle down to a flat fee for everything or nearly everything — and from the high-end first. In other words, my view is that we’re buying a short-term advantage and we’ll have to be ready with even better ideas when the market responds.

This is where we’ve been since we’ve been here: If there is any room left in the real estate marketplace for personal-service representation, it will have to be insanely great personal-service representation. One of the things we’re always looking for, as a business strategy, is the way to attack on two flanks: We bring much better service and benefits at a much lower cost. Whichever argument you want to make against us, you’re already beat.

What’s left — three years out, five years out, ten years out? Read more

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

This is from a comment by Jeff Brown, responding to an earlier post. I’m only showing a snippet here, but Jeff’s ideas are worth apprehending in full and pondering at length.

Once and for all, the money paid for representing a buyer OR a seller is based upon only one factor: The ultimate value perceived by the client. Is the client better off being represented by you than not represented period? Is he better off with you vs. another agent?

Here’s the thing: The market will bear what it knows about. This is the purpose of marketing, to educate your own buyer.

So think of it this way:

I personally can sell about a house a week. More than that, and I can’t juggle all the eggs. But even assuming I have enough ready, willing and able buyers to sell a house a week, the effort involved for some transactions can exceed the time I can afford to spend on it. Because we don’t relate costs to compensation, sometimes we make good money, and sometimes we take it in the shorts. No other personal services/consultation business works this way — except for contingency-fee attorneys.

So: In ideal circumstances, I can sell a house a week at $250,000 each, on average, earning $7,500 each, on average, for a gross income of $375,000. Not bad. My marketing costs and other expenses are huge, and, practically speaking, some of those transactions were under-performing: Either the deal didn’t close at all or my costs exceeded my return. And, of course, I don’t always have a buyer to work with every week. Unused Realtor capacity is a hidden cost in this business, one that would be accounted for in the books for in any other business. But still, after everything: Nothing to sneeze at.

But suppose I can structure my business a different way. What if I were to charge a flat fee to represent a buyer in exchange for a non-refundable retainer. My marketing costs just plummeted, especially for the high-end clients whose homes we want to list — now and also when they move again. My exposure for under-performance just Read more

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

This is a sweet one from my Arizona Republic column:

“Save thousands buying surgery online!”

It may be a while before you see this headline. But you can’t open a magazine or a Web site lately without hearing that Realtors are about to be “disintermediated” by the Internet.

“Disintermediation” is a 50-cent word that means cutting out the middleman. It has happened at the low end of the travel agency and the stock brokerage businesses, among others. Some Internet start-ups plan to automate or streamline the functions performed by Realtors, in anticipation of the glorious day when you will sell one home and buy another online.

There are problems with this idea. For example, although the book-selling business allegedly has been disintermediated, you will have plenty of time to read about that as you bide your time in the checkout line at Borders or Barnes & Noble.

Then there are these considerations: Would you say that a Realtor is more like a sales clerk at Target or Wal-Mart or more like a surgeon?

Is your home, or the one you hope to buy, more like a DVD at Best Buy or Fry’s Electronics or more like a unique work of art?

I’m not sure this column is holding up that well. I can’t imagine buying a house as though it were buying a book at Amazon, but I have sold plenty of houses that the buyers have never seen.

In the first instance, we are taking note of the consultative expertise of Realtors, full-time professionals who know how to market homes and how to effect transactions against a sea of troubles. Surely some Realtors are better than others, but it would take a pretty lousy surgeon to be worse at surgery than an amateur.

In the second instance, we are talking about the idea of fungibility — substituting one item for another with no concern for differences in value. DVDs are highly fungible, as are books, items of apparel, travel arrangements or shares of stock.

I’ve read that radiological diagnostic work is being farmed out by broadband to India. This is a very interesting time to be in the real estate Read more