Friday, June 15, 2007

Will the Internet Kill the Real Estate Agent? Let's Hope So

I bought a house a couple of months ago, and as part of that process I used a buyer's agent. My buyer's agent basically drove me around to various houses which I had selected, helped me draw up an offer and supervised the contract process. For all of this, she got 3% of the sales price of the home (around $12K for probably around 40 hours work or $300/hour).

Considering the main thing she did was taxi me around to homes and open them with her little key, this seems like an exorbitant waste of money, especially since my wife and I found the house that we bought at an open house, without our real estate agent even being there.

In addition to these jobs, she also 1) showed me a couple of houses which were completely outside of what my wife and I told her we were interested in - but, surprise! they were her listings (so she would have gotten a 6% commission if they sold) and 2) pressured myself and my wife into raising our offer price, preying on our fears that we would lose the house we really liked and 3) pressured my wife and I into using her mortgage officer and home inspector.

My experience does a good job of showing some of the problem with buyer's side real estate agents:
1) Their incentives are completely misaligned with the buyers interests. They make less money from getting a good deal for their clients on the price of the house. They make more money from trying to get their client's to accept one of their listings. They build up relationships with settlement companies, bank officers, home inspectors- who all tow their line and toss them business/commissions in return.
2) They make a ton of money for doing very little. There is nothing that a buyer's side real estate agent does that can't be replicated by more legwork from the buyers and by more legwork from the closing company and associated real estate lawyers. I basically paid $300 an hour for use of the real estate agent's key.
3) They have a racket set up in commissions to protect their ability to profit exorbitantly- If I didn't use a buyer's agent, I would still have to pay 6% of the house commissions- only it would wholly go to the seller's agent. This is ridiculous, and was the reason I used a real estate agent: there wasn't an easy way for me to recoup that 3% commission.

Fortunately for the consumer, the competition of the internet is beginning to offer alternatives which should break down this racket. Internet sites like now compete to offer you the lowest commissions through recouping some of their 3% commissions back to the price of the house sale.

Once again the internet will revolutionize a business where a bunch of fatcats are getting paid a whole lot to do very little. Viva La Revolucion!


Angie Hartford said...

I can't agree with you more about buyers agents! However, when we sold our house, our agent was worth his weight in gold, especially when it came down to the pile of legal documents and other yucky stuff.

Alex said...

Yeah without a doubt a seller's agent can be very useful, depending on your circumstances. For me: I live in an area with a lot of similar condominium houses, so the selling price is pretty well known. ON the legal documents, I am hoping that I might be able to rely on the buyer's agent, or use a form document from a real estate lawyer, or take it from someone else.


You will always need real estate agents to push and sell your house. It may be possible to do a deal on your own. But most folks would rather have someone else take care of the details for them. Theirs still a lot involved in selling a house so the agents are not going away any time soon.