Why Redfin, Zillow, and Trulia Haven't Killed Off Real Estate Brokers
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Thinking that using a site like redfin or zillow is going to make up for the depth of experience is just frankly silly. Would you negotiate a Series A with a bunch of forms from LegalZoom? No, you'd be an idiot to not have an experienced attorney on your side.
Edit: The cool thing about real estate agents (unlike attorneys) is that the great ones charge just as much as the bad ones. The takeaway is that if you're going to buy a house, you should pick an agent that sells a TON of real estate and not someone who does it as a way to supplement their income.
The problem is that the seller's must pay for both the buyer's agent as well as the seller's agent. And in order to get into MLS, you have to hire an agent to represent you. It's a horribly broken system where agents are essentially a cartel you have to do business with in order to sell your house. Everything has changed with MLS listings being online and so many real estate transactions have become boilerplate, with no major variables except price negotiation, which really isn't that difficult either.
If you're not familiar with the MLS system, it's something that is controlled by the Realtor association it's essentially a network of databases of every home for sale or rent that is represented by an agent. You have to have an agent in order to be listed that system and practically every real-estate website, including Zillow and Trulia, get the vast majority of their listing from the MLS systems.
Some smart agents realized how utterly ridiculous the role of the buyer agent has become in many situations (If you know the 80/20 rule, this is sort of the 99/1 rule: 99% of the value of a buyer agent comes from getting into MLS and it takes about 1% effort to do that). In response, they offer their services as "flat fee MLS" and they charge people a couple hundred bucks to play ball in the MLS system and you get to represent yourself in the actual sale process. You're paying $600 + 3% buyer commission, instead of a straight 5-6% total commission.
On a $300,000 house that will save the sellers $8,400.
We just purchased a house and Redfin by and large had the most timely and accurate data. It turns out that my experience is backed up by evidence: http://www.inman.com/news/2012/10/3/redfin-study-knocks-zill...
Are they really free for the buyer, though? Isn't some of the commission fee being built subconsciously into the price that the seller lists it at? Recent downtown aside, the general upward trend of house prices must at least be buoyed up a bit by those commissions. Surely not every seller just marks the cost up as a loss.
Plus, I've never been quite convinced that any buyer's agent would work as hard as possible to negotiate the price down if their commission is going to be a fixed percent of that price. There's zero incentive to get a better price and very infrequent repeat business from the same customers.
When we bought our house we didn't use an agent. Our offer was instantly 3% more attractive to the seller. The seller's agent told us after we closed that there had been 5 other offers and the 3% put us on top.
A better way to think of it is this: the party bringing the money to the table is the party that is paying for everything.
It wasn't even obvious to me to not use my agent when using Trulia, which I told my agent about when I was doing my own house research; we both just ended up using the tool to weed through some of the properties.
I used Trulia to find houses I was interested in, and then I would string them all together in order, share them with my agent, and then we'd use our phones to drive from property to property to check them out. Their mobile app experience was pretty great, we could see what school zones/crime, etc. and a bunch of other stuff. It was _much_ more efficient than the first time we had tried it where an agent brings a printout of nothing but MLK numbers.
I ran into some Trulia folks at a conference and wondered why they don't have like a "Pro" account or a way to pay them. I guess it's just not part of the business model, which is weird. When we flew into town to do shopping we had to see as many houses as we could and Trulia was just an amazing value. I would have _easily_ paid a hundred bucks for the time and effort Trulia saved us.
As far as using the agent, once we found the house we wanted the agent took it from there.
Services of a home inspector, who will diligently inspect all visible areas of a home and give you a pretty good idea of almost all foreseeable problems with a house, output being a binder filled with inspection notes and possible problems: $500.
Services of a real estate agent, who will drive you to houses and unlock the door for you: 6% of transaction cost, equalling about $30,000 for an average purchase in my area.
Both agents split the commission with their agency, so by the time it all percolates out, the agents get between 1 and 1.5% of the sale price. With that income, they pay for their local association membership, marketing, etc.
On some transactions, they do well for their time and money invested. On others, they do not.
Picky buyers will starve any agent. Seems like it'd be a smart move to only represent sellers.
Still ridiculous.
I'd love to know what these things were.
I also took pictures of everything before the drywall went up so if I have to get into the walls, I know where electrical and plumbing sits.
We didn't finish our basement because we can always spend more money later, it is harder/more expensive to build more space. So we maximized how big the house was at the expense of not having a finished basement.
However, we did finish the stairwell down to the basement and didn't hide that stairwell with a door and wall. It is all open with railing and carpet and lighting. It really opens up the first floor and looks really nice.
We also plumbed the basement for a bathroom. There is nothing there, but the pipes are there sitting in the concrete foundation. (again, much cheaper to put the $50 worth of PVC in the foundation when it is poured instead of using a jackhammer when you finish the basement.
If you want any built in shelving, it is a lot cheaper to have it done while the trim guy is already there instead of waiting until later.
We spent an extra couple grand on spray foam insulation, my heating/cooling bills are about 30% lower than my neighbors .
That is all I can think of right now.
I too thought RE agents were a waste of time prior to meeting this lady. My only RE experience were friends of friends and acquaintances who all never seemed to work very hard. A great RE agent is invaluable when buying a house.
Should we choose agents based upon whether their significant other is a builder? Why not have an actual trained expert in home construction and maintenance be a part of the buying process, instead of relying upon the remote chance that an agent that will earn a five-figure commission may possibly have some value in that realm?
The real-estate industry is absolutely dominated by soft-skills -- the sales and people skills (ABC, etc) that dominate other sales industries (cars, mattresses, drug company reps, etc). It is not a credible argument in favour of agents that they may possibly bring some other incidental skill: Roll the die and find out.
I looked at upwards of 30+ houses. For each one I would have loved to bring in an entire of team of people, but that's simply not feasible. Having a primary person with lots of experience and knowledge to help me while making the large cuts was invaluable (I looked at short sales in various stages of construction, new homes, old homes). I would also hope that any serious RE agent takes time to learn a lot about the construction process. The fact that my agents husband is a builder was a plus, but not a requirement. What is a requirement is that any agent can see potential big issues without my having to spend additional money for experts.
And while you're right that soft skills dominate, my agent absolutely knew her stuff. She was like a walking Trulia anytime I went out with her. Perhaps she just preps well, but who cares if that's all it was. I'm also fine to accept that what I found is rare. I know it is rare and why I recommend her so highly to anyone I know looking to buy a house.
And FWIW, I do believe that seller home inspections are a good idea. It would be better still if it were a strongly regulated, accredited industry.
She absolutely didn't get it. We were looking for a SFH, she kept pushing us to condos. We had a budget of X, she kept pushing to to X+10%. We'd make an offer N on something, she'd pressure us to offer N+20% (we didn't win any bids, but looking back at the sold records it was never on price).
She wasn't always forthcoming about helping us analyze the property. Until we flat-out said "this one's not for us", she wouldn't ever point out something wrong with the house unless it was glaringly obvious (one home that reeked of dog piss, for example). She obviously had experience in checking out houses, because as soon as we'd write a place off she'd rattle off 12 things that she saw wrong with it (dry rot, obviously unpermitted construction, etc).
It just felt lazy to me how she used cash as a crutch. Rather than getting creative with offers & cover letters and actually, you know, selling us, she'd say "let's throw more money at it!". She even had the gall to tell me that cash offers are usually higher than asking. Not even kidding.
It frustrates me to no end, because I'm the type that's on the phone with my mortgage broker every day asking what I can do to push the deal through. If you accept my offer, I won't sleep until I've done every single thing I can do to make it happen. I once got a short sale done (funded!) in 30 days (!!). You want me to buy your house.
But sellers can really be dumb, too. This one house I put an offer in, the sellers accepted a "higher cash offer" that fell out of escrow in a month. I re-offered, 20% down, no contingencies. Not even an inspection. They went with an offer that was $5k above mine, and then it took 90 days to close. Oh, and the house was vacant. Really guys, was that $5k minus commission worth carrying your house another 1 month + 2 months?
Anyway, I got so sick of it all I just rented. I'll probably end up with new construction when I've got my fortitude back. But man do I hate dealing with real estate.
Like any sales job with the possibility of repeat business, the commission matters, but so does the relationship.
Takeaway? Mainly just reinforcing the fact that this market is still immensely inefficient.
As a result of breeding, pitbulls are wonderful with people, despite their reputation. Even dog fighters would agree as a person generally stands in a dog fighting ring to break up the fight (and doesn't want to be attacked). It takes a great deal of "training" (aka abuse) to make a pitbull aggressive towards people.
Pitbulls are not always the best with other dogs, but it is something that can be remedied with an assertive owner.
tl;dr Pitbulls are loving, sweet dogs.
That's just another broken stereotype. Pitbulls run the full spectrum; just like other dogs breeds. Statistically, they are more likely to attack people than average but it's hard to separate their owners from the breed it's self. IMO, the real problem is as a large breed the potential for harm is greater than smaller dogs and far to many people mistreat them.
As far as pitbull biting stats: 1. Pitbull is not a breed; it's an umbrella term for six different breeds. 2. There are _a lot_ of pitbulls in the U.S.
A review of the medical literature found that pit bulls and pit bull cross-breeds were involved in 42–45% of dog attacks.[31] Fatalities were most often reported when children were attacked, with 70% of victims being under the age of 10.[31]
Several studies determined that pit bull owners, and owners of other "vicious" or "high risk" breeds (most commonly identified as Akita, Chow Chow, Doberman Pinscher, Rottweiler, and Wolf-mix), are more likely to have criminal convictions and are more likely to display antisocial behaviors. A 2006 study compared owners of "high risk" dogs to owners of "low risk" dogs. "High risk" dogs included “vicious” dogs by breed (e.g., pit bulls) or “vicious” actions (e.g., any dog that had bitten, attacked, or killed a person or other animal). The study determined that "high risk" dog owners had nearly 10 times as many criminal convictions then did "low risk" dog owners.[39] A 2009 study[40] and a followup 2012 study generally supported these findings.[41]
PS: I never really know what else to call pit bull it's not really a "group" and the definition is rather vague, but repeating pit bull all the time is rather repetitive. Any suggestions?
I call all of the pit bull breeds pit bulls (or pits or pibbles) despite the definition being vague. It'd be a bit awkward to walk around in public and say, "check out that Staffordshire bull terrier." I just think lumping all the breeds into one group when citing bite statistics is misleading.
You're really not entitled to your own facts, and this fact is false. All the data everywhere shows that pit bulls are always at the top of the "most likely to be involved in biting incidents" charts. Ontario, for example, has reduced dog bite incidents by about 25% by banning pit bulls from being kept as pets.
This doesn't take into account any qualitative analysis either. For example, how many people buy a retriever or lab and train (aka, abuse) it to be aggressive towards everyone (i.e., a guard dog)?
Also, while voluntary, the American Temperament Test Society tests dogs in a number of scenarios for the overall temperament. Pit bull breeds do very well in these tests and have some of the highest sample sizes.
For example, page 1 (http://atts.org/breed-statistics/statistics-page1/#totals) lists the American Pit bull terrier and American Staffordshire terrier as ranking very highly and having 800+ subjects.
I just read through a couple reports, they include wonderful stories like the pit bull who knocked over an old lady and broke her hip as an attack.
Edit: To make an anecdotal, worthless point...I live in a really poor area of Portland. I walk through the neighborhood and on just about every block there is one house with a locked up pit bull behind a 4 foot chain link fence. These dogs are aggressive, abused and very well represent a danger to people.
Still, I want my real estate agent to have the common mythological qualities of a pit, given my choice.
The uncool thing about real estate agents is that the bad ones charge just as much as the good ones.
My personal experience with real estate agents have been terrible. People who know nothing about the area, nothing about the home, and can't even answer rudimentary questions such as property taxes or school district. I have absolutely learned much more about homes and areas on websites.
Further -- at least here -- the home is vetted by a home inspector, not the agent (the latter usually giving the most superficial of advice like "paint the walls" or "get a new countertop"). The legalities are handled by a real-estate lawyer. Etc.
There absolutely should be assistance in both the buying and the selling of houses. Is it worth tens of thousands of dollars? Hardly.
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They found that there’s ... collusion in real estate that separates it from industries like stock trading and air travel.
So the most "consumer-friendly" solution to this problem is obvious. Make the collusion illegal. Make it a LAW that buyers and sellers are not obligated to pay any agents any specific percent of anything. (6 percent is hard-coded into most real estate transaction paperwork, and never fully explained to consumers.) Draw consumers' attention to the fact that Realtors should be competing with each other based on their service, not coercing consumers into signing contracts that write their percent commission in stone. The problem is that consumers don't know these things should be negotiable.
Collusion should always be illegal, but the lobbying forces of the NAR are pretty evil and powerful; it's going to be tough (but not impossible) to change.
So I went to get my real estate brokers license which required I take a course that was a few hours, a course exam and then a state exam. It took less than two weeks for me to be qualified to help people make the biggest financial decision of their life and I learned much less from the course than I did from a few books I picked up from the bookstore.
That said, Zillow is a wonderful tool to check price/sales history.
Which tells you the value of realtors: They don't wait around to get the highest bid (a commission in the hand is worth two in the bush.)
I assume there is deep research on this factoid from the non-realtor community, because then the right thing to do is use the MLS API to be first and submit a lowball offer with a one-day fuse.
But I gotta tell you: It sounds like the standard realtor spiel, and it works on people with little experience in buying/selling things with large asset values (like companies or houses).
Maybe in your market. Their data is crap in many areas.
I wonder if there is any chance they will bring that back.
“Real estate, by far, is the most screwed up industry in America,”
Only a person who didn't need medical or dental care in the USA without insurance would say that.
That said, I've spent some time thinking about whether just changing the laws would have an impact. I think the issue is bigger than this.
I think that there are lots of marketplaces have sprung up via the internet, but as far as I know, the significant ones all offer products that have one of these characteristics:
* the consumer buys them often [for some definition of often] (airplane tickets) * the product is fungible (books, cars) * the product is relatively cheap (stuff sold on ebay, amazon)
All of these characteristics lower the risk of purchase. Housing has none of these characteristics. And I don't know how it could, short of a real manufacturing revolution or more houses built out of shipping containers.
Speculating, the agent knows the laws, but also pays some of her commission to an attorney who does the real work. The agent is a middle man.
Case in point: I have a friend who was looking strictly through Redfin, and whenever he found a house he would like, he would talk with the Redfin agent, and they would get a bid together. He was getting nowhere, and what was more frustrating is that even though they had the Redfin agent, they still felt alone and frustrated.
I suggested my real estate agent. She went to his house, talked to them about what they wanted, and then proactively started looking for houses for them, in addition to him scouring MLS at the same time. She would actually suggest different areas of the Bay Area, instead of just SF because it looks like $850k won't buy you a decent house in a decent area anymore.
The other thing that is really helpful in today's market is that she encouraged my friend to submit multiple offers at the same time, ie. bidding on 2-3 different houses. This is something Redfin actively discouraged. It's a bit grey area, but in this market, you can't afford to pass up any opportunities since the probability of getting a house is so low. As well, she works for a large brokerage, so she is always trying to get the inside scoop on new houses that are about to hit the market. They still haven't gotten a house yet, but they are less frustrated by the process and they feel a lot better knowing that they are getting good guidance from someone who is dedicated to helping them getting a house.
If you are a sophisticated real estate buyer, and all you need is an agent to do all the documentation for you, then Redfin will likely work for you. But most people aren't, and in a broken market like today in the Bay Area, Redfin will be less successful, because what you really need is someone that knows the tricks of the trade and will help you bend the rules a bit.
If they sell one home in the Bay Area, it could be the equivalent of 5-8 homes in the MidWest where houses average 150k. If I were Redfin, I would try to ensure that my system worked in these "big fish" market where the revenues would be higher, regardless of what the market conditions are, instead of trying to work in the smaller, less expensive markets where you would need to make up for a lot more volume just to get equivalent revenues.
Just as no two companies are the same, no two properties are the same (even when they have the same square footage, style, location, etc.). Just as every industry is different, every neighborhood is different. Just as every M&A negotiation has its own unique cast of characters, every negotiation for the purchase/sale of a property has its own unique cast of characters. Just as every M&A transaction must accommodate for unique circumstances, so does every real estate transaction. Just as large M&A transactions (e.g., sale of a multinational corporation) can be very complex, the acquisition of large properties (e.g., sale of a skyscraper with thousands of tenants) can be very complex.
Most people are too busy with their lives, and they're not in the business of buying and selling properties, so they need expertise to navigate all this complexity.
It took quite a while for me to find what I was looking for, so I ended up using both Redfin agents as well as talking frequently with a normal agent. I have to say even though it cost me slightly more, in the end the house I bought I found on the Redfin site but bought through the normal agent. As others have pointed out, good properties can go fast and having someone who you can call and have on the case immediately is a real asset. In my case my agent did the legwork to find out who else had seen the home and pushed the sellers to negotiate in time to edge out a competing bid - well worth a few thousand extra on the sale price.
I get the point about misaligned incentives, but I view that more as a reason to ask around and get recommendations on good realtors, rather than a reason to avoid them.
edit just checked, my house for example, sits on the same block as two recent home sales, neither one is reflected in Zillow and both sold for far higher than the "Zestimate". The townhouses a few blocks over (which originally sold for about 70% of my home's price and are about half the size) are full of recent sales that are within 10-20% of the "Zestimate". The much smaller single home facing mine is "Zestimated" at a few tens of thousands higher than mine, but sold originally for 80% of my home's price.
It's basically nonsensical.
They can calibrate their estimates by finding houses that are currently pending, making an estimate, and then seeing what they end up selling for once the deal closes. It appears they don't even bother doing any sort of backtesting on their estimates.
* The price data isn't reliable. I see random sales for way under market price in my area, probably family sales. Tax evaluations should be reliable, but they are often years out of date.
* The input variables aren't reliable. This condo went for less because it has really high condo fees, but the condo fees aren't in the listing. This other house says it has lakefront AND beachfront AND water views. These two houses have "decks", one is a tiny front porch, the other is a huge thing. These two houses have the same lot size, but one is all grass and the other is straight down a hill.
* There isn't much data volume. You are trying to come up with an accurate price for every house in a neighborhood, but only a few percent sell each year. So the one or two houses that sell determine the prices for all the rest, but the data for those houses is unreliable due to the previous two factors.
If they backtested their data and corrected for it, or had some sort of machine learning algo, I would bet it would get a lot better. To me, it looks like they are using a simple average $/sqft algo and it looks like they go back a year or so to determine this $/sqft without a higher weighting to more recent house prices.
If they have Redfin agents bidding in the area, they can pipe in the price their clients bid for certain houses, and use whether or not they got the house as a training data point as well.
The thing that's semi scary about all these under-qualified real-estate agents is that they're in charge of most expensive/binding purchase in most people's lives.
Just throwing it there. Crazy enough to make sense.
This poor man will be blindsided when someone finally gets the formula right.
A lot of what the other companies did was standardize a transaction (through their website, with a credit card) and that's what real estate needs.
No state has required an agent, although I have chosen to use one in some cases. I suspect, but have not tested the theory, that all states require closings to be conducted by real estate attorneys.
Your secured loan paperwork is just between you and the lender. The state has nothing to do with it. It might not exist.
Refund/credit after the sale? Like a warranty? I've never considered offering or requesting such a thing, but it would be ancillary to the sale, not required.
There's a federal (FHA) form to enumerate all of the costs, which is a required part of the paperwork. Numbers come from seller, lender, local tax authorities, etc.
All(?) states have disclosure requirements, though they vary greatly. I've seen four-inch thick binders of disclosure in San Francisco, to a few boilerplate sheets with checkboxes and initials in Boston (maybe the federal minimum?)
I agree that there is a lot of variation in the transaction process, mostly variable by state law. But that's a problem many businesses on the web have to navigate. It's a challenge, but not The Roadblock to modernization of the industry.
In that case the seller and buyer agree to "discount" the house by $x in the form of a post-sale rebate where $x is roughly appropriate for the repair. That way you don't move into a house that's badly in need of repair at a time when you're exceptionally cash-poor.
The better situation is to have the seller perform the repairs prior to the sale but often times the house is already under contract and you're expected to close on a certain date and it's easier to decide how much would be appropriate for the repairs and let the buyer handle it with their preferred contractor after the sale.
Anyway, I agree with you that the process is unfamiliar and can be overwhelming for most buyers. The sea of forms and signatures induces glazed eyes, for sure. I don't think nationally-standardized forms would help there (and it's very likely to be impossible anyway). Any RE attorney can make quick work of the problem (hire your own, don't use the seller's!). It would be unwise to transact with any set of forms without an attorney or equivalent experience.
Is this legal?
Are you kidding me. I negotiated hard down last time, outraged at the 2% charge....
No wonder there was a housing crash
also NYT charges a truly obscene amount for real estate ads. it pays a big part of their bills.
[I am CTO for one of the NYC brokerages]