Wednesday, March 22, 2006

Ethical Monopolists

I mentioned earlier that we're buying a new house. Coincidence since I've been meaning to post about this ad I've been seeing on TV over the past few days. It's about realtors and how their ethical behavior is a must when buying a home.

Kind of funny since when I first saw the ad, I wasn't sure what I should blurt out first:
  1. Yeah right, Realtors aren't ethical! -or-

  2. I don't care if my realtor is ethical as long as I get a home I want!

So I've never thought much of realtors mainly because I know they make a killing for what could be considered a small amount of work. Historically, they've charged up to 6% to the seller of the home (3% for the realtor on each side). In the Bay Area where a $500,000 home is considered to be on the very low end of prices, this means $30k to pay out what would could be no more than 40 hours of work.

Okay, I know that realtors are providing a specialized service which involves a lot of paperwork. But to pay so much for for so little seems like a waste. Given the locked nature of the house listing system, this could also be seen as a monopoly with control over everything about the market. in recent years many self-service or minimal service business models like ZipRealty have arisen, but realtors have done many things to prevent them access to the market and to the network.

Among the first thing I noticed is that the terms REALTOR is registered and always in CAPITAL letters. Hmm...wierd, I thought. Then I relized that the network was trying to set itself apart. I also read about ways that the discount brokers like ZipRealty were being cut out of the picture through various means. Everything about those stories told me that when it comes to their livelihood, realtors are far from ethical...they're cut throat.

And on the point about not having to do much work. In the Bay Area, the real estate market has always so hot that it doesn't take very long to sell a home. And a buyer's agent can simply "encourage" their buyers to put offers even if the buyer isn't sure. Many times, it seems like the agent is trying to scare the buyers into buying a place. Why? Well..why not? Either way, the agent is going to make a commission and there's no sense in spending weeks and weeks trying to find the perfect home. It'e like a seedy car salesman who just wants you to drive off the lot in one of his cars no matter what.

So I think this type of downlow un-ethcial business practice is quite common, so seeing the ad made me laugh a bit. Of course, as a seller, I wouldn't give a damn what the realtor does to make sure my house sells for as high a price as possible.

As it happens, we are in the process of buying a new home and selling our current home. So the ads hit at the perfect time. I didn't expect much from our realtor except for them to drive foot traffic into our home during open houses. We had seen them in action in our neighborhood so I figure we were good on that tip.

But I was surprised at how low their commission is: Less than half of what used to be the going rate, and lower than what they had told me last year. So that was definitely nice, especially given how much we'd be able to sell our home for.

As we've gotten deeper in the process, though, we've found that our realtor is so much more helpful than we expected. We've had so many little questions about the property we're buying and they've gotten us answers within hours. And as far as selling our current home, they've coordinated little things that would have been a real pain for us. Overall, we've been really pleased with the process to this point.

We haven't had our first open house yet, but we're hoping that they can bring in a lot of viewers. In the end, as long as we get our asking price and more, we'll be very happy. Afterall, in the end, we just want our money :)

But seriously, even with the pleasant experience so far, I still take these TV ads with a grain of salt. When anyone has to ask me to trust them, I always have an inkling there's a bad history and bad news behind the request for trust. Trust can only be gained through actions. And while I'm trusting our realtor more as the days pass, I don't think I can trust most realtors out there.


Anonymous said...

Apparently there is a difference between a "realtor" and a "real-estate agent" - hence the CAPITAL letters and stuff. But don't ask me what it is.

Also, probably because they can sell just a few homes and make a ton of money, I think there are a lot of real-estate agents in this area. But, I think there are still only a few good ones. And these are the guys that make the most money.

They are the ones that take the time to make sure their customers are satisfied and don't push them into a home they never really wanted in the first place. I'm glad you have found someone who you can place some trust in.

Anonymous said...

REALTOR is capitalized because it is a trademarked term, identifying members who pledge to uphold a Code of Ethics, etc. The National Association of REALTORS has laid out requirements for use of the term by its members. Not all agents and brokers are REALTORS. Most people do not know the difference; REALTOR has become almost a generic term like Kleenex.