Realtor's a $60,000 waste of money!

WOW WOW WOW WOW WOW!!!!!!!

What an article. What's even more amazing is that the Toronto Star has printed such an article. $20 says that there will be a plethora of responses to this one! I am hoping some of those responses will be posted here! (hint, hint!)


THE BOTTOM LINE

TheStar.com - Business - $60,000 in real estate commissions down drain

Jun 11, 2007 04:30 AM

Paul Finlayson

special to the star

After buying and selling four homes in the last 10 years, I seem to have somehow missed the much ballyhooed real estate bonanza. Perhaps this is simple evidence of my idiocy, or maybe there's some "no money down real estate" infomercial that might have done me some good. Furthermore, after clearly having fallen short of real estate riches, a look through my filing cabinet now makes it painfully clear that somebody hasn't – my realtors.

Even with some generosity, it seems that their $60,000 worth of commissions represented no more than 30 hours of work. My slumping head is evidence enough to me of excessive fees, but perhaps a more reasoned examination is required. As free market consumers of services or products, we hope to see pricing naturally evolve to provide value.

Thus, if a company is charging too much, competition will drive the price down and, conversely, if a company is undercharging, the price will be raised or the company will go belly up. We don't have to go far to see an example of competition and technological efficiencies pushing a price down – it has happened in many mature service industries, notably the telephone long distance market.

But why in real estate – with such a large market, with so much competition and with the MLS up on the Internet – have the many attempts at discounting failed to dent the dominance of the full MLS commission? Why do customers pay such a frightening price for such limited service? What do realtors offer? Limited training (usually about 90 hours of classroom training – that's a little more than two weeks education), some pricing counsel, some tour guide service, a little research and a willingness to shepherd the buyer through the requisite paperwork.

How does somehow who might not even have a university degree and who has simply passed a licensing exam earn thousands of dollars for potentially a few hours work? And, finally, with the Internet, eBay and the entrepreneurial savvy of thousands of businesspeople, how has the full-bore real estate commission remained dominant? Why have discounters failed to get significant traction? Can anyone think of another industry where remuneration has increased at a rate equivalent to soaring housing prices? Doesn't competition drive costs down?

Real estate legal fees have declined in real terms in the last 10 years; competition seems to have worked there.One doesn't have to go far to hear the story of the realtor who, after slapping the listing up on MLS and waiting a few days, shows up for a two-hour closing sale meeting to collect his $30,000 paycheck. Common sense dictates something is wrong.

But now the realtors are attempting to persuade us of their value by showing commercials where the nutty mother-in-law wants her childless and looking-to-stay-that-way daughter and son-in-law buy a four-bedroom house and is confronted and defeated by the Yoda-like wisdom of the realtor (she steers them to a condo).

In reality, consumers don't need much handholding – making the largest purchase of your life tends to naturally encourage a buyer to look before they leap. Indeed, consumers are getting more informed, not less, the MLS is no longer a telephone-book-sized paper weight, it's on the Internet and the software revolution has provided for the intelligent mining of real estate data so the consumer could be even more informed and the "full service" realtor even more irrelevant.

But again, the logic of the markets has been defeated – we're still seeing a huge chunk of dough going to the realtors when we sell our homes.

So if the vast majority of the populace believes that realtor commissions are miles away from good value, why have we in this country, with all our entrepreneurial talent, not seen a dip in the price? Solutions?

The services that the realtor provides could be readily separated and provided a la carte. Intelligent online research tools that make use of the data collected by the realtor community could provide appropriate advice on pricing strategy, future market growth, compare area against area, etc.

But the biggest change is to get the ball rolling, and that would have to be enforced by the government.

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Paul Finlayson is a software account manager. The Bottom Line is a weekly guest column. Please send your submissions to thebottomline@thestar.ca