Real Estate Industry = Cartel

[rankandfile]

Here’s an article from CNN/Money that talks about how the real estate industry acts like a cartel and artificially sets housing prices rather than allowing them to be set by the market. It also talks about how the real estate industry controls the entire sales process.

How does this make you feel as a homebuyer?

[fuggy]

Home for sale: Excellent grading–water will flow away! Highest quality pipes laid so that they are not under the slab: forget slab repairs! Come see the narrated video of the construction where you will meet the construction crew–each a master in his field…

HAHAHAHAHA! When will we ever see an ad like that written by these “real estate professionals”? These people who, actually, know nothing about real estate, but should be called “people who have a pretty good idea of the square footage professionals”.

Fuggy

[Bugs]

Sorry, but I didn’t get anything about them conspiring to set housing prices. The article that link pointed to was about fees for service and competition amongst brokers.

[rankandfile]

Bugs, did you read the article that was linked? The one that stated:

“Many traditional real estate brokerage firms, and their organizations, function as a cartel that tries to set prices and restrict service options,” said Stephen Brobeck, CFA’s executive director at a press conference in Washington D.C.”

and…

“The CFA charges that consumers are harmed in three main ways:

* Traditional brokers charge high, uniform prices regardless of the quality of the broker involved. Even a newly licensed, inexperienced agent receives the same commission no matter what the level of service offered.

* Traditional brokers who work with both seller and buyer in a home sale almost always function as facilitators. Brokers try to make sure a sale is completed (and they get paid), rather than as fiduciary agents acting in the best interests of their clients, as the brokers claim to do.

* Brokers “double-dip,” promoting their own listings or the listings of their firm over properties better suited for their clients.”

I am assuming that you must be commenting on a different article, or you are doing your best Howard Berg impersonation.

[Farls]

I’m with Bugs on this one….Where does it say anything about the “cartel” setting house prices? The article is talking about commissions…..I have no problem with the way the system operates. Remember…as a seller you are free to negotiate your commission with any agent before the listing agreement is signed. If you don’t like the commission rate…find another agent who will work for “your price”. Buyers don’t pay the agent anything anyway…(Yes, you could say every buyer’s agent’s commission is built into the sales price). If the buyers want a rebate on the commission then make that arrangement before working with an agent.

Why do they constantly argue that Realtors are always getting 6% when even their own article mentioned that commissions on average were around 5.1% in 2003? The more agents and discount offices…the more pressure on commissions. (As the market slows…and non-productive agents are forced to quit…maybe this rate will actually start increasing).

You really should not blame an agent if people are willing to pay him/her price for their services. Good agents make top dollar because they can show their clients why they charge what they do….Again, no one is holding a gun to anyone’s head to force them to pay a full commission…If you don’t like it find a different agent.

It’s understandable for the large companies to protect their interests…Who can blame them. Problems arise when one party in a transaction is represented by a discounter..or maybe someone who just put the property in the MLS for a fee…The agent on the other side of the transaction (from the larger company) now has to do most of the work for the other party (in addition to his client) to get the deal to properly close escrow..

I don’t think there are too many companies that specifically tell their agents not to show properties from certain companies. It may be a cool thing to say while standing around the water cooler…But most agents are so desperate for a deal and a paycheck that they would not do this. (Especially with consumers doing so much homework themselves on the internet).

On the topic of the internet… Powayseller..the link above has another link to an article you referenced many months ago..The one I was talking the other day:

http://money.cnn.com/2006/04/10/real_estate/buyers_target_commissions/index.htm .

It talks about how 77% of buyers START THEIR SEARCH by looking at homes on the internet. You linked the same article a long time ago and from that time had been incorrectly saying that 80% of buyers FIND their home on the internet. (I’m not trying to fight with you…just straightening out this topic…I enjoy your posts).

Farls

[PerryChase]

The RE industry is quasi cartel simply because it’s very difficult to buy and sell without an agent. It’s a highly regulated industry that protects the status quo. We need to reform the industry by allowing more competitive forces while keeping away the scam artists.

Look at the American economy in the last 30 years. Almost every industry has reformed. Industries that are protected charges the highest prices — think RE and medical field.

The RE industry is complex so it’ll take a while to reform. But that doesn’t mean brokers are colluding and conspiring to keep prices high.

Why don’t we allow dental hygienist to clean teeth independently from dentists? Or nurse to treat minor symptoms such as colds? Likewise, we could have sales clerks show houses and legal assistants do the paperwork?

I know… we need to protect the consumer. We have too many Nordstroms in RE, we need some Wal-Marts. I say give consumers choices.

[Daniel]

I think it will happen. Market forces demand it, and, for all their political influence, Realtors won’t be able to stop the trend. I think it’s only a question of how long they can delay it.

[Bugs]

I don’t think you guys would be so outraged if not for the dollar amount of the commissions here. You’d probably have no trouble paying the full commission on a $100,000 home. These commission structures came into being back when the dollar amounts weren’t so high.

[JJGittes]

Actually, IMO, forking over $6k to a couple of agents on a $100k transaction would bug me just as much. Commissions ought to be about 1% to cover putting up a sign, MLS entry, and filling in the standard purchase agreement and disclousures. Heck, the escrow/title company (which also gets paid) seems to do most of the work. Maybe if a particular seller wants color pics in the sunday paper he could sign up for more, but 5-6% as the “standard” is ridiculous at all price levels. I suspect that outfits like zip and buyside, along with the internet, will be wal-martizing the industry sooner rather than later.

[PerryChase]

The RE industry is highly inefficient in many respects. Remember Denis Hastert making millions on a land deal because of some roads that were built through his legislations? Why should private owners reap windfalls from public expenditures? I read once that, in Singapore, if a landowner gets a windfall from government action, he must share some of his newfound wealth with the public.

Also why are builders not building decent low-cost housing? Why are they building fancy developments? Because there’s more profit margin in the high-end products. Would it not be nice if we could all live in decent houses and pay only 10% -20% of our income on housing? Then we could have better food to eat, better education, more holidays, better quality of life, etc.., and most of all more savings!! Remember the pursuit of happiness?

IMO, RE takes up too much of our resources. Let’s have competition in RE and reform that industry.

[Author]

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