[EconProf]

I am surprised to see this post of mine from over two years ago revived. Let’s review the original theme and see how it has fared over these two plus years…that theme being that Trump has upended the political scene by accomplishing, or at least making progress on, those goals that liberals claim to want.
Up until the Chinese virus hit us, the economy was roaring ahead, clearly outpacing the GNP growth rates of the Obama years. The progress was fastest for America’s lower income classes, especially minorities. The unemployment rate was so low that employers were hiring and training those marginal workers and training them, perhaps for their first job ever.
Trump’s foreign policy accomplishments are numerous–one reason the biased media doesn’t much talk about them…such as the extraordinary rapproachment between Israel and its Arab neighbors against Iran. Past administrations, of both parties, have been trying to do this for decades.
Economic progress stopped with COVID, so any recent economic trends mean little. But the leftist-inspired lockdowns that disproportionately hurt the lowest-paid workers, clearly hurt the economy and thus Trump’s reelection prospects.
The upshot is that Trump is now a working-class idol, and will get huge gains among Blacks, Hispanics, and the working class, thus upending historic political alignments. He is not a “liberal”, but has achieved what liberals claimed to want in many areas.

[EconProf]

Svelte, you bring up good points. There are good and bad brokers. My theory is that in today’s unusual market situation, and with the new technology available to both buyers and sellers to inform what a home is worth, $40k is a lot for something a knowledgeable FSBO can avoid. Technology has disrupted a lot of businesses and occupations, and the traditional commission model may be under siege.
Off topic somewhat, I think colleges and universities are about shrink considerably in number for a variety of reasons, not just COVID-19. So many other RE markets are facing severe downsizing, and many commercial buildings will go dark and fall in value, especially in certain parts of certain cities. This was the trend for shopping malls well before Coronovirus.

[EconProf]

Bzibee: glad to hear you are benefiting from this thread about RE commissions.
I’d like to ask again about another approach to the subject of commissions. Have any Piggs tried the ForSaleByOwner approach while advertising “courtesy to broker”, meaning 2 1/2% or 3% commission to a broker who brings in a buyer?
Two unusual elements of today’s San Diego market make this approach especially attractive: our extraordinarily low inventory combined with high prices. So a $1.5 million dollar newer house with plenty of close neighborhood comps (thus establishing a fair price), could attract realtors with a ready buyer and earning the broker around $40,000. Why would a broker turn that down? Of course the seller would be have to be knowledgeable because he/she has no one looking out for the their interests–perhaps hire a RE attorney to review the paperwork?

[EconProf]

[quote=svelte][quote=scaredyclassic]
I’m wondering what the pitfalls are to representing one’s self in a sale.[/quote]

My Dad has done that. Worked out fine.

However, he did not recommend it. After several buying and selling transactions, he said it would be better to BUY from a FSBO and sell through a real estate company.

Here’s why:
When you buy from a FSBO, you know they’ve had less traffic because realtors shun FSBO homes…therefore, you can negotiate the price lower with the seller.

When you sell using FSBO, the shoe is on the other foot: you get less traffic because realtors shun FSBO and potential buyers know it and offer you less. Therefore, what ends up in your pocket is not much different than if you listed with someone but you end up with about the same amount of money.

That was his theory. Sounds reasonable to me, though it is opposite what my intuition would think.[/quote]

Re FSBO: What if the FSBO advertises “Courtesy to Brokers”, meaning any broker bringing in a buyer gets his traditional 3% or 2 1/2% commission. I can’t imagine a broker running away from that. Of course, the seller has to be pretty savvy, since he does not have a broker looking out for his own interests.
Any Piggs ever try that?

[EconProf]

[quote=sdrealtor]Very high value homes are often discounted more but the truth is the owners of them want money spent on high profile but ineffective marketing mediums like Dream Homes magazine. Its an ego thing to see your home in it. They also take longer to sell, sometimes years and quite often dont sell. Many agents operating in the high end markets do 2 to 4 transactions a year after spending months and months with clients not getting paid anything. Its the nature of that market.

As for remote visual tours being used to screen many homes the answer is yes. Its been that way for over a decade and none of that is new. Personally I think great quality stills are more effective then video and most tours are just slide shows of stills anyway.

So much perceived differentiation out there is marketing spin. The nuts and bolts of this business have changed little. Answer your phone, communicate effectively and work collaboratively. None of this is rocket science. The real differentiation is character and what your agent does when no one is watching. Just like in life.[/quote]

Thanks for the detailed answer. Yes, we all know about super high-end homes that are unique and spend a lot of time on the market and end up finally selling far lower than the original price.
My question was more about whether a lower commission rate is easier to negotiate on say a million dollar house vs.a half-million dollar one. They are roughly the same amount of work for the seller’s broker, so shouldn’t a lower rate apply?
And wouldn’t another factor apply–whether or not its in a newer neighborhood where there are lots of similar comps available to determine an appropriate price? A fairly priced house in today’s low-inventory market should be easy to sell, making brokers compete for the listing.

[EconProf]

[quote=sdrealtor]EP
To get back to your points its not RDFN but rather the whole industry.

6% at least in this market and to my knowledge most has not been the rule for about 15 years. I wish people would stop using that as it hasnt existed for a very long time as the standard. Most total commissions fall between 4 and 5% which has been supported by higher prices as you surmise.

The technology they have we all have access to. They have a wonderful sticky consumer facing app but other than that have no technology we all dont have ready access to.

Technology provided buyers and sellers far more information that was previously available only to brokers but it was Zillow more than anyone who was responsible for that and it too happened well over a decade ago.

The description you posted of what they offer sounds like it was written by some RDFN marketing guy. Its a sales pitch not reality.

Virtual tours have helped increase exposure but it happened a decade ago and is being refined by independent tech companies. Why would the developer of a great technology license it solely to a single market participant with under 10% market share at a enterprise price when they can sell it to the entire market at higher prices?

What virtual tours help most with is ruling out buyers the home would not work for. In the end there is no substitute for walking in and around a home. Viewing a home in person creates visceral reactions, you feel the home when you are there. You can see how the home was cared for, you can feel whether there is a breeze or not out back, how the sun hits your yard, the activity or noise in the neighborhood and so much more. For this reason buying online will never be a perfect substitute for seeing a home in person.

Comparisons to travel, newspapers, autos, movies, books and stocks fall short because those are all essentially homogenous goods. Everyone who buys one of those gets the same thing. In your language they are perfect subsitutes for each other. Homes are all unique. Everyone is different. Two homes with the same floorplan in the same community across the street from each other can be dramatically different. Your experience with a newspaper or movie lasts a couple hours. A book a couple days and a car a few years. A house can be your home for decades. They just arent the same and the purchase decision is far more complex with the legal aspects of real estate ownership and lending.

RDFN has created an assembly line doing what everyone else does but in an inferior manner with hopes of achieving economies of scale on their side. The experience always comes down to the individual agent (as Svelte pointed out above in his negative experiences) whether it is with them or someone else.

ZG is another story. They actually changed the process giving consumers access to information but they are not primarily in the business of buying/selling real estate. That has changed slightly and could in the future but presently their business is building an audience with information that allows them to sell advertising to realtors and lenders.

The process has and will continue evolving but it is not RDFN leading that change. The business of selling real estate is also nowhere near as profitable as the general public perceives it to be and participants are paid on a contingency basis. Consumers are not willing to pay upfront for our time which could lower total costs. The only true way to lower costs would be single agency which means buying directly from the seller or the listing agent. Having expereince with the morality of people in general when selling their homes and realtors specifically this would be fraught with risk for buyers and would not be a better system IMO[/quote]

6% long gone and 4-5% standard? News to me. Shows how far out of date I am. Question: Does a high value house in this hot market with low inventory of available properties make that negotiated commission lower? Seems to me it ought to. How does the seller contemplating selling negotiate that?
Regarding your pros and cons of remote visual tours vs. on site inspections, of course the latter is superior. But the time factor is relevant. A buyer can see dozens of possibilities remotely, then decide on one or a few to see in person. Isn’t that how it usually works?

[EconProf]

I’d like to bring this forum topic back to it’s original question–is the Redfin model superior to, and about to displace, the traditional model of choosing a broker to sell one’s house?
This suspicion is prompted by the observation that, while house prices since the trough in about 2008 have doubled or tripled, the 6%, or perhaps now 5% cost to the seller has ballooned their compensation. Meanwhile technology has enabled buyers and sellers to access far more market information that was previously exclusive to brokers. Along comes a market disrupter, Redfin, that promises to radically cut selling costs. In addition, Redfin promises to vastly increase the home sellers exposure to potential buyers via virtual tours that artfully showcase the property with the new visual technology for potential buyers. COVID-19 and sellers’ reluctance to allow unlimited strangers to traipse through their house at inconvenient times or host awkward open houses further favors the Redfin approach.
SDrealtor and Jim the Realtor have correctly pointed out that having an knowledgeable and experienced realtor list your home and guide you through the selling process is valuable. But that roughly 2% of your selling price is a lot of dollars given today’s house prices. And Redfin’s virtual tours showcase the house in minutes to a market increasingly comfortable with new ways of doing business.
New technology, and now COVID-19 have disrupted so many industries and ways of doing things. I dropped the Union Tribune and WSJ after decades of subscribing because I now get my news free or at little cost on-line. Magazines are mostly gone. I’m guessing half of movie theaters are doomed. Malls are dying…the list goes on.
So the question remains: Will Redfin, and maybe similar companies (Zillow?) change forever the process of buying and selling real estate?

[EconProf]

The above comment referring to the 1/2% “refund” if you go on to Redfin for your purchase, after listing & selling through them.

[EconProf]

I did not know that. Thanks.

[EconProf]

Thanks SDrealtor. I’ve learned over the years to trust your opinions.
The unusual times we are have currently in San Diego real estate may be especially helpful to Redfin for several reasons.
Given that for sale inventories are unusually low, prices have risen markedly, savvy buyers can access information they previously couldn’t, and bidding wars start within hours of a listing hitting the market (or so I’ve heard), Redfin’s approach to cutting the old commission rate down seems logical. And isn’t Zillow getting into the game in a similar way? All this suggests selling real estate with the old rules is being eroded by technology, more freely available information, and a new competitor that challenges the status quo.
Lots of other industries have been shaken up by similar forces and shrunken, such as newspapers, Amazon, taxicab companies (think Uber), hotels (BnB’s), etc.

[EconProf]

spdrun: What on earth are you talking about?

[EconProf]

[quote=FlyerInHi]I don’t know, Econ prof. Poor people don’t have to lie, cheat, not pay rent and be drug addicts.

I might give you that liberal politicians “protect” people too much. Liberals have passed laws that are abused such as laws concerning emotional support animals. People now abuse the law to bring unauthorized pets without disclosing them first. But people who do that have no integrity. It is the law or the people of abuse it? I think that in America, we have a trashy, low-life culture among a large percentage of the population. Blame whichever party you wish.

I think the structure of our society causes people a lot of stress. Then they become whackjobs who don’t pay rent.[/quote]
FlyerInHi: You are missing my point. Of course there are lowlifes among the applicants landlords get for advertised vacancies. But long ago, before politicians passed all the pro-tenant, anti-evil landlord laws, we could take a chance on a questionable applicant, because evicting them was easier and cheaper. Now landlords must raise deposits and rents and be more picky thanks to the new laws and tenant “protections”. Not all poor people are lowlifes, and some can get their life together if given a chance. But CA politicians and their anti-landlord laws have managed to hurt their chances, plus, incidentally, raised rents and deposits for all tenants, good and bad.

[EconProf]

Welcome to landlording in liberal California, where lefty politicians have succeeded in raising rents and deposits via efforts to “protect” tenants. The result is hurting the poor, people with children, anyone with a dodgy work history or past eviction.
Long ago I had San Diego apartments and would occasionally take a chance with such an applicant. Sometimes it worked out, often it did not. When it worked out, I felt good about helping them get their life together.
Now, thanks to the nightmare landlords put up with, as described by the commentators above, landlords must act defensively, to the detriment of poor people. Thanks, CA politicians.

[EconProf]

Thanks Temeculaguy, you are too kind.
And I notice you also post less frequently here, which is a loss for all of us.

[EconProf]

I have seldom checked the Piggington site lately because it seemed too snarky and had the same tired old voices all the time. Also, frankly, because the RE cycle a decade ago was far more volatile and worth discussing, and Piggington was a rare voice of wisdom and sanity at a chaotic time. I’m glad to see some old-timers from long ago chime in here with their thanks to Rich.
I’ve made lots of hits and errors in RE over the decades, but am nicely ahead overall. Piggington didn’t so much help me on timing–where I made many mistakes, but helped explain why they happened.
My guess is that in the short run San Diego RE will do well, due to our low interest rates, low unemployment, and low inventory. Longer term, I fear a long overdue recession could really wallop CA and San Diego tax revenues and slam public services. The Trump economy and a stock market 4 times its level of a decade ago (according to the Dow Jones Averages) has brought a gusher of tax revenues to the highly progressive CA tax structure, and spending has ratcheted up accordingly. When combined with our insanely generous government pensions with their overly optimistic 7% rate of return expectations, the slightest stock market “reversion to the mean” will destroy CA finances and thus basic public services–prompting people to “vote with their feet”, leaving CA and hurting RE prices. All that is in the longer run, however. But remember, I am an economist–seldom right, but never in doubt!

[Author]

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