Is That All It's Worth?

A few months ago I read the book Freakonomics. (Ok, I'm not being honest here, I actually listened to the audiobook.) Chapter 2 in the book centres on the theme of information and the way that individuals, organizations, and businesses often exploit their access to crucial information at the expense of others. Curiously the authors titled this chapter "How is the Ku Klux Klan like a Group of Real-Estate Agents?"

When the authors analyzed data what they found was Realtors will sell their own homes at a higher price than the homes of their clients! At first I thought that maybe this was just a US issue but then I began to think about properties that I have seen being sold by Realtors and in nearly every case I found the same situation.

My brother, who has been in Real Estate close to 25 years, had a property that he had bought and fixed up. His Contractor did an amazing job and the home looked fantastic. He placed it on the market and it sat around for awhile and wouldn't sell. He asked me to take a look at the home and then I went back to the office and ran the numbers. Needless to say it was overpriced. Eventually he reduced it and it sold and he still made a tidy profit but I'm not sure if this is what the authors meant. My brother lost his objectivity but shouldn't he have priced the home to sell from the get go. Isn't that what we Realtors preach?

The authors went on to show examples of properties sold by agents for clients and properties sold by agents for themselves and that the latter sold at higher prices. In essence the agents worked harder for themselves and didn't just try to facilitate a quick cheque.

This got me to thinking of what my Real Estate Broker in Ottawa believes. He believes that soon the MLS will be forced to open up and allow For Sale By Owners on to the MLS system. For anyone keeping tabs, The Competition Bureau has escalated its case against the Canadian Real Estate Association to the country's Competition Tribunal, in a bid to smash what it says is an anti-competitive home-listings system that artificially increases the cost of real estate transactions.

What will happen when the MLS is forced to open up? How will Realtors justify commission rates of 5 or 6%? I mean we Realtors can say whatever we want but we know that outside of a few areas such as 'the Beaches', if we try to market a property without the MLS we have a tough sell ahead of us. The MLS is our most effective tool. So if FSBO's (For Sale By Owners) get on the MLS, what will they need us for? Won't we then be as useful as a stager? Someone who comes in and tells us how to prepare our home for sale. Maybe that of an Appraiser, to help in setting the price of a home before the FSBO puts it up on the MLS. After all, don't we Realtors say that pricing is one of the most important factors in selling a home. What added value will a Realtor give to justify $25,000 commission on the sale of a home? A stager is approximately $300 for the initial consultation and an Appraiser with far more credentials than a Realtor, charges $400.

The other school of thought though is what will happen to Real Estate prices? Won't everyone demand top dollar for their home? Who will bridge the gap between the Buyer and the Seller? Well we can sell everything else without go betweens, just look at the popularity of Craigslist or Kijiji. In a free market economy homes will still get what they're worth. Buyers will still use Home inspectors (who will be beholden to the buyer and not the Realtor for the referral)and banks will do their own appraisals before agreeing to financing.

What about time? Who has the time to sell a home? Well in Ottawa they've been successfully selling their own homes for some time now. They use a system called www.grapevine.ca and Realtors in Ottawa are forced to search both their system and the MLS to find the right home. In fact, under $300,000 you can argue that the grapevine has much more to offer in quantity and quality. This means that the Selling agent is being forced out of the equation and commissions are being reduced to between 1.5% & 2.5% TOTAL! In many cases the home seller refuses to deal with an agent at all and pays nothing in commissions!

Maybe consumers in Ottawa have been seeing what the authors of Freakonomics have been talking about, that Real Estate as an organization has used the MLS to exploit consumers rather than offering a competitive service? If that is the case, how long before this spreads through out the rest of Canada? Is it time that Realtors take a long hard look at ourselves and our industry and change the consumers perspective of us before these changes are made for us?