Titled The Costs of Free Entry: An Empirical Study of Real Estate Agents in Greater Boston The paper? studied real estate brokerages in the Boston Massachusetts area. Abstract below:
?This paper studies the real estate brokerage industry in Greater Boston, an industry with low entry barriers and substantial turnover. Using a comprehensive dataset of agents and transactions from 1998-2007, we find that entry does not increase sales probabilities or reduce the time it takes for properties to sell, decreases the market share of experienced agents, and leads to a reduction in average service quality. These empirical patterns motivate an econometric model of the dynamic optimizing behavior of agents that serves as the foundation for simulating counterfactual market structures. A one-half reduction in the commission rate leads to a 73% increase in the number of houses each agent sells and benefits consumers by about $2 billion. House price appreciation in the first half of the 2000s accounts for 24% of overall entry and a 31% decline in the number of houses sold by each agent. Low cost programs that provide information about past agent performance have the potential to increase overall productivity and generate significant social savings.?
You probably remember Freakonomics from their movie in which ?Freakonomics Asks: Does your real estate agent have your best interest in mind?? YouTube clip below.
Although the article got my attention, it is not what kept it ? what did? Comments. Consumer comments. As of this writing there are 40 comments on the article, and they are telling. Not that they are fact ? I?m sure they are not but they do offer a window into the consumer?s perception of what you do and the value you provide. I chose a few and posted them below.
?I?m selling my house right now (have a contract). I?m not sure what the realtors really do to garner the commissions they get.The internet has impacted just about every other industry where ?agents? used to exist. Best example is travel agents.There is absolutely nothing my real estate agent has done that I could not have done for a flat fee on realtor.com, and the time investment from me is the same.Yes, they negotiate, but I can do that too. Yes, they understand the contracts, but that could all be created as a simple workflow on a website (like your taxes and wills are today).And, finally, they come in and tell you how great your house is, and as soon as they put the sign in the yard, they tell you the price is too high, and changes you should make.
all sales agents ? all of them ? work for the buyer. In any industry.?
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?The Realtor if he or she does their job should also be sharing what is happening in the market, share market trends, comparable sales and yes sometimes the first offer is the best offer while also waiting can also be in some cases lead to a potentially higher offer price?
I might be more interested in these services if the realtors I have spoken to/hired appeared to be able to actually provide them. After the bad experience with the first realtor we shopped around a lot before settling on the second one. And while a bright and personable guy who had gone to Yale in retrospect he did not add anything to my understanding of the things you quoted.
I targeted a few zip codes. I found around 200 houses that fit our parameters. I went through pictures of them with my wife and narrowed them down to 50. We drove past them and narrowed them down to 20. Then he got involved and mainly worked to speed us through the process as quickly as possible. Wanting us to narrow our list, and to not broaden the area of search after being initially discouraged at the selection. When we settled on three and actually started making offers he provided me zero guidance. No comments about what has been happening, no encouragement or discouragement of the different offers I was contemplating other than to make one as soon as possible.
He was mainly useful as someone who had dealt with the paperwork before and someone who was familiar with the process. I should be able to find that for $200 not $6,000. The Edina Realty website provided me with about 100X more information then he did and it was free.?
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?It is a classic protection racket. You need to a real estate professional to protect you from the other person?s real estate professional, and they need them for the same reason.
The realtor on my first house was horrible and actively misinformed us about what were standard practices (telling us it was normal to assume the properties assessments from the previous owner, when it is in fact unheard of in this part of country).Worse yet when we left the area and had to put the house up as a rental he refused to listen to our comments that we would be willing to take less for our place then he suggested. We just wanted someone in there, the marginal $25 did not mean anything to us. He seemed strangely reticient to knock the price down. Later I found out he manages 100 rental properties, so of course he doesn?t want us to lower the price!
The realtor on our next house was a lot better, but I basically did all the work and research. I only needed him to get keys into the houses because many houses won?t let you in without one. He did do some paperwork, and steered us to a mortgage broker and inspector who in retrospect were a little lacking (but were friends of his). I do not feel like we got close to $6,000 in work out of him, nowhere near that. If I ever purchase a house again I am doing 99% of the work and will give some realtor $200 bucks to stand there for the last two meetings.?
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Sales Relies Upon VALUE
Looking at the comments, the vast majority of consumers that commented complained about not only ?service? but the relationship between cost and value. Many of the consumers that commented did not appear to see the cost of 3% [or whatever it was] translate into VALUE ? for them ? and most of them were not even paying the fee! I would suggest you read every comment, I also want you to notice that there are some real estate agents that are commenting on this article as well in which it appears some, [not all] are trying to make the consumer wrong. This is a lose/lose proposition and probably lends itself to becoming a self fulfilling prophesy - ?real estate agents only care about themselves?.
How To Differentiate Yourself As A Real Estate Agent
It?s rather simple actually. Real estate is not an easy occupation. In addition to working with the consumer, you have to work with each other, sometimes even against each other. Throw in all the other moving parts ? lenders,attorneys,title, inspectors,appraisers, banks, negotiators, contractors and the like and you begin to see why being a real estate agent can be so challenging. But here is the problem. Many of the consumers that left comments [and I would bet the general population] don?t know what you do for the money you are paid. I know many of you earn every penny but the consumer doesn?t ? to make matters worse, they don?t even know you have marketing costs, commission splits or anything else. This is because of a lack of communication which coincidentally is the #1 complaint in the real estate industry. I am not saying you need to tell the consumer about your costs to justify what you do and how you are compensated, what I am saying is that you should show them what you do. Doing so will add value to your services. This can be done in many ways but video stands out to me. Forward thinking real estate agents can create a short video you can send to clients once they go into contract that explains what you will be doing while they are continuing on with their lives. It doesn?t need to be long ? maybe break it up into a series and send it to every one of your clients at different stages of the transaction.
Creating a video of what you do ? even if it?s just you explaining the process ? will immediately ADD VALUE to what you do as a real estate agent and differentiate you from your competitors. It also provides a series of videos you can use on your WordPress Website to help you get found online or provide content [information] for consumers wondering why they should choose you when they find your website. It?s 2011 which means many consumers are demanding more transparency ? many consumers want to know or even see what it is you do but many agents are stuck back in the past of holding on to information instead of sharing it. You can HELP consumers find you online at the exact moment they need you by showing them what it is you do.
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Source: http://www.mytitleguy.net/2011/07/real-estate-agents-public-perception-vs-value/
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