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An important history lesson for you TRUE Steelers fans!

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Old 07-26-2006, 08:39 PM   #1
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Default Real Estate Commisions

A company out here in Seattle called Redfin started a few years ago with a website that made it really easy to find house for sale. It was the first site to ever have satelite pictures of a city that showed which houses are for sale. You can click on the house and find out more. Lots of sites emulate the model now.

More recently, the company became a brokerage and now represents buyers and sellers at a much more discounted rate than the standard 3% that a realtor would take to do this. And they are get hammered all the time by some realtors now. Realtors will say awful things about them in hopes that their lies will help protect their golden 6% commision that realtors skim off the top of almost every residential real estate deal.

The owners of Redfin have a blog on their website and recently described the caustic reception they got when testifying in front of Congress regarding realtors' use of government to prevent market forces from setting thier fees. Here is a link to the blog. The post I refer to is dated July 25 (you have to scroll down a bit). Be sure to click on the link to their testimony statement; its summarizes the issue succinctly.
http://blog.redfin.com/blog/redfin/?rt=fn-bl


Anyway, do any of you think the days of 6% real estate commisions should be over? It seems to me that real estate prices have gone through the roof along with their fees. But realtors jobs haven't gotten any harder. In fact, the internet makes it easier for them. So why should we pay them 100% more than we did 5 years ago for the same job?

Just wanted to see what people outside of Seattle thought about the topic.
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Old 07-26-2006, 09:39 PM   #2
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Default Re: Real Estate Commisions

what ever happened to capitalism? if you can move more than double the ammount of product with half the price of commision arent you doing as well or batter than the traditional way? its all about volume moved when setting a commission price.

the way i look at it, if you can move 1000 units a year at 3% youre doing a much better job than someone moving 300 units at 6%.
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Old 07-26-2006, 10:02 PM   #3
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Default Re: Real Estate Commisions

Agreed. I remember reading a really good article by George Will (a guy I don't agree with too often) bemoaning this type of market manipulation. Its called "rent seeking." Rent in this case isn't being used in the fashion we are normally familiar with. Adam Smith defined the three types of income as being profit, wage, and rent. Rent was defined as income from deals that where not mutually beneficial. SO rent seeking is using the governmnet to make laws that give your group exclusive market control. In Will's article, he decribed a man who realized that morticians where making obscene profits when they sell a casket. He not only saw this as morally reprehensible (taking advantage of people who just lost a loved one) but also a good business opportunity for a competitor. So he started selling caskets at reasonable mark ups. And the state he lived in shut him down. There were laws on the books saying you had to be a licensed mortician to sell a casket in that state. The analogy has been made by others that this is akin to saying you need to buy your shoes from a licensed podiatrist. So the monopoly continued.

I see the realtor issue as being very similar. I think there is a definate role for realtors to be paid. I would be willing to pay good money for a realtor to help guide me through a market that I am not familiar with or if I was buying for the first time. But if I am buying a house in a city that I know and I know the market, why should I pay the same 3%? There is no value in it for me. Same with selling. If I am convinced a realtor will get me a higher sell price, i'll pay him more. But if I can stage and market a home on my own, why pay someone else?

I think if true market forces where at play, good realtors would still get 3% commisions or higher. But bad ones would deservedly get much less. You'd think that the good realtors would support a bit more competion with the glut of new realtors on the market.
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