Freakanomics: More About Freaks Than Economics
How about some bookmark love? ::
Once again out to spread the fable that real estate agents are useless is Mr. Stephen Dubner, co-author of the unoriginal piece of fiction called "Freakanomics". His claim is that Real Estate agents will go the same way as Travel Agents, and that eventually websites like Zillow will replace us, just as Expedia or Hotwire have replaced travel agents.
Let's look at his fundamentally flawed logic once again, shall we?
First, he bases his conclusion that there is only a need for Real Estate agent, or REALTOR because the sales comps are kept secret in the MLS.
His next assertion comes from the idea that once consumers are empowered with the MLS data, that they can buy and sell their own real estate without the need for a silly real estate agent. Hint: (MLS Data comes from public records)
He essentially tries to make real estate agents seem one-dimensional in their function, that they keep the data secret in the MLS, and they are only good for giving you the comps. After all, when you sell your home on your own, you're perfectly capable of doing an open house yourself, right?
Real Estate Agent VS Travel Agent
Let's look at the function of a Travel Agent:
Use a computer network to assemble a package of travel needs, price quotes, and book the customer's travel itinerary. Also optimize this search to give the client the best possible prices or options. The Travel Agent could book the entire travel and accommodation via the computer network with the client's credit card.
Now Let's Examine the Role of a Real Estate Agent:
For a Buyer:
Use a computer network to assemble the homes in the area, price range, location, square footage, view orientation, including neighborhood and property amenities that meet the client's needs.
Call and arrange appointments to show all of the properties that fit the client's criteria. Assist the client with a critique of the subject properties with respect to other recently sold properties, or active listings currently on the market.
After locating the perfect property, the agent will draft a purchase agreement (offer to purchase the property). In California, this contract is 8 pages long. The purchase agreement is only the beginning, there are a handful of addendums, disclosures, and agreements that are components to the main agreement. This could mean interpreting and navigating the legalese of nearly 20 documents, and that is just to get the process started.
Once the offer is accepted by the sellers, then escrow opens. This means that for a period of several weeks the real estate agent then becomes an advisor to the client, and a legal layer of protection with a fiduciary duty to represent the best interests of the client.
But I digress.
Let's for a moment work from the theory that Mr. Dubner proposes, and pretend that some software comes along that advises a person exactly what choices to make in the decisions of a real estate transaction. It seems that there is already software that offers to help people complete the fairly complex task of completing and filing tax returns.
Did the invention of TurboTax and Tax Cut put CPAs out of business forever? No not at all. CPAs are constantly correcting the tax returns that the software has gotten wrong.
Mr. Dubner assumes that the release of the MLS data, will put Real Estate Agents out of business because buying real estate will essentially turn into a Do-It-Yourself task. This is highly implausible. Even on the East Coast of the US, where the contracts can be much more simple in nature, the Real Estate agent's role is still clearly needed.
For Sellers representation by a Real Estate Agent is more critical than ever.
The idea that selling a home "By Owner" is going to get the top dollar is unlikely if for no other reason than the fact that the For Sale By Owner listing has a mountain of competition going against it. Real Estate Agents are spending big dollars marketing their client's properties.
The key dimension that Mr. Dubner ignores, is the most overlooked fact that sustains his myth. He never mentions that in most cases Real Estate Agents are Full Time networkers. Meaning that they are constantly looking for buyers and sellers. The catalyst in real estate is the real estate agent. The real estate agent connects the buyers and sellers, and navigates the highly complex, logical, legal, and emotional transaction on behalf of his clients.
On the other hand, anyone can write a book.
Right Mr. Dubner?
Let's look at his fundamentally flawed logic once again, shall we?
First, he bases his conclusion that there is only a need for Real Estate agent, or REALTOR because the sales comps are kept secret in the MLS.
His next assertion comes from the idea that once consumers are empowered with the MLS data, that they can buy and sell their own real estate without the need for a silly real estate agent. Hint: (MLS Data comes from public records)
He essentially tries to make real estate agents seem one-dimensional in their function, that they keep the data secret in the MLS, and they are only good for giving you the comps. After all, when you sell your home on your own, you're perfectly capable of doing an open house yourself, right?
Real Estate Agent VS Travel Agent
Let's look at the function of a Travel Agent:
Use a computer network to assemble a package of travel needs, price quotes, and book the customer's travel itinerary. Also optimize this search to give the client the best possible prices or options. The Travel Agent could book the entire travel and accommodation via the computer network with the client's credit card.
Now Let's Examine the Role of a Real Estate Agent:
For a Buyer:
Use a computer network to assemble the homes in the area, price range, location, square footage, view orientation, including neighborhood and property amenities that meet the client's needs.
Call and arrange appointments to show all of the properties that fit the client's criteria. Assist the client with a critique of the subject properties with respect to other recently sold properties, or active listings currently on the market.
After locating the perfect property, the agent will draft a purchase agreement (offer to purchase the property). In California, this contract is 8 pages long. The purchase agreement is only the beginning, there are a handful of addendums, disclosures, and agreements that are components to the main agreement. This could mean interpreting and navigating the legalese of nearly 20 documents, and that is just to get the process started.
Once the offer is accepted by the sellers, then escrow opens. This means that for a period of several weeks the real estate agent then becomes an advisor to the client, and a legal layer of protection with a fiduciary duty to represent the best interests of the client.
But I digress.
Let's for a moment work from the theory that Mr. Dubner proposes, and pretend that some software comes along that advises a person exactly what choices to make in the decisions of a real estate transaction. It seems that there is already software that offers to help people complete the fairly complex task of completing and filing tax returns.
Did the invention of TurboTax and Tax Cut put CPAs out of business forever? No not at all. CPAs are constantly correcting the tax returns that the software has gotten wrong.
Mr. Dubner assumes that the release of the MLS data, will put Real Estate Agents out of business because buying real estate will essentially turn into a Do-It-Yourself task. This is highly implausible. Even on the East Coast of the US, where the contracts can be much more simple in nature, the Real Estate agent's role is still clearly needed.
For Sellers representation by a Real Estate Agent is more critical than ever.
The idea that selling a home "By Owner" is going to get the top dollar is unlikely if for no other reason than the fact that the For Sale By Owner listing has a mountain of competition going against it. Real Estate Agents are spending big dollars marketing their client's properties.
The key dimension that Mr. Dubner ignores, is the most overlooked fact that sustains his myth. He never mentions that in most cases Real Estate Agents are Full Time networkers. Meaning that they are constantly looking for buyers and sellers. The catalyst in real estate is the real estate agent. The real estate agent connects the buyers and sellers, and navigates the highly complex, logical, legal, and emotional transaction on behalf of his clients.
On the other hand, anyone can write a book.
Right Mr. Dubner?
I completely see your point in regards to the complexities of real estate transactions and the need for the individual spear heading the "deal" should be well versed in real estate/contract law. However I do think that Mr. Dubner does make some points. Today's consumers are already using the technologies at their disposal to get the information when, how, and where they want it. This responsibility is slowly but surely being shifted from that of solely the Realtor to that of the buyer/seller. Also do remember that this portion of the book was brought in to discuss the idea that humans are incentive based individuals and without the proper incentives in place there is a lack of motivation. So I assume that you are a real estate agent (honestly I just happen to stumble across this blog and know nothing about it). I believe the example that was used in the book of this was the unwillingness of an agent to up the asking price of a home because it would take longer to sell and it would not significantly increase their cut of the commission. So ask yourself.....have you ever done that? (that is a rhetorical question:)
Posted by
Barbara |
8:02 AM
Barbara,
Thanks for commenting.
You reminded me of an important and interesting point. This is another completely false assumption, that Real Estate Agents are in control of pricing homes. The thing that controls the pricing of homes is what the buyers in the market are willing to pay.
So if you are trying to sell your home, remember you can set the price whatever you want it to be, however unrealistic.
Pricing a home with using commission as a factor is violation of the fiduciary duty that an agent has to his or her client.
Remember that most people will hire the agent that they think is going to get them the highest price for their home anyway.
When the market isn't a strictly strong seller's market, the discussion of whether or not you should raise your price doesn't even need to happen.
It is simple supply and demand, if your are priced higher than what someone is willing to pay, that it won't sell. That is real economics. Blaming the Real Estate Agent for a real economic principle is Freakanomics.
Now when you can blame someone for your lack of something does it seem like a huge revelation.
I know it was a New York Times bestseller, that doesn't mean that the authors arguments are logical.
Posted by
Rory |
8:26 AM