Whole lotta tragedy goin' on. 

Back to Hsieh, who thinks the real estate industry may indeed be as "fiercely competitive" as the Nation Association of Realtors claims, but that agents compete for listings primarily through marketing rather than through lowering commissions.  We could safely question his assertion, given the commission-cutting stories leading off this article, but for Hsieh this is the “tragedy of the commission".  The FTC report says that the "'tragedy' of relatively inflexible commission rates, according to Hsieh, is not just that consumers receive more services and fewer commission fee reductions than many consumers might prefer, but that the agents themselves are no better off.  Because the ratio of agents to buyers and sellers has increased, agents have to work harder to find clients and consequently spend less time closing transactions" and taking commission checks to the bank.

Hsieh's contention seems borne out, at least in part, by the National Association of Realtor's data on average earnings.  The “typical” income of its members fell from $52,000 in 2002 to $49,300 in 2004, while the income of sales associates (who comprise two-thirds of NAR’s membership) decreased from $41,600 to $38,300.  Note that while the average sales associate's income went down 8 per cent, Realogy's average homesale price went up 30 percent and its gross commission per side 28 percent.  REAL Trends supports the idea that the boom was a mixed blessing for the "typical" agent by reporting that the average number of transaction sides per agent decreased 20 percent between 2000 and 2005, from 12.7 to 10.2 per year.

I will give Hsieh credit for saying something you don't often hear an economist say:  I don't know.  “The apparent uniformity of commission rates presents an enormous puzzle, especially if one believes that the cost and effort necessary to sell a house do not increase one to one with the price of housing.  Why do commission rates appear to be so insensitive to market forces?  We do not have an answer to this puzzle.” 

Bravo!  Because here most of Hsieh's colleagues would be clamoring that they do have the answer:  collusion!  (And yes, I understand that Hsieh may be discretely suggesting this.)  Or as one Austan Goolsbee says in his August 25, 2005 comments on Hsieh's study for Slate, "Economically speaking [there's a learned lead-in] it's hard to explain why the steady commissions have lasted so long—perhaps agents band together to blacklist competitors who undercut prices, or perhaps the NAR's extensive 'education' program for realtors (sic) excels at indoctrination".  Austan just favored us with a demonstration of the real estate economist abhorring a vacuum:  if you don't know the answer, a snide and uninformed comment will always suffice and, not incidentally, amuse the peanut gallery.  The first tip-off that Austan might be on unfamiliar ground is that he doesn't know it's Realtor® the first time, then Realtor subsequent times, and never "realtor".  There is no such thing as a "realtor".  A small mistake, right?  One everyone makes.  Sure, except that Austan would be the first to remind you he's not everyone.  No, Austan's an expert on the crimes of "realtors", and experts don't make obvious mistakes.  And I wasn't aware that NAR has an "extensive 'education' program" nudge-nudge wink-wink.  The only time NAR ever brought up blacklisting in my presence was when the local Board of Realtors showed a grainy black-and-white film detailing the sordid adventures of an agent Leavenworth-bound for Federal anti-trust violations.  Nudge-nudge wink-wink.

(By the way, remember the Obama economic advisor who famously caused his candidate major embarrassment when accused of telling the Canadians, "Forget all that NAFTA-bashing.  Barak doesn't mean it.  It's just campaign talk"?  That was ol' Austan Goolsbee.  I wonder what kind of "extensive 'education' program" you have to go through to pull that kind of stunt?  Grad school?)

If real estate economists (and loose-lipped advisors to presidential candidates) can't solve this puzzle without sounding like high school gossip columnists, maybe I can help. 

Where to begin?  How about with another quote from John Kenneth Galbraith?  "Restraints on competition and the free movement of prices, the principal source of uncertainty to business firms, have been principally deplored by university professors on lifetime appointments.  Their security of tenure is deemed essential for fruitful and unremitting thought."   

Where, oh where, to begin?  Perhaps by verifying the obligation toward truth of the scientist in the pursuit of truth, even the social scientist who can never really prove his nebulous truths.  The social scientist is at a disadvantage to the truth in that he can't prove his work exists anywhere except inside his head.  He can't even prove his work has reality by accidentally burning down his lab.  Yes, the academic real estate economist supposedly validates his theories with peer-reviewed studies, but since the results of these studies so often bear only a passing resemblance to market reality, if that, then perhaps their usefulness is limited to keeping math geeks from hanging out on street corners. 

If a branch of the social sciences assembles an impressive body of research proving beyond doubt that the world is flat, is that science?  If it is, is it science because Ph.D.s puffing away thoughtfully on pipes say it is?  In other words, is pure thought ever enough to form the basis of scientific truth? 

In other words, can you make up real science as you go along, simply because you call yourself a scientist? 

To answer this question, I hit the literature and discovered another UC Berkeley professor, astrophysicist George F. Smoot.  In "My Einstein Suspenders", Smoot says that the iconic physicist's sometime "reliance on thought alone seemed to me...a bad example for budding physicists...I might have been biased, because almost all my own work was experimental and observational  (italics mine), and it was my firm belief that the integrity and power of science came from probing nature, not from divine insight".  Smoot's comments are interesting because they seem to give more credibility to experience, even informal field study, than to locking yourself in an ivory tower.            

He then relates "the experimentalist's canon, capital letters and all," which may provide context both to Hsieh's excited discovery of "tragedy of the commission" and to my analysis of it:

1)  Discover an Important Effect or New Thing Never Before Thought Of;

2)  Disprove an Important Theory to Show That New Science Is Needed;

3)  Confirm a Great New Theory;

4)  Disprove a Competitor's Experimental Results—or—

5)  At least Confirm a Competitor's Experimental Results!

So again, where to begin?  How about with the basics?  How about with the idea that real estate isn't the only industry where many participants compete on price only to a point and, once there, prefer to compete through marketing instead.  This isn't new thinking.  Madison Avenue has since the 1920s been differentiating products for us and telling us which ones we want.  As a rising market attracts capital, production inevitably exceeds demand, forcing prices down to the point where capital can no longer get its required rate of return and producers can no longer stay in business.  Rather than reach that point, producers choose between two alternatives.  They either differentiate their product or service through marketing, or they cheapen what they offer so that it costs less to purchase.  Either alternative is good old tried-and-true red-white-and-blue American capitalism.  Either alternative can be found in the real estate industry, as the full-commission full-service model and as the discounting model, particularly during a boom when everybody and his brother is transferring their human capital into real estate sales. 

If I can figure this out, you can be sure that Hsieh and his brethren can too.  But the ivory tower shut-ins watching real estate through the wrong ends of their telescopes don't acknowledge that capital, human or otherwise, has a right to stay in the marketplace without committing economic suicide.  No, they take differentiation through marketing as a clear sign of collusion, as if 1,327,307 Realtors nation-wide, approximately two-thirds of them salespersons fighting for your sales business, could present a united front on pricing.  Not only does this strike me as the sort of the pre-scientific world-at-the-mercy-of-evil-spirits thinking that modern science supposedly dispels—here the dismal science spreads it as economic gospel—but taken to its illogical conclusion it makes differentiation through marketing a sure sign of collusion in any industry.  The new "follow the money":  just trace all those ad dollars to their sources and bingo! you've discovered collusion. 

Maybe economic theory is tough to understand or care about, even if you're an economist, so let's bring it down to the human level.  A look at my testimonials will show that I'm the kind of guy you want in real estate.  At least my clients think so.  Like most agents who've survived their first few years, I make more money in real estate sales than I did in my previous profession.  But I also put in far more hours, and those hours are far more irregular.  And since I'm self-employed, I get to worry about where my next paycheck comes from.  I'm not complaining.  More money, more headaches.  That's fair.

But bring my average commission down to where the bankers want it, 4.34 percent, and I'm outta here.  A fifty-three-year-old who's spent most of his working life in real estate doesn't have many options outside real estate (cue the violins) but 4.34 percent makes restocking shelves at Wal-Mart sound interesting.  Fewer hours (part-time natch), less stress, no liability exposure, same (no) benefits, more prestige—yes, it's a more compelling package than selling real estate for 4.34 percent.  Which I suspect is just fine with the bankers, who have a horde of underpaid underfed twenty-something tellers who don't know any better and wouldn't mind picking up a few extra bucks.

"Yeah, but John, you're missing the point.  If you charged just 4.34 percent you'd have more business, which means you could make as much or more income."  But 4.34 percent wouldn't begin to compensate me for the effort I put into my clients.  For most of the past ten years I've had as much business as I can comfortably handle and still have a life.  More business would mean that either a) my clients get less effort, or 2) I hire an assistant, which not only increases my overhead but dilutes the expertise my clients get.  Both choices mean turning what should be a one-on-one attention-rich experience into an assembly line.  Neither choice appeals to me.        

Remember NAR's statistic showing that the average sales associate's income actually went down during the boom?  There's more to this than meets the eye, although you'd never know it by listening to the economists.  "Median income", says NAR in its most recent survey "was $47,700 in 2006, down from $49,300 in 2004, which had also had declined from 2002...During the last two years, NAR membership increased 23.2 percent.  With rapid member growth in recent years, newcomers—those in the business for two years or less—now account for nearly a quarter of all Realtors® and are diluting median income...Realtors® in the business for two years or less earned a median of $15,300, while those with three to five years of experience earned $44,200.  For six to 15 years, the median was $64,600, while members in the business for 16 years or more earned $76,200."

Which makes me glad I moved from property management to sales before the boom attracted so many competing agents.  Because I don't know where I'd be today if it wasn't for repeat business and referrals from old clients.  The practices that once kept a motivated new agent in business—taking floor calls, holding open houses—have essentially dried up as reliable sources of clients. 

Because when there's one Realtor for every 197 Californians, almost everyone knows an agent.  A friend, a neighbor, a relative, a former co-worker, a current co-worker trying to make extra income, yourself—as Jimmy Durante used to say, "Everybody's gettin' inta the act".  Today the number of Realtors in the Los Angeles and San Francisco Bay areas exceeds the number of real estate transactions in those markets.  Then there's the skyrocketing population of real estate licensees in California, not all of whom are Realtors, whose numbers soared 57 percent between 2000 and 2005. 

Not all licensees or Realtors sell real estate; some are appraisers, loan agents or property managers.  Of those who do sell, most have never made much money and won't be around much longer, but for the past several years the two or three transactions they've grabbed from established agents each year have kept them more-or-less in business and, I suspect, kept the income of many an established agent more-or-less flat even as sales and industry commission income went up.  And you really do want to keep those established agents in business, even if they don't always have a blog or a Blackberry and even if they are old enough to be your parents.  They're the agents most likely to hone their craft, to treat their clients like there's a tomorrow, to know that there's no easy money in this business, to commit themselves to real estate as a profession instead of treating it as today's hot sales job.

Which brings us at long last to the compelling rationale for keeping industry-wide commission income high during a boom market. 

Oddly enough (or not), it's a rationale the real estate economists are clueless about.  I call it "the tragedy of the real estate moth", which I believe costs consumers billions each year in wasted, duplicated and inefficiently compensated agent services. 

You'd think that as sales go up, the market's need for agent services would go up in direct proportion.  In other words, if sales rise X percent, then X percent more agents are needed to facilitate those sales, and any agents beyond X percent are surplus.  That's how it works in the textbooks, but I don't believe that's how it works in real life.  Experience suggests that demand for agent services is far more elastic than any real estate outsider realizes.  In fact, I'm convinced that sales is a poor indicator of demand for agents. 

I'm going to postulate that sales understates demand for agents in a boom market and overstates demand in a slumping market. 

Here's my contention:

• in any market, for every one successful buyer there are many unsuccessful buyers, and

• because of social pressure and natural voyeurism, a boom market attracts more marginally motivated and ultimately unsuccessful buyers 

• many unsuccessful buyers work with agents; very few buyers are truly "self-guided"

• every agent working with an unsuccessful buyer will not be paid until and if that buyer is successful

• a significant number of buyers work with more than one agent, most often sequentially but sometimes in tandem, before they buy, and

• an equally significant number of unsuccessful buyers remain unsuccessful during their relationship with an agent, so

• many agents working with unsuccessful buyers will never be paid by them, but

• someone has to compensate those agents for the services they deliver to unsuccessful buyers, or they can't continue to provide services to either unsuccessful or successful buyers, so

• successful buyers pay not only for the services they receive, but also for the services unsuccessful buyers receive

Whew!  Let's break this down. 

If real estate is hot and sales set records, agents must be taking fat commission checks to banks in wheelbarrows, right?  You've already seen that this isn't true of many agents, especially early in their careers.  But the challenge agents face isn't just an exponentially increasing number of competitors divvying up a sales pie that isn't expanding at the same exponential rate.  No, for every sale in a boom market there's a substantial number of unsuccessful buyers, buyers still in the market, buyers still absorbing agent services because they haven't bought. 

Even the most rigorous of economist algorithms couldn't quantify the number of unsuccessful buyers in the market but it's undoubtedly substantial.  I wouldn't be surprised if, in the hot market we've had in Silicon Valley since 2003, the ratio of unsuccessful to successful buyers has been 20:1 or even 30:1.  I can't verify this, since buyers don't register to enter the real estate market.  But open house attendance is a good clue.  In a hot market as many as two hundred people might go through two days of open houses.  In a slumping market, there might be ten or twenty.  Other forms of consumer-agent contact—emails, phone calls—also increase dramatically in a hot market and decrease dramatically in a slumping market. 

With me so far?  Okay.  Almost all unsuccessful buyers work with agents to some extent.  It's hard for them to avoid it, even the few who want to.  The extent of the agent-buyer relationship ranges from the "self-guided" client who needs little agent input and exists mostly in the minds of economists and other self-appointed experts, to the "call me up every night and take me out every week-end and while you're at it buy me lunch" agent-services sponge.  As the real estate market booms, sales go up and demand for agents goes up, not only from buyers in contract, but also from the far more numerous unsuccessful buyers who aren't in contract and who my experience suggests may never be in contract in the current market and/or through their current agent. 

Further, I believe that the demand placed by unsuccessful buyers on agent services in a boom market goes up exponentially rather than in direct proportion to the number of sales.

Why the multiplier effect?  When real estate is hot, even people with only a marginal interest in owning their own home flood the open houses, call or email agents or end up in the back seat of an agent's black Mercedes.  They're attracted to real estate like moths to light, and in a boom market, the real estate beacon is very bright indeed.  Everyone the moth knows is either buying a home or trying to buy a home or talking about buying a home or thinking about buying a home or wishing they could buy a home or thinking up reasons why they're not buying a home.  Besides, where else can the moth get the kind of unconditional love and attention an agent is willing to give them, at least for short bursts, unless they own a dog?  Many moths decide sooner or later that buying isn't for them.  But before they decide, most consume agent services for days, weeks, months, even years—without paying one thin dime for those services. 

In a slumping market, the real estate beacon flickers so dimly that it attracts far fewer moths.  The grim reality of a slump casts a pall over the market, separating the buyer wheat from the buyer chaff far better than any agent's screening tools.  Now the common wisdom around the cubicles and backyard barbeques is "now is a bad time to buy".   With far fewer moths attracted to the market, demand for agent services nosedives.  Moths only marginally interested in buying retreat from the marketplace until the big neon light flashes BUY again.  Even motivated buyers find it hard to buck the current pessimism and defer their entry into the market.  I'll speculate that, if a boom market has an unsuccessful-to-successful buyer ratio of perhaps 30:1, a slumping market might see a ratio of only 10:1 or even 5:1.  Which accounts for the eerie and deafening silence that falls upon a slumping real estate market like a dense fog.

As I said, these two concepts—unsuccessful-to-successful buyer ratios and elastic demand for agents—aren't well-known either to real estate consumers or, apparently, real estate economists.  They require an insider's knowledge. 

Which is why they've ambushed many a new agent. 

Yes, Virginia, it is a shock for the newbie agent to discover that only one or two of the hordes of buyers she's diligently cultivating are real buyers, no matter how high her hopes or how many hours she devotes.  The newbie is even more shocked when she tracks prospects who've stopped returning calls or emails and finds that many did buy, just not through her.  Most shocking to the newbie's sensibilities is the revelation that these buyers bought while she was burning through time, gas and enthusiasm doing exactly what they asked her to do:  find them a home.  It's that Law of the Jungle again:  nothing personal, just looking out for the Old Number One.  The agent who got the sale may have been the last of many that these buyers flirted with. 

I call this "the tragedy of the promiscuous buyer", which I believe costs the industry (directly) and consumers (indirectly) billions each year in wasted agent time, gas, oil, tires and hope. 

Home buying is a long, demanding process, and what might seem like an impulsive decision is almost always the result of months or even years of market study.  The agent just starting to work with a buyer who seems unusually knowledgeable, both about recent inventory and local market customs, is well-advised to wonder how this insider knowledge was acquired.  Almost certainly not from the Internet, which at best offers buyers Intro to the Market but not Advanced Studies.  Almost certainly from an agent or string of agents, either sequentially or in tandem, as the buyer acquired and discarded agents or was acquired and discarded in turn. 

Buyers know this is the very woof and warp of the market.  Agents do too.  Economists and regulators don't know this, because they aren't part of the market. 

Why do so many buyers flirt so indiscriminately with so many agents before they buy, if they buy?  Either the motivation to buy wasn't right at the time, or the timing wasn't right, or the neighborhood wasn't right, or the house wasn't right, or the agent wasn't right.  These are five compelling reasons. 

The sixth is equally compelling:  why not?  Why not accept professional services when they're offered to you, no, forced on you, free, at every open house and on every street corner?  Who wouldn't?  What's not to like about "free"? 

Which leads us to a third and related postulate:

• the real industry business model gives the consumer what she wants, even though

• it's usually contrary to her best interests because

• what she wants costs her a substantial premium for minimal or no gain 

The real estate consumer values her freedom to choose among many agents and work with any agent she chooses, and the real estate industry gives her that choice, apparently at no charge.  But to quote the hawks, "freedom isn't free".  No one is off in some far corner of the globe paying the ultimate price for the real estate consumer's right to free choice, but the cost to the consumer and real estate industry is still high. 

Because what the real estate consumer has asked for and gets is a business model that favors—no, rewards—consumers who never buy, and penalizes those who do.

It's no stretch to say that a real estate business model that offers free agent services in perpetuity to the segment of the market that never buys, and therefore never pays, is obviously biased toward that segment.  I say "obviously" but this truth isn't self-evident to either consumers or economists.  Yes, friends, real buyers subsidize the voyeurs, dreamers, tire-kickers and rubber-neckers who overrun real estate when it's a happenin' place.  It's that simple, and you heard it here first.  Furthermore, it's my contention that boom markets attract huge numbers of voyeurs, dreamers, tire-kickers and rubber-neckers, while slumping markets repel them like armor plate. 

If this is true—and I think any agent who's been through at least one complete market cycle is nodding her head—then a boom market doesn't just increase the number of real buyers who need agents.  A boom market also exponentially increases the number of people who use agent services without paying for them, either in the short term or long term.  Yet the industry is asked to support higher numbers of agents during a boom in order to meet this increased demand for agent services.  And when I say "the industry is asked to support higher numbers of agents", I really mean "real estate consumers are asked to support higher numbers of agents", because there's no industry endowment to keep agents in business while they work with the merely curious flocking to the latest social phenomenon.     

Here's a strong and far more defensible explanation "economically speaking" for "the apparent uniformity of commission rates" than the nudge-nudge wink-wink hoodoo the economists offer:  it keeps more commission income in the market, which keeps more agents in the market to meet exponentially increased demand, not just from the successful buyers who show up in the sales numbers, but from the unsuccessful buyers who don't.  If the market is awash both in commission money and unsuccessful buyers, the "average agent" is better able to stay in the market by making more money on each transaction, even though she's averaging fewer transactions.  And why should the "average agent" be paid to hang around a boom market, diluting the number of transactions per agent?  Because that booming market—home buyers, real or otherwise—demand her services.

Why didn't some real estate economist think of this?  Because no real estate economist has ever worked with buyers, real or otherwise.  Because no real estate economist has ever sifted through twenty or thirty dreamers to find one real buyer.  Because no real estate economist has ever worked one day in real estate, let along slogged through markets boom and bust, up close and personal, every day, day after day.  Because no real estate economist has ever found himself wishing one year that he could disconnect his phone, then wondered the next if maybe his phone was disconnected. 

Because this stuff isn't quantifiable.  Because nuances aren't quantifiable.  The real estate economist can't get this stuff by dipping his bucket into a handy pool of murky data, throwing it on a blank canvas, hanging the results upside down and proudly adding another notch to his curriculum vitae. 

So this stuff doesn't officially exist.  Nudge-nudge wink-wink does.

Yet several months after I wrote this I discovered that economics does know about this stuff, at least in general outline, although the news doesn't seem to have reached the academic real estate economists yet!  It's called the "free rider problem", and all this article did was reinvent the wheel.  Which makes me think that, given enough time and paper, a roomful of monkeys with typewriters could bang out The Wealth of Nations.

I'll deal briefly with a few more reasons why total commission income has and should go up that seem to have slipped under the economists' radar.   

I can't speak for every area, but certainly in my own the standard of care, both legally and by custom, is now considerably higher than it was back in the ABA's good old days of 1991.  I call this "the tragedy of the lawyer-designed marketplace", which I believe costs agents and consumers billions of dollars each year in hours spent completing and reading disclosures intended to protect everyone from everyone else. 

Agents in my area do more for their clients now than they did ten or fifteen years ago, mostly but not entirely in the realm of liability mitigation.  We now handle disclosure paperwork that's probably increased ten-fold since 1991.  Our "disclosure packages" are often two inches or more thick.  Yes, it's "just" paperwork, but it's paperwork that usually takes an agent's insight and assistance to complete; this isn't admin-level stuff.  A wrong, incomplete or misleading answer to any of the hundreds of questions in our seller disclosure forms can land a seller (and her agent) in court.  Yes, the seller completes the disclosures, but the good agent is beside her during the hours it takes the seller to wrestle with these frequently ambiguous questions. 

Then other agents working with buyers spend more hours plowing through the seller's disclosures with their clients.  Then maybe they take another hour or two to write an offer on the eight-page form we use.  Or maybe they don't write an offer, depending on how the buyers react to the disclosures.  Multiply this all-nighter by the number of times it takes the average buyer to make a successful offer in a multiple-offer market, if he ever does, and you get a faint idea of the extra hours it takes to sell homes in a hot market and in a pro-consumer state. 

Then there's the extensive preparation of the home that in any market a good listing agent recommends, a smart seller does and a good agent organizes and supervises.  Today home preparation runs the gamut from tidying, painting and floor coverings to a complete re-landscaping and new kitchen and baths.  Preparation is so extensive and exhaustive these days that putting up a For Sale sign seems almost anti-climatic.  The number of hours an agent spends fine-tuning a home before putting it on the MLS often equals or exceeds the number of hours spent marketing and selling it after it hits the MLS.     

Then there's the increased liability that the boom market has brought, not just to sellers, but to agents with the deep pockets of Errors & Omissions insurance that plaintiff's attorneys like.  Buyers who were pressured by a fast-moving, highly competitive market to set a new price record for the neighborhood aren't likely to laugh off what looks like an undisclosed defect.   

There's no doubt that buyers and sellers in my area expect more from agents these days.  Older agents complain that the market's pace is much faster than it used to be.  Clients demand instant communication and response, partly because technology allows it, and partly because that's just how business is done and lives are led here in Silicon Valley.

All of these are plausible reasons for selling costs to rise.  More is asked of agents, before, during and even after the transaction.  Why didn't the real estate economists think of this?  Because they've never sweat bullets putting together a disclosure package that minimizes a seller's liability.  Because they've never waded hip-deep through a disclosure package with buyers.  Because they've never written offer after offer after offer for buyers who can't grasp what it takes to win.  Because they've never spent weeks or months prepping a house with thirty years deferred maintenance and sellers who nurse every nickel. 

Because they don't teach real life in grad school.

Finally we'll address what I call "the tragedy of "This Changes Everything'", or "the tragedy of over-hyped expectations", which I estimate costs society billions each year in duplicated agent time and effort (not to mention must-have agent Web sites visited by five people). 

This tragedy goes back to the late 1990s, when listings first hit the Internet and Digital Age hucksters first hit River City promising all of us a splendiferous new real estate experience in the second-coming-of-Christ language de rigueur  when selling the Internet. 

The hero of their hype was the new "IEC", the Internet-Empowered Consumer.  The edgier hucksters told consumers that the Internet had replaced the real estate agent.  This fond hope was based on the naive belief, admittedly shared by much of the real estate industry, that agents were merely gate-keepers of listing information.  Pull down the gate and the agent would be disintermediated and wither away.  As the swelling ranks of real estate agents attests, this didn't happen, which by itself casts doubt on the Internet's ability to "change everything" in real estate. 

The more sober snake-oil salesmen announced that the day had come when agents, now gratefully relieved of the grunt work of real estate, would be free to focus on the finer points of their profession.  The "self-guided" buyer would do the grunt work herself and do it better, capably and joyously scouting listings, learning neighborhoods and markets, then plunk herself down on some lucky agent's doorstep panting to write that winning offer. 

What really happened?  I can only speak for myself, but I doubt that my experience is atypical. 

I discovered (or re-affirmed) that what looks like real estate grunt work isn't.  Sooner or later the real buyer realizes this.  It's the old and dry but still vital distinction between "information" and "knowledge".  Sure, a buyer can find scores or even hundreds of listings on the 'net.  What then?  Go see every one?  Week after week?  Yes, some people do this, but unless it's their preferred entertainment (and for some it is) this gets old in a hurry.  So either they drop out of a market they were never really in, or they hook up with an agent (or agents) to preview and evaluate listings as they come on the market.

That's what I did back in 1998 for every buyer who looked promising.  That's what I still do in 2007.  Hallelujah for the greater efficiencies the Internet brings real estate.  Because unless I've just met you, I'm not going to send you to or show you a house I haven't seen and graded on its fitness to meet your needs.  I learned that early, the hard way:  keep the client's unpleasant surprises to a minimum. 

I also learned that the "self-guided" buyer is a snare and delusion to the unwary agent.  Not that self-guided buyers don't exist.  But I've learned, again the hard way, that if a buyer has a reason for not wanting to go out with me, I wouldn't like that reason if I knew it.  "Self-guided" seems to be buyer code for "uncommitted", either to buying and/or to me.  "Self-guided" seems to be buyer code for "drop everything when I call or email but don't expect me to return your calls or emails".  Both seem a little one-sided.  Neither is the basis for a real business relationship.  In fact, that's the beauty of being "self-guided":  there is no sticky business relationship.

So I've learned not to take a buyer seriously unless we look at homes together.  It's a feeling so strong and pervasive among agents I know that one recently told me she doesn't let her buyers go to open houses by themselves because that's how she loses them.  She doesn't understand that a) you can't keep buyers out of open houses, and b) if they're that easy to lose, they were never hers to begin with.

"This changes everything"?  Yes, virtually all my successful buyers have found listings on the Internet.  But not all my successful buyers have found the home they bought on the Internet.  And all my successful buyers have wanted me to check out promising homes with them, either initially or on their second visit. 

"This changes everything"?  Only once in nine years has a fully-prepared buyer dropped out of the sky and made an offer, successful or otherwise, the first day I met her.  Even then, she didn't buy the place she'd found on the 'net.  She didn't like that place.  She did like the next place, the place I'd seen on tour, the place she didn't know about, the place I knew was what she was looking for. 

Again, why don't economists know that this is how the market works, nine years after listings showed up on the Internet?  You know the answer by now:  they've never been in an agent's or buyer's shoes. 

But I think it goes beyond that.  I think they can't afford to know that this is how the Internet-era real estate market works:  it would shoot their "greater efficiencies" theory in the foot, and that would spook the herd. 

Yes, many potential solutions exist to Hsieh's "enormous puzzle" of increased selling costs.  Taken together, they explain the real estate industry as it reacts to actual rather than theoretical market forces.  Even if you question these solutions, you have to admit that they take economics further than the economists' guesses, which as we've seen range from "beats the heck out of me" to "small 'r' realtor evil ju-ju" to a dry contempt for anyone not tested by the heroic quest of grad school.

Perhaps the real estate economist fraternity could study these potential solutions.  But first things first.  Let the fraternity prove it's something more than a spurious "soft science" sideshow.   

How?  No more nudge-nudge wink-wink innuendo.  No more mysterious forces at work in the real estate market. 

Let's see if the dismal science can walk the straight line of real science. 

copyright © John Fyten 2007     Site Map         Home