
Why Redfin, Zillow, and Trulia Haven't Killed Off Real Estate Brokers - mhb
http://www.businessweek.com/printer/articles/100798-why-redfin-zillow-and-trulia-havent-killed-off-real-estate-brokers
======
viggity
Let me preface this by saying my mom is an incredibly successful real estate
agent. I think people underestimate how valuable a _good_ agent can be. They
know problem signs when buying a house, they know the market and they know how
to negotiate. My mom helped us by a townhome and then build a house and it was
an incredibly eye opening experience. I was used to my mom being the sweet,
nurturing woman I grew up with, but when it came to negotiating she turned
into a pitbull. When we bought our townhome, she knew the market, she knew
what areas were better. When we built our house, she was able to guide in a
way to maximize the bang for our buck. Things that were cheap and add a lot of
value to do when building, but not cheap to retrofit.

Thinking that using a site like redfin or zillow is going to make up for the
depth of experience is just frankly silly. Would you negotiate a Series A with
a bunch of forms from LegalZoom? No, you'd be an idiot to not have an
experienced attorney on your side.

Edit: The cool thing about real estate agents (unlike attorneys) is that the
great ones charge just as much as the bad ones. The takeaway is that if you're
going to buy a house, you should pick an agent that sells a TON of real estate
and not someone who does it as a way to supplement their income.

~~~
ssharp
I think for buyers, agents make a lot of sense. Largely, because of how the
system works, they're free to buyers, as the seller's pay the agent fees.

The problem is that the seller's must pay for both the buyer's agent as well
as the seller's agent. And in order to get into MLS, you have to hire an agent
to represent you. It's a horribly broken system where agents are essentially a
cartel you have to do business with in order to sell your house. Everything
has changed with MLS listings being online and so many real estate
transactions have become boilerplate, with no major variables except price
negotiation, which really isn't that difficult either.

If you're not familiar with the MLS system, it's something that is controlled
by the Realtor association it's essentially a network of databases of every
home for sale or rent that is represented by an agent. You have to have an
agent in order to be listed that system and practically every real-estate
website, including Zillow and Trulia, get the vast majority of their listing
from the MLS systems.

Some smart agents realized how utterly ridiculous the role of the buyer agent
has become in many situations (If you know the 80/20 rule, this is sort of the
99/1 rule: 99% of the value of a buyer agent comes from getting into MLS and
it takes about 1% effort to do that). In response, they offer their services
as "flat fee MLS" and they charge people a couple hundred bucks to play ball
in the MLS system and you get to represent yourself in the actual sale
process. You're paying $600 + 3% buyer commission, instead of a straight 5-6%
total commission.

On a $300,000 house that will save the sellers $8,400.

~~~
dminor
> I think for buyers, agents make a lot of sense. Largely, because of how the
> system works, they're free to buyers, as the seller's pay the agent fees.

When we bought our house we didn't use an agent. Our offer was instantly 3%
more attractive to the seller. The seller's agent told us after we closed that
there had been 5 other offers and the 3% put us on top.

A better way to think of it is this: the party bringing the money to the table
is the party that is paying for everything.

~~~
treasdev
How did you get into houses to view them without an agent to open the
lockboxes? How did you assmble all the paperwork required for your states
contract? I've long seen agents as unnecessary and would like to avoid one to
make my offer stronger.

~~~
dminor
Sorry for the late reply - you can just call the seller's agent and have them
show you around. We used a real estate lawyer to draw up the contract and to
have someone we could ask negotiation advice from if we needed it. Far cheaper
than the 3% cut. Be aware that in most agent contracts the selling agent is
entitled to the full commission if there is no buyer's agent, so how
attractive your offer is depends on the relationship between the seller and
their agent. Also, every agent you meet will try to get you to use them as an
agent, so make it clear you are acting without an agent.

------
shawnee_
_the average commission paid to the buying and selling brokers was 5.4 percent
of the price of a home in 2011, up from 5 percent in 2008. (The seller’s agent
collects the commission from the seller and then splits it evenly with the
buyer’s agent.) That’s considerably higher than the median rate in markets
abroad, where there may only be one agent involved in the transaction, such as
the U.K. (a 1 percent to 2 percent fee), Germany (3 percent to 6 percent),
Israel (4 percent), and the Netherlands (1.5 percent to 2 percent), according
to a 2007 report by the Organisation for Economic Co-operation and
Development.

<snip>

They found that there’s ... collusion in real estate that separates it from
industries like stock trading and air travel. _

So the most "consumer-friendly" solution to this problem is obvious. Make the
collusion illegal. Make it a LAW that buyers and sellers are not obligated to
pay any agents any specific percent of anything. (6 percent is hard-coded into
most real estate transaction paperwork, and never fully explained to
consumers.) Draw consumers' attention to the fact that Realtors should be
competing with each other based on their service, not coercing consumers into
signing contracts that write their percent commission in stone. The problem is
that consumers don't know these things should be negotiable.

Collusion should always be illegal, but the lobbying forces of the NAR are
pretty evil and powerful; it's going to be tough (but not impossible) to
change.

------
tokenadult
It's very hard to check out the reputation of real estate brokers. Neither
personal recommendations nor years of experience fully do the job (although
both are useful at the margins). More than forty years ago, I was in school
with a boy who was, I discovered, a pathological liar. He would make up
elaborate stories to play practical jokes on classmates. About a decade ago, I
was startled to see his name (very unusual) and face (three decades after I
had last seen it) on a billboard in town. You know what occupation he pursues
now. He seemed to have some visibility in our town as a successful business
person during the height of the real estate bubble. He is still in the same
line of work (but now just with lawn signs, not billboards) after the bubble
popped. I wonder how any person shopping for a real estate broker could
distinguish brokers like him from any other kind of broker.

~~~
psaintla
There is a reason for that, real estate is an extremely high turnover
occupation with an extremely low barrier to entry. I know this because when I
was 18 (a very long time ago :-) ) I wrote and eventually sold the rights to
real estate inventory and CRM software to a small real estate company in NY to
pay for my college education. Before I wrote the software I wanted to gain
domain knowledge in the industry so that I could write an application that
actually met the needs of the real estate industry and also so that people
would take me seriously as a "kid".

So I went to get my real estate brokers license which required I take a course
that was a few hours, a course exam and then a state exam. It took less than
two weeks for me to be qualified to help people make the biggest financial
decision of their life and I learned much less from the course than I did from
a few books I picked up from the bookstore.

------
Roboprog
Another problem my wife and I have run into is lag time: there is a delay
between posting things in the MLS and then onto the internet sites. That delay
is usually the time it takes for the better deals to have an offer pending on
them. Even though the UI of the "official" MLS site that our agent uses sucks
compared to sites like zillow and movoto, you can find the cheaper houses
before they go pending. Too bad there isn't a filter on the "status" field in
the MLS web search (such as, filter out the 1/2 to 2/3 of houses that are
already pending???)

That said, Zillow is a wonderful tool to check price/sales history.

~~~
jpdoctor
> _you can find the cheaper houses before they go pending_

Which tells you the value of realtors: They don't wait around to get the
highest bid (a commission in the hand is worth two in the bush.)

~~~
cabinguy
A commission in the hand is worth two in the bush...but a purchase agreement
submitted by a potential buyer can have a time limit attached to it. If the
seller wants to wait around, they may lose out of the initial offer, which is
(most) often the best offer.

~~~
jpdoctor
> _which is (most) often the best offer._

I assume there is deep research on this factoid from the non-realtor
community, because then the right thing to do is use the MLS API to be first
and submit a lowball offer with a one-day fuse.

But I gotta tell you: It sounds like the standard realtor spiel, and it works
on people with little experience in buying/selling things with large asset
values (like companies or houses).

~~~
Domenic_S
Realtors get around this by giving you an offer review date: "we're looking at
offers this Monday". It induces all the offers to come out of the woodwork and
encourages bidding wars.

------
ck2
Reminds me how much I miss Google real estate on maps.

I wonder if there is any chance they will bring that back.

 _“Real estate, by far, is the most screwed up industry in America,”_

Only a person who didn't need medical or dental care in the USA without
insurance would say that.

~~~
twoodfin
Because relatively few people have real dental insurance (not dental "discount
plans") vs. health insurance, the dental care market in the U.S. is actually
fairly competitive. Nobody's going to go bankrupt from uncovered dental
expenses as long as they're careful to budget for an average of, say,
$500-$1000 annually (depending on your history) and are willing to shop
around.

~~~
ck2
Are you kidding? A root canal is $500 and a crown for the root canal maybe
twice that depending on the tooth.

~~~
twoodfin
But how many root canals do you have per year on average? Surely something
like .25 at worst? And I suspect most patients paying for regular cleanings
already have fewer of them.

------
Apreche
The problem is that there is too much bureaucracy involved in buying a house.
You can't get around the real estate laws the way Uber gets around taxi
regulations. Buyers and sellers don't know how to buy or sell a house, as most
of them do it very few times in their lives. Real estate agents do it every
day. If you want to make real estate as easy as eBay, you have to change the
laws.

~~~
mooreds
Disclaimer--I work as a software dev for a real estate brokerage.

That said, I've spent some time thinking about whether just changing the laws
would have an impact. I think the issue is bigger than this.

I think that there are lots of marketplaces have sprung up via the internet,
but as far as I know, the significant ones all offer products that have one of
these characteristics:

* the consumer buys them often [for some definition of often] (airplane tickets) * the product is fungible (books, cars) * the product is relatively cheap (stuff sold on ebay, amazon)

All of these characteristics lower the risk of purchase. Housing has none of
these characteristics. And I don't know how it could, short of a real
manufacturing revolution or more houses built out of shipping containers.

------
steven2012
As someone who is currently looking to buy a house in the crazy Bay Area, I
can tell you exactly why Redfin doesn't quite work. The Redfin real estate
agents themselves aren't as dedicated to the clients as a traditional real
estate agent is. Sure, you can see places, they will give you advice, and
place orders for you. But with a dedicated agent who is getting fully
commission, you are getting a lot more soft services than you would with a
Redfin agent.

Case in point: I have a friend who was looking strictly through Redfin, and
whenever he found a house he would like, he would talk with the Redfin agent,
and they would get a bid together. He was getting nowhere, and what was more
frustrating is that even though they had the Redfin agent, they still felt
alone and frustrated.

I suggested my real estate agent. She went to his house, talked to them about
what they wanted, and then proactively started looking for houses for them, in
addition to him scouring MLS at the same time. She would actually suggest
different areas of the Bay Area, instead of just SF because it looks like
$850k won't buy you a decent house in a decent area anymore.

The other thing that is really helpful in today's market is that she
encouraged my friend to submit multiple offers at the same time, ie. bidding
on 2-3 different houses. This is something Redfin actively discouraged. It's a
bit grey area, but in this market, you can't afford to pass up any
opportunities since the probability of getting a house is so low. As well, she
works for a large brokerage, so she is always trying to get the inside scoop
on new houses that are about to hit the market. They still haven't gotten a
house yet, but they are less frustrated by the process and they feel a lot
better knowing that they are getting good guidance from someone who is
dedicated to helping them getting a house.

If you are a sophisticated real estate buyer, and all you need is an agent to
do all the documentation for you, then Redfin will likely work for you. But
most people aren't, and in a broken market like today in the Bay Area, Redfin
will be less successful, because what you really need is someone that knows
the tricks of the trade and will help you bend the rules a bit.

~~~
smackfu
I'm not sure how valuable it is to build a system that works well in a crazy
market, considering how many more markets are not crazy. Yes, there are
markets where speed is the most important feature, and properties tend to have
multiple offers and go above the selling price.... but that is a pretty far
edge case.

~~~
steven2012
The average homes in the Bay Area are much higher than in many, if not most,
parts of the US. Also, lots of inventory move, and this is the second time in
about 10 years where the markets have gone "crazy".

If they sell one home in the Bay Area, it could be the equivalent of 5-8 homes
in the MidWest where houses average 150k. If I were Redfin, I would try to
ensure that my system worked in these "big fish" market where the revenues
would be higher, regardless of what the market conditions are, instead of
trying to work in the smaller, less expensive markets where you would need to
make up for a lot more volume just to get equivalent revenues.

------
cs702
The prospect for disintermediating real estate brokers looks to me about as
realistic as the prospect for disintermediating investment bankers who provide
M&A advice for fat fees. I say this because the services provided by real
estate brokers on the purchase and sale of properties are similar to the
services provided by investment bankers on the purchase and sale of whole
businesses.

Just as no two companies are the same, no two properties are the same (even
when they have the same square footage, style, location, etc.). Just as every
industry is different, every neighborhood is different. Just as every M&A
negotiation has its own unique cast of characters, every negotiation for the
purchase/sale of a property has its own unique cast of characters. Just as
every M&A transaction must accommodate for unique circumstances, so does every
real estate transaction. Just as large M&A transactions (e.g., sale of a
multinational corporation) can be very complex, the acquisition of large
properties (e.g., sale of a skyscraper with thousands of tenants) can be very
complex.

Most people are too busy with their lives, and they're not in the business of
buying and selling properties, so they _need_ expertise to navigate all this
complexity.

------
pdovy
When I was looking to buy my first house a year ago, I was pretty interested
in the deal Redfin is offering, which is basically that they take a smaller
percentage in exchange for more of the burden being on you during the buying
process.

It took quite a while for me to find what I was looking for, so I ended up
using both Redfin agents as well as talking frequently with a normal agent. I
have to say even though it cost me slightly more, in the end the house I
bought I found on the Redfin site but bought through the normal agent. As
others have pointed out, good properties can go fast and having someone who
you can call and have on the case immediately is a real asset. In my case my
agent did the legwork to find out who else had seen the home and pushed the
sellers to negotiate in time to edge out a competing bid - well worth a few
thousand extra on the sale price.

I get the point about misaligned incentives, but I view that more as a reason
to ask around and get recommendations on good realtors, rather than a reason
to avoid them.

------
bane
It's funny, my neighborhood has a great relationship with a couple local
dedicated Agents, we've all been concerned about the housing prices, our tax
assessments and even more importantly, the low estimates Zillow keeps showing
in our neighborhood (compared with every other source of assessments)...they
both agreed that pretty much nobody in the industry in our area even pays
attention to Zillow anymore the estimates are so far off the actual value.

 _edit_ just checked, my house for example, sits on the same block as two
recent home sales, neither one is reflected in Zillow and both sold for far
higher than the "Zestimate". The townhouses a few blocks over (which
originally sold for about 70% of my home's price and are about half the size)
are full of recent sales that are within 10-20% of the "Zestimate". The much
smaller single home facing mine is "Zestimated" at a few tens of thousands
higher than mine, but sold originally for 80% of my home's price.

It's basically nonsensical.

~~~
steven2012
Zillow's estimates are absolutely garbage. I'm not sure how they determine
estimates but they are too low by about 30%, at least in the Bay Area. If
anyone from Zillow is reading this thread, they really need to do a better job
with gathering their estimates by doing things like weighting most recent
comps better, and taking a notice of how much newer sold houses are being
overbid on. They've been around for a few years now, and their estimates are
still a joke.

They can calibrate their estimates by finding houses that are currently
pending, making an estimate, and then seeing what they end up selling for once
the deal closes. It appears they don't even bother doing any sort of
backtesting on their estimates.

~~~
smackfu
It's a very hard problem.

* The price data isn't reliable. I see random sales for way under market price in my area, probably family sales. Tax evaluations should be reliable, but they are often years out of date.

* The input variables aren't reliable. This condo went for less because it has really high condo fees, but the condo fees aren't in the listing. This other house says it has lakefront AND beachfront AND water views. These two houses have "decks", one is a tiny front porch, the other is a huge thing. These two houses have the same lot size, but one is all grass and the other is straight down a hill.

* There isn't much data volume. You are trying to come up with an accurate price for every house in a neighborhood, but only a few percent sell each year. So the one or two houses that sell determine the prices for all the rest, but the data for those houses is unreliable due to the previous two factors.

~~~
steven2012
It is a hard problem, but the fact they are touting their Zestimate, and
having the values so ridiculously off, gives me no confidence in Zillow. And
it hasn't gotten any better since Zillow first started, which makes me have
even less faith in them.

If they backtested their data and corrected for it, or had some sort of
machine learning algo, I would bet it would get a lot better. To me, it looks
like they are using a simple average $/sqft algo and it looks like they go
back a year or so to determine this $/sqft without a higher weighting to more
recent house prices.

If they have Redfin agents bidding in the area, they can pipe in the price
their clients bid for certain houses, and use whether or not they got the
house as a training data point as well.

------
taude
I equate real estate agents to recruiters. They have a bad rap, because most
of them do suck (there's virtually no barrier to entry and they have a large
lobby in the U.S.). However, when you find the right one, with the right
experience, they actually can provide a good service and make their fees
worthwhile.

The thing that's semi scary about all these under-qualified real-estate agents
is that they're in charge of most expensive/binding purchase in most people's
lives.

~~~
kyrra
There is at least some entry to it. I'm not sure about other states, but I
know Arizona and Texas both required 100+ hours of classroom (which arguably
isn't that much). Plus you have to renew every couple of years. Both also
require you to pass a state run test. Sure, it's not high, but it's still more
than a lot of jobs out there.

------
kozikow
1\. Negotiations - why there are no online auctions for flats? 2\. Knowing the
area - Google maps/foursquare probably know as good as the best real estate
agent. Just embed this info in the website. 3\. Viewing the flat - photos of
flats are very inefficient today - why not push landlords to post Sphere views
and 2d plans of the flat? It's definitely cheaper to do it than pay 5%
commission for estate agent. When I was searching for a flat majority of flats
I viewed could be dismissed only on online profile if it was complete enough.
More informative online profiles == less viewings == less estate agents. 3\.
Agent searching for you - it's another problem with these real estate sites.
This is one of the areas, where algorithm could do better than real person.
Just specify conditions you like in the flat, or rate on a scale 1-10 flats
you are viewing, or go through past 50 deals and rate them (advantage of past
deals is that you know the price it went for). Then website will send you
weakly digest for flats that are potentially good for you or urgent alert if
something awesome shows up.

------
bornonmars
Okay, here's a thing - how about developing a more accurate risk profile
assessment and pricing structure than any other broker out there (just like
some lending platforms doubled the accuracy in evaluating credit ratings in
comparison to large banks and built their business around that technology) and
then buy in advance low risk properties, while charging relatively high fees?
You'd have to keep the asset on the books (while knowing the average time
required to sell it for a low commission) till it's gone, but eliminate the
pain number 1 for consumers, as in most cases they're ready to be charged more
to get rid of the property asap.

Just throwing it there. Crazy enough to make sense.

------
jtreminio
> “We will never be a point-and-click industry,” says Phil Faranda, who runs
> J. Philip Real Estate, a 14-agent brokerage in Westchester County, N.Y. “You
> will always need a trusted adviser to ensure that you get the best terms
> possible. The stakes are so high. If you want to do a do-it-yourself
> project, build a hovercraft.”

This poor man will be blindsided when someone finally gets the formula right.

~~~
prawn
Faranda's slogan should be: "Faranda. At the forefront of housing."

------
msandford
If someone would come up with standard terms for sale and purchase (like Fred
Wilson at AVC is doing for VC) and it wasn't tied to a real estate agent but
rather to a license fee (a few hundred dollars) then you might see this thing
get legs.

A lot of what the other companies did was standardize a transaction (through
their website, with a credit card) and that's what real estate needs.

~~~
quesera
Not sure what you mean. Every US state I've transacted in has a standard P&S
or equivalent form.

No state has required an agent, although I have chosen to use one in some
cases. I suspect, but have not tested the theory, that all states require
closings to be conducted by real estate attorneys.

~~~
msandford
In my experience there's a bunch of stuff that goes with it. For the actual
purchase/sale yes there might be a standard form. But what about the mortgage?
What about refunds/credits after the sale to help finance big repairs that
need to be made? There are more things involved in a a total transaction than
the act of transferring the title from their bank to your bank.

~~~
quesera
All of that paperwork involves other parties and is not strictly necessary.

Your secured loan paperwork is just between you and the lender. The state has
nothing to do with it. It might not exist.

Refund/credit after the sale? Like a warranty? I've never considered offering
or requesting such a thing, but it would be ancillary to the sale, not
required.

There's a federal (FHA) form to enumerate all of the costs, which is a
required part of the paperwork. Numbers come from seller, lender, local tax
authorities, etc.

All(?) states have disclosure requirements, though they vary greatly. I've
seen four-inch thick binders of disclosure in San Francisco, to a few
boilerplate sheets with checkboxes and initials in Boston (maybe the federal
minimum?)

I agree that there is a lot of variation in the transaction process, mostly
variable by state law. But that's a problem many businesses on the web have to
navigate. It's a challenge, but not The Roadblock to modernization of the
industry.

~~~
msandford
When a homeowner sells a home some kind of semi-serious problem is often
discovered during the home inspection. I.e. a new roof is needed, foundation
settling, etc. Often when you're buying all your readily available funds are
being used to satisfy the down payment.

In that case the seller and buyer agree to "discount" the house by $x in the
form of a post-sale rebate where $x is roughly appropriate for the repair.
That way you don't move into a house that's badly in need of repair at a time
when you're exceptionally cash-poor.

The better situation is to have the seller perform the repairs prior to the
sale but often times the house is already under contract and you're expected
to close on a certain date and it's easier to decide how much would be
appropriate for the repairs and let the buyer handle it with their preferred
contractor after the sale.

~~~
quesera
Right, well those are attached as riders to the P&S, again in a very standard
(and legally simple) form, since the contract was contingent on the acceptance
of the inspection report.

Anyway, I agree with you that the process is unfamiliar and can be
overwhelming for most buyers. The sea of forms and signatures induces glazed
eyes, for sure. I don't think nationally-standardized forms would help there
(and it's very likely to be impossible anyway). Any RE attorney can make quick
work of the problem (hire your own, don't use the seller's!). It would be
unwise to transact with _any_ set of forms without an attorney or equivalent
experience.

------
tantalor
_“Needing two agents to cooperate in a transaction allows a full-service agent
to punish discount agents,” Syverson says. “It also allows full-service agents
to punish other full-service agents who cooperate with discount agents.” As a
result, an agent can steer clients away from for-sale-by-owner properties or
from homes represented by discount brokers._

Is this legal?

------
lifeisstillgood
5.4% commission !

Are you _kidding_ me. I negotiated hard down last time, outraged at the 2%
charge....

No wonder there was a housing crash

------
Kiro
Where do these sites get their real estate data from?

~~~
crucialfelix
the brokerages willingly and desperately send them data feeds. some of the
sites charge money, all of them have premium and featured listings programs.
sometimes the brokerage pays, sometimes the individual agent does.

also NYT charges a truly obscene amount for real estate ads. it pays a big
part of their bills.

[I am CTO for one of the NYC brokerages]

------
asah
great article, and wonderful validation for those of us choosing to _minimize_
disruption in our startups.

