A commodity is anything for which there is demand, but which is supplied without qualitative differentiation across a market. In other words, copper is copper. Rice is rice. Have real estate services become a commodity? Let’s examine this idea:
OUR FIRST HOUSE IN SHORELINE, WA
My wife and I purchased our first house in 1989. It was a small 2 bedroom, 1 bathroom home in the Shorecrest neighborhood of Shoreline, WA. We lived there for 16 wonderful years. It was 810 square feet, had a perfect-sized yard (about 6000 sq ft) and I remember we bought it because there was a raspberry patch in the back yard!
THE VALUE OF A REAL ESTATE AGENT THEN
The real reason we purchased that particular house was because we were working with a good Realtor. In the late 1980’s there was a rush to purchase homes as property values were rising quickly. This was due, in large part, because the Puget Sound was experiencing a huge migration of people, especially from California. We were afraid that we would be priced out of the market, so we went in search of our first home.
We worked with our agent for about two months, made several unsuccessful offers and were beginning to get worried when our agent was tipped-off about a house that was being remodeled by an investor. It was not yet listed. We rushed over to see the house, decided we liked it and wrote an offer on the trunk of our agent’s car at the Bite of Seattle. It was an exciting event. The house cost us $85,000.
Please ponder this for a moment: in the 1980’s there were 30-year mortgages and much tougher underwriting criteria. There were no mobile phones. Our agent used print-out reports that were produced by the “multiple service” only periodically. No one “owned” a fax machine, you had to go to an office or your bank to receive documents. There was no Internet, no websites, no blogs, no text messaging, no social networking……………….my gosh, email didn’t exist……..So why did we work with Margie, our Realtor?
1) She was highly recommended to us by a colleague of my wife. As it turned out, this was a good recommendation. She had years of experience and was great to work with!
2) She worked for a reputable real estate brokerage. The agent’s brokerage was located in the vicinity of the neighborhoods we were interested in.
3) She had access to the “listing information.” All we had were newspaper ads and yard signs.
4) In our world, she was an expert in the marketplace. We simply did not have resources or time to do our own research. Real estate was (or was perceived as) a complicated and difficult business.
To this day, I feel our agent’s greatest value was her ability to give us access to potential homes and facilitate us through the sale process. Additionally, she was sharp enough to keep her eyes and ears open for a home that was not on the market.
HIRING A REAL ESTATE AGENT TODAY
Let’s say you were going to purchase or sell a home this month, January 2009. And let’s say you were looking for an agent. What criteria would you use in today’s world, to select a real estate professional? Let’s use me as an example. How do I rate with my own criteria of 20 years ago:
1) I have been a Realtor for almost eight (8) years. In this time I have helped close to 100 families purchase or sell their homes. I am an Associate Broker. I specialize in North King and South Snohomish residential properties. My particular expertise these days is my current home-town, Kenmore, WA. In short, unless you and I have a personality conflict, I have the makings of a good agent.
2) I have worked for two very reputable brokerages: Prudential Northwest Realty and, currently Keller Williams Realty.
3) I have access to highly sophisticated technologies and databases that allow me to gather and interpret a huge amount of information about the real estate market. My main source of information as an agent comes from the Multiple Listing Service to which I subscribe. Non-professionals don’t have DIRECT access to this data. What do you, the consumer, have in today’s world? No longer does the consumer have only newspaper ads and yard signs. The consumer has access to highly sophisticated technologies and databases that allow them to gather and interpret a huge amount of information about the real estate market.
4) I consider myself to be an “expert” in residential real estate; however, is my value as a broker of information and market knowledge as valuable in today’s world?
REAL ESTATE REALITY IN THE 21ST CENTURY
“I’m worth every penny for my services and I’m not cutting my commission!” Such is the mantra of most real estate agents. Unfortunately, the market (and the consumers) don’t really care what real estate professionals think. With the advent of new Internet technologies, consumers simply don’t need to rely on real estate agents the way they once did. To the public, there is little differentiation between us. We can no longer claim to provide “value-added” to this part of our services.
In the last year, I have communicated with many agents who describe situations in which they had been working with “a good client” only to be released when a “less expensive” agent agreed to write a contract. One agent cynically said, “there will always be someone out there who will do the job for less.”
The professional’s “value proposition” has been diminished because of the information age. In his provocative book Freakonomics, economists Steven Levitt and Stephen Dubner suggest that real estate agents are like the KKK because both groups traffic in “secret information.” In the case of real estate agents, this secret information has traditionally been the listing service. Indeed, this was very much the case when I bought my first home. Not anymore. In fact, I believe that a large part of professional real estate services have been com-modified.
Please understand, I believe you should use an agent to help you buy or sell your home. I’ll be the first to tell you that dealing with all the details and emotional baggage in a transaction should be facilitated by agents. AND, consumers need to understand that real estate professionals deserve to be paid for their services. I, for one, am not running a non-profit corporation; however, I have come to the realization that my value is no longer tied to the “research” end of the process.
I appreciate any comments you have on this subject both as consumers and agents. The reason I wrote this post is because I believe the difficulties we are facing in the financial and housing markets along with advances in technology are going to forever change real estate services. The classic brokerages and business models are under huge stress today. Many are closing while others are attempting to redefine their relationships with the agents. Let me know what you think.
Comments(4)