Marginal Utility

by Tom Bozzo

Via Jeremy, I see that Madison's love affair with For Sale By Owner real estate transactions has made the MSM. Yep, this is about us, since our two near west side house purchases were a 'true' FSBO (no agent on either side) and, more recently, a semi-FSBO (we engaged a buyer's agent whose effective day rate for the work would make a McKinsey partner blush).

I may have a little more to say later, but a few things caught my attention up front.

This quote:

"It's a commission-avoidance scheme," said Sheridan Glen, manager of the downtown Madison office for Wisconsin's biggest real estate broker, the First Weber Group.

Damn straight. I'm not just saying that because I wish I could have held up our agent ex-post.

Mr. Glen ticks off the tasks that real estate agents handle: using market expertise to price a house; advertising and showing it; negotiating an offer; organizing the paperwork for closing. "We do a good job," he said. "We deserve 6 or 7 percent." [emphasis added]

What cheek! I'd like to see the sucker who signs up for a 7% commission. But it's always funny to see the conflation of entitlement and entry into a contract in a market that's as less-than-fully competitive as that for real estate services.

And this:

Kevin King, executive vice president of the local Realtors' association, runs the multiple listing service but says he pays no attention to FsboMadison. "It's not important; I don't follow it," he said.

This is either a lie or spoken by a guy who doesn't sell many houses in the near east and near west side neighborhoods. While FSBOs may account for 20% of listings in the county, they constitute a much larger share of the market in the close-in neighborhoods where the ease of selling favors some degree of disintermediation. Buyer agents whose clients are looking in those neighborhoods ignore FSBOs at their financial peril, since moderately sophisticated shoppers could so easily cut them out of any deal. (And, contrary to the conventional wisdom, reported by the Times, that FSBOs are sold by "cranky tightwad[s] trying to sell an overpriced, ramshackle house," my observation has been that the FSBOs in central neighborhoods are slightly higher quality on average than the conventionally-listed houses, and the tightwads are mostly friendly.)

What I'd really like to know is the relationship between price, marginal, and average cost for the $150 FSBOMadison service and the $399 Madcity Homes MLS listing package.