Tuesday, January 03, 2006

Madison is FSBOland

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.
Apparently not all agents ignore FSBOs. In fact, our home's previous owners were FSBO and local agent D.M. swooped in and promised them $X more for the sale - which, presumably, we were suckered for (found out from new neighbors post-sale). Sounds pareto-optimal for her, anyway ;-)
Hm. Evidently, enough agents do try to solicit listings from FSBOMadison listers that it's not uncommon for the FSBO listings to include 'no soliciting' requests.
A very sad event happened 6 months ago. One of my friends became a real estate agent. (Her sister-in-law, a real estate agent in Las Vegas, showed up at her house one day with a new Hummer and new set of boobs, and my friend decided it was time for a career change. That's funny, I thought, those two things would send me screaming and running in the opposite direction.) All I hear now is how foolish FSBO is, and you have to buy now because prices will only go up, and interest-only loans are a good idea, and so on... Needless to say, I don't hang out with her as often. It was sad to see a thinking person with integrity go to the dark side.
One more thing to be happy about in Madison -- fake boobs and Hummers are déclassé even among more agressive real estate agents.
Wait until buyers also find out that they are paying 2-3% more for a home, like Cathy B stated... soon buyers will actively be seeking FSBO's more and more to take advantage of possible savings created by the win /win... 3% sales price discount for the buyer and the 3% savings for the seller. Also, the "commission avoidance" scheme, I know that most realtors have a "paying for lunch avoidance" scheme going with mortgage brokers, title companies and all other services who have to schmooze them with free lunches for the opportunity to "earn" their business.
It was not lost on me that we could have paid 3% less had we dealt with our second sellers ourselves. There are some interesting incentive effects (some of which were touched on in Freakonomics) to the combination of the traditional commission-based agent compensation structure and houses typically being bought on credit. It's not clear that the small increment to the mortgage payment has the same psychological impact as the thousands of dollars added to the cash price.

Interesting point about the relationship between agents and other real estate intermediaries.

<< Home

This page is powered by Blogger. Isn't yours?