Open Thread to Discuss 'Go Pro, Or No?'

Posted by Dave Fratello on Friday, December 21st, 2007 at 2:50am.

As some readers know, MBC now has a weekly column in the Easy Reader.

The first few columns cribbed from blog content. Now we're reversing the flow.

Below is the text of this week's all-new column and a link to the Easy Reader site. FYI, if you read the story there, the ER online provides an easy-to-use letter-to-the-editor form.

The comments here are an open thread to discuss and debate. Here's the column:
The changing local real estate market is opening up a new debate over the value of using a full-service real estate agent in a home transaction.

Your humble correspondent has had satisfactory experiences working with Realtors. At the same time, there’s a lot of discussion on the blog at MBconfidential.com that draws out the questions of what, exactly, an agent is for, and what level of compensation seems fair.

A longtime MB resident says of days past:

"All I expected from my Realtor was neighborhood knowledge, a tour of nice houses in my price range, advice on an opening offer, and to get the paperwork straight. Granted, that was 20+ years ago, but their scope of duties has sure expanded exponentially since then!"

If the responsibilities have increased, so has the compensation. In California, agents draw a percentage of each home transaction – some for the buyer’s agent, some for the seller’s. As home prices have spiraled upward at a rate far higher than the cost of living, the amount of money going to realty firms has ballooned.

The standard fee of 6 percent on each home transaction can be adjusted by agreement, and it often is, but it’s hard to get the total expense below 4-4.5%, simply because the buyer’s agent will almost always take 2.5%.

To some, that rate of pay on the expensive homes in our local markets amounts to too much money, given the role an agent might play.

One commenter at MBC, who describes himself as a highly paid financial-industry worker who recently relocated to Manhattan Beach, says he’s preparing to buy in the $2.5m-$3.0m range in the next year or two. He’s skeptical that he needs a full-service agent and is dubious about where the $150,000 in commissions on his purchase might go:

"… Assuming my broker gets half, or 75k, I can assure you that I expect more than [for] somebody to tell me MB schools are some of the best, the tree, hill, or sand sections are pretty cool, that there are some homes I can show you besides the ones you can look at on my own time during open houses, and take care of my paperwork. That's the easy part."

Part of what’s driving this buyer’s skepticism is the fact that he has independent access to information about the real estate market. Until the last couple of years, home listings were not easily available online. Now they are. Also, it is only recently that various websites have sprung up in specific markets to provide independent data tracking. (Self-plug!) These developments tend to undercut some traditional roles played by real estate agents.

The other big factor is a slowing market. Sellers can expect their properties to linger a while, no matter what they do or whom they hire, and buyers feel very little sense of urgency. If you don’t feel like you need to be wired in with an old boys’ network to sell your home, or to find the right home to buy, you’ll probably want to pay less to the people who play intermediary roles for you. That attitude can translate to interest in discounters like ZipRealty, Redfin or Catalist.

The main-line RE pros say that a down market is precisely the time when you need a big-name firm and/or a big-name agent – that it's no time skimp on services. They are best qualified, you'll hear, to help establish the right price for a home, to market it and/or to help you find a home that isn't yet on public offer. They also know the neighborhoods, submarkets and histories of various builders and properties far better than the average person could ever hope to. After all, they're the pros. Finally, you may hear dark warnings that working with a discounter will lessen the chances that agents will show a home for sale or work amicably with a potential buyer.

Those are interesting arguments, but, of course, you’ll hear their parallels in an up market, too. Funny how the big boys always have a reason they’re indispensable.

Meanwhile, the fact is that many self-confident, well-informed professionals feel they can do much of the job themselves. If it were possible, many might hire a lawyer to run the negotiation and handle a home transaction – perhaps at a fraction of the cost. So, as the market shifts, will more of these higher-end professionals try to go it alone, accepting fewer services to do more of the work themselves, or will they continue to go to the big names and the pros?

(Click here to go directly to the story on the ER website.)


UPDATE: The original version of this story posted only an excerpt; the whole column now appears at MBC.
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