17 Years Later, Discounters Vanquished, Internet Tamed

By Dave Fratello | April 18th, 2019

Every single one of us is now so accustomed to having real estate information online, it's difficult to remember how hard the real estate industry worked to stop it from happening. Even locally. They thought online info was a threat.

Similarly, every now and then some new player steps in and threatens to disrupt the business of real estate sales by hacking at realtor commissions. The siren song is something like: Why pay more, when you can get the same work done for a discount?

These thoughts are fresh because we just returned to a story published locally 17 years ago today, in the Easy Reader, a quality local free weekly.

That April 18, 2002, cover story was called, "Percentage Player," and it focused on the emergence of a local real estate discount broker, Catalist Homes. (The archived article is online here: Part 1, Part 2 and Part 3.)

Catalist worked exclusively on the listing side and discounted both the seller's fee and the amount paid to a buyer's agent, to a total of 3.0%. [Photo is a screen grab of an old Catalist ad found online.]

Was that a pro-consumer evolutionary step for the industry, or a dire threat? The author of the article wrote:

"[A] 50 percent cut in commissions isn’t the worst threat Catalist Homes poses to local Realtors. Catalist’s business model, if it succeeds, will mean to Realtors what the end of fixed commissions has meant to stockbrokers, insurance agents and travel agents. It means a drastic reduction in the number of people the industry can support."

Let's say this now with the benefit of 20/20 hindsight: No, Catalist wasn't a threat. They didn't cut average commissions by 50%. They didn't "end fixed commissions," nor did they cause vast numbers of South Bay realtors to go the way of travel agents or the dodo. If there has been a "drastic reduction" in the realtor workforce, we haven't noticed. (Should there be? Discuss.)

There are a few reasons why Catalist didn't work out, and why discounters to this day don't hold much market share in Manhattan Beach or the South Bay generally.

One is certainly that, at a higher price point, people want and expect higher levels of service and professionalism. If it costs a little more to prep and market a multi-million-dollar property than a discounter would charge, local consumers seem to have collectively concluded: So be it. The local, full-service broker should be able to help get top dollar in a way that the discounter cannot, making it, at worst, a wash in the end. (To be fair, Catalist put out a lot of rhetoric to the effect that they were offering top-tier service, but we can't hear from them today.)

Still, it wasn't only consumer preferences that drove Catalist out of the market.

There were always dark rumors of collusion within the local real estate community. [Why use a word like "collusion" today, of all days? - Ed.]

Traditional agents were said to be "blacklisting" Catalist listings to prevent the firm from gaining a foothold and, ultimately, shaking up the commission structure. Way back when Dave & Mrs. MBC were but mere civilian observers of local real estate, we heard that stuff. It was an open secret that it was risky to list with Catalist.

Indeed, the Easy Reader story seemed to quote two local realtors confirming that there was some kind of an informal boycott of Catalist under way:

"There’s enough inventory that I don’t have to show Catalist properties... I just don’t show them," said one.

"We don’t openly blackball them,” said a local brokerage owner. “But an agent isn’t under any obligation to show every listing. If a listing says the buyer’s agent only gets 1.5 percent, a lot of my agents won’t show the property."

That 2002 article also tied together a great fear at the time among local agents: The World Wide Web.

The article is like a time capsule. Back in those days, realtor.com was owned by the national realtors' association and was displaying homes for sale online in many markets. It was among the only sources online to view homes.

South Bay realtors at first thought that it was silly to have only a national portal, and created their own local website for local listings, called realtylife.com.

But 17 years ago, right before that article appeared in early 2002, that South Bay real estate website was shut down after a conflict among local realtors. A faction fighting the future aimed to force the genie back into the bottle.

One leader of the effort had created a website called "keepitoff.info" to argue that real estate listings should not be online.

His arguments were precious. The Easy Reader got hold of an email by that local realtor, and quoted it:

- "The general public will do our job – they won’t need us to find properties."

- "The buyers will tell us what they should see, and when. We lose all control."

- "Many agents choose…not to show property if there is not a decent commission… The discounters win."

Temporarily, the troglodytes won.

South Bay listings went back offline, until, of course, later they came back with a vengeance.

These many years hence, things have changed.

Realtor.com is no longer owned by realtors, but by Rupert Murdoch. Something called Zillow was created in 2004.

The local South Bay real estate industry has been broken into a kaleidoscope of options for consumers. The big local names of 2002 don't exist anymore, supplanted by franchises of international brands. There's a lot of room for smaller firms like our own Edge brokerage to operate.

Seemingly every foray by discounters into this market has ended in failure or tiny market share. Even the IPO'd discount firm whose app you have on your phone right now does extremely little business locally. They're really more like just another agent in a big pond. So much for that once-great fear.

It turns out that no one shut down the internet. For heaven's sake, Dave has 3 local real estate websites, MB Confidential and South Bay Confidential among them. Not even one would have been possible in 2002. Realtors doing business today have to be OK with the online world, and distinguish themselves with the internet as backdrop.

The Easy Reader to this day carries little local real estate advertising, especially compared to a competing free weekly. Perhaps local agents were upset by the publicity that the newspaper gave to Catalist Homes at a time when the firm was perceived as a threat, and never really went back. (Disclosure: Dave previously wrote for the Easy Reader and has placed ads in the paper.)

There are always challenges, and there's always change. Anyone want to guess how this industry will look 17 years from now?

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