FSBOs

A For Sale By Owner ("FSBO") website in Madison, Wisconsin has almost 20% of the market share for real estate listings in that area. Even though the article reads more like a PR release from the FSBO people than a news piece, I say more power to them. For any company to garner 20% of the inventory for an area, they have to be filling a need that the competition isn't.

Of course, for those who argue that the National Association of REALTORS is a "cartel" or "cabal," this good news is bad news for their argument. From the article:

"It may be an extension of the 1960's, when we stuck it to the man by protesting the war," said Mayor David J. Cieslewicz, who notices all the FsboMadison signs around town. "These days we stick it to the man by selling our own home - and pocketing the 6 percent."

Elsewhere, the Justice Department, free-market scholars, plaintiffs' lawyers and countless entrepreneurs are vowing to make real estate more competitive and to bring down sales commissions. To do that, they advocate forcing the Realtors' association to share control of its established listing services. Those critics seem to view the listings as an unassailable monopoly.

And who can blame them? Those 800-plus local listing services, controlled by local branches of the Realtors' association, help dole out about $60 billion a year in commissions to real estate agents and the firms that employ them. Despite numerous attacks, the association has been remarkably successful to date at protecting its turf. Through lobbying, litigation and legislation, the Realtors' group has managed to keep control of the crucial listings.

Ms. Miller and Ms. Murphy, however, built a separate and alternative listing service - a parallel market, much like the Nasdaq, which rose in recent decades to challenge the New York Stock Exchange's dominance and sparked competition that eventually reduced transaction costs for all stock investors.

This is why I believe that all the legal action against the NAR is borne more of sour grapes than solid legal principles. Persons and companies are perfectly free to do what these ladies in Madison have done. As a matter of fact, there was a local company in the New York metropolitan area that was on its way to doing just that. Your Home Direct, founded by a guy named Glenn Cohen, had billboards all over advertising 2% commission rates. They had Jason Sehorn as their spokesman on the radio and my observation was that they were making waves. They were sold to UK-based Foxtons, and the new leadership made them more of a traditional, albeit discount, MLS centered firm.

I'm not going to get into just what it is that a broker does that most people cannot or won't do to sell a house. Suffice to say it is the height of irresponsible oversimplification to characterize brokers as people who scoop a fat percentage from transactions for little or no work. Some deals are relatively smooth and can be done without a broker. Most aren't. The issue most people don't fully understand is that real estate licensees have legal and fiduciary responsibilities to clients that discounters cannot realistically meet. Here is what I said about discount brokers before:

Yet that is EXACTLY what many discounters and quasi-for sale by owner cut rate "brokers" do. They want to hijack a privately owned, proprietary service that is run by an organization beholden to certain statutory guidelines, but they want to do it without providing the minimal service level required to comply with those guidelines. This fiduciary responsibility is misunderstood by the [Wall Street]Journal.

The ladies in Madison do not have this headache. They aren't licensees. They run a website, which anyone is free to do. And they earn $300,000 a year doing it. More power to them. But don't tell me to make the MLS, a privately owned proprietary system owned by a legitimate trade organization with standards of membership, open to just anyone.

Final thought: the article hints, as many do, that someday we may have a buying and selling system in real estate that is broker-free. Perhaps. But if you want to make things go smoothly, consider that there is no state in the Union that has no real estate brokers involved in the vast majority of all homes sold. However, there are plenty of states that affect real estate transactions without a certain profession involved. What profession is not involved in those states, you ask? They can still list property, market, field offers, negotiate deals, procure financing, insure clean title, solve problems as they arise and close transactions without whom? That profession would be "attorneys." 

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Comments

[Tony]

Interesting. If those women could garner 20% market share, God bless them. I tried the same thing with an FSBO website here in my town. The idea never caught on (probably because I never sunk the money into advertising that I would have needed to make it work).

This was for people who really didn't want to use a broker. I have nothing against brokers, and I am not a broker myself. But I am a web designer, and I consider myself a pretty good one. I was not offering Real Estate services (I couldn't, because I don't have a broker's license, nor am I supervised by one), but I could offer advertising much like the newspaper could, but at a much lower cost to the consumer.

So what exactly is wrong in offering FSBO advertising services rivaling the big guys (especially when you recommend offering 2-3% commission to agents who bring their clients in to by an FSBO seller's home).

My idea was to offer the advertising for next to nothing, and make my money on the advertising for ancillary services (of which there are oodles :)).

I didn't have the time to make it work, but it seems like these ladies did.

Good for them.