What Do You Do? The Broker’s Conundrum

by Alex Stenback on August 2, 2005

David Smith over at the Affordable Housing Institute Blog ponders the question above in what we think is an excellent discussion of the role of the real estate broker, and how it may change in the 21st century.  This is also must read material for anyone pondering the "sell your own or hire a broker" question, and is an excellent counterweight to some of the more hysterical "realtors are crooks" chatter out there (ahem, freakonomics.)

We’ve posted a summary below (that’s after the jump kids,) but head over and read the entire post – this type of wonky-yet-lively writing has made the AHI blog one of our regular reads:

What do brokers do, actually?

1. Stimulate Consumption:

"A broker is paid only when the house sells, which motivates the broker to stimulate – many would say induce – consumption by accelerating the decision."

2. Reduce Search Costs:

"Today, ‘site’ means web, not plot, so most buyers search without ever leaving their home.  Searching takes time, but the web makes it much faster"

3. Improve Choice Matching:

"Buyer preferences and decision factors are extremely personal, not standardized. Some are subconscious, some are unkown…"

4. Price More Accurately:

"Houses are not stocks, each is unique, and trading volume is low. As many who has studied an MLS printout knows, data by itself is not insight…it still comes down to buyers poker."

5. Specialize in One-Time Tasks:

"You play the home sales golf course only once, would you like a caddy?"

6. Deliver a reliable execution:

"For a seller, the worst thing is not to sell your house for to low a price, it is not to sell your house at all." (Many transactions do not stick.)

7. Work Contingent:

"That, you see, is the brokers conundrum – by pricing their service as a percentage of sales price, and taking payment entirely contingent, they obscure search costs, process efficiency, consumption stimulation, time in inventory…in short, everything but the gross price."

How do they counter this conundrum? What is the New Business Model for the 21st Century?

David gives us a pretty good starting point:

1. Take out the hype
2. Give away the information assembly for free
3. Educate your consumer for free: Sites that teach will bring a consumer back when they are ready to buy.
4. Provide added value through price transparency and choice selection
5. Price a whole-outcome service
6. Price your service in a way that removes perverse incentives
7. Facilitate, don’t pressurize
8. Don’t scorn breakthrough technology, Use it

{ 4 comments… read them below or add one }

Elizabeth August 2, 2005 at 10:35 am

I read Freakonomics, and I don’t think the message was “realtors are crooks.” It was just pointing out that from a purely monetary standpoint, it’s not worth it for a realtor to go through the extra time and effort to get an extra 10 grand out of a sale, because it only amounts to around $150 for them.

I’m sure there are plenty of realtors that do think it’s worth it, because they take into account other, non monetary factors, such as what’s best for their clients, word-of-mouth, etc.

Editor August 2, 2005 at 10:42 am

Agreed – FE is probably a bad example of the realtors-as-crooks mentality, which is out there (and in some cases, as in ANY industry, is deserved)

Your take away from Freakonomics is spot on.

joe August 4, 2005 at 11:27 am

I’m doing FSBO and I have to say I’m sick of being constantly bothered by realtors trying to get my listing. They aren’t the majority, but they are the most visible. Desperate and disingenuous are a few words that come to mind. I’ve had a lot of realtors pretend they have a buyer, talk me up for half an hour, and then try to get my listing. Slimebags.

This is in California.

Editor August 4, 2005 at 1:36 pm

Considering that there are 4,376,578 newly licensed realtors in California each week, (all chasing the same nickel) it doesn’t surprise that you are getting this kind of attention.

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