“a thousand tiny shackles on innovation”
The NY Times has a good portrait of another industry fighting innovation; this time, it’s real estate.
In February, [Redfin] introduced a Web site that automates the bidding process — and the commission rebates. The sale of a $500,000 house, for example, typically yields a 3 percent commission of $15,000 for the buyer’s agent. A Redfin customer would get $10,000 back.
“At that point we became a true pariah to the industry,” said Rob McGarty, Redfin’s director of West Coast operations.
Interesting to note that all this fighting to keep the current commission model doesn’t really benefit anyone:
Some economists wonder why agents fight so hard to maintain this pricing system when it is making so few of them rich. In every housing boom, the number of new agents entering the market tracks the climb in home prices. As a result, the average agent sells far fewer homes and makes less money. On average, agents earn $49,300 a year, according to the National Association of Realtors, and that is before paying for their own health insurance and retirement benefits.
“It’s a case where nobody wins,” Chang-Tai Hsieh, an associate professor of economics at the University of California, Berkeley, said of the current system. Mr. Hsieh, who has studied real estate commissions, said that they did not vary much from 6 percent and did not generally change in good times or bad. He said it was a form of price fixing, but an odd one. “Consumers pay a lot of money, and even the people who do the price fixing don’t win,” he said. “So it is a colossal waste.”
Traditional agents spend very little time brokering a deal, Mr. Hsieh added. Most of their time is consumed looking for new clients, which is of no benefit to consumers. An agent working for a salary, he said, would be freed of the need to prospect and would thus be more inclined to focus on negotiating.
One of my jobs while a university student in the mid-80s was as a licensed realtor in California, and even then it seemed kind of strange that I was poring through M.L.S. books for clients when all that stuff was languishing in a database somewhere.