The Biggest Fallacy of Real Estate on the Internet

Here we go again...the media is jumping to conclusions again about what is true about the process of buying and selling real estate.

On Sunday, September 3rd, the New York Times published an article by Damon Darlin, titled "The Last Stand of the 6-Percenters?" In it, Darlin proceeds to talk about some new internet-based real estate firms whose models are to rebate commission dollars to buyers. What Darlin doesn't say is that this practice has been going on for years. Price Club, now Costco, has offered this for a decade or more. This is nothing new; why does it warrant such ink?

The writer prolongs the colossal fallacy that so many people, unfortunately, now believe - that available information on the internet actually reduces the cost of a real estate transaction. This is utterly UNTRUE. In fact, Redfin, the subject of the article, came to this conclusion, too, when it admitted that it isn't a technology company, but is a real estate brokerage. It had to increase its overhead by renting prime space in the "stylish" part of town because the customers preferred meeting the agents in person.

The truth is that real estate commissions will never be lower unless the customers want to do most of the process themselves (research tells us they don't), real estate offices and personnel are not needed (research and Redfin's experience says they are), and most importantly, buyers and sellers take responsibility for their own non-disclosures, mistakes, and changes of mind. (In my 30 years of experience in the real estate business I have found that many buyers and sellers want to blame the real estate brokers and agents for most every thing that can go wrong in a transaction, even when those things are due to the buyers' and sellers' own actions or inactions.)

It is this last item that generally causes disputes and lawsuits. Until buyers and sellers are willing to take on the liabilities for things that can go wrong in a transfer of real estate, commissions will always reflect those potential costs.

My guess is that any of the "commission rebate" real estate companies that get sued for problems created by buyers or sellers will either go out of business or change the way they charge for their services.

Look also at my post on January 19, 2006 titled, "Why Do We Charge a Percentage of the Sales Price?" for further input.