Is New York Times' Article, ‘Last Stand of the 6-Percenters' Reality or Hype?

Commentary by Mike Parker

RISMEDIA, Sept. 13, 2006—Like you, I have been selling things for a long time. I have learned the true meaning of phrases like “damning with faint praise” and “accentuating the positive.” Yet rarely have I seen an entire industry—in this case, real estate professionals—dismissed with such casual spin as in Damon Darlin’s New York Times article “Last Stand of the 6-Percenters,” published this past Sept. 3.

The article examines the phenomenon of online brokerages such as Redfin, Zip Realty and BuySideInc and explains what those reduced-commission companies do, but only after defining the services that real estate brokers and agents provide as, “chiefly handling the paperwork and negotiations.” I translate that message as: ‘agents and brokers are all just commodities and they just aren’t worth anything more than any other clerical function.’

“The Internet has radically changed the way consumers buy books, travel tickets, trade stock, and learn news…..But the real estate industry has resisted change…” the article states. We are lectured, and the old saw that it’s somehow an MLS conspiracy that locks out change is once again floated.

After extolling the idea of salaried agents (a “good idea”), positing that commissions have already been cut to 5% on average (on pure supposition) and that –somehow, the consumer is better off by these developments, the article left me feeling that the author enthusiastically favors exterminating the local real estate agent and replacing her with a clerk.

I couldn’t help feeling that the central premise of the article—namely, that while a real estate commission on a home selling for $500,000 traditionally might be $30,000, Redfin is better—is of dubious merit. Redfin will give you $13,000 of your own money back at closing! Gee, if everyone utilized Redfin, think of all the money we’d save! [So what if your house undersells by 3 or 4% because of the discount mentality? You saved $13,000 in commissions!] And to think that the phrase “voodoo economics” was thought to be dead. In my opinion, voodoo economics [supply-side economics] lives on in the mantra of all discounters who liken everything to “handling paperwork and negotiations.”

Newport Beach, California, where we call home, has a high number of Oriental Rug Merchants, considering that the city has only about 75,000 residents. Every one of them is seemingly always having a huge sale: “80% off any rug!” one sign screams. “Going out of business forever!” cries another. Of course, when you mark it up, you can mark it down, too. The price of rugs is largely illusory, as is the value of any discount. A discount that loses sales, reduces marketability or results in a lower selling price is a very expensive discount. Houses aren’t Oriental rugs and real estate professionals shouldn’t act like rug salesmen. When they do, the market becomes cannibalized and no one makes a decent living. The average Realtor makes $49,000 a year and if the object is to reduce that further, I pronounce the discount Internet brokerage an unqualified success. You don’t see ads for discount legal and medical advice; real estate services shouldn’t be discounted either.

What the article, and many of the public, fail to realize is that a real estate professional provides far more than the service of “handling paperwork and negotiations.” You see, that’s precisely what an impersonal Internet broker based a zillion miles away from the neighborhood is qualified to do. What do they have to lose by comparing themselves and their limited qualifications to handle the purchase and sale of a family’s biggest asset, to a professional on the ground who has known the property for years, knows the town, knows the service pros, banker, schools, and the things that don’t appear on website links? Their strategy is simple: First, level the playing field by making everyone “equal,” then blur the line that separates price from quality. Any corporate chieftain knows that game, and any business assaulting the status quo can read The Art of War, but strategy is best decided by the person at the scene. All real estate is local.

Somewhere along the way, I think we have taken many wrong turns in how we evaluate progress. Oh, sure, you can get it cheaper at Wal-Mart, but do you ever miss the old Main Street shopping merchants? Where the pharmacist knew your parents, your name, and your medical history—and cared about it? Am I the only one who mourns the loss of the neighborhood bookstore, where the proprietor was always on the lookout for something you would like? Where real people helped their neighbors make important purchasing decisions—not only out of self interest, but out of a sense of community, because they have a vested interest in the community? Are we destined to buy every single thing in our lives from people who don’t live in our towns and don’t care about them?

But, I digress. I started this article as a Call to Arms to real estate people everywhere; a call to make sure that you make certain that your customers understand that when they list or purchase a home through you, they are getting something better than an electronic paper handler: they are getting a person and an ally. Oh, sure, you may cost more than an electronic paper handler, but chances are that you’re one heck of a lot more professional, too! For certain, you have actually seen the home that the buyer is looking to purchase, for better or worse. That ought to be worth a lot, because when something goes wrong, where is the electronic paper handler going to be? How can the house be marketed to its maximum if no one is making a profit doing it?

I suggest that if the industry does not counter the shameless hype and spin of “the inherent superiority of new” we will all be like the folks in Canton, Ohio: wondering how their once-proud industrial powerhouse of a city became a place where Realtors can’t afford to sell houses because the paperwork costs exceed the commissions. A place where Redfin will undoubtedly avoid offering its services. Must the local Realtor go the way of the milkman?

Mike Parker is a consultant with The Black Water Consulting Group, a company specializing in online marketing real estate professionals. To request a copy of “Take the Mystery Out of What Your Website Is or Isn’t Doing for You” email . Or contact Mr. Parker at .


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