Brokerages are in the commodities business, they are fungible — interchangeable. They have no unique value proposition to their customer, the agent, let alone the end user consumer. Their profits are extracted from the Realtor’s commission, paid for by the seller. Agents may give their brokerage anywhere from 10% to 50% of their commission. Homeowners spend approximately $80 billion a year on commissions. If we average the broker split out to 20%, across 5.51 million resales each year, that’s about $3,000 dollars homeowners give to the brokerage for doing nothing at all. Sort of fucking crazy considering www.homie.com charges less than $2,000 total, and they are selling homes for more money and in less time than their traditional Realtor counterparts.
Brokerages do not serve a modest role as a place for agents to hang their license, as required by the state. It is an industry. Their business isn’t homes, its recruiting. Recruiting as many Realtors as they can, whose sphere of influence, community standings and one-to-one relationships with consumers are their outbound means of generating sales. This model requires leasing hundreds of millions of square feet of office space with billions of dollars in overhead, all bundled into commissions charged to homeowners. When an agent leaves one brokerage for another, it has zero effect. Look at 20 listings online and see if you can spot the Keller Williams listing versus the Compass one.
The prices homes sell for has nothing to do with what agent listed it or what brokerage they belong to.
I would argue real estate agents are also generic — all the same, from a macro economics standpoint. I’m not saying all agents or nurses are equally competent, but the market values nurses based on their availability. There is currently a shortage of nurses. By contrast, there are 2 million licensed real estate agents per 5.51 million resales. That’s 2.75 homes to go around per agent. In the entire history of capitalism, we have never seen such absurd saturation. A healthy, free market would generally correct for this by driving down the fees for agents, but it can’t because — you know — illegal price fixing.
Economics is like chemistry. If you drop green food coloring into water, if turns green. It makes no difference to the chemistry if the person holding the food coloring has a REALTOR® pinned to their lapel. Similarly, if you upload pictures of your property on the world wide fucking web, you’re going to get fair market value for it by virtue of supply and demand forces that pay no attention to the listing presentations and sales scripts homeowners endure, that creates the illusion agents actions are responsible for the sale.
Claim: The price a homeowner will get for their house when they list it themselves is identical to when they list with a Realtor.
Proof for this claim:
- A Critical Assessment of the Standard, Traditional Residential Real Estate Broker Commission Rate Structure
- Fixed Commissions and Social Waste in the Real Estate Industry
- How Much do Real Estate Brokers Add? A Case Study
- The costs of free entry: an empirical study of real estate agents in Greater Boston
- The Impact of Commissions on Home Sales in Greater Boston
- The Relative Performance of Real Estate Marketing Platforms
Realtors jump up and down and insist they add value, but its irrelevant. Marco economics aren’t a matter of opinion. The inference that one could make from the empirical claim that brokers and realtors are all the same and don’t add value is that they will inevitably go extinct. Any proptech alternative that seeks to unlock the customer value chain and remove the superfluous fees, undo the anti trust violations, and subsequently reduce time and the cost to get a home listed and sold, will replace this anachronistic, exploitive model.