The Overlooked Need for a Residential Real Estate Marketplace.
Airbnb was “the worst idea that worked” and a Netflix detractor said, “That will never work.” Verizon shunned Apple for the first model of the iPhone, Comcast passed on Disney, Friendster refused Google, AOL merged with Time Warner instead of AT&T, and HBO, Showtime and FX turned down Breaking Bad. These are a few good examples of how one can be wrong, because of the way their worldview interlaces with the way they earn a living.
These examples are nothing compared to the Ingaz Semmelweis story. I don’t know you, dear reader, but I ask you: How horrified would you be if you saw bits of corpse underneath the nails of the doctor delivering your baby?
In 1850, 40% of pregnant women in delivery clinics died after giving birth. Obstetricians would perform their autopsies, then unknowingly infect pregnant women with bits of old, un-refrigerated corpse during medical examinations and deliveries through their genital tract. Ignaz Semmelweis implemented a hand washing protocol using chlorinated lime, a disinfectant. The mortality rates at his clinic dropped from 40% to <1%, but physicians were offended by the suggestion that a gentleman’s hands were ‘dirty’. Ignaz was demoted, ostracized, divorced, and eventually admitted to a psyche ward where he was beaten by guards, later dying of his injuries. The cogitive-science of confirmation bias, wherein one’s identity trumps facts and evidence, underpinned their reprehensible behavior. It is the same bug in the software of the minds of Realtors who through bricks through the windows belonging to the innovators who are helping homeowners save money.
In twenty years time, 30 and 40 year olds, who are 10 and 20 years old today, will wonder why in the world we used a superfluous Realtor to buy and sell our homes. But they will be utterly perplexed, horrified and embarrassed that anyone would agree to pay a Realtor forty thousand dollars to blow up balloons and upload pictures on the internet.
“Mom, you had student loan debt, credit card debt, a car loan, and you gave your Realtor forty thousand dollars?!”
“Son, that’s just the way it was.”
Realtors have been a net negative
I don’t discount the vast anatomical knowledge, usefulness and expertise of an 1850s obstetrician, but they were a net negative. What prompted Ingaz to conduct a study, was that families who decided to forgo the use of the professional and give birth at home survived their pregnancy in vastly greater numbers. Similarly, Realtors attack alternative business models aiming to save consumers money, itemizing the value they bring to the table. But, the only thing that matters is what a homeowner nets on the sale of their home, not how they sell. Homeowners spend $80 billion a year on commissions, a grossly excessive figure. It gets worse. An academic study published by the Department of Economics at Northwestern University showed For-sale-by-owners achieve selling prices 14,800 more than what a Realtor gets for their client with an identical home.
The phenomenon of Realtors undervaluing property costs homeowners another $81.5 billion dollars a year. In total, homeowners are paying over $160 billion a year, $1.6 trillion every decade. Homeowners can get answers and expertise surrounding a complicated real estate transaction (home, radon, septic and well inspections, paperwork, title transfer, advertising, consultation) for $13.7 billion annually, about $2,500 per transaction. The rest of the money that is spent serves absolutely no purpose other than to keep an old fashioned middle-man industry alive for its own sake. Yes, of course, some Realtors provide value, but their value is disproportionately low, relative to the fees. The 5–6% commission is bits of corpse. Its cancer. Its horrifying, whether we realize yet or not.
Platforms and residential real estate marketplaces
Platforms aren’t just a digital marketplace for sellers to find buyers and vice versa, they facilitate the transaction by enabling communication, providing guidance and they are so frictionless, the increased efficiencies dramatically reduce costs for the end users. Peer-to-peer transacting is the future of real estate. In the coming months, I will be launching such a platform, in a humanitarian effort to help homeowners keep their hard-won equity. Absolutely nobody should stand between a buyer and a seller. The real estate brokerage industry builds a barrier between amicable participants. The irony is that the barrier is made out of stacks and stacks of their own money, that the Realtors then pocket after settlement.
Zillow and others empower consumers to explore inventory, but then exploit the inflated fees sellers pay by auctioning pricey leads to buyer-agents, who can reasonably expect to recoup the steep investment when they receive an even steeper commission paid by the seller, who has no choice but to pay it. What the world needs (particularly the US, currently paying the highest fees in the developed world) is a search portal that gives buyers the world of inventory at their fingertips, but also gives them the ability to talk to the person selling something. Its that simple. Its also much faster and cheaper this way:
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