WAUKEGAN, IL

By A.B. Dada
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I’ve always been confused by the real estate agent as well as the real estate industry as a whole. It seemed to me that the job of the real estate agent seemed “off” from the norm, but it wasn’t until I accepted the free market position that I started to understand WHY the agents who assist in the buying and selling of real estate didn’t jive with the way my mind works.

In many areas, we see laws favoring the real estate agent over another type of service-oriented business: state-licensing, state-requirements and even state-preferential regulations. I have friends who assist others in purchasing products, and they’re not under the same requirements as the real estate industry. I also have friends who are real estate agents, and they’re constantly surprising me with the laws they want enacted or the protections they want for their industry.

Lately, I’ve been skipping the local shopping mall and the local stores and buying online. My first stop is always eBay — it offers me the ability to choose what I want to spend on an item, and if I win the auction for my price, I know that I received the absolute best deal I could get. I love to haggle when I shop, and local stores are less open to haggling than online stores are. If eBay doesn’t get me what I want at the price I’m willing to pay, I will often send an e-mail to a smaller retailer online (or three or four) requesting the product at the price I’m willing to pay. I get the item nearly 50% of the time. I find that buying a week before month’s end is the BEST time to get a deal — people have rent to pay and could use the gross income!

I see houses and land auctions on eBay all the time, but I’m usually shocked as to why I don’t see more. For now, it seems that the Realtor-managed MLS is really the best place for selling a home, but why is that? Usually, it revolves around the fact that Realtors (a quasi-publicly licensed real estate agent) prefer to show homes that are listed on the MLS, and since Realtors tend to gain an advantage on State-licensing and State-regulations, the MLS database also gains power through the closed-loop system. So what’s the best step to fix the problem?

I think the best step is to take the real estate agent through a change. Just like online price databases for airline tickets changed the travel agent business (for the better!), the same thing must occur in the real estate agent business. The first step I take before I buy an airline ticket is browse the web — make some comparisons as to when I fly, what airlines I fly, what seating status I receive (first class, coach, stand-by, confirmed), and where I need to go. Once I have a general idea of the prices, I’ll contact my local travel agent and see what they can do. I’d rather pay the agent 10% over Expedia and get the long term service than have to deal with the online sites. My father recently was double-smacked by Orbitz over tickets they mis-sold, and he lost hundreds of dollars. No Orbitz for me, but no Expedia either. That 10% I’m giving the agent over Expedia is a commission between 15 and 30%, a nice figure for what takes less than 1/2 hour for them.

Why shouldn’t the real estate agency business be any different? The first step we can take is to find houses that match what we want — bedrooms, amenities, neighborhoods, age, overall design. The online database, or even eBay, should allow this quickly and easily — just like the online travel sites do. Once I find some homes I like, the next step is to use an appraiser to qualify which homes meet my financial needs. This appraiser is exactly the person we need over a real estate agent — someone who is there to meet our needs, not to try to manage two parties. The average real estate agent that works for a seller makes about 3% commission on the sale. For them, moving the price downwards on a home by $50,000 only loses them $1,500 in commission. It hasn’t made much sense to me that this is the best way to make a transaction.

On top of appraising, it surprises me that the banking/mortgage industry doesn’t actually have their own full time appraisers. If I was to get a loan, doesn’t it make more sense to contact a mortgage provider and work with them to verify that the home you’re buying is worth the price as well as within your budget? I’ve never figured out why mortgage providers don’t utilize a better appraisal system — theirs seems based on the real estate agent’s appraisals (a conflict of interest!).

Sure, a home is a large expense, something costing the average family over 50% of their gross annual household income to buy, maintain and utilize. Some will say that casually making offers on an auction is a big risk — but that is why we need to have an agent that is truly neutral in terms of negotiating on our behalf. The current version of the real estate agent if flawed because their negotiations are based more on their financial outcome than ours. My version of the real estate agent is based on the idea that the agent is paid when I am happy — as any service provision should be.

Does anyone have any recommendations for what the industry needs to be more in line with how the free market works? I think the auction idea makes sense — open bids at $1, have a private reserve, and see what the market offers. This makes sense because it does a better job of appraising the home in terms of demand and supply. Of course I know that government monetary creation/inflation, real estate agent licensing and mortgage regulations throw a real wrench in the gears, and I know the first real step would be to remove these collusions and regulations, but when it comes down to actually transacting the transfer of a home from buyer to seller, what are the impediments to seeing a free market within the system?

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