Dear Editors of The New York Times Magazine:
Real estate agents are an endangered species? Ha!
Real estate agents will never be replaced by technology. Buying and selling a home is
not straightforward and quick like buying a ticket to Boca Raton. I should know, I was
the first employee of travel website LastMinute.com and am currently the CEO of
Trulia.com, the online search engine for real estate.
There are too many variables at play during a real estate transaction to warrant Levitt’s
comparison to the travel agent’s demise. A better comparison is to the daytrading
phenomenon of the late nineties.
Real Estate as the new Daytrading?
Just because you have the tools to do-it-yourself doesn’t mean you should. In fact, we
don’t have to look that far back to see how the right tools in the wrong hands can lead to
financial disaster for the novice consumer.
The advent of online stock brokerage companies, like Datek Online, Ameritrade and
ETrade, suddenly gave the average consumer access to information that had previously
been accessible only to professional stockbrokers. Armed with this new data, consumers
now had the ability to buy and sell stocks themselves, eliminating the expensive middle
man and his fees.
Thousands of people took their life savings out of traditional brokerage firms and poured
them into new online accounts. Some even quit their jobs to manage their money full
time in a new profession known as daytrading. “How hard could it be,” they thought.
“Armed with all this information I can research, buy and sell the stocks I want, when I
want, without going through a broker.” But buying and selling stocks looks deceptively
simple. It proved to be exceedingly difficult. Even when armed with all the new internet
technology, real time trading capabilities and access to information, thousands of people
lost their life savings.
Buying and selling stocks seems easy and cheap with online brokerages. What is missing
is the expertise necessary to make good investment decisions. What people learned is
that there is a lot more to trading stocks than meets the eye. Today, mutual fund
companies, money managers, personal financial consultants and stockbrokers are back in
vogue. Ultimately, the internet and technology didn’t eliminate the stockbroker as Levitt
contends, it eliminated inefficient and unsuccessful brokers who “jumped on the financial
bandwagon” during the internet bubble. The internet and technology makes for a better
stock broker today and a more informed consumer investor.
Now with the proliferation of real estate information online, the press is calling for the
demise of the real estate broker. Sound familiar?
The internet is a wonderful tool that gives everyone access to information and brings
transparency to previously obscure real estate transactions. Today’s real estate
companies know this and spend hundreds of thousands of dollars creating user-friendly,
award-winning websites so their consumers can have access to information previously
seen only by real estate brokers. This is wonderful for both the real estate broker and the
end consumer. An educated home buyer, just like any educated consumer, is a better
customer. But with all this information, it is like trying to drink water from an open fire
hydrant. Who has the time to make sense of all this information? We are a country with
an extreme deficit of free time. Do consumers really have the time to continuously troll
the internet to find the home of their dreams? Are they capable of buying advertising,
marketing their homes online, hosting open houses and making sure while people are
looking at the kitchen, someone is not stealing Aunt Millie’s pearls from the bedroom?
Do you really want to pay real estate brokers by the hour?
Let’s take Levitt up on his offer to eliminate the commission-based model and replace it
with hourly billing, like that of the legal profession. We pay lawyers by the hour with no
guarantee they will win our case in court. Do you really want to pay your real estate
broker by the hour with no guarantee they will find or sell your house? Are customers
prepared to pay for all the work that goes into these transactions, even if they don’t find
the home of their dreams, or their house does not sell? Not likely.
Real estate brokers provide a deceptively simple service of helping consumers buy and
sell homes. But Levitt’s unsubstantiated estimate that it takes 40 man hours to sell a
house is woefully and shamefully off the mark.
When consumers bear the brunt of paying for all advertising and marketing costs that real
estate brokers now pay out of their pocket without seeing a penny of remuneration until
the closing, they will quickly see the “hidden cost” of buying and selling a home from
which they are now sheltered with the commission-based structure. In addition, they will
pay for the hours spent on research, creating marketing and advertising, photography,
changes in lighting, paint, furniture needed to get the best selling price for a home, the
endless hours of showings, and finally working closely with lawyers, mortgage brokers
and the buyer and seller to get all the paperwork ready for a closing. And that’s if it all
doesn’t fall apart at the eleventh hour as it so often does.
As the CEO of an online real estate technology company, I am here to tell you that the
real estate broker is here to stay. At the end of the day, we still need a professional to
help us make sense of all the information available to us both off and online and to carry
out all the duties necessary when buying or selling a home. Ask yourself this, do you
really have time to learn an entirely new profession on top of your own life
responsibilities to buy or sell one house? How much is your time worth?
I have looked at the data and crunched the numbers. At the end of the day, the real estate
agent is worth every penny. As an economist, Steven Levitt shows that he knows the cost
of everything and the value of nothing.
Co-Founder and CEO of Trulia.com