Real Estate Businesses Are Not One-Time Transactions
The best-selling book Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt and Stephen J. Dubner takes an unorthodox look at several areas of the economy, including the real estate market.
The authors argue that real estate agents could get higher prices for home sellers by urging them to keep their houses on the market longer. But they don’t because agents would not make enough in additional commissions to justify the extra time on the market.
Levitt and Dubner assume real estate businesses are built around one-time transactions. In fact, successful professionals build relationships with customers for life. Homeowners move once every seven years on average and are likely to use an agent they have used before. Consumers also rely on referrals from friends and relatives to find real estate representation. Wise real estate professionals build their business on endorsements from their satisfied customers. According to NAR’s 2005 Profile of Home Buyers and Sellers, 63 percent of home sellers would definitely refer a friend or relative to the agent they used and another 19 percent would probably do so. Among buyers, 97 percent report they were satisfied with their agent.
It’s clear that real estate professionals must do the best possible job for the consumer if they intend to build a successful business.
Comments
I've been a participant in 5 real estate transactions. I've yet to use the same realtor twice. The main reason is that it is difficult to discern competence before the transaction is underway.
In the marketplace for goods and services, price often serves as a useful indicator of quality. Since every realtor charges the same amount in a given metropolitan area, how is a propsective customer supposed to figure out which realtors are worth hiring? The business model that realtors use completely negates price as a discriminator, forcing customers to select a realtor based on intangibles that do not necessarily indicate competence. Assuming that commission rates are set at the median price, 50% of the people who employ realtors will feel that they didn't get their money's worth. That's a fairly high dissatisfaction rate, and explains the amount of distrust of realtors in the general public.
Posted by: bboy | April 28, 2006 12:12 PM
This is little odd isn't it?
It's my understanding that the average REALTOR'S personal home is on the market longer than the average client they represent.
I think that may be how the Freakonomics may have been helped to their conclusion.
Posted by: Chris Michaud | April 28, 2006 04:40 PM
I agree that it would be difficult to discern the compentency level of one agent vs. another. But, when your roof leaks, and you need a good roofer, you use one that you've used before because they did a good job, or you call a friend or relative to get a referal to someone they've used and been happy with. I think the same is true for Realtors. If you don't have a Realtor, ask around. I'll bet someone has a reccommendation for you!
Posted by: Hope Goss | May 11, 2006 06:55 PM