Author Topic: Why do realtor companies exist?  (Read 2681 times)

nobodyspecial

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Why do realtor companies exist?
« on: October 22, 2016, 09:31:16 AM »
I'm in a small town with a few local full-time realtors with their own small offices.
But all are also tied to the same national chains.

I'm confused about why this market inefficency exists.
If I'm looking for a house I go to the aggregator/multiple listing sites which list all properties, I'm not going to visit each chain's own site or the ads in the windows of their downtown stores. If I am local I go to the individual realtors  for the greater detail.

The big realtor chains don't have any brand identity, I'm not paying more for a house being sold by RealtorMax than one by KwikyRealtor. They don't seem to provider any value to the end-realtor but presumably take a big chunk of their commission.

The high value luxury realtors advertised on the back of buses (the back so it can be seen from the driving seat of the customer's BMW) don't seem to advertise these affiliations so it must be  a financial rather than legal reason.



ender

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Re: Why do realtor companies exist?
« Reply #1 on: October 22, 2016, 09:35:05 AM »
The same argument applies to any name brand vs a generic.


nobodyspecial

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Re: Why do realtor companies exist?
« Reply #2 on: October 22, 2016, 10:20:25 AM »
The same argument applies to any name brand vs a generic.
Not really.
A Walgreens or CVS has an obvious commercial advantage over a single person pharmacy and there is a reason a pharmacist might want to be an employee at one of these chains rather than running their own business.

But the realtor market seems to be more like a franchise, where the franchise name provides no value.  It's as if a pharmacist ran their own shop, hired their own staff, bought their own stock - but paid a commission to have the name of the landlord on their sign.
 
Perhaps this is a small town thing and people buying in the suburbs would skip zillow or MLS and only go to the Remax store in the mall - but I don't think so.
 

ender

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Re: Why do realtor companies exist?
« Reply #3 on: October 22, 2016, 10:55:26 AM »
The same argument applies to any name brand vs a generic.
Not really.
A Walgreens or CVS has an obvious commercial advantage over a single person pharmacy and there is a reason a pharmacist might want to be an employee at one of these chains rather than running their own business.

But the realtor market seems to be more like a franchise, where the franchise name provides no value.  It's as if a pharmacist ran their own shop, hired their own staff, bought their own stock - but paid a commission to have the name of the landlord on their sign.
 
Perhaps this is a small town thing and people buying in the suburbs would skip zillow or MLS and only go to the Remax store in the mall - but I don't think so.
 

Errm, have you ever looked at the ingredients in any brand name vs generic for <nearly all items that have generics>? Many (not all, but many/most) generic items are identical to their namebrand alternatives. Yet those companies still exist, selling overpriced "name brand" items.

Quote
But the realtor market seems to be more like a franchise, where the franchise name provides no value.  It's as if a pharmacist ran their own shop, hired their own staff, bought their own stock - but paid a commission to have the name of the landlord on their sign.

Playing devil's advocate a minute, imagine that anyone else came into your town and knew of RealtorMax from their town.

That can set their expectations for what a realtor from there might be like, the types of things they might do, and otherwise help them have confidence in the service they are about to purchase. A non-branded person doesn't have the same level of trust.

I understand that there is no guarantee in most realtor firms that each individual person has a higher standard of service or even a consistent one but it's the same thing that keeps people buying expensive name brand items rather than the multitude of cheaper and functionally identical items.


You can argue this doesn't make sense and I don't disagree. I buy generics most of the time, particularly with respect to food (Aldi's FTW!) and drugs. But a large number of people associate value with the brandname. Realty is no different.

nobodyspecial

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Re: Why do realtor companies exist?
« Reply #4 on: October 22, 2016, 01:33:51 PM »
You must be right - can't think of any other economics reason.
But I would have expected that the poor brand recognition and general level of contempt  for real estate corps would mean the big name association had very little value to the customer and hence to the realtor.

But we also have a self-policing real estate regulation board here who also decided that Zillow is illegal - so perhaps it's not a perfect free-market.

GrOW

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Re: Why do realtor companies exist?
« Reply #5 on: October 22, 2016, 02:01:21 PM »
Think of it like unions.

Plus side (from my viewpoint) - ensure agent certification and training happens, steer their pool of customers to homes they list, minimum professional standards for their employees, etc.

Down side - price fixing and the required lobbying efforts to keep that in place.

zephyr911

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Re: Why do realtor companies exist?
« Reply #6 on: October 24, 2016, 01:24:07 PM »
For some people, brand recognition does play a role in real estate decisions. However, I think the preponderance of such chains is more about agent value than customer value.

The economies of scale found in large companies allow them to field better initial training, greater marketing power, more networking opportunities, free continuing education (with an actual dollar value), and all kinds of other tools that are generally big selling points for agents. I interviewed with our local Keller Williams office when I was in RE school, and while I did not end up taking that route, I could see the draw for people with other priorities. If you do a high enough volume of business, you cap out and get to keep 100% of commissions, and so the higher splits become a non-issue.

It'll never apply to me, since I only hold a license to do my own investment deals and occasional friends/family jobs.

Landlady

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Re: Why do realtor companies exist?
« Reply #7 on: October 24, 2016, 01:41:46 PM »
As I understand it, the main benefit to agents is the marketing resources available to them through the brokerage firm. The average cost per customer acquisition is very high for agents -- ~$3,000. It's nice for agents to have their brokerage shoulder that responsibility especially if they are just starting out in the field and have very few word of mouth connections.

Full disclosure: I'm commenting mainly to follow because I work at a startup (Faira.com) trying to simplify the home sale process and cut out the unnecessary costs of inefficiencies. I'm curious of the responses and especially everyone's perception of  brokerages and their relevance in today's online economy.

nobodyspecial

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Re: Why do realtor companies exist?
« Reply #8 on: October 24, 2016, 08:36:03 PM »
As I understand it, the main benefit to agents is the marketing resources available to them through the brokerage firm.
That was my point, that in this century they offer very little marketing resource.
People search for houses on aggretor sites not by looking up the web sites of particular agencies you see on sign outside houses.
It would be like searching for a book by going to the web site of each individual publisher rather than amazon.

I can see the value of back office services for beginning or friends+family type realtors  but not once an agent is established and working full time.


zephyr911

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Re: Why do realtor companies exist?
« Reply #9 on: October 25, 2016, 02:25:27 PM »
I don't have any market data on how much traffic is generated by Homes & Land or other publications, or local websites, but they're far from dead.

AlanStache

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Re: Why do realtor companies exist?
« Reply #10 on: October 25, 2016, 03:05:03 PM »
It may be that the legacy brands are good enough and the market saturated enough to keep the mom and pops to a minimum and as zephy said the back end support could be worth a lot or provide sufficient barrier to entry. 

acroy

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Re: Why do realtor companies exist?
« Reply #11 on: October 25, 2016, 04:43:25 PM »
It is an inefficient, parasitic legacy system, past it's use-by date, ready for creative destruction!

aasdfadsf

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Re: Why do realtor companies exist?
« Reply #12 on: October 30, 2016, 01:46:40 AM »
Real estate brokers have an obvious function in that they're experts in the markets in which they work. Most buyers and sellers only engage in real estate transactions a few times in their lives at most, but the brokers do it all the time and know exactly how to help their clients maximize their interest.

What doesn't make sense is why they get a large percentage of the sale regardless of the price or complexity of the deal. The huge margins are what causes there to be too many real estate agents and why they constantly hustle for listings and annoy would-be buyers with endless sales pitches. I am not aware of any other industry in which an agent gives you poinsettias every Christmas and invites you to baseball games each year. The guy I bought a house through ten years ago still does this. It's very worth it for him if I were to ever use him to broker another deal (which I won't -- but I'll take the baseball tickets. And the poinsettias.)

The solution to this would be to have brokers work on a fixed commission rather than a percentage, which would be far better for the sellers and buyers but mean less money for the brokers. Then there would be fewer brokers and they would make their money by brokering more deals. But this never happens because the real estate industry would sooner gouge their eyes out with a rusty putty knife than allow it to happen. There probably does need to be some creative disruption of the industry.
« Last Edit: October 30, 2016, 01:52:40 AM by aasdfadsf »

powskier

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Re: Why do realtor companies exist?
« Reply #13 on: November 05, 2016, 01:05:19 AM »
We owned and lived in a condo in a hot market that had appreciated nicely. It was pretty easy to sell by myself. Only requirements are being informed, forthcoming, and fairly priced. In total time spent it was about 4hrs for over 12k commission saved.

To get back to your question, they exist for other folks.

SwordGuy

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Re: Why do realtor companies exist?
« Reply #14 on: November 05, 2016, 09:27:24 AM »
We buy investment properties, single family homes to rent out.

I use a realtor because they make our life simpler.

We have day jobs.  Our realtor will meet with the locksmith or the various tradesmen we want to inspect the property before we buy it.  (Or even after we buy it, for that matter.)

She'll dig up info that we need to make an informed decision.

Worth it to us, for sure.