DISINTERMEDIATION is a 20 buck word that has sparked a lot of buzz in the real estate industry recently. Briefly, disintermediation means “cutting out the middle man”. There are many recent examples of disintermediated industries. Travel agencies, bookstores, and computer and software come immediately to mind. Sure, there are still corner travel agencies, and there are still brick and mortar bookstores (I can spend hours in a Barnes & Nobles). You can still buy a PC in many places. But think of the impact buying airline tickets on-line, or Amazon, or Dell has had on these industries and the way we shop.
There are some who feel the real estate industry is ripe for disintermediation. Steven Levitt and Stephen Dubner, the authors of the bestselling “Freakonomics” are strong believers that the real estate industry is in the middle of disintermediation (see Endangered Species: Why Real Estate Agents are on the Way Out). Countless “real estate bubble bursting” blogs either believe, or sincerely hope that disintermediation of real estate is here. David Houle argues the time is upon us. I can’t figure out of Declan McCullagh is saying disintermediation has arrived or is just around the corner, but either way it’s inevitable to him
Most real estate agents, if they truly understand what disintermediation encompasses, can quickly point out why it can’t happen completely in the real estate sales field. Shopping for a book, or buying an airline ticket is not the same as finding a home and closing a sales transaction. Can you buy a home site unseen? Sure, we’ve helped several investors do just that. Could these investors have done it without our assistance? I don’t think so, at least not without incurring expenses above and beyond the dreaded “C” word (commission).
I won’t spend any more time discussing disintermediation here (for now). Others have already done a far better job of that than I could ever hope to. (See this from Kristal Kraft, or Sellsius‘ many posts on the Unzillowable. Greg Swann’s BloodhoundBlog has perhaps the best discussion on disintermediation from an agents perspective. Greg has and entire category of disintermediation posts.
On Friday, the Freakonomics boys posted, “Note to Realtors: You May Want to Skip This One“. So of course, I couldn’t skip it. It’s not much of a blog entry per se, but they provide a link to a paper written by Mark S. Nadel, who either works at, or was sponsored by the AEI-Brookings Joint Center for Regulatory Studies. I haven’t gotten all the way through it (it’s 77 pages), but it’s chocked full of information and well cited sources. It discusses the current percentage-of-sales based commission structure and makes a sound argument on how consumers would benefit most from a fee-for-service approach ”“ combining flat fees, hourly fees, and bonuses. It’s a compelling read, and one sure to make some “old school”/”traditional” brokers shake their head. (Some new school brokers and agents too). Whether you believe disintermediation is here, coming, or can’t happen completely, you should read Nadel’s “A Critical Assessment of the Standard, Traditional, Residential Real Estate Broker Commission Rate Structure“. If it doesn’t make you think, well, then you don’t have much gray matter up there… Once I read it and and absorb it, I’ll have more to say, I’m sure…