The real problem with the real estate industry
[Editor’s note: Originally published on Selling Later.]
The industry makes you think new selling services are the problem, but we believe those conversations distract from the bigger issue, and that issue is Gatekeeping.
As a consumer, you think of real estate like this…
Sellers and buyers together, and then selling services, websites, exchanges, and offerings on the other side.
But in our opinion, the reality of buying and selling actually looks like this:
So who, or what, are all these people in the middle? Why aren’t sellers and buyers starting on the same side? Let’s dive in!
There are many ways to sell your home, which in our opinion, is excellent! You have options and should pick whichever service works best for you. The problem is that all of these services are competing against each other for home sellers. Once a service has your information, they don’t want it to get out as they don’t want someone else to steal you as a client.
This especially applies to real estate agents. There are 2 million real estate agents in the US (1.4 million are Realtors). So, not only are real estate agents competing against other selling services, but they are also competing against each other. Most agents only get paid when they close a deal, so they don’t want other agents contacting or having access to their potential client list. We don’t blame agents for being protective of their list because they lose a paycheck if they lose you as a client. This is especially true for newer agents whose paychecks can be infrequent and small for the first year or two.
These selling services only thrive when they insert themselves into the middle of the process (aka. middlemen). Letting their clients connect directly with each other decreases the chances of them becoming involved in the transaction.
Think of the 2 million agents and hundred’s of selling services that have future sellers and buyers in their databases. Those lists are not shared with others, especially consumers. So while they have access to know of future sellers and buyers, you as the consumer do not.
Special Consumer Notice: We have seen two different companies advertise that they give consumers access to their giant database. As a consumer, you should know that while you might be able to view their “buyer list,” you don’t get to see who they are. You also are not able to contact sellers and buyers directly. These “databases” aren’t new, and every single brokerage has buyers, especially in this market.
In our opinion, these ads are just made to lure buyers and sellers into that specific brokerage’s portal and collect their information. We believe their end goal is to get both sides of the deal, meaning they have one of their agents represent the seller and another one of their agents represent the buyer.
Aggregators are websites that pull some of the MLS information and make it accessible for consumers to view online. In our opinion, this was a big game-changer for consumers, as they are now able to search for homes themselves online. However, these aggregators are essentially lead generation platforms and make a lot of money by selling leads to agents and other services.
These platforms act as a portal to the MLS but have made a full business model off of collecting and selling your information back to the real estate industry or for their own internal services. Even if the homeowner posts the home, their information could still be sold to others, as could the inquiries.
Referral platforms aren’t new but recently have evolved to become the true middlemen of the middlemen (and a billion-dollar business model). We believe these platforms are one reason why commissions have gone down less than 1% since 1992!
These platforms position themselves as “helper” to find you the best agent, or even the best way to buy or sell your home. They typically promote themselves as a free service.
What they really do is lock in your attention and information before you start to find an agent or selling service on your own. They don’t tell you that most referral programs only refer you to agents/services that agree to pay for your information. Sure, some of them vet agents for specific qualifications, but it still comes down to only referring to agents who are willing to pay.
In our opinion, these platforms want to gatekeep your information for the sole purpose of selling it to someone else. Agents with years of experience and big lists of happy clients aren’t typically found on these platforms. The bigger issue with these referral programs is the lack of transparency in how they work and how they can impact your chance of negotiating your listing commission or asking for a buyer’s rebate (legal in 40 states).
When you get referred to an agent from these platforms, the agent has to agree to give the referral platform a big fee or 25%, 30%, sometimes 35% of their commission earned when you close on a home. That 30%+ is agreed upon when the agent takes you as a client. With that much already gone, usually without the consumer knowing, what is left for them to negotiate? Learn more about referral platforms.
Funnel Services & Kickbacks
This is something that we didn’t know about until we attended a real estate conference (as a consumer).
Once a company has you in their funnel, they don’t want you to shop elsewhere and can place specific companies in front of you for financial gain. Sure, this is business 101 to sell to you while you are already there. However, business 101 is a slippery slope when you are making the biggest purchase or sale of your life. Some home warranty companies, internet services, and even security systems offer kickbacks to brokerages or agents when they sell their specific product.
How do we know this? Because a home warrant company offered us $60 to sell their program to Selling Later members. We said “No way” but it opened our eyes to the kickback system in the industry
This is also why you will see some companies offering additional services like title, insurance, lending (or create a partner service to avoid RESPA violations).
While you may have thought about buying or selling for a long time, a lot of big decisions are made within the small time frame between when you placed an offer (or accepted an offer) to when you close. Big decisions like inspectors, home warranties, insurance, title companies, etc. are all made within that small time frame. As a consumer, your time to shop around and find the best value or best service is tiny. In our opinion, this is where those kickbacks cause an issue. You have to wonder if this company is referred to you is actually good or because there are kickbacks involved?
The amount of data companies collect or purchase is pretty shocking. Beyond the problem of data privacy, the big thing to focus on here is that there are companies out there explicitly analyzing data to predict when you might sell or buy. This information can be packaged up and then sold to agents and lenders as a sales lead.
From tracking mortgage payments and equity and matching that information with the age of your home, these companies specifically watch for signs that you are going to make a move solely to sell you as a lead.
Beyond the issue of companies profiting from your personal information, this information is not publicly accessible to consumers. Instead, it is sent to the top of the gatekeeping pile (selling services). So, once again, the industry gets alerted to those making a move, but consumers do not.
We hope you are still reading because this is the most important part:
At Selling Later, we believe that consumer connections should come first, and selling services should come second.
What does the industry look like if consumers regain control and make the system work best for them, not for other businesses?
Disclaimer: This is an opinion based on our studies of consumer practices in real estate. This isn’t about a specific company, real estate agents, or anyone in particular. Consumers have a right to know about a problem that starts before a consumer is ready to buy or sell and then works itself the whole way down the process.