Disrupting Real Estate Agents’ Commissions

New Orleans     If you ever had to sell or buy a house or even just look around in a neighborhood to try and sort out sales’ pitches from real values, you’ve often dealt with real estate agents in their bizarre and curious world. They speak of their commissions and rates as if they were set by divine law and handed down on tablets, although that is far from the case. They ask you to sign documents that there is no conflict of interest when they are sometimes representing both the buyer and the seller, when obviously they are the only winner there in an Alice-in-Wonderland world of make believe. Times may be changing.

The internet is of course one area where there’s action. People self-list on Craigslist, if you want to go there. Zillow ascribes values for houses and rentals based on its own algorithms and offers direct connections to agents where you might have an interest, even though it does little on the transactional side other than adding its cost to the fixed commission. Nonetheless, there’s more information in the market which helps consumers.

Looking at commission rates in other countries for residential properties might make you feel like an even bigger sucker. Only Russia and China once had higher rates than the USA, but their nearly 8% bite in 2002, according to The Economist, by 2015 had been pushed back to 2% in China and 4% in Russia, leaving the USA as the big dog here where its 6% average only dropped a hair to about 5.5% in the same time span. Britain and Singapore are less than 2%, Hong Kong, Finland, and Australia are at 2% with China. Canada is about 2.5%. Germany joins Russia at 4%. Spain is at 5%, the only close competitor to the US.

Competitors who want to disrupt this practice and do the job for 2% claim the resistance lies in the monopolistic, anti-competitive practice of the Multiple Listing Service (MLS) where “nearly every broker in America lists and searches for homes and the National Association of Realtors (NAR), a trade association with 1.3 million broker members in America, which regulates it.” If this were a labor union, the government would already have stepped in, and lawsuits would have already alleged restraint of trade for price fixing!

It turns out that there are some class action suits on the court dockets now challenging this dominance and some of these good-ol-boy practices and commission splitting arrangements, especially on the front end. The Justice Department has also begun to look at whether or not agents are steering buyers towards homes with the highest commission payoffs to them rather than objectively, if there’s such a thing in the real estate market. The realtors’ association scoffs at all of this, but stocks for some of the publicly listed real estate firms are falling in fear that these inflated commissions won’t last.

It matters to consumers. $1.5 trillion in homes changes hands every year. Tack on an extra percent or two, much less almost four, and you are talking about ripping off homebuyers and sellers by up to $4 billion. The house the real estate brokers association has built on consumers’ backs should not be left standing.

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One Woman Against AirBnb is a Hollow Victory in New Orleans

New Orleans   I wanted to share what I hoped was a simple story of one woman’s persistence prevailing over a giant, rogue company and the ineffectual enforcement by a city of its regulations governing the company.

That story had as its activist, community hero a woman named Ada Phleger, a young attorney in the Federal Public Defender’s office in New Orleans.  Phleger had lived in the St. Claude neighborhood, where Fair Grinds Coffeehouse second location sits on the border.  She had lived in the area for eight years and moved into her current house recently.  When she moved there recently there were two whole-home short-term rentals on the block.  Then there were three.  She drew a line to fight when the fourth emerged, so began to try to beat the permit before there were guests.

The company is both on AirBnb and managed by Boston outfit, called Heirloom or Stayloom, owned by Frank and Dan Glaser, for some owners and on its own account.  They claim 100 properties in New Orleans, Boston, and New York according to research by The Lens, the local on-line news service.  Sixty-seven of the properties are in New Orleans.  The Lens, following up on Phleger’s fight, found the addresses on 34 with 19 having either no permits or expired permits.

Phleger’s fight was Biblical.  She kept reporting them to the city for violations and then having to get videos when photos of guests were not enough, the months drug on, and guests piled in with no enforcement action.  Finally, in frustration she used her mother’s AirBnb account and hosted a dinner party there for a family birthday party to prove it was being rented and to photograph the inside, establishing that no owner lived there.  Finally, the city canceled their permit since none of the requirements were being met.  There were stories in the local papers and on television one woman’s victory over corporate and governmental ineptness.  She was interviewed by NPR.

All good, but…

Reading more deeply in the stories and the Lens reporting, there’s no question that Phleger was a freedom fighter here.  That piece of the puzzle remains in place.   Some of the other pieces though don’t fit as well.

The city was not as inept and unresponsive as it seemed.  The initial regulations appear to have been Swiss cheese with as many gaping holes and, even worse, they were written so vaguely that the information AirBnb and other operators were supposed to provide was opaque and didn’t allow real enforcement.

AirBnb had touted the deal with the former administration of Mayor Mitch Landrieu as a pacesetter in the industry, attempting to establish that they could work with a city and play by the rules.  They did eliminate 3000 listings, but after that it seems they drove a truck through the holes in the regulations, which also allowed outfits like Stayloom doing mass-rentals to exploit the language as well.  All of which made the city look like chumps, re-enforcing the conservative narrative of ineffectual local government, when a closer look tells the old story about the devil being in the details, regardless of the headlines.

The local councilwoman claims that regulations close some of the loopholes.  Now, the question might be whether or not New Orleans – or any city really – can keep up with a floating crap game, supported by visiting consumers and some homeowners trying to make their own mortgages, and exploited by rapacious companies with money to gain and little to lose.

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