July 25, 2006
Redfin’s Day in Washington
Redfin’s day in Congress was like a lot of days at Redfin: filled with swashbuckling controversy and juicy intrigue, unavoidably goofy and improvisational, tinged with a Quixotic sense of futility.
Mostly it felt like a schoolday field-trip without a chaperone. Going to Congress was fun. The whole place seemed set to a music we couldn’t hear. The halls are filled with handsome young people in impeccable suits, and the clocks are outfitted with lights and alarms to warn of impending votes.
The staffers often seemed elaborately bored by the droning testimony but eager to pounce. Everywhere, everyone seems to know everything that’s going on, tracking bills coming to vote by BlackBerry, watching hearings by Webcast, whispering in one another’s ear.
The whispering was constant and congenial, with the ranking liberal Democrat Maxine Waters and the stolidly Republican chairman Bob Ney sharing a joke while the local yokel-dokels and the legal stiffs rattled on about Grand Rapids, Michigan or obscure points of law. I felt bad for them having to listen to this stuff, day after day, and was relieved to see how well they got on, despite all the reports of increasing partisanship.
It was also hard not to feel a little awe. Most public buildings I’ve been in, usually to argue traffic tickets, are a combination of old-train-station grandeur and the run-down, cut-rate decor of a high-school classroom. I was worried the hearings would be all the latter, with card-tables and government-issue plastic chairs, and a gigantic clock on the wall.
But the hearing rooms are grand, with tiers of committee members arranged in concentric semi-circles above the testimony table. The gallery behind the witnesses was packed to capacity with realtor-pin-wearing supporters and staff attorneys toting binders of committee-member profiles. There were overflow rooms, photographers with gigantic lenses that they still managed to put right in your face, and remote-controlled TV cameras.
Two panels spoke. The first consisted of Department of Justice & FTC anti-trust attorneys and an analyst from the non-partisan General Accounting Office, who were polite but firm in their findings that realtors and listing services violate anti-trust laws designed to protect consumers. The second, which Redfin was on, consisted of six members of the industry, including the President-Elect of the National Association of Realtors.
Each witness read a prepared five-minute statement, getting the gong the second he or she went over (lights on a small display controlled by the chairman and visible only to the speaker turned yellow then red). Surprisingly, many witnesses were cut off with pages of testimony unread. A carbuncular Texas discount broker, talking a mile-a-minute, finished 1:30 early and then looked around for a second as if he couldn’t believe it.
For our statement, which you can read here, we copied the intro off the script of the Lending Tree lady next to me, because we’d forgotten to include the pro-forma niceties to “Chairman Ney, Ranking Committee-Member Waters” and all the rest.
While I spoke, I tried to look deeply into the congressmen’s eyes for effect, then lost my place and kept talking anyway. So I have no idea what I really said. After I was done, it seemed like a long way to go for a speech that was already over. Except it was far from over.
Every congressman except the powerful but soon-to-be-retired Congressman Oxley was ferociously pro-realtor. And once Oxley was gone the entire hearing became a bloodsport, with Redfin in its customary position at the center of the fray. All the congressmen directed most of their questions towards us. As each one lit into Redfin, the realtor crowd moaned with pleasure.
The Democrats of all people cited states’ rights in their refusal to act, while the Republicans seemed intent on protecting the realtors rather than free markets. Their opposition was impenetrably uniform but also outlandishly varied: do online brokers discriminate against those who lack Internet access? Since realtors are often divorced women starting second careers, aren’t we hurting those who need jobs the most? If lawyers’ fees have increased recently why shouldn’t realtors’? If your service is so great, why isn’t your business bigger? Since you’re not out of business, how could you complain?
The Grand Inquisitor was Congressman Artur (yes, that’s how it’s spelled) Davis, a brilliant former prosecutor whom other committee members gave their time to so he could sustain his attack. No one seemed remotely disturbed by the fact that consumers who buy online can be discriminated against without legal recourse, or that MLS rules limit competition.
It was all political theater, as everyone knew what we never figured out: that Congress would leave it to the DoJ to go after the realtors. An FTC lawyer told me before the hearing started that just having companies like Redfin testify was already alarming to the realtor lobby. “They did a big letter campaign,” he said (the committee members often waved letters at us from concerned realtors in their districts).
Everyone was very nice to us afterwards. Chairman Ney came by to ask if we’d ever testified before, and Cindy Chetti, the fantastic staffer who hooked us up in the first place, said that the congressmen were talking among themselves about how fun we were as a witness. A DoJ attorney gave us her card.
This would all be cause for unmitigated celebration if the fellow witnesses hadn’t been so solicitous of us afterwards: “Are you OK? Really? Really? Wow. I mean wow.” Even the intern in the committee office who was watching my luggage looked up from his Webcast when I came in and said, “Oh man.” Only then did it dawn on me we’d gotten into an argument we couldn’t win. The Lending Tree legal team of six lawyers and PR experts felt so bad when they saw I was by myself that they offered a lift to the airport by chartered van.
We drove past the Washington Monument, encircled by 50 pretty flags, and the Jefferson Memorial, lonely in its perfection, and soon we were enveloped in the dense green of FDR Drive along the upper Potomac. It was very beautiful. But we were all already so immersed in our BlackBerries that we could not see to see.
P.S. One weird, funny note. In mangling the answer to one question, we explained how we came to testify before Congress. “We didn’t make any donations, Democrat or Republican,” I said, “We just read an NYT article and called Clinton to tell him we wanted to come.”
The whole room froze, thinking I was casually referring to President Clinton rather than the urbane, knowing attorney/consigiliere for the subcommittee, Clinton Jones (whose name we found on a Web site and who seemed to find it quaint that I wanted to shake his hand before the hearings began).
Puzzled, oblivious, we all just moved on. Mr. Jones whispered into Chairman Ney’s ear, and both of them had a big laugh…
Phil said:
“Radical openness and instant gratification.”
“As anyone who has voted for Castro will tell you…”
Someone was really in his element.
Thanks for the engaging post. Keep tilting at windmills. One day one of them will fall over.
July 26, 2006 6:34 AM
grahame ross said:
Very well written. If I remember correctly, the Letterman brothers of Seattle were pioneers in offering “unbundled” commissions in the securities industry (1976?), which was initially fought tooth and nail by Mother Merrill, et al. The rest, as they say, is history; brokers adapted and made more money then they could have the “lazy way”, where a “bundled” menu of services was paid for by high fixed transaction fees. The logic of what you are doing is inescapable; you don’t need my encouragement to make it work, but you have it anyway.
July 26, 2006 10:28 AM
sc said:
Good luck…for the sake of consumers, I hope you succeed…
July 26, 2006 11:23 AM
PAUL said:
Great post! I’m nearly on the floor laughing. Keep up the good work and fight the good fight.
July 26, 2006 11:25 AM
MB said:
My personal favorite is the comment in the testimony of
July 26, 2006 2:58 PM
PCC said:
Regarding 2 of the random questions…
Question: Does Redfin hurt divorced women since they are highly represented in real estate?
Response: Are those women or other people living on single or low incomes better served not paying monopolized fees that help prevent many from owning their own home or by providing welfare to realtors through fees that aren’t subject to market worth? I would argue the former.
Question: Why shouldn’t realtor fees go up if lawyer fees have?
Response: For one thing, basic rules of lagic make this argument invalid as these two professions are totally different. Apples and oranges. Plus, providing high quality legal representation for valid defense has become more and more complex as our society has become litigious. And people are willing to provide lawyers who will go fishing for money in frivilous or quasi-frivilous lawsuits with gaudy fees for a victory because to lose a case cost the client nothing. (I would remind the questioner that goverment has been looking into regualting lawyers as well throgh tort reform)
Due to technology, providing adequate real estate representation has become incredibly easier over the last decade due to internet and database advances. A few decades back, a realtor and brokerage had to do a lot more leg work to keep a handle on the market. No most of us can do more market research in one hour in our underwear at home than a good realtor would have been able to do in a couple of days a few years back.
July 26, 2006 4:09 PM
CSP said:
PCC, it appears as though you understand very little about the real estate industry. Ah nonetheless, the vast majority of the people whining about real estate commissions seem to know absolutely nothing about the real estate industry.
I honestly wonder if all of these self proclaimed residential real estate experts that were testifying before congress yesterday have ever spent a day working in the real estate industry. Reminds me of the old saying “walk a mile in my shoes…”
Something might be gained for each of these
July 26, 2006 10:20 PM
PCC said:
CSP- I recognize there will always be a need for real estate agents. Having someone guide me through my first home purchase was invaluable. If I were moving to a new city, I would need one to know what the nieghborhoods were like and what was a good price.
In those situations, a 6% commission may be a good value to me as a consumer.
You are right, I have not taken the extensive 60 hours of training to become a realtor. But I have been following the market closely in my neck of the woods for years now and I believe I have a pretty good sense of what is a decently priced home and what isn’t. I recognize that Zillow can be all over the map when pricing a house, but I can tell when its wrong when I see the house. I can use tools like Redfin or Seattlehomes to find newly listed home promptly, often faster than if I waited for my realtor to filter it.
I now a lot of FSBO types get emotional about their homes and tend to overprice them, but to assume people without a realty licese are all a bunch of idiots is to underestimate your client base.
Coordinating a closing is a mess and I am willing to pay someone else money to do it for me. But lets say a certain house is selling for 100% more than it did a few years back. I would pay twice the commission now. Are you arguing that your job has become twice as difficult in the last few years? Where is the value in that?
Yes, there is a lot of legalese to sort through when closing a deal. I can use a real estate lawyer who charges (get this!) a flat fee for his or her service. Doesn’t matter if the transaction is 100K or 1 million if both are standard transactions. The same fee for the same amount of work. Crazy huh?
I recently sold a home and had mutliple offers. Some of the offers where presented very professionally by certain realtors. Some where terrible. Two of them had written their escalator clauses incorrectly. Some of them where representing letters and information to me that, if I took them into consideration, would be complete violations of Fair Housing laws. As you conceded, there are full time real estate agents who don’t know how to determine the proper value of a home. Why shouldn’t consumers be able to shop for different commision rates for realtors with better skills and experience?
So CSP, I am not argueing that there realtors don’t play a good role for some consumers. What I am concerned about is the inflexible pricing structure your industry trys to artificially enforce on consumers. As I said before, if I want to buy a house and I am unfamiliar with the process and area, paying my representative the 3% is probably worth it to me (paying the seller 3%?, that would depend) Conversely, 6% commission to buy a house that I know well from my nieghbor is not a good value. And I really want to know if you believe that the difficulty of your job has risen at a level comensurate with real estate prices in the last decade.
Anyone in an industry that employs such agressive rent seeking tactics to stifle free market forces has got know that we all aren’t going to stick our heads in the sand about it. If discount brokerages were allowed to operate on the same playing field and were as terrible for the consumer as your lobby contends, wouldn’t they go out of business? So where is the threat? I know you are supposed to say that you are just looking out for the consumer. But if realtors where really concerned about consumers, they would let open markets determine their fees.
July 27, 2006 9:19 AM
CSP said:
PCC, lets talk about what is good for the consumers for a moment. I have done some local research through my MLS to determine the value that these “discount brokers” are providing to the consumers. In my regional MLS sellers are less likely to successfully sell their home with a discount broker. Full service brokers sell their listings faster and for more money. The vast majority of full service brokers charge a fee only after the sale closes (remember your lawyer example); the discount brokers I interviewed without exception charged their fees up front. So you tell me
July 27, 2006 12:29 PM
Sven said:
CSP - Let’s pick a better analogy than a commodity type of sale then… How about buying or selling a business?
I would argue that buying or selling a private business is a much more complicated transaction than buying or selling a home. But I’m not forced to go through a central listing agency or pay a “full service” fee to one person to sell my business.
As a buyer, or seller, I can unbundle these services to find the most efficient use of my dollar — pay a flat fee to a business valuation service, hire a broker to showcase my business or list it online, hire a lawyer to handle the legal aspects, etc. Or if I’m comfortable doing part of this myself, I can.
Why not the same with real estate?
July 27, 2006 11:49 PM
Kent said:
First off, bravo Glenn for both an extremely entertaining post and your refreshingly honest stance on realtor monopolies.
Secondly, CSP and the NRA you should pay very close attention to the record industry and their struggle with music sharing.
The record labels fought file sharing because their ignorance of technology blinded them from taking advantage of the inevitable. They continue to fight and miss opportunities where others are taking full advantage.
Apple on the other hand realized the opportunities and are now capitalizing off an industry they would have otherwise ignored.
The result is that the record industry continues to experience declining sales, has demonized themselves to millions of consumers and created serious competition for themselves.
The 6% fee will change, no matter how much legislation is put in place. It is inevitable.
July 28, 2006 8:27 AM
CSP said:
PCC,
I appreciate greatly your analogy about business brokerage, in fact I think that it makes a very good point, however one that I don’t think you intended. Just by chance my wife’s uncle was once a business broker and after a few long conversations with him I feel that I know some of the aspects of the business brokerage business. I must state however that I don
July 28, 2006 8:57 AM
CSP said:
Kent,
Thank you for the enlightening post about the record industry. I will however defer my comments on the sale of a commodity as compared to the complexity of the sale of a home to my previous posts. Hint: Selling an MP3 for $1 is not the same as selling a house $1 Million.
By the way, the 6% fee will not change; consumers have options in today
July 28, 2006 9:05 AM
Kent said:
CSP,
I don’t expect realtors to go out of business. You are correct, the full service option will always be appealing to some group.
The point I’m trying to get across is that the industry is changing.
Technology, namely the internet, has empowered every day people with the ability to do things on their own. There is less reliance on industry experts and much more focus on personal ability.
Reduced service models like Redfin will continue to experience growth and capture market share.
Supporting legislation to prevent this growth instead of adapting to the changes is not a good focus of resources.
July 28, 2006 9:29 AM
CSP said:
Kent,
Once again thank you for posting your comments. I appreciate that they come in such a polite fashion, Lord knows that from time to time things can get overheated in these conversations (even I do too, shame on me). Now to your post.
You are correct that the industry is changing. In fact, it changes in many different ways every day. I agree with you that the most successful agents in the future are those that will adapt to the changes in the market. However, that is where our agreement ends.
Aside of placing active listings online for the buyer to view from their skimmies while drinking their morning coffee, I really don
July 28, 2006 11:45 AM
Bruce Hahn said:
You set a good example by testifying. Chinks are beginning to show in the NAR/state Realtor Assn. lobby.
It’s not a short term project, but consumers are slowly getting more choice in real estate services, thanks both to innovators and consumers and businesspersons who are willing to fight for consumer choice.
July 31, 2006 11:20 AM
CSP said:
Bruce,
I would be interested to know what these chinks that are beginning to show are.
CSP
July 31, 2006 12:46 PM