David Barry; Trustbusting CA’s Real Estate Oligopoly
Chuck Ponzi February 9th, 2006
I recommend anyone read a recent interview with David Barry, an antitrust attorney that could forever change the face of selling real estate in California. His proposal? A statewide MLS system that would be free to viewers and only $20/month to list a home.
What would this do to real estate professionals? Sorry, guys, but this is a wooden stake to the heart. You will not survive this one any better than travel agents survived Orbitz or Travelocity. If this trend goes national, there will be nowhere to hide.
I recommend thinking about another profession and considering how that fits into your current plans. If David Barry’s vision comes true, you will have to serve a very different, diminished role in the process.
On the other hand, consumers would be the real winner on this one. Having access to real information becomes a valuable tool in negotiation for buyers. For sellers, it ensures that you get visibility and a reasonable price to sell your home. You’re going to need it with the upcoming crush of inventory. You can still utilize an agent, and it will likely lower the cost of selling dramatically.
The problems?
Honestly, I think that $20/month is a bit low still. I know it’s not about making money, but you want to ensure it doesn’t turn into a craigslist for real estate where anyone with twenties stuffed in their pocket can make a political statement. There needs to be active policing and a review of postings before they are published (this takes money and California workers aint cheap).
Also, with all of the information that would be available through a MLS, (address, phone, names, etc.) you have to be concerned with identity theft, privacy, and the like. This means that you need fraud controls for the control of information and tracking of users(Still possible, but $20 seems a little light). You might want to designate different classes of users that have different sets of information available to them (some for a fee, some not) and, for heaven’s sake, please build some anonymity into the information sharing (like craigslist does with anonymous emails)
The Big Picture
All in all, this would reinvent the world of California real estate and is great for the consumer. Mr. Barry should be applauded for his quest. But… and you knew this was coming… the real estate industrial complex will do everything in its power to crush it (and people’s will to revolt). Your gain is their loss, and diametrically opposed interests will oppose this.
Much like the discussion of taxing gains on homes or the mortgage interest tax deduction, I don’t think this one will survive without a true anti-trust champion (where is Elliot Spitzer when you need him?). Good luck Mr. Barry, we’re all rooting for you and for the little man.
Now, if we could only bust the public education teacher’s union trust…
John Doe:
Nice post….
Pretty important stuff and I think that something like this Open MLS will be an outcome of this bubble
I could definitely see this happening.
The real estate profession strikes me as too clubby and too cliquish, much like the stock brokerage business prior to the 1970’s. Back then only people with lots of money who could pay $200 commissions could afford a broker (or you invested in mutual funds with high loads). And you either had to call up your broker to find out a stock price or check the newspaper the next morning. Then we had young upstarts like Charles Schwab offer stocks at lower commissions so that the common man could invest. And then computers got better and cheaper and more accessible so that anybody could have access to stock quotes. Computers and discount brokers knocked some of the stuffing out of the unnecessary middle layer of the stock market business, and helped bring some cost efficiencies into it. Part of the motivation for those changes may have come from the flat to down markets that we had in the late 60’s and early 70’s.
The same thing will happen with real estate, and new efficiencies will be brought into the business from the same kind of motivator - bad markets. Everybody should be able to log on to a computer and get a “quote” on a house listed for sale. In the same way I think the title business has layers of paper stuffing that needs to be implemented efficiently.
For what it’s worth, though, I think there will definitely be a future for some realtors even if all these efficiencies and improvements were brought about. For one thing they can do some legwork and get to know houses and their neighborhoods in a way that a video tour of a house may not capture. While some people may be willing to buy a house that they’ve never actually visited, there will always be people who need the “people” experience of buying and selling property, much in the same way that some people still want and need the services of a full service stockbroker.
Still, though, the prospect of someone holding up a sign saying “Will do a title search for food.” makes me chuckle.
By the way John Doe, I am one of your neighbor blogs at South Bay Beach Bubble. Howdy. Your blog is listed in my blog map on my web site at the Housing Bubble page.
The reason why this will never happen is because 1.) It has been tried by Realtors here in Los Angeles and was unsuccessful. 2.)And the people that really and truly care are in the minority 3.)Comparing buying houses to buying stocks and airline tickets are like comparing the moon to an orange there isn’t the same velocity to even warrant really attacking it for profit. 5.) 20 bucks a month is at least 10 times to light to what it’s going to take to run something like that not including the salaries of the personnel to run something like that.
Yeah maybe but trust busting AG’s like Spitzer have extracted more extensive regulatory settlements from Wall Street than a simple and transparent marketing and market clearing system for RE.
A fellow blogger posted about the lifetime of realt-whore commissions if someone sells a house every 7 years. A staggering number and that number will get hacked as a result of the world’s largest bubble that followed the world’s largest BK case (Enron then MCI/Worldcom).
Stocks and real estate have followed similar trends. If you don’t believe me, there is a graph on this page. If it’s not big enough, I’ll enlarge it for you. It shows a correlation between downturns in stocks, economy, and real estate. But the correlating trend is not the driving factor, it is the collective mood of people who want to make purchases of stocks, that matters. When people are starting to feel confident in their futures, they’ll take on risks and buy. When they start to lose confidence, they “contract” .
Deflationary pressures or economic downturns (liquidity crunches) bring out cost efficiencies. Sometimes it’s good, as what happened with manufacturing in the 1920’s, and computer manufacturing in the 80’s-90’s.
When a severe deflation takes hold (a major liquidity crunch), then cost efficiencies are imperative if a market is to survive. When nobody’s buying something, the market has to be made easier to enter and relatively cheap, to get people to participate. I don’t know about anybody else but I think that a slowdown and downturn in real estate is going to bring about a huge liquidity crunch, since people can no longer easily buy and sell their houses and can no longer treat their homes like ATM machines.
The stock market is by no means done reforming. Brokerages and financial leaders have fought changes to their businesses too, tooth and nail, but when public sentiment has been against them during bad downturns, they lose their power. That happens in the major downturns of major market tops. It is during the downturns that all the rot and filth of the financial processes that brought us to a bubble are exposed. And that’s why it was perfectly OK for a company like Enron to do what it was doing for years without anybody complaining - it was only after the bubble burst that the filth got exposed. We’re seeing CEOs serve jailtime and we saw an officer of the NYSE serve jailtime in the 1930’s and we’re going to see much much more of that - because public mood will scream for their heads to be cut off.
The same thing is going to happen with the real estate business. There is a lot of clubbiness and rot and filth in the real estate and mortgage lending business too. And that’s all going to get cracked open and scrutinized under the harsh light of bearish sentiment. Just because a reform has been “tried” once does not mean it will always fail. It’s a matter of timing - when the public mood is right. It’s like a ballot initiative that fails one year and succeeds the following election - when mood changes.
You are right - real estate does not have the same velocity as stocks. In fact a downturn is going to feel much worse in real estate, because at least when my stocks are down in a bear market there is a specialist or market maker who will buy them from me - even if I have to liquidate at a big loss. Not so with real estate. The emotional impact is going to be incredibly devastating - much more than the stock market downturn. Victims will be looking for scapegoats and the real estate business will provide the scapegoats. If this bubble bursts severe people won’t just suffer mild anxiety over it. Some people will literally get mentally unhinged. If I were a mortgage lender or realtor I’d be thinking now would be a great time to retire and get the hell out of Dodge City.
The bottom line is - it is the same negative mood seeking scapegoats, and ultimately reform, that will overhaul the real estate market, or the stock market, or the oranges and apples markets. It doesn’t matter if stocks are like houses or not. The same kind of cost inefficiencies, rot and filth have been lying in wait under the tops of these financial bubbles, and all that is wrong will get exposed when the tide goes out.
When markets suffer deflationary-style collapses, they seek efficiencies so they can still transact business. Reducing costs, middle-men, etc, are ways to make that happen.
Once upon a time an investor could only get stock quotes in the newspaper at the end of the day or call up a broker and get a quote. The investor would have had the broker buy your stock (there weren’t many “she” brokers back then). Now you can visit many public websites to get quotes delayed only by a few minutes. You can log in to web-based brokerage accounts and get real-time price quotes, and buy your equity for a fraction of what the commission would have been 40-some years ago.
Hopefully, we’ll see similar efficiencies affect how real estate is transacted.
I wouldn’t expect a “house ticker” any time soon, but who knows, with the speed at which some of these markdowns are coming…