It didn't take the National Association of Realtors (NAR) long to come out swinging at CBS after the network aired a report on discount real estate brokers. The report, anchored by Leslie Stahl was aired on 60 Minutes last Sunday and can be seen in its entirety by visiting our the video link at the bottom of this article.
NAR certainly has some reasons to be aggrieved. Stahl started her segment by
stating that real estate agents pulled in $60 billion in commissions
last year. "They charge," she said, "a 6 percent commission on the price of
every house they sell." She called the 6 percent "sacrosanct" and "sacred" and
said that the rate has remained constant even as the price of houses had quadrupled
over the years.
But, she continued, the internet is beginning to effect real estate agents and the 6 percent commission is under attack by discount brokers.
Switch to an extremely telegenic young couple who "saved" $26,000 by buying and selling with Redfin, an Internet based real estate firm that we have profiled several times on these pages. What did they have to do that a traditional agent would have done for them Stahl asked? They had to print out some flyers and hold an open house they replied.
Their Redfin "e-agent" said she had, as a traditional agent, done a number of deals where she had never seen the house and worked a total of about five hours to earn a $12,000 commission. "I decided this couldn't continue," she said. "I was afraid I was going to get caught."
Her boss, Glenn Kelman, president and CEO of Redfin called the real estate industry "by far the most screwed up industry in America." Redfin, he said, was prepared to do what Amazon, eBay, and Yahoo had done for other industries. The company's agents, he said, can handle more transaction and charge less. He said that the average traditional agent handles around eight transactions a year; Redfin e-agents handle that many in a week.
The company charges a seller a flat rate of $3,000 for a listing and, after collecting a commission for representing a buyer, refunds two-thirds of that commission to the buyer. Kelman claims that Redfin rebated over $3 million to consumers last year.
Stahl interviewed a traditional agent who defended her commission by saying that customers of discount brokers get the Wal-Mart treatment. Stahl then launched into a rather damning review of the treatment discounters claim to have received at the hands of the NAR. This included charges that NAR had blocked discounters from using MLS and cited the current suit against NAR by the Department of Justice for anticompetitive activities. Stahl said that eight states have minimum service laws and that 11 states flatly prohibit rebates to non-agents. In regard to the latter she said that the brokerage industry has a powerful lobby, suggesting that was the reason for the Realtor friendly laws.
The founder of eRealty discount brokerage blamed NAR practices for destroying his business, charging that, once he was banned from using MLS, his investors abandoned him and his company lost $33 million before folding.
NAR on its website (www.realtor.org) has posted a response to the 60 Minutes piece saying that the show had given NAR the "empty chair" treatment. They complained that no one from NAR had been permitted to speak "even though NAR twice offered and prepared Association spokespersons for interviews." "It was CBS that made the decision it would rather interview our opponents and let them make unanswered - and inaccurate and unfair - accusations about Realtors and NAR policies."
The association, it said supports all business models and favors none. NAR's 1.3 million members include Realtors who work on a full-service basis, those who consider themselves to be limited service, fee-for-service, minimum service, and discounters.
NAR posted a lengthy list of what it called misinformation from the program. Number one was the remark that 6 percent commissions are sacrosanct. In fact, the Association said, all commissions are negotiable. The average rate is actually 5.2 percent and declined 16 percent in the period 1991 to 2004. It criticized CBS's characterization of the NAR as a governing body rather than a trade association and of MLS as a database that lists virtually every home for sale in the country rather than as 900 local and regional services.
NAR also objected to being labeled a powerful lobby. That eleven states flatly prohibit rebates it said was to prevent kickbacks in real estate transactions not to limit agent's incentives to attract customers and the industry does not lobby for anti-rebate laws.
NAR stated the real estate business is unique in that competitors must also cooperate with each other to ensure a successful transaction, and MLS systems facilitate that cooperation. Without the collaborative incentive of the existing MLS, brokers would create their own separate systems, fragmenting rather than consolidating property information.
The folks at Redfin meanwhile are positively giddy. Their corporate blog on Wednesday was full of stories about the phone calls and emails they had received, both positive and negative, as they scrambled to keep their servers up and running. They also made these claims about NAR's response which we have no way of verifying.
- "The National Association of Realtors distributed to its 1.4 million members a memo about the piece with a vaguely military ring: "Operation Tip-Off Publicity Alert." The first media talking point for members was that the segment, which no one outside of CBS has actually seen, "could have been much worse." Perhaps this memo is the same one we are reporting on from the NAR web site.
- "The NAR boasted that it had managed to convince 60 Minutes that the Department of Justice lawsuit was too complex to explain to consumers; CBS, it said, was only able to publish a "highly abridged version" of the story it originally wanted to air."
CBS has already admitted one error in its broadcast. e-Realty did not expire but was bought out by Prudential Realty. The investors, however, did lose $33 million.
A check of the 60 Minutes blog at 12:15 EST Wednesday showed the segment had generated enough responses to fill 119 pages. A quick scan showed that most responses were from real estate agents but a fair number were from consumers.
Bet anything that within two weeks NAR will have its own segment on 60 Minutes, and a much more complimentary one at that. The organization is tenacious and it is instructive to remember the deer-in-the-headlights expression on Al Roker's face as he tried to wave off consumer reporter Janice Lieberman's blithe statement that there was no distinction between a real estate agent and a Realtor. That one cost Today a morning of free advertising for NAR in order to stop the bleeding. CBS won't be so lucky.
To watch this video in its entirety please visit our video page link below.**VIDEO(228)**