Would un-bundling of home sale process benefit customers?
While there are some indications in last few years of trying to unbundle home sale process — with introduction of limited service agreements, the whole process is still mostly being managed by real estate brokers / agents. Yes, they collaborate with other service specialists (closing agents, inspection, staging etc), but the real estate agent still ends up being the know all / do all, getting biggest share of the commission for listing, marketing, contract negotiation etc.
Lets take a typical transaction in Northern Virginia today. With home prices on average at around $500K (https://www.zillow.com/fairfax-county-va/home-values/), the commission check for Real Estate Brokerage is sitting at $12500 seller and $12500 buyer (assuming 5% total, shared equally). Even if it drops to 4.5%, we are still talking about $11000 per side. On top of this commission are rest of the fees, hidden (in plain sight) from the seller or buyer — including closing costs, inspection, staging, mortgage fees. The whole cost of transacting a home is substantial. The 4–5% model made perfect sense (still perhaps does in many markets) when house prices were low — say $100K house — so $6K total seemed ok. Most sellers do not really care much, because they think they are buying next house, where the next seller will pay — but ultimately someone ends up getting it added to their mortgage amount. Its not free :)
The idea of unbundling has been around for few years, but none of the 50 states seems to have pushed it hard — perhaps because the real estate brokerage lobby is very strong and thus regulated. Passing real estate exam may not be that difficult, but gaining skills in all of the required areas to be a successful agent takes years of practice in the field. While market ultimately should weed out any bad real estate agents, I have met many real estate agents that are great negotiators but terrible marketers, great marketers but have to lean on others for negotiation etc.
What if we had the process completely unbundled? What if we could hire independent expert service providers for listing, marketing, contract negotiation etc? What if real estate broker only acted as a general contractor, helping us shepherd the process?
Would it open up market for more individual experts in different services? Would it create more competition?
Today — everything seems to be regulated, from how the house is marketed by agents to what goes in closing package to how title is recorded and on an on. This also requires a single real estate agent to understand lots of these regulations, with potential to be weak in some of them, and thus make mistakes. While many parts of the process would require regulation — unbundling would distribute the mental load on different service providers, and allow them to be experts. Right now, you can either be a full time real estate agent OR you can do nothing in that industry (except staging and may be inspection?).
Unbundling should fuel different business models, and ultimately should benefit sellers and buyers. I would imagine innovative business models would bring the cost of various parts of the process down, push technical innovation in many areas and ultimately help sellers and buyers. For example, a negotiation specialist might agree to get paid different price based on final price, while marketing services company gets paid based on channels and content etc.
Why is it not happening? What needs to happen for real estate business to become consumer friendly? What should be the price for each of the services?
