Owners' Web Gives Realtors Run for Money
By JEFF BAILEY
Published: January 3, 2006
MADISON, Wis. - Across the country, the National Association of Realtors and the 6 percent commission that most of its members charge to sell a house are under assault by government officials, consumer advocates, lawyers and ambitious entrepreneurs. But the most effective challenge so far emanates from a spare bedroom in the modest home here of Christie Miller.
Animated map of listings on fsbomadison.com over time
research.bus.wisc.edu
Ms. Miller, 38, a former social worker who favors fuzzy slippers, and her cousin, Mary Clare Murphy, 51, operate what real estate professionals believe to be the largest for-sale-by-owner Web site in the country.
They have turned Madison, a city of 208,000 known for its liberal politics, into one of the most active for-sale-by-owner markets in the country. And their success suggests that, in challenging the Realtor association's dominance of home sales, they may have hit on a winning formula that has eluded many other upstarts. Their site, FsboMadison.com fsbomadison.com (pronounced FIZZ-boh) holds a nearly 20 percent share of the Dane County market for residential real estate listings.
The site, which charges just $150 to list a home and throws in a teal blue yard sign, draws more Internet traffic than the traditional multiple listing service controlled by real estate agents.
Madison is home to the University of Wisconsin and a city where the percentage of residents who graduated from college is twice the national level. It is also a hotbed of antibusiness sentiment, which turns out to be the perfect place for a free-market real estate revolution. Bucking the system is a civic pastime here.
"It may be an extension of the 1960's, when we stuck it to the man by protesting the war," said Mayor David J. Cieslewicz, who notices all the FsboMadison signs around town. "These days we stick it to the man by selling our own home - and pocketing the 6 percent."
Elsewhere, the Justice Department, free-market scholars, plaintiffs' lawyers and countless entrepreneurs are vowing to make real estate more competitive and to bring down sales commissions. To do that, they advocate forcing the Realtors' association to share control of its established listing services. Those critics seem to view the listings as an unassailable monopoly.
And who can blame them? Those 800-plus local listing services, controlled by local branches of the Realtors' association, help dole out about $60 billion a year in commissions to real estate agents and the firms that employ them. Despite numerous attacks, the association has been remarkably successful to date at protecting its turf. Through lobbying, litigation and legislation, the Realtors' group has managed to keep control of the crucial listings.
Ms. Miller and Ms. Murphy, however, built a separate and alternative listing service - a parallel market, much like the Nasdaq, which rose in recent decades to challenge the New York Stock Exchange's dominance and sparked competition that eventually reduced transaction costs for all stock investors.
The price competition is startling. FsboMadison listed about 2,000 homes in 2005 and said that about 72 percent of its listings sell. If those 1,440 houses averaged $200,000 per sale, the real estate commissions under the 6 percent system would have been about $17.3 million. Ms. Miller and Ms. Murphy collected about $300,000.
"They don't care - they're not profit-driven," said François Ortalo-Magné, an associate professor of real estate at the University of Wisconsin who has studied residential sales in Europe and the United States.
That lack of profit motive - big profit, anyway - may be the reason FsboMadison is succeeding. Most entrepreneurs want to quickly grab a piece of that $60 billion in commissions by offering a price lower than what most real estate agents charge to attract consumers. Ms. Miller and Ms. Murphy, working patiently, are focused on providing a place for buyers and sellers to meet and exchange information.
"I don't think we've done anything unusual," Ms. Murphy said. "We are not out to take over the market, to eliminate the real estate world. We're just here to offer this service."
For hardship cases, divorces mostly, they waive the $150 fee. They refuse to accept referral fees from real estate agents, lawyers or others. Advertising on their Web site costs $150 a year - $250 with a corporate logo. And payment for listings is by personal check only, an anachronism in today's world of immediate credit card transactions. The policy is aimed at keeping people from listing their house on a whim. "Some people are impulsive; they're not ready," Ms. Murphy said.
In 1997 Ms. Murphy and her husband bought a house together and she decided to sell her place without a real estate agent. But it was a bother. "You'd have to guess. Do we put a $120 ad in the paper this weekend?"
Her husband suggested she start a Web site. At a play date with their year-old daughters, Ms. Murphy, a former nurse, bounced the idea off her cousin, Ms. Miller, who told her husband about it that night. "We both laughed about Mary Clare's stupid idea," Ms. Miller said.
But it grew on them. The cousins contacted for-sale-by-owner sellers in the local newspaper, about 25 of them, and offered a free listing on a Web site. Ms. Miller's husband paid $50 for a used power saw at a garage sale to make yard signs. They checked out library books on making a Web site. With eight listings, including Ms. Murphy's, FsboMadison went live Feb. 28, 1998.
A young couple found the site and bought Ms. Murphy's house. "We sat there and had a glass of wine," Ms. Murphy recalled. "And they said, 'Hey, there's that crack in the basement wall.' And we said, 'No problem. We'll take care of it.' "
Dealing directly with each other seemed so civilized, she said. "I keep coming back to that."
With the yard signs, some newspaper advertising and people finding it on the Web, the site took off: 333 listings in 1998; 777 in 1999; about 2,000 each of the last three years.
Briefly stay-at-home moms after their daughters were born, the cousins became busy home-based entrepreneurs. Among the first words spoken by Ms. Miller's daughter, Tatum, "was FSBO, and we were so proud of her," Ms. Miller said.
To real estate agents, "for sale by owner" conjures up some cranky tightwad trying to sell an overpriced, ramshackle house. Agents utter FSBO as if there was something foul stuck to the bottom of their shoe. "It's a commission-avoidance scheme," said Sheridan Glen, manager of the downtown Madison office for Wisconsin's biggest real estate broker, the First Weber Group.
Mr. Glen ticks off the tasks that real estate agents handle: using market expertise to price a house; advertising and showing it; negotiating an offer; organizing the paperwork for closing. "We do a good job," he said. "We deserve 6 or 7 percent."
The Justice Department sued the Realtors association in September, claiming that its rules for listings unfairly disadvantage online brokers who might stimulate price competition in the business.
Agents take comfort by reminding themselves that FSBO and other alternative sales methods blossom in an up market and tend to wither in market downturns. The market is slowing now. And they note that owner sales, which have been around as long as property rights, have always accounted for something less than 20 percent of home sales.
Kevin King, executive vice president of the local Realtors' association, runs the multiple listing service but says he pays no attention to FsboMadison. "It's not important; I don't follow it," he said. "I don't even know the people."
But times have changed. Most consumers are now accustomed to executing large transactions, including airline tickets and investments, over the Internet with little or no assistance. Buyers and sellers are now far more comfortable dealing with each other through Web sites like eBay. And it is far easier to find the FSBO offerings on a single Web site with photographs and property descriptions, not unlike the official multiple listing service. Do-it-yourselfers were hard to find among the classified ads and makeshift yard signs.
A robust for-sale-by-owner operation has also helped open the Madison market for other alternatives to real estate agents. Jason A. Greller, a lawyer, charges a flat fee of $600 to help a buyer or seller on a house transaction and handles about 200 a year. Many of his clients find a house on FsboMadison and also see his advertisement on the site.
Stuart and Sheri Meland, both 28, put their graduate studies on hold in 2002 and started a business that offers sellers a spot on the traditional multiple listing service, plus a yard sign, for a flat fee of $399. Most sellers agree to pay a buyer's agent a 3 percent commission, show the home themselves and either negotiate on their own or hire a lawyer.
William A. Black, a lawyer for the Wisconsin Department of Regulation and Licensing, says he does not think consumers who bypass real estate agents are missing much. "The majority of residential transactions are very simple: 99 percent can be done without a broker. And the 1 percent screwed up - the broker couldn't have prevented it."
Alternative listing services would need to reach a combined 50 percent to 60 percent of a market to topple a multiple listing service, Steve Murray, an industry consultant, guessed.
That is what David B. Zwiefelhofer, Webmaster for FsboMadison, would like to see, and he constantly encourages Ms. Miller and Ms. Murphy to expand. "I think this is the one place in the country where FSBO could overtake" the multiple listing service, he said.
His clients, not surprisingly for a social worker and a nurse, are embarrassed by their success, Mr. Zwiefelhofer said. "It bugs me to no end," he said. "The Web site still looks like it was designed by some high school student five years ago."
True, there are no FsboMadison business cards. The filing system is a stack of paper in the bedroom closet. The 2006 business plan, Ms. Miller said, is to "keep going." But FsboMadison does have its first part-time employee, someone to relieve Ms. Miller's husband of sign-installing duty. Ms. Miller hired a man who was her middle school gym teacher.
nytimes.com |
