"bottom feeder" sites and the mls

pac Let’s start with an analogy. I love analogies.

I come to your store and ask if I can take that really cool T-shirt out into the light to see it better. The shirt costs $8.00. You say sure. I go out and set up a little stand with your T shirt and get five people who want to buy the T-shirt. Now I come back in the store and say, I don’t want to buy anything in your store after all. But I have five guys over there who will buy your shirt if you give me $2.00 each. You scratch your head and reluctantly agree.

Now I ask to look at your T-shirt out in the light one more time please. I go out and tell everyone the shirt is only five bucks. I come in the store with 10 people this time and say OK. I still want $2.00 a shirt, but these guys will only pay $5.00. Hmmmm…

How many times do you give the guy the T-shirt to see in the light? Is the horse out of the barn, Robbie? LOL

A “bottom feeder” site does not sell real estate, never has. The original site said “put your listings here for free” so we can all look at them. It’s really cool! Look you can see it on the internet. Very Kewl! Then the site said, if you pay me $250 for each of your listings, I will put your name on it. Hmmmm…well why didn’t you put my name on it in the first place. Hmmmm…OK, I do want my name on it, so here’s $3,000 for all of my listings.

Now when you go look at your listing on the internet it has your name. But it also has a little flashing button that says click here for a school report. You click on the button for a school report and there’s some other agent’s name in there. Hey! What the heck is that all about? So you call the site and they say you can buy a flashing button that says school report and get double the exposure! Hmmmm, so you pay him another $3,000 to get school report flashing buttons on all of your listings that point to you again.

Then you go back to see your listing on the internet and at the top of the page there is another flashing button that says “find a Realtor”. Your name no longer shows on your listing unless they click for details. You say Hey! I’m paying to have my name on my listing. They say sure, and if someone clicks the detail button they do see your name. But if you want to have your name behind door number 3, the flashing button at the top of the page….another $3,000, later there’s a button in the side bar….

Bottom feeder sites and the people behind them don’t know anything about how to value homes or sell homes. Bottom feeder sites don’t ever go out and see a house, nor write up a real estate contract or accompany a buyer to a home inspection. But they do get paid when a house is sold. They post the mls on a website, just like the guy who takes the T-shirt out into the light. They then sell the consumers who want the houses back to the agents, just like the guy comes in the store with people who like the shirt. Then they tell the consumers “let’s get those guys!” Let’s tell them we only want to pay 1/3 of the old price! Then they still want to get paid their “finders” fee for finding buyers using the agent’s listings to do it.

The mls doesn’t want anyone taking the t-shirts out to the pavement anymore 😉

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About ARDELL

ARDELL is the Managing Broker of Sound Realty in Seattle/Kirkland. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and 25 years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. Follow Ardell on Google+

56 thoughts on “"bottom feeder" sites and the mls

  1. Sounds like the “bottom feeders” are merely another form of pay per lead or pay per impression advertising to me. What makes them any worse than shopping cart advertising (or other forms of ineffective marketing)?

    If an agent has to resort to that type of advertising to sell a property, perhaps they shouldn’t be an agent? Aren’t agents supposed to know how to market & sell a properties in a cost effective manner? Isn’t putting the property in the MLS (and listing it at the “right” price with the “right” commission) exposure enough?

    Granted there probably are cases in which an agent has to sell something that is unsellable, because the price the client wants is out of whack with the market (in which case I don’t know if the agent could walk away or not).

    Assuming that’s not the case, wouldn’t it be cheaper (and more effective) for a listing agent to give part of her commission to buying agent, (or give the buying agent plasma TV) instead of buying advertising?

    Perhaps, I’ve been an engineer too long to appreciate all the nuances of marketing. But it seems to me that a good realtor should know what types of advertising aren’t cost effective, and that advertising with bottom feeders are not cost effective.

    I think the problem will fix itself. The agents dumb enough to rely on bottom feeders, will go broke, starve and leave the business. The rest of the agents will decide they are better off without them.

    You’re right. “Bottom feeder sites and the people behind them don’t know anything about how to value homes or sell homes.” The problem is that too many agents don’t know anything about internet marketing (or marketing in general) and the bottom feeders take advantage of this situation.

  2. ..well, there is always a “supply” for any kind of “demand”.
    I made a post a couple of days ago about HomeGain and Birdview going into partnership.. Well, if you look at what HG charges – it kinda changes perspective of who is the “buttom feeder”, seams like agents start to work for HG now.. I’m with Robbie, the demand for this kind of service will be while agent’s are not able to deliver it by themeselves. Nobody makes anyone to opt-in for this kind of marketing. All services around reale estate industry that include marketing like advertisement, signs, cards, web sites etc. etc. etc. are “buttom feeders”? They paycheck also comes from agent’s commission. I agree about controlling MLS and not giving it away for free to non-realty competitors, but everything else is very much natural.

  3. For many, many years, the mls members were people who sold real estate. I absolutely agree with you both that someone who sells real estate who pays the money to hire a technology person should “win”. But that is not what is happening.

    Another analogy. Can you get into Princeton University just because you can pay the tuition? NO Can you get into the mls just because you can pay the measly mls dues. Apparently.

    The mls must restrict membership to those who have a legitimate reason to be a member. Somehow they have to put that particular horse back in the barn. The mls must oust any member who is not selling real estate for a living or who is not hired by someone, via a download agreement, who sells real estate for a living.

    The mls is not a public venue, it is becomong one to the detriment of the industry and the consumer. We have to find a way to fix that.

  4. You lost me, Ardell — how is a widely available MLS (a “public venue”) detrimental to the consumer? In your analogy, they’re getting an 8 dollar t-shirt for 5 bucks. I agree, it’s certainly a detriment to the industry in that it becomes more difficult to control and receive the income generated by use of the MLS. The consumer, on the other hand, benefits from increased competition — a basic market principle. Hence the federal investigations into various MLSs based on anti-trust law.

  5. Robbie/Max/Ardell-

    Agree in earnest with many of your points, particularly regarding the disconnect about marketing and value of service received. The one thing I just have never figured out is the question of the very existence of Housvalues and others. Although I am not a professional Realtor and just an observer, statistically (most would agree) the majority of home’s being sold are with the assistance of a Realtor either on both ends of a deal or the front end with a FSBO.

    This is kind of a “Freakonomics” question. In keeping with those statistics, since most persons utilizing the services of Housvalues or others actually bought the home via a Realtor, why use Housevalues at all? Why not call the Realtor that helped them initially? In fact, why would a Realtor pay 30% or other fee to receive their very own clients of just a year or so earlier?

    Reality tells me that something is broken in the long-term business relationships that Realtors have with their clients. Is this observation shortsighted?

  6. if your bottom feeders are making money, then there is value there somewhere to somebody. and that really is the bottom line. It’s economics and marketing and a situation that will cut out the middle man as the market adjusts.

    I’ll play devil’s advocate to your analogy:
    If I’m a store owner and I can sell 10 extra t-shirts for $5, and my total cost is under $5, then yes I’m going to do it. always. So what if somebody else is making money off of it by being a middleman. You could suck it up and hire someoby to do what he’s doing and pay less, or even go out to the street and do it yourself and not need the middleman.

    no offense, but this just sounds like whining to me. other realtors are making it work – or else they wouldn’t be doing it at all – so either you’re jealous that you can’t make it work, or something else…I dunno…

  7. Ardell,

    Craig hit on this but I will take it a bit further. Your analogies lose me. The MLS is (generally) owned and operated by Realtor Assns who are made up of brokers and controlled by NAR. Your shirt guy is a single business owner. I agree that the shirt guy should, acting alone, be able to make decisions on what is best for his business. The part of the analogy that you missed was that the value of that guy’s shirt was the shirt itself and not a collection of shirts that he and the other shirt sellers have in aggregation. By analogy, a single listing has virtually no value from a pure data perspective. An aggregation of listings that make market searching efficient has enormous value. Now where your analogy should have gone is that all of the shirt sellers band together and form rules as to who can have access to the shirts and under what circumstances. A far different story than the friendly shirt guy making his own business decisions.

    I believe MLSs have value, both to their members and to the public. Defining what type of “real estate” business people should be in and how much they should charge is, in my opinion, not the right value proposition.

  8. Ardell,

    Do most buyer agents tell their buyer clients that they have the right/opportunity to negotiate a portion of the agent’s commission as a rebate at closing?

  9. Russ,

    I respectfully request that you read my new comment first, and that we stick to the Seattle area first.

    Bringing in all of the mls services in the Country can come later. But for now, let’s stick to an anology based on NWMLS. Then we can expand that to the ramifications for the rest of the Country.

    I have sold real estate in NJ, PA, FL, CA and WA, so we can talk about the rest of the Country after we pin down the issues based on NWMLS only.

    Thanks.

  10. Russ asks: “Ardell, Do most buyer agents tell their buyer clients that they have the right/opportunity to negotiate a portion of the agent’s commission as a rebate at closing?”

    The first question, Russ, is do most agents disclose to their clients when they are receiving a portion of the commission as a referral fee. That answer is yes.

    When a buyer comes to me, as happened two weeks ago, and wants to buy a property on the Coast, they know that there will be a referral fee. I call an agent out on the coast to show property. I’m not driving five hours to do that. The buyer is aware that I am making $700 from the commission at closing, and they are apologizing 🙂 knowing for all that I am doing for them for that $700, that I am losing money. They are grateful for the referral service.

    The problem with the bottom feeder site is the buyer is totally unaware of the referral fee.

    As to your question, the buyer doesn’t necessarily know that I gave him $1,500 because there wasn’t a referral fee. He just knows I gave him $1,500 toward inspection repairs, or a new washer and dryer or whatever. If I had to pay that same $1,500 in a referral fee, then those monies would not be available for that buyer for any purpose.

    But disclosure is the key here. Selling buyers to agents for $6,000, without disclosing to them that when they close escrow ,$6,000 is being paid to a 3rd party bottom feeder site, can’t be good for the consumer or ethical.  The consumer should have some informed consent on that business relationship and how it ultimately affects them. 

  11. Your argument assumes that buyers can reduce their costs by negotiating a reduction in the commission received by their agents. Is this common? Do you advise your buyer clients that you would be wiling to take a reduced commission so that the seller can contribute to the closing costs or otherwise reduce the cost to buyer? Do other agents? Do agents have an ethical obligation to do so? If not, then what difference does it make whether the entire commission goes to the agent, or is split between the agent and the lead generator? In either case, the buyer has “lost” the ability to use the agent’s commission to reduce the buyer’s costs.

    I use quotes around “lost” because I don’t think the buyer ever had that ability — or at least lost the ability much earlier in the process. The commission comes from the seller. Once the buyer uses an agent to buy the house, the buyer has commited to a system (based on agreements between seller and agent/broker, between agent and broker, and between brokers) that requires payment of the seller’s proceeds to other parties. The buyer has nothing to do with that system. If the buyer wants to retain the ability to use the commission as a negotiating tool, then the only way to do so is to avoid that system and forego the agent. When buyers negotiate on their own behalf (or when they retain someone who can do so based on payment outside of the commission system), then buyers really do have 3% in negotiating power. When they use an agent, they do not, so nothing has been “lost” to the “bottom feeder.”

  12. Ardell

    NWMLS is an anomoly and limiting discussion to Western Washington is narrow….but whatever. I did read your new comment and don’t understand how it relates to my comment.

    Today, in Washington, one must be licensed in order to “procure prospects” for a real estate transaction. So, those “bottom feeder” sites that you refer to, if licensed, have all the right to procure prospects and refer them on to licensees who provide additional brokerage services. Whether there is “value” in that referral process will (and should) ultimately be decided by the consumer, not an organized body that wants to keep new business concepts out of their historical fee structure.

    For many reasons, I doubt NWMLS will be adopting a rule any time soon that says you must do real estate a certain way in order to get a data feed.

  13. Ardell

    I appreciate the fact that you williingly disclose your expectation of a referral fee but is there a law that requires you to disclose the fact that you are receiving a referral fee and the amount of such fee?

  14. Ardell,

    Speaking of bottom feeders, here’s a scenario for you Re: Redfin:

    You are the listing agent. What if Redfin hired a 1000 agents to go and stand in front of everyones open houses including yours and asked all buyers if they had buyer broker representation? If not, just sign here and we’ll represent you plus give you 2% back so can remodel that outdated bathroom or whatnot.

    How would this make you feel knowing that your chances of consumating a direct sale are 0% with the Redfinned bottom feeding shark in the water?

  15. Ardell or Russ Cofano-

    Ardell mentions: “The consumer should have some informed consent on that business relationship and how it ultimately affects them.”

    Interesting analysis. Why do consumers seem to receive business relationship disclosures AT CLOSING. Reminiscing, when I was at my signing for my own home it was at that time my agent, lender and broker disclosed to me I had the ability to shop for title, escrow, or other services. For fun, I learned after the fact that I could have saved over a thousand dollars in closing fees alone by closing at an attorneys office. The affiliated disclosure given to me at Closing was useless as a consumer. My agent disclosed nothing about them owning the escrow firm and lender.

  16. I agree with Bob Cat (never thought I’d say those those words).

    Ardell, I don’t think most agents fully disclose commission referalls and I’m not sure that’s its that important. If the referring agent has an issue with it, than they don’t have to take the referral.

    And another thing. $3,000 is A LOT to market a property online. If you are continuously spending that kind of money on marketing, it would be wise to hire someone who is knowledgeable as to what sites seem like “bottom-feeders” or not. These sites are easily distinguishable, poor design and lack of resources is the number one giveaway.

    I don’t see the MLS as the knight in shining armor on this issue.

  17. El Nino, Redfin is not a bottom feeding site, as I have said before. Almost the opposite.

    The issue with Redfin, is they seem to turn a blind eye to whether or not the buyer was working with an agent to find the property before turning to Redfin to write it up. That touches on the issue Russ mentions called “Procuring Cause”.

    Sometimes an agent can submit a claim against Redfin or another agent for writing an offer at the end, when they did not ever show that property, or any property, to the buyer. I have one in play now…will let you know how it turns out. It is not against Redfin, but someone who “pulled a Redfin” so to speak.

    Redfin may be interested in the outcome as well 🙂

  18. 14. Russ,

    I think there is a law that says a seller has to disclose to the buyer if he once picked his nose in the den, but there is not a law that says the bottom feeder has to tell the buyer if they take away $10,000 of his negotiating power 🙂

    “There Oughta Be A Law”.

  19. Craig asks: “Your argument assumes that buyers can reduce their costs by negotiating a reduction in the commission received by their agents. Is this common?”

    Historically Buyer Agent fees are negotiated in a different manner than listing agent fees. The agent nogotiates the fee down very often to make the deal “work”.

    Example: Asking price is $350,000, Buyer offers $330,000, Seller counters at $340,000, Buyer goes to $335,000 and says “Not a Penny More!” Seller won’t budge either. Sometimes the two agents split the difference by reducing their commissions $2,500 each. If the listing agent already discounted the listing fee, he says no. Buyer Agent goes to the Seller and tries to get the seller to split the difference. Seller comes down to $337,500 and buyer agent reduces the commission paid by the seller $2,500.

    This is a common form of fee negotiation.

    Another is Buyer submits offer to seller asking for washer, dryer and refrigerator that seller did not offer. Seller says no. Buyer can’t afford the house AND a washer, dryer and refrigerator and loves the house. Agent buys a washer, dryer and refrigerator for the buyer so he can have the house he loves. Low priced property, used washer, dryer and refrigerator 🙂 I don’t think there is an agent in this business for any period of time who has not bought a refrigerator.

    Yes, very often the commissions are negotiated inside the transaction at time of offer. But when the Buyer Agent has to pay that big bottom feeder site fee, he just can’t pay anymore and the buyer may lose out on the house they want.

    In many parts of the country, HUD 1s are showing the referral fee recipient.

    I’m sure buyers would like to know (and should know) if they used up their negotiating power before they even found a house, and it was not disclosed to them.

  20. Ardell,

    To Redfin’s defense, I had a conversation with their CEO the other day and he assured me that Redfin does not accept buyers who have been shown a property by an agent. The way I interpreted what he described is that when a buyer comes to them, they ask “How many properties have you seen?” And if the buyer mentions a number then they ask the obvious follow up question, “Who showed you these properties?” He mentioned that this captures most of of the people who are using an agent and that simple conversations capture the rest.

    I’m sure it would still be possible to “sneak” through their system, but to their benefit, they seem very aware that they don’t want to get on the wrong side of agents on this issue.

  21. That’s only because you and he assume that the listing agent and Open House agent are not “agents” for some reason 🙂

    The person ready to buy the property obviously saw the property with someone, and that someone was not a Redfin agent. At least as I understand the business model.

  22. Ardell,

    I know you’ve made that point before and you’re obviously right. Not only had I forgotten that point, but I missed an opportunity to question Redfin on that point as well…

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