Last month I posted about a cheap real estate agency called CataList Homes (who should start paying me an advertising fee for all these mentions!) and wrote that it's about time someone developed a new model for buying and selling real estate. Real estate prices keep skyrocketing, but the percentage pocketed by agents has stayed the same 6% for ages, which means agents are making vastly more money for the same amount of work -- or less work, considering how quickly many homes in Southern California are selling these days. Using the internet for price comparisons and research, it's unbelievable to me that anyone is willing to pay an agent $30,000 for at most 40 hours of work to transact a $500,000 home. If agent fees weren't generally rolled into mortgages and nearly invisible to buyers and sellers, I doubt anyone would stand for it.
In addition to CataList, an entrepreneur named Brian Hickey has created a company named Xchange Properties that specializes in trading teardown homes at greatly reduced commissions. The article describes the teardown trend in Chicago, but the situation is similar in Los Angeles, and probably other places where the land under the house has become several times more valuable than the structure itself.
THE Hinsdale suburb of Chicago is often referred to as the epicenter of the teardown trend. Builders have been demolishing the affluent village's early post-World War II housing since 1985. For some time, Hinsdale has averaged close to 100 property demolitions a year, according to Bohdan J. Proczko, the village manager.
For Brian Hickey, the proliferation of orange fencing cordoning off properties under demolition heralded a new type of real estate market. A former securities trader, Mr. Hickey envisioned a separate property exchange where sellers could market their properties directly to builders without having to pay a full sales commission or go through the charade of house showings.
Hence the creation of Xchange Properties, a real estate company specializing solely in teardowns. Xchange maintains a database of about 3,000 potential buyers who have registered for exclusive access to listings. About half of those buyers are builders, Mr. Hickey said, while the rest are primarily real estate agents and individuals.
Best of all, Xchange bypasses the traditional real estate establishment.
Xchange operates outside traditional real estate channels. The company does not cooperate with multiple listing services and sets its sales commission at 2 percent, far below the typical 6 percent charged by most agents and brokers. All Xchange listings are sold "as is." Information is sent electronically to registered buyers according to their specifications. Since opening, Xchange has listed about a third of Hinsdale's teardowns every year, for a total of 223 sales. Xchange now has 48 active listings in Illinois and 24 pending sales.
I can't wait for them to come to Los Angeles. Chopping 4% off the price of real estate transactions would greatly reduce the risk of investing in property.