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Posted by: Peter Coy on January 11, 2007
I give Allan Dalton of Move Inc. an ‘F’ in economics for comments he made this week at Brad Inman’s Real Estate Connect NYC conference.
The ‘F’ is for Dalton’s bizarre and economically nonsensical allusion to the 1981 movie “Escape from New York,” in which the U.S. President crashes into Manhattan, which has been converted into a maximum-security prison, and has to be rescued by “the deadliest man alive.” (I’ll explain in a minute.)
Move Inc. hosts Realtor.com, which is the official site of the National Assn. of Realtors. So Dalton, who is CEO of Move Inc.'s Real Estate Div., is a pillar of the real estate establishment. Dalton veered into film history during a lively debate with one of real estate's young renegades, Glenn Kelman, the CEO of Redfin, a Seattle-based online brokerage that rebates two-thirds of its buyer-agent commissions back to the buyers.
Kelman argued that Redfin could save money for buyers because it was designed to be more efficient than a typical brokerage. (For one thing, Redfin brokers don't solicit business or show houses. Customers find houses on their own, then use Redfin to help them close the deal.) Kelman also argued that the real estate business's percentage-based commission structure--in which agents for buyers get paid more when their clients pay more for a house--was "antithetical to customer service."
These might seem like reasonable points to the average homebuyer, but Dalton wasn't having a word of it. He told Kelman that it was dangerous to focus too much on wringing out inefficiencies and cutting commissions. He said lawyers, accountants, and others also charge big fees, and "attacking what people are making" is just not right.
After all, he said, people who make money from fees are consumers, too. "If you put all the consumers out of work because we take out the inefficiencies, there won't be any consumers," Dalton said. He also said, "It'll be like 'Escape from New York'. We'll all be in caves." Yes, that's an actual quote.
Set aside the question of whether there were caves in "Escape from New York." Dalton's bigger point seems to be that improvements in efficiency will lead to a new dark age of joblessness and chaos. Um, that's not the way things work, Allan. When efficiency improves, society is better off. Eventually, people who used to work in the newly efficient sector find new things to do.
Our forefathers and foremothers all worked on farms. Now that it takes only about 3% of the working population to produce all the food we need, are the rest of us now unemployed and running around like the crazed inmates in "Escape from New York"? No. (At least not in my neighborhood.)
I know, Allan Dalton was exaggerating for debating purposes. He even made some noises about how traditional agents should welcome experiments such as what he called the "Redfin Reformation." Still, Dalton made it abundantly clear that he thinks it's not quite cricket for people in the real estate business to attack each other's business models by emphasizing cost-cutting. Sorry, but that's how business should work. More power to the Redfins of the world.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.