The XBroker: Marketing your Competitions Weakness

Marketing your Competitions Weakness

This was posted Tuesday as part of the Yankee Blog Swap....I have pull the identical article over here..I want to thank Jon Earnest, The Property Monger and his off center sense of humor...and the fact he's a Yankee basher ;)

In honor of my fist Yankee Blog Swap, and considering The Property Mongers audience, I felt like a post addressing the real estate sales community would be in order.  There’s nothing like a little debate to spur blog traffic!  No worries Jon, you can always point the fanatic to me as the source of such socialist banter ;)  I just hope I didn’t overextend the nature of the YBS by writing about a ‘serious’ topic.  Keep the title of this post in the back of your mind whenever you feel some emotional response to the words you read…

 

Prelude:

I’ve read, and expanded on (mostly mortgage related) a critical assessment originated by Mark Nadel, a 15 year FTC attorney, regarding alternative commission models for real estate agents.  It’s a very well thought piece, 75 pages long, with the research you’d expect from, well, a 15 year FTC attorney.

Since I was enrolled in The Swap just yesterday, some quick research has turned up:

Kevin at 3Oceans tackles the economics of implementing some of the changes for the Realtor

The guys at Sellsius gave their futuristic outlook.

Greg Swann chimed in with his usual condescending tone;)

Ardell, always there to keep Greg in check, gives her $.02 on The Rain City Guide

Steven Levitt, The Freak of Economics himself, even had time to weigh in, since Mark dutifully cited his accomplished work.

So…I’ll keep to addressing some of the madness that causes these alternative methods to the current and antiquated 6% split model to be hypothesized.  I prefer to dig up the psychological and otherwise less apparent underpinnings of such calls for 'blood in the streets'.

Encompassing all facets to appropriately address this topic would result in a 14 page thesis, so I’m going to break it up into a few parts, published weekly.  Part 1 appears here on the Property Monger via the Yankeeblogswap.com and will continue on my X blog for a few weeks hereafter.  Jon has my permission to post them here as well  Anywhoo, on with part 1, the Why….

 

Part 1

Why Has the Standard Realtor Rate Structure (and Rate Levels) Remained Dominant?

It's Big Business Flexing it’s Muscles. 

 

Brokers Recognize the Power of the NAR

With about 1.3 million members, 326 the NAR is the largest trade association in the nation.327 Its members’ presence in every voting district of every state legislature and large campaign contributions make it one of the most powerful lobbyists in the nation,328 and led one state official to note “virtually no proposed legislation relating to real estate has a chance of passage unless it is approved by the state association of realtors.”329

In other words, any significant change would have to come from inside out, organic, virally, etc

 

State Real Estate Commissions Protect Traditional Business Models

Most regulation of real estate brokerage is a result of state law and state real estate commissions created by state legislatures. Although the laws and commissions are presumed to be intended to protect consumers, a 2006 Consumer Federation of America (CFA) survey of real estate regulatory agencies in 47 of the 50 states found that more than 70 percent of commissioners were real estate brokers or salespeople.334

Given the presence of real estate agents in every state legislative district and the availability of state affiliates of the NAR to manage industry lobbying and campaign contributions, it is not surprising that states have generally protected traditional brokers from entrants with new business models.

Many state bodies enforce prohibitions against rebates to home buyers and many require sellers to purchase a minimum bundle of services that many sellers do not desire.335

Self-Government usually isn’t fertile ground for progressive business practices to grow. 

 

MLS Access Rules and Local Boards Can Discipline Non-Traditional Brokers

One way that traditional brokers have discouraged entry by brokers with business models that threatened to introduce price competition is to limit their ability to use the critically important MLSs.  3rd Party access to the fragmented MLS’s is vehemently opposed by the NAR.  They place restrictions on the display of MLS listings online, which triggered the 2005 DOJ antitrust lawsuit…which has dutifully progressed, and not on the NAR’s favor. 


MLS listings are required to include the fee offered to the buyer’s broker, which may facilitate the practice where agents working with buyers may intentionally fail to inform a client of an attractive offering, because other listings will yield the agent a much higher commission.

 

Of course, the power of traditional brokers to use the MLS to discriminate against non-traditional firms will disappear if Google, Zillow or others offer an MLS-like online, easily-searchable database that displaces current MLSs or MLSs change to compete with Google, Zillow et al.347

 

Consumers are Ignorant of the Many Options That They Could Reasonably Demand

Propaganda at it’s finest:

Around 1980, undoubtedly due to the long history of fixed rates in the industry, about half of all sellers believed that commission rates were fixed and non-negotiable and that the fixing was done either by law or by “the Board of Realtors.”348

The 1996 Kiplinger’s “Guide to Buying & Selling a Home” stated that commissions run typically at 6 to 7 percent and that “[a]s a practical matter, you won’t get very far negotiating a lower rate unless you have special circumstances that make your property more economical to sell than others.”349


In 2006, a columnist for Inman Real Estate News continues to recommend that sellers not try to negotiate a listing broker’s commission before signing a contract.

 

The Bloodhound Blog offers a compelling solution on how to negotiate with buyers agents here

As disintermediating technologies continue to displace traditional Realtor tasks, consumers will begin to gravitate toward alternative models.  Which one?  Can't tell yet, but be assured, it will reach a tipping point.   

 

Traditional Brokers Have Successfully Portrayed Discount Brokers as Inferior

 

To defend themselves against lower priced new entrants, traditional brokers have heralded the old adage: “you get what you pay for.”353 They imply that brokers with lower prices must be skimping on quality and/or services354 compared to the “full service” offered by traditional brokers, although conveniently they fail to define full service.355

Although there is a simple refutation to this insinuation, few buyers or sellers hear it, because there is no entity with the funding and mandate to effectively counter the NAR’s marketing. If there was, it could point out that if a listing broker who charges $18,000 on a $300,000 home can afford to provide full service, then a broker charging only a 4.5 percent commission on a $1 million home ($45,000) can too. Yet when media firms criticize protectionist tactics of traditional brokers or praise new firms, vocal brokers accuse the media of being misinformed and biased.356


The purchase or sale of a home is such a major transaction to most home buyers’ and sellers’, merely planting seeds of doubt about the quality of non-traditional brokers is often enough for traditional firms to scare buyers and sellers from using such new entrants and sticking with traditional brokers.

I have been browbeat with this tactic almost daily. Offering someone a better value for relative services, gets one stereotyped as ‘cheap’ by competitors, even if my net bottom line and measured service is better than theirs…

 

FINALLY:

Three conditions indicate many Realtors overcharge for their services:

First, many former employees of traditional brokers are now willing to provide full-service for flat fees of less than $5,000.321

 

Second, traditional brokers are willing to provide full service for the sale of a $150,000 home for $4500 (half of the six percent) in fee. 

The costs to agents of handling the sale of a home priced at $500,000 for their half appear be very similar although the commissions they charge would = $15,000

 

Third, brokers in other nations now charge much lower fees for providing similar services.323

The commissions paid on the purchase and sale of the highest-priced homes are particularly vulnerable. Vigorous price competition could very possibly reduce total revenues for brokers precipitously, by $30 billion or more annually.324

This gives traditional brokers a strong interest in resisting this result. As an agent for a large, national, traditional brokerage firm explained in a September 2006 email to a friend who had just listed her home with a flat rate broker:325

 

I love you guys but why would I want to sell your property? Most full-service agents in ___ County want to remain full-service agents and I am one of them. Why would any full-service agent want to help a flat rate broker? None of us do. We don't want to become flat rate agents and if flat-rate agents become successful then we would all have to become flat-rate agents. They have a VERY small % of the business out there. We want to keep it that way. If I can avoid showing Help U Sell properties or Assist to Sell properties I also will not show them. When you list with a full-service agency then you have the co-operation of most of the agents in ___ County. A 3% commission with a bonus is not enough incentive to put a nail in the coffin of our industry. . .

Now, she’s got an interesting outlook…

 

 

I wrote this post to demonstrate what many of the early movers in Real Estate 2.0 are up against, no small task to say the least, as well as point out some distinct marketing angles that some may (and do) choose to ‘exploit’.  I’m not an objective expert like Mark, but I do know opportunity when I see it.

It’s a bold but effective way to differentiate oneself from the maligned and stigmatized industry…from the teachings of Seth Godin, to not be different is to be dead…moo.

Thanks to Mary McKnight who somehow has found a way to extract more than 24 hours from a day...Proper recognition to all YBS participants are here .

 

Next Week:

The How….Six Disclosures that Might Stimulate Price Competition….

 

Many thanks to Mark Nadel, all citations are located here originally from his core piece

Comment balloon 43 commentsJeff Corbett • December 21 2006 10:06AM

Comments

Jeff,

Your not just asking for friendly debate, your declaring WAR on real estate agents!!! Actually it makes me chuckle to some extent. I know agents in general love to attack mortgage brokers and they money they make on a loan, and I know you've been particularly hard on mortgage professionals as well, but real estate agents need to look in the mirror as well.

I personally have had experience with flat fee agents and in general are not impressed.  I think the flat fee business model works better with the do-it-yourself crowd of sellers (next step up from FISBO), and some sellers just need more help (why you need full service agents).

But that begs the question, WHAT DO I GET FOR THE 3% or 2.5% that your making on the transaction.  I know the buyers agent is running around earning their 3%, but most listing agents do not EARN their commission.  Yes, I've heard the "blah, blah...I have marketing expenses", but the reality is the agent puts the house on the MLS and "BINGO" they've done something special for their client.  Let me clue you in, so does the flat fee agent.

I'd love to see an agent interview with a client and bring out the big guns. Like a full marketing plan on that clients house, including the money the agent will spend selling it  (hey we have to disclose on the mortgage side), and what the over all strategy is going to be if they don't have it sold in 30 days, 60 days, 90 days.  The problem is that the average run of the mill agent has no clue how to sell the home, they rely on their broker/dealer to help them through the process and unfortunately the broker dealer isn't the agent on record who's selling their clients home!

Anyway, love the shot across the bow, expect it to get alittle hot in here!!!

Posted by Karl Christen (Independent Leadership & Financial Fitness Consultant) over 12 years ago

Jeff, I thought about not touching this one, but as usual, that lasted about a second. I have my filters turned off today.

The last house I sold here in Los Angeles sold for about $1 Million. I don't negotiate fees with my Realtors. He had full commission at 6%. That's $60,000 in total commissions. Say that out loud. And this was three years ago, so the market was RED HOT. I could go on a tear about how bad a job this particular agent did, since I had to practically BEG him to put up multiple photos on Realtor.com and in the end, the people who bought the house came as a result of a Show I created by hand and forced him to attach to the listing and my realtor got both sides of the deal.

Does it really cost, in time, effort and real out of pocket expense 10 times more to sell my house at $1,000,000 in Los Angeles, CA than it does to sell a very nice $100,000 house in Parkersburg, WV? 

I'm not sure flat fee is the answer, but the Internet has changed how consumers find homes. In the end, clients will decide. I would not attempt to sell my house without an agent... but every single one of my under 30 developers would. Change is inevitable. The question is this, who is going to negotiate it?

I'm still thinking about not hitting the submit button... ah, what the heck.

Posted by Jeff Turner (RealSatisfied) over 12 years ago

Jeff and Karl...Thx for the comments...

Im not really proposing what the alternative method is (yet), and agree, a straight up flat fee probably isnt the answer.  

I wouldnt sell my property without a Realtor either...I do believe that Realtors, the early movers if you will, stand to position themselves for great benefit by considering and implementing an alternative strategy to the current model, which is economically inefficient for the consumer and the Realtor...Kevin @ 3 Oceans (linked above) goes into more detail about these alternative commission models and their components....

I believe that Realtors with an entrepreneurial infection stand to really make out, considering what I have outlined above.  The public is looking for an alternative, not a replacement, just a model that better coincides with the times and technology.  

This post is relative from the point of identifying a weakness in your competition, to foster some differentiation and beneficial change in an industry that, more often than not, turns out clones. No one in the AR community, of course :) 

The Realtor community is HUGE.  A small % are Top Producers (if it aint broke, don't fix it) but the vast majority must scramble to 'make it happen'.  It is this demographic within the greater community that has the most to gain...by considering alternative revenue models, and exploiting some of the facts (maybe not so bluntly) that give Realtors a 'bad' name.   

Im not casting stones by any means...just touching on some of the opportunity that is there for the taking, for the Realtors who are willing to consider stepping out of their comfort box...

 

Posted by Jeff Corbett (BoomTown) over 12 years ago

Jeff,

Another blog war coming?  The last stirred the pot rather well, and i suspect this one will also.  I echo Karl's comment as well.  Thanks for the post and the interesting info.  I am looking forward to more along these lines.

Posted by Robert D. Ashby, Turning Visions into Photographs (and Videos) (Visual Approach Aerial Photography (Visual Approach Photography)) over 12 years ago

Hey Jeff. Get off my money!!!!!!!!! Just kidding. I think there is room in the market for all of us whether we choose to charge a higher commission or not. Let the consumer decide. Personally I'm not concerned with it at all. I will just keep moving forward.

BUT the so called "discounters" are able to stay in business because of the "old fashioned" co-brokes that I offer. A company charging a fee to enter a property into the MLS is making their money on the buyers not the sellers. The goal is to get as many listings and signs in the ground to attract buyers for mortgage services and to sell them full commissioned listings that are offering a good co-broke. There is nothing wrong with this biz plan in fact if I didn't mind working with Buyers I may even consider it myself, however, it will not work unless they are receiving good co-brokes.

Buyer rebate companies are also mainly buyer brokers and are also depending on me offering a good co-broke. So really as I stated earlier, with out full service, full commission companies these alternative plans would not work. IMHO 

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 12 years ago

BB...let me throw this scenario at you:

Your company practices 'tiered pricing' (I think I got the name correct), whereas you advertise a low price on the MLS to generate greater interest.  Assuming this is correct, lets say your 'low advertised price' is $300k.  

Would you consider listing the property for a nominal fee, say $2000, and agree to a 30% split for every dollar above the $300k baseline you established with your client?  So if you sell the property for $330k, you would pocket $2k + 30% of $30k or $11k.  Which turns out to be similar $$ if sold conventionally under the 6% model.  

This type of scenario seems to align the incentives of the Realtor and client much more tightly.  If you dont 'perform' and can only sell the property for $305, you only get $3500...but if you hustle and stage correctly and up-sell the home effectively, you get a greater cut in commissions and the home seller gets to realize more of the upside as well...

How to address buyers agents is another ball of wax...but do you see how this makes more sense from a consumers standpoint?  They see you are paid based on performance (obtaining the best price for the home).

Its a remedial example,  I know there are some variable to consider, but this type of commission arrangement seems to make better sense...Thoughts?

Posted by Jeff Corbett (BoomTown) over 12 years ago
This is going to be a fun comment stream to watch. Psychologically speaking, any compensation system that appears to be "performance" based is going to seem more fair. I remember when Ricky Williams, pro football, took a lower salary in exchange for a performance based compensation plan that would get him far more than he would have gotten if he had taken straight up money. My thought at the time was, "Wow. Now that's what I'm talking about! You perform, you deserve the money." I'm not saying your comment above is the right solution, but it's creative thinking like this that will lead, ultimately, to a solution everyone can be happy with, clients and agents alike. Mo Ideas Betta.
Posted by Jeff Turner (RealSatisfied) over 12 years ago

Jeff, this is a question that Brian Brady had posted a few weeks ago. Compensation based on performance. IMO it just complicates matters too much. When negotiating a transaction it could be very difficult working numbers for a seller when the commission keeps varying at different price levels. Negotiations should be 100% between the seller and the buyer with out any outside money issues coming into play. The reality is the property will sell close to market value no matter how it is priced or how much compensation is being offered the listing broker. I can't sell a property for more money just because the seller is willing to pay me more to do so. It doesn't work like that.

Now Jeff I could be mistaken. It's hard for me to relate to these things because I always try to get as much as the market will handle for my sellers. I would never try to convince a seller to accept an offer just so I could get paid. But I'm sure that happens.

I'm going to put this in my head over the next few days and see If I can come up with something that may work for me. It will give me something to do while my grandkids destroy my house:) 

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 12 years ago

Hahahhaha!!!!!! Very good....

 

Merry Christmas, right? 

Posted by Jeff Corbett (BoomTown) over 12 years ago

Mark...Its really all about the consumer, however the primary audience here is 'The Realtor'.

A consumer-centric post on this topic would be worded much differently (by me) and definitely would draw the ire of the greater community...something Im not akin to do :) 

This arena affords great feedback from some of the best in the industry and assists me in my own critical thought toward the progression and practicality of different/alternative commission models.  I believe whatever new model(s) do(es) arise from these (and greater) discussions will have to be win-win, for the consumer and the Realtor.  Some will always prefer the 'old' way but more and more consumers are looking for 'that' alternative...

Align a sound alternative with a practical Realtor and critical mass begins to happen...we are in the organic stages right now...change is coming...ooooohhh ;)

 

Posted by Jeff Corbett (BoomTown) over 12 years ago
and to answer your comment...yes I believe 'power' is shifting to the consumer to decide how much and to whom, with greater knowledge comes greater leverage.  
Posted by Jeff Corbett (BoomTown) over 12 years ago

Power IS shifting. But it does not make my services any less valuable. In fact, the more "educated" my client, the more they want  a full service broker. Commissions ARE NEGOTAIBLE and consumers will just have new ways to negoatiate - but, then again, so will agents.

Here's another random piont. Let's stay away from saying "discount" brokers, as that implies that there is a "norm" in commissions - and we all know that commissions are NEGOTIABLE, right? Let's call them "Limited Service" brokers instead.

Again, I welcome all the new info and competition out there. Here is my "broken record" comment:

The internet, the information, limited service brokers and different business models will just make for good competition. It will force the good agents to become better and the so-so agents to find a new line of work. Bring it on!

Thank you Jeff for an intriguing post, again.

Posted by Derek and Mariana Wagner, The Artisan Group - Colorado Springs REALTORS® (The Artisan Group- Keller Williams Premier Realty ) over 12 years ago

"X"

Y here. :) Good topic man. You're gonna hit a few nerves on this one. SVW. Like this :)

"Real-A-Jeff aka Jeff Turner" beat me to my comment. I am hijacking part of his comment. :) ha! ha! ha!

"This is going to be a fun comment stream to watch." You got that right. :)

Oops. Gotta go...The Grand Kids just built a fire in the downstairs guest room. :)

Maybe I should not have told them to pretend they're camping out. LOL and SVW (smiling very wide)

TLW "The Lovely Wife"...Hey. I Can Watch This Fire. That Promises To Be Fun. :) ROAR!

Posted by "The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW. (President-Tutas Towne Realty, Inc.) over 12 years ago

What about fiduciary responsibility? With tiered (or whatever) pricing, it is implied that the commission is directly connected with the tasks performed. Isn't it our fiduciary responsibilty to get our clients' homes SOLD? Also, Isn't my commission based on the the results (bottom line/timeframe) that I provide, not the vehicle (tasks) that I deliver them in?

I guess I have a hard time not doing my BEST for my clients, as doing my BEST is my job, right? 

Now, they have every right to "negotiate" a different commission. But I also know what I am worth, and that my fiduciary responsibilty to my client is worth more than any commission that I will ever get. I do not feel the need to water down my responsibility in order to be paid-per-task. So, it boils down to this: If a client wants full service, it will include full fiduciary responsibilty, as well.   ...and yes, You get what you pay for.

But ... all that said... All these NEW business models to not frighten me. They will just keep me on top of my game. And MY game is not for everyone.

Posted by Derek and Mariana Wagner, The Artisan Group - Colorado Springs REALTORS® (The Artisan Group- Keller Williams Premier Realty ) over 12 years ago

I live in California.  My home is worth approximately $375,000.  I know and work with the best Real Estate agents in my region, and I would have absolutely no problem paying 6% commission.

Maybe things are changing out there, but every statistic in my location says that the ones who charge 6% or so sell the houses for more, and that the FSBOs hardly ever sell at all.  The name of the game is marketing it right, selling it fast and getting a fair price.  I don't see the incentive to perform with a lower commission...is it just me?

Posted by Jolynne Photography, Creative Wedding Photography, Family Portraits, Bar Mitzvahs, Bat Mitzvahs, Senior Pictures, Event Photography (Jolynne Photography) over 12 years ago

Jeff, another thought provoking post. You do have a knack for it. Some of these comments are articles in themselves! Very good stuff, I'll be back to see how the conversation travels.

 

Posted by Mark Flanders (Consulting) over 12 years ago

Jeff the Xbroker:

Oh crap!  Here come those horns out again!

Great post chock full of information.  I was particularly intrigued with the fact that the consumer is ignorant of the many options available.  In a vacuum of information, proactive brokers will offer alternative fee models that will lead the market.  As Bryant stated, I did offer an alternative to the current model (incentive based pricing).  Extremely rough in design, it  is something I would opt for as a consumer. (Pardon the plug but you brought up the tiered structure above a baseline price). I think the American consumer is an extraordinary "tipper" when he/she gets good service. 

Broker Bryant, I'll disagree a bit when I say the consumer wouldn't understand it however I think you've just come to that realization yourself .

Realtors...here is a call to action.  Why not create and offer an incentive-based model that rewards you for what you do best; price, market, and negotiate? Because it's different?  You don't have to adopt the new pricing model across the board, just offer it as an aletrnative.  Let me expand upon that:

The X Broker (Jeff) offers a unique pricing model for mortgage brokers.  Should I run away from it (as I indicated earlier)?  The anser is a resounding NO.  Jeff doesn't require me to exclusively price my services this way, just the transactions that come to me via his model.   Do I have to change my business to accomodate that pricing model?  NO!  Now I have the option of pricing my services traditionally or to try a newer compensation model that actually pays me better on a "dollar per hour" basis. (if done correctly)

McDonald's found out that the consumer wants salads on the menu.  Now they sell more hamburgers than ever before.  The American consumer wants, craves, needs a variety of choices.  They may very well accept a 6%, fulls ervice model when presented with incentive-based pricing or a menu of services pricing approach. 

Be different.  Be unique.  Be proactive.  Be profitable!  Offer the salad and you'll sell more burgers than you ever did before. 

Posted by Brian Brady, 858-777-9751 (San Diego VA Home Loans/858-777-9751) over 12 years ago

Hey Brian,

First I said it would complicate negotiations not that he consumer wouldn't understand it. And I believe the consumer would manipulate it anyway they could to save a buck.

BUT I'm always open to new and improved ways of doing business. Be different.  Be unique.  Be proactive.  Be profitable! I already am!! Personally my goal is not to sell more burgers. I work on quality not quantity. I would rather do less deals for more money.

I do think the consumer should have choices. There is room in our market for all biz plans. Some will succeed and some will fail.

I guess I'm just the wrong guy to be selling to on this type of concept. I'm already rewarded very well for what I do and have no issues at all with getting business. I turn business down everyday. Try my competitors they're the ones hurting:)

 

 

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 12 years ago

BB and Brian....Great opinions and examples...thx for taking the time to spell out your thoughts. 

The 'Negotiate a baseline price and split the upside' alternative is but 1 of many...Im going to begin posting 6 types of alternatives to the traditional model of 6%.  Is any single one a solution, probably not, is a combination, a hybrid, possible?  Sure.

I would like to state again...In my opinion it's less about the actual dollar amount Realtors make, but more the actual system used to arrive at the price.  A model that aligns the incentives of the Realtor and the consumer more closely (from a psychological standpoint, if nothing else) is the type of model that will most likely prevail.  It must be a win-win for both sides.  Allowing the consumer to feel and know they have a clear opportunity to negotiate is an important factor. 

It will be an interesting journey...

Mariana, I have no doubt that whatever commission structure you choose, you will be successful....I sense alot of TLW ROAR in you!!   The Force is strong with you ;)

Joey...The 6% model is very very very standard today, and finding a Realtor who does deviate is rather few and far between, in large part because of the "Traditional Brokers Have Successfully Portrayed Discount Brokers as Inferior" section of the post.  Alternatives are far from the norm today, but a few are gaining traction. 

 

 

Posted by Jeff Corbett (BoomTown) over 12 years ago

ooops...forgot one more thing...

The Top Producers are least likely to consider/adopt change....If it aint broke, why fix it?  I understand that 100%....

Isn't there some crazy ratio along the lines of 10% of all agents make like 90% of the commissions?  Whatever it is, there are 90% +/- of agents that are looking for an edge...an alternative model might be that edge that gets them the business they previously weren't capturing....

 

Posted by Jeff Corbett (BoomTown) over 12 years ago

Jeff, I think the ratio may be even higher than that. And that's a pretty sad state of affairs. Your statement about Top Producers being the least likely to change their current model is absolutely correct. There is a tremendous difference between what we do and what the average Realtor does. That's why we are Top Producers. And most of it is related to people skills. We know how to make folks feel good about themselves and their decisions, plus we get the job done. We are experts at keeping people focused on the end result. And there are a lot of sellers willing to pay top dollar for that. Alternative biz plans will make what we do even more valuable.

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 12 years ago

I agree with Jeff, BB.  If it ain't broke don't fix it.   You innovated with range pricing long before it was popular.  I think if you are aware of the changes and prepared to innovate, you'll continue to thrive.  

If you have a great running game, pound it up the middle.  Just have a stud QB ready to launch a passing game if the defense figures out your initial game plan.  If the defense can't stop it, continue to run the ball.

Posted by Brian Brady, 858-777-9751 (San Diego VA Home Loans/858-777-9751) over 12 years ago
Jeff X, thanks for joining in on the Birthday games.
Posted by Maureen Francis & Dmitry Koublitsky, Coldwell Banker Weir Manuel (Coldwell Banker Weir Manuel) over 12 years ago

See. Those are my thoughts. If it isn't broken why fix it? :)

I do feel that some folks could use a boost in the Real Estate biz. The biz model you propose may be just what they need. :)

In my opinion the more Consumers try new things the better it is for us. They will find out on their own why they need top producers.

The biz model you propose here will actually create a greater need for top producers. :)

All just my opinion. An educated one of course. I have been in the Real Estate biz for a very long time. I have seen a lot of biz models come and go. What I never seen is top producers coming and going. They pretty much hold their own. 

TLW...ROAR!

Posted by "The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW. (President-Tutas Towne Realty, Inc.) over 12 years ago

Joey....If a Realtor did not show your home (or any home) because it offered less in commission, it would be illegal....a type of 'steering'....

You stated: "but every statistic in my location says that the ones who charge 6% or so sell the houses for more"

Partly because if there is a 6% expense added to the true sales price (the sellers net proceeds), the home will as a matter of %'s, sell for higher.....Realtors be nice!  I know there isn't a 1:1 correlation here...just debating a point :) 

Ill also point you back to the post:

Traditional Brokers Have Successfully Portrayed Discount Brokers as Inferior

To defend themselves against lower priced new entrants, traditional brokers have heralded the old adage: “you get what you pay for.” They imply that brokers with lower prices must be skimping on quality and/or services compared to the “full service” offered by traditional brokers, although conveniently they fail to define full service.

and

As an agent for a large, national, traditional brokerage firm explained in a September 2006 email to a friend who had just listed her home with a flat rate broker:
  • I love you guys but why would I want to sell your property? Most full-service agents in ___ County want to remain full-service agents and I am one of them. Why would any full-service agent want to help a flat rate broker? None of us do. We don't want to become flat rate agents and if flat-rate agents become successful then we would all have to become flat-rate agents. They have a VERY small % of the business out there. We want to keep it that way. If I can avoid showing Help U Sell properties or Assist to Sell properties I also will not show them. When you list with a full-service agency then you have the co-operation of most of the agents in ___ County. A 3% commission with a bonus is not enough incentive to put a nail in the coffin of our industry. . .

 

Just for clarification:

Im not saying the example I provided is the solution (far from it), just a quick and remedial example to demonstrate how commissions can be charged and similar money can be made...the big difference is how the consumer views the transaction.  

Consumers (for the most part) do not like (well, hate) the 6% model.  Assuming this is true, there has to be a middle ground where good Agents can still make great money while catering to the general consumers issues.  

Lets face it, consumers play the game because they think they have to...for fear that choosing an alternative will yield an 'Ill get blackballed' from traditional agents.  This is a very common feeling, far from just my opinion.  The NAR has traditionally had a lock on listings and is trying desperately to hold on to them, while they get a PR beating and an anti-trust lawsuit slapped on them in the process.

Right or wrong, what happens if the DOJ is successful in their lawsuit?  It doesn't matter who you are or how successful you've been, you're gonna have to change strategy because the rules of the game have changed.  How do you play the game of 'open listings', and parlay the economic repercussions it could/would have?

No attacks now....lets have fun with this...plz ;) 

 

Posted by Jeff Corbett (BoomTown) over 12 years ago

Let's examine a menu of services approach (from linked blog): 

Let me show you what a "menu of services" might look like:

$299- listed on the MLS

$299 plus 3%- above plus an offer of co-brokerage to the buyer's agent

$299 plus 4% - above plus contract negotiation and disclosure package

$299 plus 5%- above plus 500 just listed post cards and three open houses

$299 plus 6%- above plus call capture technology, virtual tour, broker's open, 6 open houses with print advertising, 100 just listed post cards and 100 just listed postcards to area agents

$299 plus 6.75%, -above plus digital docs CD at closing and on-line transaction management

Just an example, folks.  You'll notice that I always make a true "full-service" transaction to be higher than the 6%. 

 

Posted by Brian Brady, 858-777-9751 (San Diego VA Home Loans/858-777-9751) over 12 years ago

Hey Jeff,

Not showing a listing due to an unacceptable co-broke is neither illegal or unethical. As Realtors we do not have to show properties that do not meet our minimum standard of pay. Of course you should disclose this to your buyer even though you are not obligated to do so. The best way around this is to have a Buyers Broker agreement where your buyer guarantees you a certain minimum percentage.  

I totally agree with your statement, that properties where the seller is paying a 6% commission usually sell for more money. Why? Because really the only figure that matters to a Seller is the net. If the Seller could NET the same by taking less he would. Hmmmmmm....think about that for a minute.

OK have you thought on that. Now....if all Realtors started listing homes at say 3%, then based on the above statement, over time, property values would decrease by that amount. So really the Sellers net would be the same either way. Therefore why would it matter how much we charge the Seller? It matters because Realtors charging more for their services ARE able to provide more services to the seller. They are able to concentrate on quality over quantity.

Oops! kids just got home I'll be back

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 12 years ago

Bryant couldn't be more right on in his last thought - compression in fees does not change the net to sellers at all over time, as the market will adjust the buy price lower then to still give the seller the same price.  But wait, doesn't that same logic hold true from the opposite side, that prices should all stay the same because buyers are indifferent at the same price, and therefore, sellers all get the savings between 6% and 3%.  I have to say the reality of a competitive open marketplace does suggest that prices will go down, over time, by 1.5%, netting the buyer a 1.5% savings, and the seller a 1.5% benefit, so indeed the consumer does get the benefit.  Therefore I have to disagree with BB - IN A PERFECT WORLD.

This, if it could happen today, takes a lot of time, it is not instantaneous.  It also assumes that buyers and sellers can still get the service they need and want under the suggested reduced fee structure paradigm.  I'm not willing to keep working at some point in the same industry for half what I make if I'm putting in the same work and adding the same value.  If I don't have to add the same value, I cand take a lower fee - and offset it by doing more volume at that same reduced value proposition point.  There may be, in fact there are, people willing to work for less, but for those of us that can say with confidence and results that confirm we are at the top of the heap, we cannot be replaced in that value proposition, and there is always a place for that. 

It is mediocrity that is always at risk of replacement, but that has always been the case, there is suddenly changed in the universe today that is against the "traditional" model so much so that it isn't every bit as as great a benefit to the smart incumbants as it is to the would-be replacements for them, and just like in politics, incumbants don't get replaced for being decent but not great, they get replaced for screwing up.  Those that screw up are on their way out and always were.

Jeff, I think you took the prize for the longest blog I've ever seen on AR...

Posted by Gabriel Silverstein, SIOR (Angelic Real Estate, LLC) over 12 years ago

OK, I'm going to jump back in. Still against my better judgment.

i'm not a big believer in the "if it aint broke don't fix it mentality." Not when it comes to times of challenge. In times of change and challenge, I'm in the "if you're going to be cannibalized, cannibalize yourself." You can choose to eat an unwanted apendage, but your competitor is going to try to eat your heart. (OK, that may be a bit harsh. Think Tiger Woods at the top of his game. He "breaks" what is the best swing in the world to make it better.)

I asked this question a few comments back and it was never addressed:

"Does it really cost, in time, effort and real out of pocket expense 10 times more to sell my house at $1,000,000 in Los Angeles, CA than it does to sell a very nice $100,000 house in Parkersburg, WV?"

Are you really worth more just because you're selling a more expensive house? This is what befuddles consumers. Should they care? If not, why? For me, questions like these help move people off the status quo and start thinking about new ideas. Most of the new ideas won't ever be acted on, they'll never be more than an idea. But they lead to better ideas.

Just food for thought. 

Posted by Jeff Turner (RealSatisfied) over 12 years ago

Jeff, I don't sell upper end properties so not really able to answer that question. How about this though, to put commissions into perspective. I have been in the business for 12 years and have sold hundreds of homes. My largest commission ever was $14,000. I average $6,000 to $7,000 a transaction and I'm the Broker. An agent in my market would get half of that.

When a seller hires me they are not just paying me to sell their house. They are paying me for what I bring to the deal. These are the intangibles. My ability to get deals done. My knowledge. My relationships with other Realtors. My out of pocket expenses on their particular property will be next to nothing. My effort on their individual property will be minimal. I will sell homes next month whether they list with me or not. They ARE paying me to get into my system, my flow of business. And based on my proven history they can be positive that I will sell their house. It's not guess work for them. They don't have to wonder if their house will sell.

I don't get paid to sell houses. I get paid for solving peoples problems and keeping them focused. I am an expert at dealing with people. I haven't taken a listing I didn't sell in years. It just doesn't happen. And that's why people are willing to pay me.

Now I agree completely that commissions are market driven. In 2005 commissions were at an all time low in my area. It was such a strong sellers market that anything would sell. The discounters were out in force and were selling properties. Because of this I reduced my commissions slightly in order to get listings. It didn't really matter because I could sell any house in a week. But now that the market has changed my commissions are on an upswing. While other Realtors are struggling to make ends meet my business is thriving. Why? Because I get results. Sellers want to sell and they know if they list with me it will happen. They've been the discount route and it didn't work. Heck, maybe I'll charge 8% next year.:) If I did I would get it all day long. But I prefer to be fair and give them the discounted rate of 7%

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 12 years ago

Bryant, thank you. That's the argument I wanted to hear. This is the argument the public needs to hear as often as possible.

I know that our value, each one of us, is ultimately NOT about how much time it takes us to do anything. I'd never make any money if that were the case. I do everything quickly. In my last business venture, we charged newspapers by the inch to build ads. Doing it faster made us more money. Being able to do it faster was our secret. And people paid for that secret. 

"When a seller hires me they are not just paying me to sell their house. They are paying me for what I bring to the deal." That's the right answer. You knew that already. So did I. 

The consumer, however, is tainted by the 90% of real estate agents who don't have your knowledge, system and flow of business. They are paying for something the agent doesn't have. They bring little more to the deal than their Real Estate Exam test results. The value a great real estate agent brings to the table is worth the 6%, but it's so simple to become a real estate agent. I know this as fact, the face of the industry right now is not yours. It is the newbie looking for a quick buck. I know this because this is what I hear from friends and family and in casual conversation.

The great real estate agents will be great real estate agents no matter what comes down the pike. But the 90+ percent who are not great are contributing to an environment that is asking the question I asked above. Couple that with the ease of getting information on homes and it's easy to see why people feel the way they feel. 

Thank you for taking the time to answer the question. I hope others read it and understand what they have to do to be able to say it themselves with confidence.  

Posted by Jeff Turner (RealSatisfied) over 12 years ago
Thanks Jeff, The other side of this is that the discounters are the ones that are hiring "newbies" and less than great Realtors. I think that's what a lot of Realtors mean when they say "you get what you pay for". I've always thought the best way to increase th expertise of Realtors is to actually raise commissions and place the burden on the consumer to shop experience instead of rates.   
Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 12 years ago
That's an interesting, counter intuitive thought. I'm going to "ponder" on that one a bit.
Posted by Jeff Turner (RealSatisfied) over 12 years ago

Im typing on my CrackBerry...so I apologize for the brevity....

The post isn't about discounters or offering discounted service....its about marketing and potential alternative models...Revenue models that still reward Top Produces with top dollar, possibly even more than they currently make...Im playing moderator ;) 

So can we play a game over the holidays?

Lets say its now against the law to charge fees based on a %. Its just a game....

Joe Seller approaches you to sell his home. He has a nice home, well manicured, proper upgrades, 'ready to sell' condition. Its 3000 sq/ft, 4/3 BB, and iss willing to sell it $5k below appraised value (but obviously wants as much as possible), CMA's support a higher price. Avg time on market in the subdivision is 60 days.

How do you market Joes home and what do you charge him for your services?

Posted by Jeff Corbett (BoomTown) over 12 years ago
OK... I like this game. But I need one more piece of information. What is the appraised value and what is the CMA price supported? This is important for me because my answer is going to be different if it's a $100,000 house than if it is a $1,000,000 house.
Posted by Jeff Turner (RealSatisfied) over 12 years ago

Ahhh..Therein lies the rub!! :)

Lets say the home is valued somewhere between, ummm $200k and $600k...The value is very 'secondary' in this game....

Posted by Jeff Corbett (BoomTown) over 12 years ago

OK, I'll play by those rules.

 

Posted by Jeff Turner (RealSatisfied) over 12 years ago

I wouldn't take a listing in that price range, but if I did, I'd charge the minimum I ever want someone on my team doing a deal for, $50,000.  Are we that good, yes.  Does it make sense for a $500,000 home to have a 10% commission - probably not. 

Jeff, there are certainly differences in what the marketing process is in the $1MM vs. $100K range, as you know, but you made a valid point.  That said, in my experience fees in the <$500k range can easily be 6%, between there and $1MM, 5% might be more common and > $1MM, certainly if >$2MM, they are 4% or so.  They decline, for certain, as the price rises.  Not to a point where they are "capped" at a flat fee, but not what I think some people expect, that 6% carries on for infinity in pricing. 

In the commercial world, especially for investment brokerage, this "game" is one we play a lot, with flat fees or fees that are capped at some level (both preferably with performane bonuses) or sharp declinin scale percentages, so that often incrimental value is in the 0.25% to 0.5% comp. range.  Of course, if we're talking about an asset over $100MM, that still buys angel a few lunches (and he's expensive to buy lunches for).  Enoch, thankfully, is pretty cheap to keep in dog food either way.

Posted by Gabriel Silverstein, SIOR (Angelic Real Estate, LLC) over 12 years ago

Well said Gabriel...

The commercial market is a different beast...much more complex, your $50k minimum is probably very well justified...you are typically dealing with shrewed negotiators, savvy businessmen, attorneys, CPA's etc...

What the game about (in residential) is far less dependent on the value.  As project size ($) in commercial real estate gets higher they often, in almost direct correlation, get more complex, this is often not the case in residential. 

There are marketing differences between the $100K and $1M, but not $54,000 worth.

What if the $1M house was gorgeous, in a pristine neighborhood of high demand, avg DOM = 30 days?

What if the $100k home was gorgeous, in a pristine neighborhood of high demand, etc....?

 

What would one do so differently in marketing these two homes to warrant $54k more dollars? 

 

**Im not advocating any flat fee across the board model for real estate....I know I talk of one for mortgage, but the two industries are very, very different.  

 

Brian's example is reasonably practical, although once the greater community discovered this type of model was 'behind the listing' (there's a good title) the home would receive 'less than normal' showings, regardless if it was the best deal in its range.  Im going to save further comments on it for the next post, as it deals directly with alternative commission models....which is where this post is going...so I better write quick...

 

Posted by Jeff Corbett (BoomTown) over 12 years ago

We wish you a merry Christmas! We wish you a merry Christmas! We wish you a merry Christmas And a happy New Year! Glad tidings we bring To you and your kin! Glad tidings for Christmas And a happy New Year!

Broker Bryant and The Lovely Wife (pretend we are singing it works better like that) ROAR!

Posted by "The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW. (President-Tutas Towne Realty, Inc.) over 12 years ago
Merry Christmas from the Turner clan as well. Enjoy your day!
Posted by Jeff Turner (RealSatisfied) over 12 years ago

Jeff, putting the shoe on the other foot, though, maybe part of the issue isn't that the $1MM home seller services aren't worth $54,000 more, but that the $100k home seller services aren't worth $54,000 less?  While I can see someone questioning the value in transacting larger deals vs. smaller, can anyone say that if Broker Bryant sells a home that's only $89,000 (or a vacant lot maybe for $12k, per a recent post of his) that he has been fairly compensated for his time and efforts?  I say he's been way underpaid, but the market doesn't support an immense percentage cost of sales for smaller properties.  The smaller the fee, the less time, effort and money someone can spend to market it and still actually somehow make a profit. 

Perhaps the "discounter" world, then, has a good (even a better)_ application in the low end of the price range, where more (not no-service discounting) can be done for a lower percentage, but a similar "flat fee" for the discounter?  Those discounters that are promoting themselves towards the higher price range market so as to show a larger total dollar number in "savings" vs. the traditional model, perhaps need to think about this market, too, since they should be indifferent (those with the flat fee model)?

Posted by Gabriel Silverstein, SIOR (Angelic Real Estate, LLC) over 12 years ago

Gabriel,

That's certainly a different way of looking at it. I'm still pondering how to really answer the game challenge put forth by JC. There is an intangible value that needs to be covered... that is clear in your illustration of Broker Bryant's value in the sale of the $89,000 house or the vacant lot selling for $12,000. In those cases, the time vs. payment equation goes in a bad direction pretty fast. Your answer, that you wouldn't sell a house for less than $50,000 is an interesting one. Just as the best money managers won't work with less than a specific amount of investment. I'm not ready yet to give my answer, and the responses are certainly making me think harder. 

Posted by Jeff Turner (RealSatisfied) over 12 years ago

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