Are Realtors as vital as bread or cereal?
Realtor Notebook
By Teresa Boardman, Wednesday, October 22, 2008.
Flickr photo by adactio.I sure hope that Realtors are as important as bread, and cereal. I buy both products on a regular basis. I have a complaint about both of them too. It is about the packaging.
It would be nice if bread came in a box, instead of a bag. That way it wouldn't get smashed in the shopping bag, and I could bring it home and just set it on the counter by the toaster. I would stand it up on the small end so it doesn't take as much space.
Cereal on the other hand does come in a box. That doesn't work out so well for me either. The box is way too big for the amount of cereal that is inside it, and it takes up too much room in my cupboard. Often I take it out of the box and either put it in a container or just use the bag. It would be nice to have more choices.
I looked into the packaging of both products. Both are easier to ship with their current packaging. With bread it would cost more to put a box around it, and with cereal it would be hard to ship pallets full of the stuff in a flimsy bag, but it would be cheaper to put it in a bag than to put it in a box and a bag. There are also some issues with how the food is placed on shelves and marketed at the local grocery store.
Not many would question the rules of bread and cereal, but sometimes I think too much. The truth is I will continue to buy both products no matter how they are packaged. I can see myself surviving without Cheerios -- it would be a major sacrifice but I could do it if I had to. I can't see myself surviving without bread, and I don't have time to bake it.
We have our own packaging traditions in the real estate industry. We package our services in a couple of different ways, the most common being charging a commission based on the percentage of the sale price of a home as our fee. I like to call that package A.
Some consumers have decided that they don't want to do things that way because of the expense. They move on to package B, which can involve selling it themselves with help, or only purchasing certain services and paying for them on a flat fee. There are other models out there, but the dominant model is still package A with variations on the level of service and the percentage the agent charges.
Package A has worked very well for our industry. It is the package that our business models are built around and we know how to make a profit from it. It will continue to work as long as consumers feel that we are as important as bread or cereal.
In the coming months the demand for our services will continue to decline. Some of us will survive and others will not. Our survival may depend upon our ability to come up with a product that is so irresistible that the packaging will not matter or come up with new packaging. There is room in every industry for new products and packages.
Teresa Boardman is a broker in St. Paul, Minn., and founder of the St. Paul Real Estate blog.
***
What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
All rights reserved. This article may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this article without permission is a violation of federal copyright law.
You must login or register to post a comment.
Submitted by Catherine Read on October 23, 2008 - 3:37am.
Teresa, your insight continues to amaze me. I'm guilty of "thinking too much" too, which irritates the people who would rather not think at all. I believe the prolonged global economic crisis will affect consumer behavior and certainly how we value services and spend our money. Real estate professionals who can offer options that are a good value without sacrificing the level of service will come out on top. Technology tools will be critical to delivering that outcome. Real estate might look quite different a year from now and it will be interesting to see how brokerages and agents adapt. Consumers are definitely driving the bus.
Catherine S. Read
Creative Read, Inc.
Submitted by Susie Blackmon on October 23, 2008 - 4:04am.
We need to require more education and higher fees for licensing, and police our own. The internet is definitely (has already) going to diminish our relevance, but the added value/enhancements will more than ever be the key to survival if one still really wants to stay in the biz. Want to just put a sign up and sit in your cubicle waiting for walk-ins?? Sorry, that won't work any more. Soon you won't even find a cubicle!
Susie Blackmon
http://www.BuckingtheRealEstateTrend.com
Submitted by michael krisa on October 23, 2008 - 4:18am.
michael krisa
http://ThatInterviewGuy.com
Package "A" is the model that works and we make a profit from???
Perhaps in the world you live in where the sky is a rosy red and gasoline is only fifty cents a gallon.
Here on planet Earth the majority of brokerages are struggling to break even - let alone profit.
We cling to a antiquated commission model as if it were our birth right, yet all around us service industries have adapted to what the consumer needs and wants.
Building a home in shifting sands because everyone else is doing it doesn’t make it right … it just make it easy for the gathering winds to topple.
So next time you’re strolling at the beach and happen across some driftwood that the waves have washed to shore, pick it up and take comfort in knowing that this is remenance of a structure that works.
Submitted by Kristin Noll-Marsh on October 23, 2008 - 6:27am.
"We cling to a antiquated commission model as if it were our birth right, yet all around us service industries have adapted to what the consumer needs and wants."
Do we cling to the model, or does the consumer?
Consumers have options and can get what they want.
1. They can pay a success-based commission, where the agent takes all of the up-front risk and doesn't get paid unless the property sells.
2. They can hire an agent on fee-per-service.
3. They can hire an agent for a flat fee to put the property in MLS and do the rest themselves.
4. They can do it all themselves.
What do they choose most of the time?
Package #1.
They don't want to take any of the risk, they don't want to do the work, they don't want to pay upfront marketing costs and they don't want to pay us by the hour - especially in a market where the houses are taking so long to sell. And buyers don't want to pay us at all.
So, who is clinging to that model? Us or them?
I don't know about Teresa, but in my store there are cheaper cereals without the box and expensive bread actually IN a box. I buy the cheaper cereal in the box - but then I get a limited choice of flavors and they aren't the "real" thing.
I buy my bread in the bag. Even there I have a choice of the cheap store brand or a more expensive bag brand I buy. But I can't see paying twice as much just for something in a box. (Most people don't and that is why I really don't see that brand too often.)
I have choices.
But, I certainly wouldn't expect to get the box cereal for the same price as the generic bag cereal or even my favorite bread for the store brand price.
So, when it comes to real estate, why should a consumer expect to get option #1 but only pay the price of options 2-4?
http://bestmilwaukeehomes.com
Submitted by Commercial Mortgage Loans - Privately Funded - MasterPlan Capital LLC on October 23, 2008 - 6:30am.
The pricing model of a 6% commission that ends up being split up between the buying and selling agents and their agencies is an outmoded, dying model. That system thrived on exclusive access to the MLS and agencies that built real estate specific marketing infrastructures that were difficult to duplicate.
Soon the MLS will be as easy for a consumer to access as the yellow pages are. Courts are increasingly skeptical as-to the exclusivity argument and they are siding on the side of more direct consumer access at every opportunity. The MLS was the tool that separated agents and brokers from buyers and sellers, soon anyone with $19 a month will be able to view every home for sale in America on demand. (Complete with 360◦ digital photo tour). As for the marketing services that realtors are experts in, that-to is being automated and distributed to the masses. Real estate search web sites are popping up all over, all a seller needs to do is plug in property specific information and pay the $29.95 and their home will be viewable by anyone with a computer. If they are savvy they will post links to their listing on their face-book page and several other social book marking sites. Craig’s list and Back-Page listings are free and get tons of traffic. Print advertising is likewise as easy and almost as cheap now-a-days.
The only packaging that will work will be based on superior results and superior service. Traditional Realtors are no longer the only game in town. Consumers will continue to be willing to pay commissions but only for value added services rendered.
MasterPlan Capital LLC - Simple, 1 Page Commercial Mortgage Application; Online - www.masterplancapital.com
Submitted by Hans Rosielle on October 23, 2008 - 7:26am.
As with bread and cereal packaging, real estate is up to improvements. It is questionable if a buyer's agent should receive half of the seller paid commission. Lots of agents are heavily overpaid because of this system. Lots of them won't even show a home that's offering a lower coop commission. Isn't it strange that sellers will try to negotiate (however well they do this) the commission, but buyers never do, even though it is part of their agency agreement? The system of buyers not having to pay, because the seller will, doesn't promote active competition in the buyer segment of the market.
On the sellers side, there is no set way of marketing a home. Some agents just put up a sign and that's the end of it, others have systems in place to effectively market the home. There is a lot of variety out there on what can be done or is being done. Yet all sellers are paying somewhere close to 6%. To me this seems unfair. No wonder the consumer wonders what we do and if we are at all needed.
The industry needs a change in mindset. It should become harder to get your license and certain standards should be set.
Hans Rosielle, GRI
www.propertymill.com
Submitted by Harrison K. Long on October 23, 2008 - 10:08am.
I agree about concerns for survival of some Realtors and agents in our business. That will depend upon their and our character, determination, and creativity.
Harrison K. Long
Realtor & broker
Explore Properties Group
Coldwell Banker Previews
Irvine, CA
949-854-7747
949-701-2515 cell
www.ExploreOCHomes.com
Submitted by Peter Vekselman on October 23, 2008 - 11:11am.
Interesting conversations here. 2 things come to mind.
1. Survival of the fittest (in this case the most competent and tech savvy)
2. Adapting to change: We have seen considerable change in this industry. Agencies will have to adapt to changes required by the buyers and sellers and if they don't they will fall to the wayside.
As for commission packages, we have seen for many years that the old 6-7% commission paid by the seller has started to crack and come apart and reworked in many different ways. The "foundation" if I may use an industry term here, does not support the "Home" or Brokerage company the way it used to.
It may come to a truly customized package of service that Realtors will have to offer clients and customers, but the bottom line is SERVICE and SALES in this business. You need to promote and be successful at both.
Peter Vekselman
Real Estate Investment Coach
www.coachingbypeter.com
Submitted by Ruthmarie Hicks on October 23, 2008 - 11:43am.
I think Kristin hit the nail on the head. Buyer's and seller's have the mindset that "it's free unless we close" encoded on their DNA. That risk-free scenario is set in stone for 90% of the public. The lower fees sound great until they realize that they are taking the risk up-front.
Personally, if I buy bread in a box, I expect to pay more for it. Some people will be willing to pay more for bread in a box, others won't. With respect to real estate sales, the issues are the same. Most of the public have chosen to pay more in exchange for a risk-free transaction. Personally, I think a situation in which agents are paid by the hour would be less expensive for the SERIOUS consumer: the consumer who is ready, willing, and able to buy or sell. In many ways this would be more effective for the agent who would find their buyers and sellers are not "spinning wheels" and are focussed on getting the job done.
Submitted by Kristin Noll-Marsh on October 23, 2008 - 2:51pm.
LOL! Isn't that the truth, Ruthmarie?
Imagine a world where sellers and buyers actually respect our time (because they are paying for it) and our expertise!
Unfortunately, there are always agents who don't even appreciate themselves enough to charge for what they have to offer and will give it away for free - making it harder for agents to earn a decent wage.
Free CMAs, free staging advice, free showings for buyers, free marketing advice....when will agents realize that what they know and what they can do is VALUABLE??
It reminds me of my mother and her crafts. She'd make these beautiful wreaths and only charge $25. I'd see similar items in stores for $150. She'd say, "Well, the supplies only cost this much.." and I'd say, "It's not the supplies, Mom, it's the talent it takes to do what you do with them!"
Agents need to realize that what we see as "easy" and "anyone can do it" is simply not true. The supplies (information) are available to everyone, but not everyone has the talent nor learned the skills it takes to know what to do with them.
Negotiating is a skill.
Staging a home is a skill.
Taking good photos is a skill.
Writing good ad copy is a skill.
Knowing where to advertise is a skill.
Properly pricing a property is a skill.
Understanding the ins & outs of a contract is a skill.
Gathering knowledge local laws and ordinences is a skill.
Recognizing adverse defects in a property is a skill.
Knowing what constitutes a good investment for resale is a skill.
Growing a network with other agents is a skill.
Building a good website is a skill.
Knowing the competition on the market is a skill.
Having all of those skills at once makes you an expert.
Notice I didn't mention showing houses, finding houses for sale or looking up what a house sold for. Those don't take skill. Anyone can do that.
A buyer or seller may be able to do one or two things on that skill list, but they won't be able to do them all - or as well as someone who does it every day, for years.
Sure, it may only take you 30 minutes to put together a CMA, but is that what you are paid for? How long did it take you to learn to do a CMA right? How many real estate hours did it take to learn your market, tour and show houses, learn the software etc? How many hours do you think it would take a seller to get it right? Take that into account when you are figuring what the 30 minutes is REALLY worth!
All the internet will give to buyers and sellers is access to lists of houses for sale and tax records of sold properties. Knowing what to do with that information is what takes skill.
Don't believe me? Look up a disease online. There will be plenty of information about the disease - stuff you couldn't find anywhere a few years ago. Now, having read about that disease and treatments available, are you ready to start treating a patient for that disease? No - that's why we still have doctors - a good doctor has the skill to take that information and do the right thing.
Agents need to understand that their value is not as gatekeepers of information - it never was, even in the days of MLS books and exclusive listings. Buyers could still use the classifieds and sellers could still throw up a lawn sign and put an ad in the paper. Buyers and sellers came to us not because we had all of the information, but because we made it EASIER for them to get it. Once they worked with us, they then realized all of the other stuff we knew that they were clueless about.
Even with all of the information available to them today, buyers and sellers still need our skills. But until agents see their own value, they will continue to undervalue themselves and not charge what they are worth.
The old commission system will not change until buyers and sellers are willing to pay for actual skill instead of a risk-free success fee. The power is in their hands - all they have to do is demand it and be willing to pay the consequences/take the risk.
Meanwhile, Agents like it this way, because then they don't have to put a value to their own skill. They need to realize that they are worth a lot more than they think.
Most of us need bread made for us - we have neither the time nor the skill to do it ourselves. But they've made it so easy for us to grab a loaf off the shelves, we've lost our appreciation of what it takes to make bread by hand. Imagine if we didn't have any bakers at all - who would care about the packaging?
http://bestmilwaukeehomes.com
Submitted by Phillip Jones on October 23, 2008 - 8:16pm.
Kristin,
In response to your first reply (quoted below). Does your firm offer all 4 levels of service or just package A? I'm just curious.
I know that most "legacy" firms in my area only offer 1 level of service (package A) and it is largely a "take it or leave it" approach. They may move a little on the fee changed, but the concept remains rigid.
As we all know, this is a relationship driven business. These days almost everyone knows or is related to a REALTOR. If the majority of Real Estate firms still only offer package A what will consumers choose? They will choose from what is presented to them from their trusted friend/relative or strongly recommended REALTOR. Package A of course!
Only when our industry shifts to offering more than package A to consumers will we be truly able to judge the merits of the other options available.
Lets empower the consumers and give them choices.
Good selling and thanks for reading.
Regards,
Phillip E. Jones, Broker/Owner
Your Choice Real Estate, Inc.
The Best Value in Real Estate!
151-18 College Drive
Orange Park, FL 32065
Phone: (904) 298-2679 Ext 501
Toll Free (888) 490-0671 Ext 501
Fax: (866) 923-9990
www.ycre.net
QUOTE:
Submitted by Kristin Noll-Marsh on October 23, 2008 - 7:27am.
"We cling to a antiquated commission model as if it were our birth right, yet all around us service industries have adapted to what the consumer needs and wants."
Do we cling to the model, or does the consumer?
Consumers have options and can get what they want.
1. They can pay a success-based commission, where the agent takes all of the up-front risk and doesn't get paid unless the property sells.
2. They can hire an agent on fee-per-service.
3. They can hire an agent for a flat fee to put the property in MLS and do the rest themselves.
4. They can do it all themselves.
What do they choose most of the time?
Package #1.
They don't want to take any of the risk, they don't want to do the work, they don't want to pay upfront marketing costs and they don't want to pay us by the hour - especially in a market where the houses are taking so long to sell. And buyers don't want to pay us at all.
So, who is clinging to that model? Us or them?
I don't know about Teresa, but in my store there are cheaper cereals without the box and expensive bread actually IN a box. I buy the cheaper cereal in the box - but then I get a limited choice of flavors and they aren't the "real" thing.
I buy my bread in the bag. Even there I have a choice of the cheap store brand or a more expensive bag brand I buy. But I can't see paying twice as much just for something in a box. (Most people don't and that is why I really don't see that brand too often.)
I have choices.
But, I certainly wouldn't expect to get the box cereal for the same price as the generic bag cereal or even my favorite bread for the store brand price.
So, when it comes to real estate, why should a consumer expect to get option #1 but only pay the price of options 2-4?
Submitted by Patricia Gjestvang on October 23, 2008 - 11:01pm.
I have enjoyed reading all of your opinions on commissions and knowing your own value as a Real Estate professional. I thought I would add my own. To say the market has changed is really an understatement-especially here.
Right now, in Las Vegas/Henderson, NV, most of our listings are foreclosures-acually 80% of the market. The standard commission on the listing side is becoming 2% (from 3%) although some are still at 3% and the buying side is 2.5%. My most recent sale had a lower commission and I was delighted to handle it for my buyer. I actually got him $8500 in closing costs too.
As for me, commission has never been a factor and I've always been negotiable. Before the foreclosure crisis, if a new client wanted to move up to a better home and used me to purchase, I would in turn list their old property at 1%. It worked like a charm and benefited everyone. I looked at it as if it was more money than I had yesterday. Now I have lots of referrals because I was not greedy and demanding. Even now, with fewer sales in a slower market, I can make more money than I ever did sitting in an office punching a time clock.
I do know what I'm worth and so do my clients because my customer service is outstanding. We will always have clients who don't understand the process of buying or selling property but that gives us an opportunity to educate them. Most people are receptive to information when it is available. It's the lack of communication that turns people off on using us. Each one of us needs to find our own way and I'm sure I don't have as many years of experience as many of you, but so far, I have done well and found my own way of marketing my skills. I have made a lot of friends with the other professionals I deal with, as well as my clients and I am thankful to be in this business. It's a perfect fit for me.
Patty Gjestvang/Knapp Realty
702-358-7175
Submitted by Kristin Noll-Marsh on October 24, 2008 - 7:35am.
>>In response to your first reply (quoted below). "Does your firm offer all 4 levels of service or just package A? I'm just curious.<<
My firm is package "A" only. But my market area offers a plethora of options, from the national franchise, Assist-To-Sell, to local companies like BuyHomes.com or ListWisconsin.com, which are just two of the companies which offer varying packages from MLS only to fee-for-service. My area has an abundance of choices for the consumer!
>>Only when our industry shifts to offering more than package A to consumers will we be truly able to judge the merits of the other options available.
Lets empower the consumers and give them choices.<<
I want to explain that I am not defending the commission business model. I don't even like it much. I think it gives the public the wrong idea about what we are worth - our time, skill and knowledge is not valued - only our success in selling.
What I am saying is that, until agents apply real value to their own skills, the public will think we are minimum wage workers being grossly overpaid. (Admittedly, some are.) In reality, most agents' commissions average out to a lot less income than the public thinks. They think we all make millions just for putting up a lawn sign, unlocking doors and hoarding MLS information. They have no concept of the skills a SUCCESSFUL agent has to learn and the time spent getting there - and what our income really is. (I read recently that the average income was something like $49,000 a year. Hardly making a killing with the commission model.) Sure, entry is easy, but becoming successful is not. We don't get educated within classroom walls, we become educated with blood, sweat, time & money. Our education is in the streets and it takes time to gather all of the required knowledge to become competent in laws, codes, defects, contracts, negotiating, advertising, photography, home values, etc.
Until we see the value in ourselves, based on that skill list I posted, agents won't charge enough for their skills. I don't know about anyone else, but I cannot afford to be paid by the hour with the minimum wage rate so many agents are willing to give. But because agents undervalue their skills to the public, that is all they think we are worth, too.
I saw a fee-for-service company charging $250 for "negotiating & contracts." Is that really all they think they are worth for that kind of skill?? A lawyer would charge that for just an hour and we all know that most negotiations (especially today) take a lot longer than that. But, even if they are only charging based on an estimated amount of time, they are failing to figure in the SKILL involved. You have to calculate time AND skill, not just time. Just because you can do it well or fast, doesn't mean it's not worth something to someone else who can't do the same.
Consumers appreciate that a lawyer's or doctor's rate is based on their experience and skill. They don't know we have skills, because so many agents don't realize, like my mother and her crafts, the value of their skills.
So, the first step, is changing our attitude and how we view ourselves. We are not just salespeople. We are experienced agents, we represent people's best interests, we have worked hard and long hours to learn how to do things. All of that "behind the scenes" stuff that consumers don't know about is EXACTLY what they should be paying us for. Newbs should be paid less, because they have less experience and skill. Right now, a newb of 2 months gets paid the same as I do - a full-time agent for nearly 12 years. That right there shows that skill and experience are not valued in our profession. How crazy is that??
Personally, I think walking away from the salesperson label and moving toward the professional/consultant/expert label is part of the answer. What sounds like it is worth more money - a real estate salesperson or a real estate expert? "Salesperson" says you are paying for moving inventory. "Expert" says you are paying for knowledge and skill. We are so much more than simple salespeople!
Once we can charge what we are worth based on skill and experience, we will be more willing to walk away from that commission model.
But we need to appreciate our own worth before that can be done. And that means changing a million attitudes first - the members of NAR - us.
http://bestmilwaukeehomes.com
Submitted by Judy Peterson on October 24, 2008 - 9:24am.
Kristen - I think that your observations and comments are insightful and eloquent on behalf of professional skills and moving away from the salesperson model to a professional, consultant,real estate expert model. No one "sells" someone a multi-million dollar property. The value that a great Realtor brings to the table in educating, advising, representing and protecting consumers has absolutely nothing to do with finding all of the listings on the internet. That's a model that thinks like the provider and not like the consumer. My work has just begun when we've identified the "right" property of interest or when we've signed the listing contract.
Judy Peterson,
Realtor
Prudential Fox & Roach Realtors
610-889-5509
www.MainLinePaToday.com
Submitted by Niki Sandstrom on October 24, 2008 - 11:59am.
In Indiana, we have to provide the same level of service no matter "what" we are paid. The package that enters a home into the MLS with the owner doing the work isn't an option unless a fine or loss of license is the desired result.
My cost of doing business as a Realtor has probably tripled since starting business in 1996, but my commission percentage has decreased.
According to an economist at a CE program yesterday, it will be late 2010 to mid 2011 before we can really see the light at the end of the tunnel. There are just too many homes on the Market, and it is still being flooded by the foreclosures. Realtors and Brokers business platforms will change drastically in that time frame. Keep all options open because someone may move your cheese!
Submitted by Sam Chapman on October 28, 2008 - 8:31am.
For sellers, what you say may be true. However, for buyers who are from outside an area in which they will be buying, a REALTOR with a great website will be extremely valuable. I see that for anyone in the business as the way to continue making a good living.
Site Austin homes.
Search Austin neighborhoods.
Read Sam's Austin Real Estate Blog.
Submitted by Danny Briggs on November 5, 2008 - 9:34pm.
The real estate business is like any other business. Things change. The real estate agent has to be able to adapt to the changing market place. For those who entered the business when one could show 3 properties and write an offer, times are tough. That would be the vast majority of agents that have left the business during the down turn in the economy. For the agent who began his career by knocking on doors in his farm, he will survive, or flourish because he built his career on a good work ethic. Also, if one has been in the business for some time, then you've probably experienced a down turn or two and know that you have to adapt to survive. When short sales and foreclosures become 70% of your market then you better become a short sale or foreclosure expert. Commanding a good comission begins with offering value to your clients. By embracing technology in the form of a blackberry or pocket pc one can use email and text messaging to speed up one's response time. They say a picture is worth a thousand words but for $30 per month a client would probably want to do business with you if you chose to market their home with a virual tour instead of three pictures on the MLS. One of the agents in our office has a slogan on his email that says, "technology will never replace the real estate agent, the real estate agent with technology will." I think the same goes for the discount realty companies. We were afraid they would cut our commisions. But, they're laying off thier employees. Perhaps, they can't run their businesses on such small margins. Or perhaps there are enough buyers and sellers that see a value in using a real estate professional to help them negotiate through the ups and down turns of the market.