What would Starbucks do?
Realtor Notebook
By Teresa Boardman, Thursday, March 5, 2009.
Flickr photo by yajico.A couple of days ago Starbucks announced a new deal: coffee and breakfast for under $4. On the newscast I watched a company official state that the new breakfast deal is designed to stimulate sales and give consumers something affordable.
Starbucks gets the recession. In the real estate industry we have an ongoing discussion about compensation. Honestly, I don't think the consumer is nearly as interested in how much we make as they are in their bottom line when they sell their home.
I don't care how much my clients make either. It isn't any of my business. We need to divorce compensation from commission. The two are closely related, but they are also two separate issues. Consumers care about the commission part, and we care about the compensation part.
As a consumer, I am more interested in how much I pay for breakfast than I am in what kind of a profit Starbucks makes. I go for the highest quality at the lowest price and for the most convenience. If I have to wait in line it doesn't matter how low the price of the breakfast is -- I won't buy. I'll either skip breakfast or go some place else.
We need to look at our services from the customers' point of view and forget about the "I am worth 'X' percent." We are not worth anything more than consumers will pay us. It is their money, after all.
I am not worth as much this year as I was last year. The quality of my services has not changed. I still offer speed, experience and convenience, and I have even added some extra ingredients to help sell houses more quickly. ...CONTINUED
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Submitted by Donald S. Teel on March 5, 2009 - 1:29pm.
Okay, let me see if I have the key statements from this article correct:
1. Give consumers something affordable;
2. High quality, low price, convenience;
3. I'm not worth as much this year;
4. The quality of my services has not changed;
5. Many in my market offer almost identical services;
6. The company understands that it has competition;
7. Fewer...need me;
8. Housing prices have dropped;
9. Competition...is giving consumers something...different;
10. I will do whatever it takes to keep going;
There is only one remaining item necessary to complete the obvious comparison with the real estate industry:
Starbucks will close approximately 600 company-operated stores in the U.S. beginning July, 2008 and continuing through the first half of FY09.
Consider all of this in comparison with our industry, one bloated with resistant bricks and mortar models, too many grossly unqualified participants and an industry still largely in denial of the reality of an irritated, angry and searching consumer.
Okay, time for an industry wrap up: It's the consumer, stupid.
Teresa, you have hit the proverbial nail squarely on it head...ten times without missing!!!
Donald Teel - Founder
e-Partner
www.ePartnerUSA.com
REALonomics
www.REALonomics.net
928.777.8100
Submitted by Michael Brown on March 5, 2009 - 1:35pm.
I disagree. Homes are selling for less so our commission will already be less than it was when homes were selling for 30% more. May I add that we are working much harder for our commissions today than we were two years ago. Rather than stick with a seller for a month or two we are now often married to them for a year or longer, rather than advertise their listing for a month or two in the local newspapers it has become a year or more. Ad space is not cheap. If anything we should be increasing our commission.
Submitted by Barry Noble on March 5, 2009 - 1:54pm.
Just had to comment - what a concise, well written, common-sense approach to a touchy subject for most. As a Broker and Certified Residential Appraiser, (preferring the latter work) I am now at the cross roads to whether or not I go back to Brokering or try to continue as an independent appraiser in a market that wants to control my every move - and fees - through Appraisal Management Companies AMCs on line.
The idea, to allow the appraisers to remain anonymous - though laudible has the end result of- giving all power to the AMCs - some of which are owned in the back ground by the major banks so where's the protection? As to fees, the AMC's will take up to 50% of our already low fees to be the so called middle person. So, do I do a $400 appraisal for $200 to $240? Should I allow myself to be at the mercy of the AMC that will "fine me" for not checking in with them three times a day on line as to status, or "fine me" if I don't acknowledge an order within an hour of it being sent (no matter I might be out on a job without access).Will I also accept the AMC will be able to demand I change my value or "fine me" or refuse to pay for the report out of hand if I won't adjust the value to suit the lender under cover of the AMCs internal, perhaps biased review.
This decision about fees is far more intricate that "Should I ask for 6% or 4.5% and get the listing". Unfortunately I think I will be going back to negotiating listings and sales - and feeling lucky to get anything within reason as a fee - that won't compromise my ethics. Barry Noble State Of California R.E. Broker and Certified Appraiser. http://www.MyPropertyIsWorth.com
Submitted by Catherine Read on March 5, 2009 - 1:54pm.
Whether agents agree or disagree, it is what it is. And at some point there will be agents who are still in business, and agents (and brokers) who are not. I agree completely with Teresa. This is business and real estate is not somehow "different" or "more special" than companies that sell coffee and bagels. Survival of the fittest is about adaptation, but first you have to realize that the environment requires adaptation. Well said Teresa!
Catherine S. Read
Creative Read, Inc.
Submitted by Kathy Judy on March 5, 2009 - 2:00pm.
Teresa you are mostly right. If it's a sellable property then do what it takes! Income is good! If it's your type of property and you are going to get good sign calls then yes. But I'd make sure the sellers know that by taking the listing for less than your normal fee, it leaves you not being able to do anything at the transaction's end.
Submitted by Michael Daly on March 5, 2009 - 2:04pm.
True...and very pragmatic, Teresa!
Many real estate folks are taking the pressure to reduce real estate transaction cost so personally.
The comment above about "we're already making less because prices are down 30%" is what will bring this industry into extinction.
It's not personal...it's business.
People want to save money.
The days of Irrational Exhuberance are over.
Ever hear of the "Roaring 20's"? They're over, too.
Be the hammer, or be the nail.
Michael Daly
True North Realty Associates - A Hamptons Buyers Agency
The Hamptons Real Estate Blog
www.beachamptons.com
631 725 0554
Submitted by Lola Audu on March 5, 2009 - 2:06pm.
Doing a cost/benefit analysis is not something that most of us were taught to do. But it's a fundamental issue for any business which wants to remain profitable and in this economy viable. That's what you've clearly laid out here Therese.
But, the cost/benefit analysis will be different for each business and each agent in differing locations. In my city, for instance we have restaurants which are thriving and require a reservation or a wait while others have empty parking lots.
What makes the difference? I think it's the experience. If we cannot differentiate ourselves and offer a unique experience for the customer, then all we have to compete on is price. And in that case, it's always going to be...the lower the better from the consumer's perspective.
Lola Audu, CRS, GRI e-Pro
Audu Real Estate
Grand Rapids, Michigan
www.auduhomes.com
Submitted by Robert A. Hulme on March 5, 2009 - 2:08pm.
We need to be able to adapt to the scenario that we handed. Discounting the commission will not always be the preferred alternative. We need to look at each client and market what will work best them. I have never and will never treat each client exactly the same way. We are all professionals and should determine what method to use to market our business the best way possible.
Robert A. Hulme
Realtor, GRI, e-PRO
Prudential Utah Real Estate
Loan Officer
Mortgage Xpress
www.UtahCountyRealEstate.us
www.UtahHomesForSale.ws
801-885-2586
Submitted by Rob Aubrey on March 5, 2009 - 2:14pm.
I agree sometimes there is not enough to pay me and that can be a problem. I will on a case by case basis make a decision to make it work, I am very selective.
As far as lowering fees because the market is slower, I don't really do that. In fact my services are now more in demand then they were during the no skilled required seller's market. During the boom, there were enough agents that charged less that could actually sell the home and therefore you had to compete. Now when a seller wants to pay less they usually end up expiring and then call me to sell it anyway.
Submitted by Jerzy (George) Szkup on March 5, 2009 - 2:32pm.
George Szkup
www.DestinationTucson.biz
Excellent article - I would cut my commission in half - if I had a buyer!
In business there is no "I am worth ..." - I am worth what a client is willing to pay (or he/she will go to some one else) - there are 1 million realtors in the country. And if we assume that only half of them know what they are doing - it is still a lot of competition.
George, Tucson Home Advisor LLC - Realtors
PS I am thinking about giving up on real estate and becoming a brain surgeon.
Submitted by John Rakoci on March 5, 2009 - 2:48pm.
Well,, I tell customers if I was hurting so bad I'm willing to cut my commission I'm hurting bad enough to sell your house as low as possible just to get something coming in. Few want to take less for their house and get the point. Also., with the high inventory how many agents are going to look for the lower buyer side? If there are 10 homes that fit the client and 2 have lower commissions, 6 are going to be viewed, guess which most likely will not be shown. I charge according to asking price, less over $750K, and less if I get both sides. They see I'm not greedy, but their best interest does not always go with the cheap guy. Some listings have a higher rate and raw land rarely under 10%. They can look around and see some of the discounters that are no longer in the area too. Once you are known for being 'the low commission agent', the reputation will remain. In better times some will be too embarrassed to put THAT sign in the yard. Now- when was the last time YOU left a 6% tip for your waitress?
Submitted by Bill Byrd on March 5, 2009 - 3:36pm.
I don't remember which real estate trainer said it but it's a quote worth remembering..."generate so you don't have to tolerate"! In this market there are more than enough sellers willing to pay full commissions to top professional agents with a great marketing plan! Do more lead generation and you will find your commissions. Starbucks offering discounted service and closing stores...sounds like bad business to me! Hasn't the discount model Help U Sell recently had some issues? Profit is not a four letter word it is essential to survival.
With that said I do believe adjustments need to be made occasionally on a case by case basis as was said in an earlier post...but only as charity not common practice.
The bottom line is that consumers need great agents to get them top dollar today and lots of them are willing to pay...go find them. Improve your skills, learn to handle the objections and develop a killer marketing plan and whatever you charge "be worth it"! Make it about what you do for the consumer not what you charge...after you do a great listing presentation you shouldn't get a commission objection...if you do get the commission objection your presentation wasn't good enough or the service you offer has holes in it! Practice and become an awesome presenter and work to be the best agent in your area...you'll have all the business you can handle and the fee's you want! Unskilled, under trained and unprofessional agents are the problem, not commissions or the consumer.
Submitted by Kristin Noll-Marsh on March 5, 2009 - 3:41pm.
Hmmm...I thought this horse was dead finally.
This may be true of people who were getting Starbuck's-sized commissions, but most of us were and are already surviving on McDonald's coffee. And McDonald's doesn't have to lower it's prices.
Starbuck's is a luxury item. Selling a property isn't just a luxury for most folks, it's a necessity.
But I can see how people who are selling their high-end homes would want to start paying McDonald's prices for Starbuck's service & will probably get it.
McDonald's "gourmet" coffee still doesn't hold a candle to Starbuck's and people who want really good coffee will still pay more for it.
Still - real estate and coffee just aren't the same. Are doctor's charging less because of the recession? Insurance companies? Lawyers? The power company? The gas pump? Aren't they just as much in demand as before? Aren't we?
If other necessary & important services that I need and want start charging ME less, just to be nice because of the recession, then I can afford to do the same. Unfortunatly, nothing else seems to have become cheaper.
We're not a luxury. And if they think we are, they have plenty of cheaper options to use.
http://bestmilwaukeehomes.com
http://blog.bestmilwaukeehomes.com
Submitted by Valasie August on March 6, 2009 - 11:57am.
Teresa...
You are so totally right on. Of course, we have to rethink the compensation and not JUST the physical plant costs. We should have been doing the second in 2005 and here we are as an industry making the consolidation slowly and kicking and screaming all the way. I liken the commission issue to the 5 stages of grief. That number we often have in our heads is in most cases, dead. It has been for some time now. We should be moving into the final stage of grief so that we can get on with what has to be done to sustain the economic future of our business and we instead remain in Stage 1...Denial, and for a long four years now. In fact, many in the industry have the EMT people still working on the dead body. Look...are there some practicioners worth more. Absolutely. Are they few and far between. Definitely. Like you said, I will CHOOSE to pay top dollar if I have the money AND I respect and experience the value. If I want the value at a lower price by choice or need, I will find it.
I am a coffee connoisseur and my office in the Top 10 for my firm, yet these days, I opt for brewing a pot of coffee when I am leaving the house because even that $2 cup adds up. Do I prefer to have the coffee made for me, yes. But look...I have to find ways to cut expenses and this is one such simple way. So...compare saving $2 a day to $5000 on a transaction or even more. This is the real world and this is how it looks now. Not how we want it to look but how it actually DOES look. And it can be very good for those who get who is driving the train.
Valasie (Val) August
Managing Broker
Long and Foster Real Estate, Inc