The commission butcher shop
Perspective: Revamping real estate commissions
By Inman News, Wednesday, February 18, 2009.
Flickr photo by phototram.Editor's note: This month, Inman News is focusing coverage on the issue of compensation in the real estate industry. Share your views: Click here for more details.
By ROBERTA MURPHY
With all apologies to vegans and commission surgeons, I love going into full-service butcher shops.
To begin with, the butcher is a seasoned professional who is able to discuss not only all cuts of meat, but how to prepare them. If I want a piece of meat cut a certain way, the butcher obliges. And if only a half pound of ground meat or two sausages are needed, he'll gladly ring it up. It's also nice to find choice and prime cuts of meat (as well as free-range poultry) that are rarely available in the supermarkets.
Do we pay more for a prime cut of meat?
Of course we do, and that is expected. But remember, I can also buy a scoop of ground meat or a single chicken breast without ringing a bell at the supermarket meat counter and waiting for an attendant to break open packages to repackage my smaller needs. In the Krogers and Safeways and Piggly Wigglys across the country, we generally buy meats pre-packaged (or repackaged, as occasionally happens).
Real estate services aren't much different, no matter how we slice, dice and digest the different commission models.
To begin with, the 6 percent commission tradition (and that's all it is) is a floater that may stick if market conditions warrant.
In our San Diego real estate market, I have seen 1 percent sales commissions (think single sausage) during the roaring seller's market, and everything up to 7-plus percent when buyers are king. It's also a free market where both home sellers and buyers can choose whatever cut or slice of service they want -- along with agent expertise.
Want a multiple listing service-only listing? It's there, for a prepaid price. Want MLS exposure and signs? Also available for prepaid prices. Want all of that plus advertising, open houses, broker open houses, errors and omissions insurance, risk management, blog articles and that ultimate full-service clause: "agent-to-accompany-on-all-showings"? Available, too. Want a contingency listing, where the agent is paid only if the home sells? Commonly available.
Granted, there are few standalone butcher shops these days, and most full-service butchers are now housed in upscale grocery markets.
But somewhere in this butcher-shop analogy is a truth regarding the raging arguments about real estate commissions: There's room for all. Some consumers shop price only. Some want no fat, while others demand prime service -- and are willing to pay for it.
As for me, I still have an affection for the full-service butcher who knows my name, is helpful at refining my choices, skillful at trimming the fat, and knows how to expertly package the purchase.
Roberta Murphy is a Realtor for San Diego Previews in Carlsbad, Calif.
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Submitted by David Davidson on February 18, 2009 - 10:16am.
I'm trying to offer 3 different levels of service. My meal plans include: 5 course meal, a la carte and the buffet. If you give consumers a few choices they can quickly see what they are getting for the costs and then it is their choice. You can check my latest service ad by clicking on link below -
www.davidsonrealty.ca/winwin.html
David Davidson - Winnipeg, Manitoba, Canada
Submitted by Joseph Bridges on February 18, 2009 - 10:36am.
Choices are always best and it also removes the negotiation for the vast majority of sellers because they are just selecting what they want and what it costs for that level of service.
Most don't negotiate with their butcher for the best price of meat at the "sausage" price and consumers won't do that either in a menu of commissions choice.
Give them choices and whatever they are stick to them and make it clear that there is a difference between each level of service.
Visit the blog at: http://www.InternetRealEstateSuccess.com
Real Estate Resources at: http://www.OnlineRealEstateSuccess.com
Submitted by Austin Smith on February 18, 2009 - 2:12pm.
Great analogy Roberta! Couldn't have picked a better metaphor. Also, i like your point about market forces determining the longevity of a given commission structure. I think this whole debate boils down to an inconvenient truth (apologies, al gore): no matter how much debate their is, forces outside agent's control will choose what the standard commission model will be. These forces can also be described as people: buyers, the ones responsible for the numbers of the industry and, in a roundabout fashion, the profitability of agents across the nation.
Perhaps we should be polling prospective buyers as to what they think the commission structure should look like, rather than asking the agents? This is a bit like relying on a major retailer to provide a 'fair' price for his goods based off his own personal interpretation of the market. Fair? Yeah, right!! Markup here we come!
Submitted by Paul Howard on February 18, 2009 - 2:21pm.
The only thing holding the 6% tradition together is another tradition. The tradition that has the seller's agent 'offering' the buyer's agent a 'co-op'. In this day and age that is senseless. Indeed, when buyer's agents enter into contracts with their clients, seller's agents often cry foul when the buyer conditions their offer on the seller paying the fee. Some seller's agents still THINK that the buyer's agent is under some (even ethical) obligation to accept what is 'offered' via the MLS. That is not true but it is still one of the 'traditions' that maintain the old model.
Further, MLS systems help perpetuate that fiction by making a provision in the MLS for the 'offer' to be made. If the FTC, DOJ, CFA etc really want reform - that is the place to start.
States can get into the act by requiring that for a buyer's agent to be paid a commission they must have a contract specifying the fee structure and the term of the contract.
If the buyer then wants to condition their offer on the seller paying the commission that are free to do so.
Paul Howard, Broker
NJHomeBuyer.com Realty
Cherry Hill NJ 08002
Submitted by Larry Whited Sr. on February 18, 2009 - 2:35pm.
Larry A. Whited, Sr., CRB, CRS, GRI
President & Founder
www.WebMLS.net & www.maxUnet.com
P.O. Box 757
West Chester Ohio 45071
Cell - (513) 543-2727 Fax - (513) 297-7497
Submitted by Larry Whited Sr. on February 18, 2009 - 2:35pm.
Roberta, While I firmly believe we will evolve into a flat fee commission biz in the future your article was one the best I have read on the subject. You framed it very well for all to read and contemplate.
Larry A. Whited, Sr., CRB, CRS, GRI
President & Founder
www.WebMLS.net & www.maxUnet.com
P.O. Box 757
West Chester Ohio 45071
Cell - (513) 543-2727 Fax - (513) 297-7497
Submitted by Kaye Thomas on February 18, 2009 - 5:51pm.
Roberta, It seems to me that we have all been down this road for many years. Your analogy is perfect.
Consumers have access to many different real estate business models. They can choose Redfin, Zip Realty, Catalyst, etc or they can choose a full service office. These choices can be found in every market.
In 1979 when I got into real estate there were discount companies. Most didn't make it because they couldn't make enough to stay in business. The simple fact of the matter is that maintaining a real estate bsuiness is costly and if you don't charge enough you will not make it. It isn't that consumers lack choice, rather it is that those with a different model would like to limit the choices a consumer currently has to their particular business model on the pretext of saving the consumer money. When the reality is that they are hoping if they can keep the competition down they will ultimately cover their costs.
Submitted by RealEstateCafe on February 18, 2009 - 8:33pm.
Bravo, Paul Howard I agree, if the FTC, DOJ, CFA etc really want reform - divorcing the obsolete two-sided real estate commissions is the place to start!
Time to develop a coalition of real estate innovators, consumers and regulators and an action plan? This wiki will give you some idea starters! Be sure to watch the slideshow:
http://tinyurl.com/DivorceCom
Bill Wendel
The Real Estate Cafe
Serving a menu of money-saving services for "do-it-yourself" homebuyers & FSBOs since 1995
617-661-4046
realestatecafe@gmail.com
http://realestatecafe.blogs.com
Submitted by Roberta Murphy on February 18, 2009 - 9:03pm.
David: I'll borrow a menu:-)
Joseph: I agree
Austin: Bingo! It is the market that determines commission levels. Commissions are currently higher in our market for two reasons: Sellers want their homes sold and will use lures to do so. Buyers, on the other hand, are fearful in these turbulent economic times and want experienced and patient guidance in negotiating offers that provide some downside protection. And that just might mean making multiple offers over an extended period of time. Far more hours are being expended on each client.
Paul: So true. We are offering a coop of 2.5 percent (on a 4.5 percent listing) in San Clemente --and the agent is writing an offer with a contingency that buyer's agent receives 3 percent.
Larry: Thank you! If you or I knew what the real estate market and real estate business models would look like five years from now, our great grandkids could be living off trust funds. What I do know is that in uncertain times, consumers tend to prefer contingency and results-based compensation--while agents would prefer set fees and certain compensation.
Kaye: Like you, I have also been in the business since the last century and have seen lots of business models come and go--and know that in most locales, consumers have a wide array of choices for real estate representation. What I also know is that I am spending a far greater amount of time with both buyers and sellers these days because market conditions warrant nothing less.
Roberta Murphy
http://www/SanDiegoPreviews.com
http://www.LuxuryHomeDigest.com
877-818-8197/760-402-9101