Downside to working 'on the cheap'
Letter to the Editor
By Inman News, Friday, April 17, 2009.Re: 'Commissions negotiable at Agent Invitation' (April 13)
Dear Editor:
If the agent's first point of contact with a consumer is based on reduced commission, both the consumer and the agent are looking for cheap (services). I always thought that the most important thing a well-informed consumer and a good agent look for is a good working relationship, and that thereafter negotiations on commission and services begin.
I do not hesitate to turn down a listing when consumer expectations are unreasonable. I can also say that I have generally found that people who want my services on the cheap also expect me to sell their home far above its true market value.
John Alexander
Founder
ESCO Global Realty Corp.
***
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Submitted by Larry Whited Sr. on April 17, 2009 - 3:41am.
After 3 years of falling home prices we will all be approached by home owners about commission cost first with service a strong second consideration.
A WalMart type of real estate brokerage is coming. Just a question of when, not if.
Agents like John will be turning down many listings in the future.
Larry A. Whited, Sr., CRB, CRS, GRI
President & Founder
www.maxUnet.com & www.WebMLS.net
A Virtual Real Estate Franchise System
** Virtual Is the Future **
P.O. Box 757
West Chester Ohio 45071
Direct - (513) 543-2727 Fax - (513) 297-7497
Submitted by Michael Hoskinson on April 17, 2009 - 7:15am.
At the tail end of the boom all you heard about was discount brokers such as Redfin and Zip Realty, where are they now? The real estate profession is and always has been about service, when that is commoditized the RE industry will cease to exist in it's current form.
Michael Hoskinson
Foundation Realty
email coastrealty@hotmail.com
Submitted by Linda Hutchinson on April 17, 2009 - 8:22am.
The bottom line is this - you can ALWAYS cut commission but then you are cutting something whether it is services or you net salary.
In order to stay in business, you can't GIVE AWAY services and you can't give away your income. There is no other profession that will work for free.
Recently my brother in law was diagnosed with lung cancer. He had no insurance. His Doctor looked at my husband and me and asked who would be paying for his medicine since they can't treat him for free. I was shocked but I realized that he was just being honest and he could not afford to buy the drugs my family member needed out of his own pocket.
With reduced or low cost commissions - the consumer will be left with uneducated and inexperienced agents. It's as simple as that. I am at a loss to understand why anyone would think that REALTORS do not deserve to be paid a fair amount for a quality job. Knowledge is power and a good real estate agent helps the consumer make a sound financial decision that in the long run, makes THEM money. Finally, for some of us - it's not just about the money - it's a calling to service. However, it's a service that deserves fair compensation.
Linda Hutchinson, REALTOR
Stirling Sotheby's International Realty
Orlando, FL 32801
407-898-9090 Direct
www.OrlandoNest.com
www.LindaHutchinson.com
Submitted by Herbert Genelly III on April 17, 2009 - 9:40am.
Where is Zip? They are in the top 10 Real Estate Companies in the U.S., but are in only about 30 major markets.
Submitted by Larry Whited Sr. on April 17, 2009 - 11:44am.
Why do you think Wal-Mart is the only retail company to report consistent sales growth in the last 3 years? Why is Southwest Airlines the only airline to report consistent income and profit growth for over 20 years straight? Why is JetBlue expanding rapidly across the country?
If you think consumers aren’t going to value shop real estate services in this internet world you are in for a big surprise.
8 years ago when I started www.WebMLS.net Realtors I listed over 100 homes the first year, collected a $500 upfront non-refundable list fee for a reduced commission on 90 of them = $45,000 income before I even loaded them in MLS.
They were listed for 4% with a 3% co-op so I kept 1% of the sale price.
I sold 78 at an average sale price of $300,000 = $234,000 in commission income + $45,000 upfront list fee for a grand total of $279,000 income. That is a much larger net income than 95% of mid-west agents.
The best part of the story is; I have no office, no support staff and no over head.
With the internet, email and PDF files I can sale a listed home in 10% of the time it took me in the last century. By addendum I require all my sellers to work a contract by email so I never leave my home office after listing the property except to go to the closing and place the sold sign (you can see my addendum on my website under Contracts & Forms Link). BTW I may still be in my pajamas while I am making the sale.
While I am making 66% less per listing of what I once made, I sold 50% more homes that year and my average sale price increased 50%. My reduced commission is even more attractive to the high end of the Ohio market. If you do the math on the reduced time per sale vs. the number of sales I am way ahead on my hourly income.
In my spare time I hired 24 agents that year. I now have over 100 agents (I peaked at 148 before the market tanked) spread out all over Ohio and still no office or overhead except the 9 Boards & MLS’s I belong to for my agents. My agents keep all their commission except a $400 broker fee to me.
Who can define what a “Fair” commission fee is in this internet world? Do you base it on last century’s high overhead, expensive office model or this century’s virtual office model? I do not think the consumer will continue to subsidize last century’s business model much longer.
Large expense offices and high agent commission splits to pay for them are so last century.
Offices are tombstone monuments to the past. Virtual is the future.
Larry A. Whited, Sr., CRB, CRS, GRI
President & Founder
www.maxUnet.com & www.WebMLS.net
A Virtual Real Estate Franchise System
** Virtual Is the Future **
P.O. Box 757
West Chester Ohio 45071
Direct - (513) 543-2727 Fax - (513) 297-7497
Submitted by John Rakoci on April 17, 2009 - 8:46pm.
There is a place for the discounters. I even suggest some go to them. My service, experience, and time is worth more than 1%. I understand anyone asking about reducing commissions and those that insist on rediculous can move on. I use a varied listing fee depending on list price. In every listing contract it is noted the commission will be reduced if I have both sides.
I do wonder why anyone that feels they are only worth 1% knows the buyers agent is worth 3%.
Submitted by Larry Whited Sr. on April 18, 2009 - 2:56am.
John,
I do not think the co-op is worth 3% but we must offer the norm to get co-op participation.
I give our agents the freedom to negotiate the total commission & co-op with each of their clients to reflect the price, condition, market conditions and customs in their area.
You can see our AT WILL Contract and our Listing Addendums on my website under the Contract and Forms link on www.WebMLS.net .
The 3% co-op barrier is starting to crack. We are seeing more 2.5% - 2.75% co-op in Ohio MLS systems.
All commission reduction so far has come off the listing side. Future commission reduction will come off the co-op commission side.
In England total commission is 2% with a 1% co-op and has been for decades. How do they do it?
1) Fewer agents / brokers who do more sales per agent per year. I used to spend 90% of my time prospecting for business and 10% doing what I was licensed and trained to do. The first year of my company I spent 90% of my time doing what I am licensed, trained and really good at; list and sell houses. I spent 10% of my time recruiting agents who understood the deference.
2) They don’t have all the “Smoke & Mirror” overhead the US has to try to justify a high commission. They do the basics very efficiently.
I predict the US will see the same model as the UK sooner rather than later. That is why I designed my company and www.maxUnet.com franchises systems to operate on 1% for each side.
Our agents and franchisees will be ahead of the change instead of a casualty.
Larry A. Whited, Sr., CRB, CRS, GRI
President & Founder
www.maxUnet.com & www.WebMLS.net
A Virtual Real Estate Franchise System
** Virtual Is the Future **
P.O. Box 757
West Chester Ohio 45071
Direct - (513) 543-2727 Fax - (513) 297-7497
Submitted by Don Stewart on April 19, 2009 - 5:37am.
First, I just want to clarify a bit of the original article. In the fist paragraph Katie says:
"A new Web site aims to help consumers and real estate agents negotiate discounted commissions by allowing consumers to send anonymous queries to three agents detailing the level of service they seek and the commission they'd be willing to pay."
Almost right. The consumer does not suggest any level of commission that they would be willing to pay in an Agent Invitation. They outline the services they need, the approximate value of the purchase or sale, and make a case for why they think an agent may be able to work with them for less than the local "usual" commission percentage to meet their specific needs. It also says that if an agent thinks that charging the "usual" percentage commission is fair and reasonable in this case then they should propose the "usual" commission.
The thought is that if consumers understand how commissions work, and can review a few agent proposals before that meet with any agent face to face then they can make a good hiring decision based on many important factors, one being commission.
It does shift a bit of power from the agent to the consumer and I think that may be where the discomfort comes from. Agents know how to "overcome commission objections" in a face to face meeting.
So, the client does not specify any commission at all. You are free to propose any fee for your services that you think is fair and reasonable to meet the clients needs - including the "usual" local commission percentage.
Submitted by Jerzy (George) Szkup on April 19, 2009 - 7:53am.
George Szkup
www.DestinationTucson.biz
Under present economic condition - any commission is fine with me - this way I can eat!
We can argue about value of a commission after market stabilizes.
In my opinion, quality of service does not depend on size of a commission - it is directly related to agents' integrity. A "good man" is going to perform and a "cheep" agent is going to provide poor service no matter what size of the commission.
George in Tucson
Submitted by Glenn Sanford on April 19, 2009 - 2:28pm.
I took a look at the website and I personally don't find the AgentInvitation.com website very appealing in its current state to either Agent or Consumer. There was a comment on Zip and its discount model. You may want to do a bit more research on Zip. They do continue to grow even though its not that exciting a company to talk about in the current market. Check out their financials (since they are public) and even though they are seeing some revenue declines it certainly is less then the overall market, which means they are picking up marketshare.
Only about 20% of consumers are fixated on price, so for those who are worried about AI, don't. They may get some traction, but their marketing is geared exclusively for the analytical home seller.
Commissions is one of the funnest topics to talk about in real estate. The DOJ on their website has indicated that commissions have risen faster then wages in this country on a per transaction basis. Obviously now they are falling faster then wages. It drives the DOJ, Venture Capitalists, Internet companies nuts that they can't figure out how to truly break into the real estate market by playing with commissions. Subjects like travel and stock and bond brokerages always come up in the discussion of how agents are overpaid. What the DOJ, VC's and Internet Companies fail to recognize is that real estate is not a commodity business. We aren't talking a ubiquitous product that can easily be valued by sites like Zillow. They are no movable like airline tickets. They take local experts in the local market in order to trade as opposed to stocks and bonds. As a result commissions are not being impacted negatively on average.
Certainly there is a place for reduced commissions and it seems that Larry in the comments above has found his soap box post on which to promote his company, however keep in mind that the Parent company Help-U-Sell declared bankruptcy a couple of months ago and it seems that most limited service brokers are now struggling more then ever since it takes more then a sign in the ground to get a property sold.
Founder / CEO
BuyerTours Realty LLC &
Working The Magic, LLC
Check out my Real Estate SEO blog
Direct: 360-220-1470
Submitted by Don Stewart on April 19, 2009 - 4:27pm.
Glenn - are you sure you looked at agentinvitation.com? Your comment "their marketing is geared exclusively for the analytical home seller" makes me think you were either at a different site, or were not able to have a good look at the content. If your time allows and you are intersted in returning to the site for a closer look I would be interested in your observations.
Don Stewart
Founder
Agent Invitation Inc.
Submitted by Roberta Baldwin on April 22, 2009 - 6:14am.
Help-U-Sell was never a force in our workplace here in NJ, but we did have the flashy, now-defunct Foxtons, which plastered our neighborhoods with letters promising sellers (in advance of listing, course!) that the company already had buyers in hand. Of course, Foxtons wasn't being honest -- their days-on-market were through the roof. But, hey, sellers paid very little for the services Foxton's provided, so, at least at first, it must have seemed like a bargain. While discount brokers do, indeed, seem to be waning as the market gets tougher, they are being replaced by all of us: Full service agents for whom every meeting with a seller is now a contorted discussion about commissions. Whatever you offer as your bottom line, it's not good enough. Sellers want more, more, more for less, less, less. More newspaper ads (to reach the last 14% of the American public still reading classifieds and not using the web); They want frequent open houses, for 4-5 hours, not just 2, even if nobody shows up except the neighbors; they want professional photos and glossy feature sheets, floor plans, etc. Indeed, they want proof that you're marketing their home in your sleep -- even if the asking price is just crazy high. Many can't envision the nature and power of the internet, how it works when we are sleeping, providing us new leads at sunrise to run with. Sellers love the enhanced listings we're giving them on Realtor.com and Homes.com, but don't understand the costs not just of HAVING these features, but of hand uploading each and every photo, the double headlines, the souped-up copy and all the rest. Meanwhile, sellers aren't getting the new way that buyers are reacting to the market. Why aren't they coming back for another look?...they stayed an hour the first time. What do you mean they don't like the hilly yard?...our kids played there for years. In the Whole Foods parking lot last night around 9, I bumped into another tired realtor, who only had one word for it all: disconnect. Great word, that. Nobody gets anybody's motives anymore, nobody's on the same page. And we Realtors are in the middle. Good luck to us as we manuever through this strange new landscape!
--Roberta Baldwin
Visit me at NJDreamHouses.com
Submitted by Alec Hagerty on April 22, 2009 - 7:15am.
Alec Hagerty, ABR-M,C-CREC,CRB,DREI,e-PRO,GHS,SHS,SRES,
I've read with great interest all the comments and opinions on this topic... one thing that continually is left out of the discussion is the fact that we are still held "responsible" by the courts and state regulatory agencies... regardless of what fee we received! Please, consider the litigious nature of our society... one commentor stated that in England they have gotten 2% and a 1% co-op... I will wager a bet that they don't have nearly the legal responsiblities we do here and arent't nearly sued as often as we are here! In our society and in the real estate world the lawyers practice what I call "legalized extortion" ... they sue knowing they don't really have a case, but knowing that the broker and or the errors & ommisions company will likely pay up to minimize the cost of litigation and make the issue go away!
One response I have used occasionally with sellers who ask (and I might point out they ask because now they have read they should) for me to lower my fee... my answer is "yes!" "absolutely!" ... however, in return, I'll need a letter from your attorney that you and he will hold me "blameless" "harmless" "foreverless" in this transaction... in other words you can't and won't sue me, for any reason! Needless to say it gets an interesting conversation going... the truth is their attorney will NEVER agree to do that, so I'm off the hook. But the seller has a better understanding of one more reason we have to charge the fees we do.
We have to earn the right to our fees today, that means a much better presentation... remember what Tom Peters said in his book "In Search of Excellence" "When the consumer doesn't understand the value of a product or service they resort to cheap!" ... Prepare to prove your value or face being undercut by a better informed consumer, or by an alternative real estate model that better appeals to them!
For a list of 182 things that we do in a transaction (that you can share with consumers) feel free to go to my website: www.KnowledgeSpongeSeminars.com and click on "Tools & Learning" then scroll to the link at "Scope of Responsibilities List" I think you'll like what you see and find it very helpful in your presentations.
Submitted by Ruthmarie Hicks on April 22, 2009 - 5:24pm.
In our area, commissions and coops have started to climb again. It was a badly needed change as the margins had become very skinny in the bull market. Commissions went up simply because there was no place for them to go in a market where extensive marketing is required and buyers are spending months in an agent's car before they pull the trigger. Discounters coming into the area offering rebates had better do their homework....because our commissions are much lower than the national average.
I think Glenn is correct in saying that it's driving venture capitalists and internet companies crazy. They just can't crack the system wide open with a fancy web site and rebates. The ultimate problem is that cost of doing business in real estate is very high. Real estate is high touch, lots of hand-holding, and low volume. Finally, the price of admission is LOCAL KNOWLEDGE. They can't put up a fancy site and expect the money to roll in. It requires boots on the ground and an intimate understanding of the area.
For example: in my city there is a lovely residential neighborhood that traditionally has been upscale. It was established and developed. Not much more could be built. It was mature and stable which commands a premium price. The main feature - gorgeous golf course views from many of the homes creating extended back yards that looked on green grass as far as the eye could see. The pricing was based on those wonderful views. Now said golf course is UP FOR SALE to the highest bidder. Stability is GONE because almost anything can no go there. But you don't know that because you are an agent that is spread too thin trying to create volume at lower rates. You sell a home to a buyer who is drooling over the views. He buys the home thinking he's bought a small slice of heaven. Then he finds a building crew parked in his back yard stripping the view and replacing it with McMansions. You think this buyer is going to be nice about this? You think they aren't going to consider litigation? They just grossly overpaid for stability that didn't exist and a home sitting on a massive construction site!
Submitted by Christi Borden, CIPS, ABR, GRI on April 24, 2009 - 7:15am.
Wow, I love this discussion. Our market has been been very stable and has seen a some negative impact on market values but on the whole we have a positive outlook here in Katy, TX (large suburban area west of Houston). I work for a full service company and of course, feel strongly about keeping my commissions in my pocket because my marketing (online and IRL) is very expensive and it shows. I regularly compete against many agents in our area and many times get hired because of the extra effort and marketing dollars spent to list the home. Most sellers get it: the commission question goes away when you prove our are worth it. Minimal MLS input and cheap flyers may satisfy a few of the sellers in our area but when handling relocation moves with stringent Days on Market guidelines, it is no time to be cheap with marketing. My man-hours, expertise and expanded sites (including Realtor.com) have value, cost money and are covered in my commission. If I cut that, something has to give: either personal service or marketing.
That said, although our market is still strong, it is not a market where you can get by with minimal effort. As long as the seller realizes that he igets what he is paid for, I am not worried about discount brokers in my area. Because in reality, Nordstroms and Walmart do not compete for the same clientele.
Your Katy, TX Realtor,
Christi Borden, CIPS, GRI, ABR
Prudential Gary Greene, Realtors
Email: Christi@ChristiBorden.com
Web: www.ChristiBorden.com
Cell: 832-372-7470
Submitted by Don Stewart on April 27, 2009 - 3:57am.
Self Interest is OK - let's just admit it.
The letter to the editor says that “I always thought that the most important thing a well-informed consumer and a good agent look for is a good working relationship and that thereafter negotiations on commission and services begin.”
At first glance this does not seem unreasonable - agents and clients should have a good working relationship. The issue I have with it is that the agent wants to be able to “sell” himself as the best agent for the client first, and should the client ask about commissions at all (many do not), then the agent is well prepared to “overcome the commission objections”. The client needs to be pretty self assured to actually try to “negotiate” commission in this setting. It is uncomfortable and can be intimidating. The consumer is certainly not "well-informed" through this process.
Often, not always, but often the agent will press the client for a hiring decision in the first meeting. That was how I was taught to do it by successful agents and the coaches I learned from. The agent will never be in a more powerful posture, so why not try to win the business while they have the momentum and move on to the next appointment?
Agents are business people - the objective is to sell their services at the highest price they can. They are self-interested and that is OK.
If a consumer would like to know how much an agents fees would be before committing a few hours to a meeting does not mean that they want services "on the cheap" - that is an unfair assumption. If consumers understand how commissions work, and can review a few agent proposals before they meet with any agent face to face then they can comfortably and calmly make a good hiring decision based on many important factors, one being commission.
It does shift a bit of power from the agent to the consumer. I think this is where the agents discomfort comes from. The agent knows how to “overcome commission objections” in a face to face meeting just after they have pitched you for an hour on why they are the best choice and how doing anything else might be painful (you might pay too much, get too little, may not sell your home at all, etc.).
If agents are sincerely concerned with their client’s welfare and comfort why not level the playing field a bit. If the agents are simply looking out for themselves first that is perfectly understandable and is OK - let’s just be a bit more up front about it.
Submitted by shubhranshu agarwal on April 29, 2009 - 6:24pm.
If the property owners are getting true value of their property then they shouldn’t be reluctant to pay the commission to the broker. After all, estate broker charges for his services. All the negotiations should be made before starting the deal.
Submitted by shubhranshu agarwal on April 29, 2009 - 6:26pm.
If the property owners are getting true value of their property then they shouldn’t be reluctant to pay the commission to the broker. After all, estate broker charges for his services. All the negotiations should be made before starting the deal. To know more about latest estate trading practices and trends, one may visit http://foreclosureworkouts.info/ also.