With more than 1,000 Inman posts, Bernice Ross is a long-time contributor whose weekly column on real estate trends, luxury, marketing and other best practices publishes every Monday.
At CEO Connect, Eric Eckhardt, the U.S. CEO of London-based Purplebricks, and Mauricio Umansky, the CEO and co-founder of Beverly Hills-based The Agency, had a spirited debate about reduced-fee commission models and what exactly constitutes “full” service.
HelpUSell, which was founded in 1976, and Assist2Sell, which was founded in 1987, were early pioneers in the reduced-fee/do-it-yourself approach to real estate. In fact, they are the only two national companies that have managed to stay in business over 30 years using this model.
The reason is simple — reduced-fee models thrive in seller’s markets where there is a high demand for listings. When there is a market downturn, the vast majority of reduced-fee models fail.
The need for ‘price-based’ commission models
It’s important to note that reduced-fee models serve a significant chunk of the market. According to NAR’s 2018 Profile of Home Buyers and Sellers, 8 percent of the sellers listed their home with an agent who placed their property on the MLS and “performed few if any additional services.”
An additional 8 percent listed with a company that “provided a limited set of services as requested by the seller.”
This coincides with the research I did back in 2005 when I wrote Waging War on Real Estates’ Discounters.
Approximately 15 percent of the sellers selected their agent exclusively on how much they charged in commission, about 5 percent wanted and were willing to pay for premium service, and the remaining 80 percent would pay a full commission if the agent could show them the benefits of doing so.
Discount vs. Limited Service
A key takeaway from Waging War is to always avoid using the word “discount.” The reason? Almost everyone loves receiving discounts. Whether a reduced-fee model targets do-it-yourself types, uses a menu of services or posts the seller’s listing on the MLS and some portals, the best description of these companies is that they are “limited services” companies.
This is an important takeaway if you want to earn a full commission rather than competing for the reduced-fee crowd. Although people love discounts, almost no one wants “limited service.”
‘At or above industry average where we operate’
As Umansky outlined the problems he and his agents have encountered with reduced-fee brokers (they lack expertise, they lack urgency, and they are poor negotiators who consistently cost their clients money at the negotiation table), Eckhardt countered that they charge a “fair fee” and that their sales prices “are at or above industry averages where they operate.”
What exactly does “the industry average” mean? According to the 2018 NAR Profile of Buyers and Sellers, the median (industry average) sales-to-list-price ratio is 99 percent. However, 26 percent of all listings sold for full price (100 percent of list price), 16 percent sold for 101 percent to 110 percent, and 4 percent sold for over 110 percent of asking price.
Consequently, unless the reduced-fee broker was charging less than 1 percent, one-third of the time the commission savings in the reduced-fee models would be wiped out. This doesn’t take into consideration concessions gained during the inspection process or other issues in the transaction where the principals can incur additional costs.
Tracking and presenting your list-to-sell price ratio
One of the best ways to persuade a seller to list with you for a full commission is to track your average list-to-sell-price ratio and compare it with the average list-to-sell price ratio for your board of Realtors.
The case study below illustrates how this agent nets the seller more money, even when the sellers pay a full commission. The agent compares her list-to-sell-price average to those of a local 5 percent competitor, a 4 percent online broker and a 2 percent for-sale-by-owner broker. (From Waging War, p. 152)
Full service vs. premium service
As I listened to the back-and-forth between Eckhardt and Umansky at CEO Connect, they were clearly describing something quite different. In Umansky’s market, “full service” doesn’t cut it — in fact, most expect agents to provide full concierge service, not just premium service.
Moreover, weak negotiating skills or mistakes can lead to dire consequences for the seller. For example, we had a case in our company where the buyer asked the listing agent if the fence was on the property line. The agent answered, “yes.”
The survey showed that the fence was encroaching by one foot for the entire length of the lot — 252 feet. The land this estate was situated on was valued at a $1,000 a foot. The buyer obtained a judgment for $252,000 plus all attorneys’ fees and court costs.
Your premium marketing plan: maximum exposure equals maximum price
An argument that resonates consistently with sellers is that maximum exposure to the market results in maximum price. To use this approach, you must be able to demonstrate to the seller how your “premium marketing plan” will help them obtain the maximum amount for their property.
Some ideas to include are:
- Create a business page devoted specifically to your listing across multiple platforms including Facebook, Instagram, Pinterest and YouTube.
- Use interactive maps.
- Translate language into 18 different languages to reach the 72 percent of consumers internationally who do not speak English.
- Employ never-miss-a-lead chatbot technology (IMRE.CA, Automabots, Structurely)
- Create a 90-day marketing plan that outlines when the sign goes up, broker tours, open house, plus the print and online advertising schedule.
- Schedule a private open house for neighbors.
- Have the property professionally staged and/or virtually staged using tools such as BoxBrownie that allow users to see how the home would look with various styles of decor, no clutter and at night or sunset.
- Post property on Facebook Marketplace and Oodle Marketplace.
- Create a single-property website that uses the home address as the URL (345ElmStDenver.com).
- Craft a targeted print marketing campaign to reach high-probability buyers based on the market area and price range where the property is located.
- Make a 3D virtual reality tour using a service such as Matterport.
- Shoot videos about the home and the local lifestyle.
- Gather video testimonials from your sellers and their neighbors about what’s great about living in the area.
To win against reduced-fee models as well as “full-service” competitors, become the premium agent who provides better tools, has top-notch negotiation skills and provides concierge-level service.
Track your results, and if you’re netting your clients more, show them the numbers — it’s still the best way to overcome the reduced-fee commission objection.
Bernice Ross, President and CEO of BrokerageUP (brokerageup.com) and RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles. Learn about her broker/manager training programs designed for women, by women, at BrokerageUp.com and her new agent sales training at RealEstateCoach.com/newagent.