Get Creative


We lost IT. We use to have IT and now we lost IT and now you can get it on ebay! This IT is that huge chunk of our commission that used to come from being the gatekeeper to the multiple. At a listing presentation our competition was only another agent that charged the same fee (there were a few reduced fee offices but it wasn’t a trend).

But they don’t need us anymore for that. They can get it on ebay. And they can get listed for under $400! Of course, taking and uploading the listing in the multiple is just the beginning, but if we’re going to separate out tasks like the actual listing going into the multiple, why not separate out all the tasks and see what they’re really worth. I agree that uploading the listing is a pretty simple task and a lot of agents just fax it in so it probably is only worth $400 (you have to be registered with the mls for this, plus it involves contracts and accuracy of the listing information)….. if that’s all the service a seller wants.

So, last summer I decided to address all of the things that agents do by breaking up the tasks and establishing a monetary value to each. It’s the ala carte menu of listing services and I googled and googled but couldn’t find anyone with anything complete enough online. I even took the coursework to get licensed as a consutant from the National Association of Real Estate Consultants (NAREC) so I could see if someone had already done all that work.

I separated out the tasks ranging from $20/hr for real estate data input, filling flyer boxes, dropping off keys, etc. (a high school kid couldn’t do all of this) to $300/hr for negotiation and problem solving. Wow, I was surprised at how often I worked for $20/hr. I tried to figure out what I’d be charged by different people doing different levels of work and then added a profit margin.

The $300 work i assumed would be done by the senior agent taking the listing and running the team but personally doing tasks that take a lot of experience and skill like price opinions, market timing, the totally important negotiations with both buyers and the buyer’s agents and solving all those problems (I had a list of 88 things that can go wrong with a transaction). Personally, this is where I’d prefer to spend my time.

The results are on the website if you want to see how it works. My slick computer tech even built it to automatically compute based on different packages and house price.

What got me thinking about this was today’s Inman article on bloated commissions and how much I agree with it. The article suggests, “consumers would benefit most from fee-for-service real estate companies that base compensation on flat fees, hourly fees and other specific payments for services rather than relying on a commission rate that is based on a percentage of the sale price of a home.

It may be broken, but here's a plan to fix it!

Ah, finally get to catch up on reading some RCG posts. What a prolific group this is! Makes you wonder just how important a degree in creative writing might become to the average agent in the future. I’ve been busy cuz I’ve been doing alot of recruiting these days.  So, when Eric, in a recent post  wonders about the mega agent model works I can’t help but commenting that it works great for the mega agent and not so great for the mini agents on the team and especially not so great for the customers of said Mega Agent who may not want to be foisted off on a newbie. Ardell says that the industry is broken because agents don’t help train newbies anymore. Couldn’t agree more. Fact is, there are agent training programs within offices, called Mentor Programs, but they cost the newbie a lot. I just heard about one such program that offers the mentoring agent 70% of the commission! No wonder its broken, but I have an idea of house to fix at least a part of it.

I wonder if people outside of this industry know that 85% of all new agents have left the business within 2 years and that average agent income is around $32,000 below the average household income of $34,000! When we talk about the industry being broken, how could it not be when out of every 100 agents, 85 of them have under 2 years of experience practicing in an industry that demands a high level of legal education and an equally high and complicated knowledge base. I’ve blogged before about the need to raise the bar for new agents. But I don’t see it happening unless I want to get on the Real Estate Commission which I don’t want to do. Untrained agents are like driving over a train track with the train coming. Shoot, I once had a seller move out a month early because his agent misread the financing deadline for closing of the transaction! Like Ardell, I could tell thousands of other stories. Isn’t the fact that there are so many newbies who are inadequately trained but allowed to handle any kind of transaction greatly affecting the quality of service to the clients? Doesn’t this create most of the problems with transactions?

So, now I’m in a position to make a difference. I can’t affect the other agents but I can sure affect the ones at LTD. There is a huge fault with the traditional business model for a real estate company, starting with recruiting.  When recruiting, brokers use the same practices to recruit new agents that you find in multi level marketing. They point to the super agent making all kinds of money and driving the ego car and hold them as the example of what the newbie can become. It’s enticing and makes the mouth water. The newbie can hardly wait to get a piece of that fortune and so eagerly joins the firm with all the zeal and ambition that should make them succeed. They are given the standard goals: take forms classes, establish a farm, knock on doors, do open houses, develop a sphere and take floor time.  But sadly, they don’t usually succeed with this advice. At least not 85% of the time.

Part of the problem is the upside down business model in the traditional company. This model and the model taught in broker training, is that once an agent has earned enough, typically $50,000 and splits this 50/50 with the brokerage, then that agent no longer earns money for the company, and is, in fact, a drain on the office, supples, training, etc.  Instead of being tied to the ongoing success of the agent, the office does just the opposite and depends instead on recruiting new agents instead of developing what talents they already have. Why, because their model is make $25,000 from as many agents as they can. Thus the revolving door.  Agents that carry heavy listing farms are also recruited but not for the reasons many might think. The heavy listing agent is sought after by almost all companies because they get the companies name on the streets with signage and have listings advertised to get the phones to ring. Do sellers know that their home isn’t advertised in the paper to necessarily get it sold as much as it is to take up print space and serve as image marketing? Plus the phone rings at the office to give the ‘up’ agents leads thereby providing a way for a new agent to get business.The newbies often do the open houses, not to sell the home, but to develope clients.

But what I think is an even greater cause of this failure are the many, many hats an agents wears, all requiring a different personality, skill and intelligence level. They must understand and implement all of the forms used in listings, sales, Federal forms and laws (asbestos, lead paint, fair housing) without which they can look at jail time and/or fines, disclosure subleties, etc. A typical agent must also learn how to read people, how to know just when to push and when to hold back. They must be strong enough in a listing presentation to sell themselves as the best while empathetic enough to work with buyers and understand their points of view. A good buyer’s agent must know how to perform a buyer consultation.and know how to find the exact right house out of the many thousands that are on the market, and not have buyer’s remorse.   A typical agent must know geography, house styles, demographic trends, know how to price, employer information, school information, church and communtiy information, transit information, structure and design.  Additionally, this practice requires a high level of negotiating skills, assistance during the inspection where many deals take a nose dive, plus the ability to stay on good terms with other agents in the market place without which they are doomed.   Agents are asked for advice on mortgage progrmas, title issues, need to understand and explain builder addendum (if that’s possible) and warranties, understand the escrow process and data base management, etc.

This is but a small list of the knowledge and skills an agent must have or fail. But, as if that weren’t enough, they have to be able to wear a marketers hat, as well. What is the best way to attract clients? How do you ever set up those lucrative programs aimed at building a referral base. Do you advertise in magazines, newspapers, online, do you buy lead sources like House Values, do you blog, do massive mailings, do you establish a farm?  Who will build a web site and teach how to make it a useful lead source. And on and on.

Do you see why it is ludacrous to ask all these skills of one person? How could any well balanced individual know all of this stuff and still have a life. Even the mega agents who scale as Eric has suggested might be a good real estate model, these agents must be even more talented since now they must also be managers, and, worse, they are ultimately responsible for errors made at any level by the team, any lawsuits, ommissions or mistakes by the assistant will be born also by the mega agent.

What we see in other companies in America are several different departments with different specialties and responsiblities.  When I owned two restaurants, a nightclub and a boatyard and marina, as you might imagine that I had 10-12 departments reporting to me at any one time. And I certainly didn’t know how to repair a twin screw diesel engine nor could I entertain as well as the All Male Revue! I contracted out marketing, I hired bookkeepers, I paid well for department heads that were specialists in their fields. Why not have a real estate company set up the same way, i.e., with different departments doing what they each do best. The agent should be the person who is face to face with the clients, not the person who is mailing out postcards or doing the research on the different lead generator sources. Even deciding how to outsource the different parts of the job is time consuming.  Each agent should work with the PART of the business that best suits his or her personality style, and you determine this with a personality assessment and lots of coaching, i.e., if you want to work at night and you are not shy and have a commanding presence, you’d probably like being a listing agent. If you get your kicks out of assisting someone in finding their dream house, you’d probably love working with buyers. If numbers fascinate you and you love the work of high finance, you’d probably prefer investment real estate and if you can’t tear yourself away from watching a home get built, you’d probably love new construction. For the well connected, whether by church, networking groups, family, and all kinds of social groups, and you love to give parties, then a referral based practice might work best for you.

Agents need to know themselves and find their own best fit in the business, then I firmly believe that they will succeed at a much higher level and make it through the first two years better than if they follow the typical one size fits all advice of their broker. Or, worse yet, take every referral coming from the relocation department and only make about 30% and lose belief in themselves.  As the agent grows, learn the ropes and learn what they love to do best, then migrate throughout the different departments within the company and take on more challenges.

We need a new model. We need to create companies where the agents are treated as individuals and trained as such. Where it’s acknowledged that they can not wear all the hats at once.  We need to have all the effective marketing in place and offer assistance with implementing it. We need to provide FREE leads to our agents. We need to create an economic model where the agents continuing success is directly tied to the continuing success of the office.  We need to give agents the reason to stay loyal to the company and to take away all the stumbling blocks to success.

It’s a huge order, but doable. I know and it works. Start out with bright, likeable and agressive people, have programs set up in the different fields within real estate so there is enough diversity, have the marketing materials and programs researched and implemented so that the agent can be with the client and do what they do best.  Have the negotiation, legal and transactional support to augment the knowledge base of the agent, and mentor and coach as long as necessry. This is no Walmart model, nor is it a Costco model. It’s not the super agent model where only the super agent makes a good living, it’s a Super Office model where all can do well, all are supported, teamwork is highly regarded and there is incentive to grow the company, too. A happy and successful and nutured agent will cure this industry of what ails it. 

You Have to Wonder….

And some ask why the government is so fixated on organized real estate. It is because of this mindset and the audacity to shout it out to the world…

I tactfully tell my sellers if I reduce my commission to 4 percent or 5 percent, the buyer’s agents will show my listings last only after showing the full-commission listings. Whether it’s ethical or not, that’s what happens.

Full article on Inman (subscription required after a day)


Zero Commission

[photopress:howie.jpg,thumb,alignright]We’ve been talking down there in the comments about all of the things agents are “not allowed” to do. One benefit of being an independent is that you can be an avant-gardist and try out new and different things from time to time. I had this idea. Everyone knows that when you list a house, you often sell other houses as a result. Buyers call on the sign or from the internet or you meet them at an open house. These buyers may buy the house they called about, or they may buy a different house from you.

How about reducing the commission on the house you have listed, every time you get a buyer client as a result of that seller’s house being for sale?

Let’s say it is a condo priced at $225,000 with a seller’s side commission of $4,500. Someone calls to buy it, but they have a dog and that condo association doesn’t allow dogs. You sell them a different condo that does allow dogs and earn a commission of $5,000. You would never have met that buyer if they didn’t call on the condo listed at $225,000.

So how about taking 10% of the $5,000 you made as a result, and reducing the fee on the listing from $4,500 to $4,000. Get two buyers from calls on the listing, and the fee goes down to $3,500. Of course no one would want their property on the market long enough for the agent to get 10 buyers, lowering their fee to zero. But it would be possible. Maybe it should be 20% each and 5 buyers to get to zero.

What do you think? Too complex? Is figuring that out as hard as trying to figure out what is going on with Howie on Deal or NO Deal? Maybe I shouldn’t have watched that American Inventors show…agents aren’t supposed to be as “out of the box” as you techies 🙂

Full Service for 1%

I came home today and as usual, looked through the mail.  There was the ordinary bills (yuck!), magazines, no fan mail (rats!) and the assorted direct mail pieces (which I normally drop in the round file).  One piece stood out because it was a picture of a house with the words “How much is your home worth?  Interested, I turned the postcard over and it went on to say “Full Service and Marketing for 1% commission fee”  So what, there are all sorts of discounters out there looking for business.  Not so fast.  The discounter on this direct mail piece was a ReMax agent.  Don’t know about you but this is the first outright solicitation that I have seen from one of the “big brands” brazenly advertising a discount commission.  Anyone else seeing stuff like this? 

The Impact of Cooperation

Most of you have (or should have) read the recent article by STEPHEN J. DUBNER and STEVEN D. LEVITT (Freakonomics) in the NY Times. As may be expected, there were plenty comments on the Freakonomics Blog. As I was reading the comments, one struck me. It was from a very sincere sounding broker who, in defending the broker’s role in the transaction, said:

As an agent on the buyer side or the seller side, I have a fiduciary responsibility to prosecute the interests and goals of my clients……If you want to succeed in this business, become a fierce advocate for your clients, give them all the data they can handle, use your sales, negotiating, and analysis skills to their advantage.”

I pondered this a bit as it sounded like a legitimate strategy for success. I then recalled an article on Inman the other day about a company called RealtyLegacy. The company promotes a program where it will connect buyers and sellers with agents from other companies and those agents will agree to rebate a portion of their commission to their client after closing. The story was interesting from several angles but it surprised me that one such agent did not want to disclose her name because of fear of reprisal to her and to her clients (i.e. other agents would not show her listings if they knew she was discounting).

I then thought back to the NY Times story and the analogy of the real estate brokerage world to stock brokers and travel agents and the author’s forecast of the impending doom to the industry. The real estate brokerage industry has a major advantage that the stock traders and travel agents did not have. To buy a stock for a client or to purchase an airline ticket, there is no need to cooperate with another stock broker or travel agent. Those brokers deal with the principal to put the deal together. In real estate, cooperation is at the heart of the industry (some (the DOJ?) would say that this cooperation has artificially upheld commission rates and traditional business models).

I then remembered the above quote from the broker. He believes that diligent representation of his buyer will preserve his relevance. What happens, however, when he comes to a home that he knows his buyer client will love and he looks at the SOC (selling office commission) in the MLS and sees 1%. If I understand the theory, do what is best for your client and you will have value. It is without argument that this buyer client will value this “perfect” home over and above the amount of commission that the broker will receive? However, it is commonly understood in the industry that if a seller wants their home shown, they will pay the “going rate.” They are told that if they don’t, other agents will not show it. If this was not an issue, why did the RealtyLegacy agent have to hide her identity? Why was she so scared to let people know that she was discounting? If buyer agents in fact act this way, what does this have to do with “prosecuting the interests and goals of the client.” Why should a buyer get short-changed on seeing available inventory when the seller has refused to pay the standard SOC?

It then hit me like a brick upside the head: A major strength of the real estate brokerage industry is at its core a major weakness.

Are real estate agents an endangered species? — upcoming article

Heard an interesting interview with economist Steven Levitt on NPR this morning. He co-wrote an article that will be coming out in the New York Times Magazine titled Endangered Species – The future of real estate agents. He dicusses all of the innovations going on right now in real estate and how like travel agents we will become obsolete as “all we do is connect buyers and sellers on the MLS system“. Oh how easy my life would be if my work ended at the point I put a listing on the MLS.

A second point he makes in his radio interview is that in spite of the “high commission” most agents don’t make that much money. The reason is there are so many agents chasing the available deals that they have to spend so much time finding new clients. Look at California where 1 in 75 people has a real estate licences. This touches on my pet peeve. If the real estate industry really wants to be viewed as the profession it should be, than they should raise the standards of what it takes to become an agent. I’ve just looked at too many incomplete contracts, had an agent try to force his way (without prior notice) into a rented unit at a duplex I was selling and other instinces that demonstrate an individual with the intellect to fog a mirror but not much else.

It should be an interesting article. So what do you think? Is the real estate agent going the way of the Dodo? Do people really want to buy a house from an “ for homes” or an agent that can guide them through the whole process? How about the idea of fee-per-service or hour basis instead of percentage of sale?


Is it bad if everyone else does it too? What if you're one of the best?

Realtors are the subject of another balanced-but-critical New York Times article today. This time it’s for a whole host of lobbying-related fair market-blocking activities.

Frankly, I don’t have a lot of sympathy for banks, but the strong-arm tactics of the National Association of Realtors described in the article make banks look like victims of injustice. The story meanders away from bank-blocking tactics to easier to explain subjects, like the federal suit brought against the National Association of Realtors for locking low-cost realtors out of many listings. It appears the government (a very pro-business administration, at that) wants to create a level playing field:

When the suit was filed, J. Bruce McDonald, a deputy assistant attorney general, said, “Our job is to ensure that one group of competitors doesn’t tell some of its members they can’t compete in a certain way and undercut the level playing field.”

The defense:

Ms. Janik warns that major changes to the multiple listing services could cause large nationwide brokerages to pull out of the system and establish their own private listings. That, she said, would be a far greater threat to small firms.

So what’s the story? As I understand it, the progressive (egads!) North West MLS does not allow brokers to selectively block listings from competitors sites, which is what the realtors say they have a right to do. And, as far as I can tell, Windermere and the other monsters still list their houses with the NWMLS. Why? Because listing on the MLS allows way more potential buyers to see their houses and, sorry FSBO lovers and separate MLS creators, having more potential buyers increases the speed and price at which your home sells. Also, it would be extraordinarily two-faced if they first said “don’t do For Sale By Owner (FSBO) because you won’t get the exposure that you would get with a full-service brokerage” and then said “list with us even though only we’re going to intentionally reduce the visibility of your property to only buyers who talk to our agents.”

If anything, the Justice Department’s suit should keep realtors in business longer. If the system is open just enough that innovators and alternative pricing models will use it, they keep people in the fold and maintain some pricing power. If the system is locked down, innovators will tend to create MLS replacements systems until one of them succeeds.

Realtors: a PR campaign is in order. Your organization is blocking open markets left and right in order to enforce a 5-6% commission structure. The reputation of the National Association of Realtors is headed toward car salesman and lobbyist territory and when other folks find themselves having monopoly-like pricing power, they spend some of that money on goodwill (see: Microsoft). When other organizations find themselves in this making lots of money, not very popular pickle (for good reasons or bad), they also advertise on NPR (see: ADM, Exxon, Walmart).

On a side note, why haven’t I heard of the sell-your-home-get-a-Toyota model?

“Because the industry functions as a cartel, it is able to overcharge consumers tens of billions of dollars a year,” said Stephen Brobeck, the federation’s executive director. “Consumers are increasingly wondering why they are often charged more to sell a home than to purchase a new car.”