Homebuyer saves 83% on his Buyer Agent fee by using Trulia Voices.
Around noon on Sunday a homebuyer named “Patrick” posted this question on Trulia Voices:
Need a buyer’s agent
Patrick
Both Buyer and Seller
Seattle, WAI plan on making a $1M offer on a home in Queen Anne. I found the property myself. Was shown the home by the listing agent. She does not have a claim for procuring cause, as I told her I was working with an agent when she showed me the property. I am looking for an agent to write up my offer and take the transaction through closing. The offer will be cash, with only the standard inspection contingency. At closing, you will refund the entire 3% co-broker fee to me minus a flat fee of $5K. We will be asking for closing within 2 weeks.
The question caused “quite the stir”, with 137 comments as of this moment.
Just “a moment ago”, Patrick posted this result of his inquiry and endeavor:
I see my post has caused quite the stir. If any of you must know, my inquiry here, and through other channels, has lead me to interview many agents and hire one who was more than happy to accept my offer. We have put our first offer together and received out first counter. I expect to reach mutual acceptance within the week.
For those of you who question if this is real, why I don’t use an attorney, if I’m trying to scam you, if I have the cash, etc… I really don’t care what you think. All I know is that in a few weeks, I will have closed on a property, saved tens of thousands of dollars, my agent will have made $5k, and we’ll both be celebrating at Canlis with our wives. And those of you still holding out for your 3% because you’re “worth it”, will still be sitting in front of your computers typing bad things about us.
And for those of you who continue to tell us buyers that “you don’t pay the commission” and “commissions are not negotiable,” this thread alone has proven otherwise. Most agents get it, some still do not, and may never. But again, I really don’t care. Goodnight to you all.
For anyone wondering what “The Future of Real Estate” is going to look like, this just might be a peek into the future. The possibilities are endless. It’s a great time to be a participant in the changes afoot for consumers in the real estate arena.
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I can see something like this making sense in SOME cases. The problem is you are going to get buyers who haven’t found a property, have no idea what they are doing, want you to do ALL the work, and then pay some piddly flat fee.
Most transactions are hardly this “easy”. However, agents refusing to do it were being short sighted. The problem is that a lot of the deals that seem easy on the surface wind up being a fustercluck and the agent agreeing to work for pennies winds up kicking themselves.
We see the same thing on the mortgage side too.
Russ — you’re right that not all transactions are easy. So let’s start with the “easy” ones. Let’s assume Patrick’s transaction was easy, and assume it consumed 10 hours of the agent’s time. That works out to $500 per hour. That is essentially a windfall.
Now lets assume it turned out to be a lot harder than anyone imagined. Assume it took 40 hours. That still works out to $125 an hour. I’d say that’s still a fair wage and a long way from “pennies.” Indeed, even if the transaction consumed 100 hours — a complete and total nightmare — the agent would still make $50/hour. Not great, but a living, particularly because the next deal will work out to $500/hr (some are hard, but some are easy). I think $5k is an extremely fair and reasonable fee for an agent where the buyer does the initial legwork of identifying potential homes. With all due respect, five thousand dollars is NOT a “piddly flat fee.” At least not in the real world outside of the RE industry.
The reality is that most commissions are in excess — and sometimes WELL in excess — of $5k. The current model overcompensates the agent in most instances, particularly in “high cost” housing markets. That leaves the agent lots of time for “prospecting”, i.e. trying to drum up the next client. Its inefficient and the consumer routinely overpays based on any fair valuation of the service provided.
Craig:
It does sound like a lot on an hourly basis. However, don’t forget that check is also probably split with the brokerage, not to mention the other expenses.
The biggest issue is that agents & loan officers eat what they kill so to speak. Therefore, buyers who close wind up paying the cost associated with working with people who don’t close. It is not unusual for someone to spend a lot of time working with clients only to not have a deal fall apart for any number of reasons. The end result? We don’t get paid a dime. Therefore, the cost associated with the other transactions have to be higher.
Finally, it is very difficult to tell if a deal is going to be easy until you are actually in the middle of it. I get calls all the time from borrowers who think their deal is “easy” but there is always something that comes out of left field to screw up the transaction or make it way more involved.
Cash transactions like this one are the exception, not the rule imho. The issue is that everyone else will start to think they deserve the same deal when in fact their deal is nothing like the example presented.
Russ — your point about the contingent nature of any transaction is a very good one. That’s the beauty of the flat fee, though. It is due REGARDLESS of whether the transaction closes. By eliminatting this risk, the consumer can pay a lot less, at least those consumers who are serious about buying a house. Everyone DOES deserve at least the flat fee option. The consumer can then decide which fee structure best suits his situation. The problem is that the industry is heavily slanted against the flat fee and in favor of the commission, and we all know why: the commission generates significantly more income for the same work. The consumer deserves better.
Ardell,
I think what they all missed is that the offer should be structured $25k lower, the Selling Broker Commission demand at escrow be adjusted to $5,000. The Buyer this way would avoid picking up a 1099 for $25k and the reduced purchase price if favorable to the Property taxes – depending how the state (or counties) of Washington Calculates property taxes
Ted — per our analysis, no 1099 necessary, at least to the extent that the rebate pays closing costs. Now if the rebate is cash back, out of escrow payment to buyer, that certainly needs to be disclosed to the lender.
You’re right about the property tax benefit, though (not to mention the excise tax benefit to the seller by reducing the purchase price). Reduction of the purchase price, however, requires the cooperation of the listing agent, because the LA is the person with the contractual right to the full commission (and then, if there is a buyer’s agent, the LA has the contractual obligation via the MLS to share the commission, but if there is no buyer’s agent the entire commission legally belongs to the LA). And as we know, agents are little adverse to this business model. In our experience, we’ve found deals to be a LOT easier by simply taking the commission and then rebating it back to our clients in full.
Ted,
I don’t blame you for not reading all of the comments on Trulia, but I did not “miss” that. Here was my suggestion in the comments on Trulia early on in the discussion:
“Another option I have used is to simply reduce the commission and purchase price simultaneously. That works best, especially for a cash transaction.”
I did that recently on a non-cash transaction, so that solution is not limited to cash, as I further explained. But you have to do it early enough in the transaction so the change is reflected in time for the lender to modify the loan amount, as it impacts the loan documents. You can wait until the last second.
I would be very surprised if buyers would be willing to pay agents directly. most simply do not have that kind of cash laying around. The reality is most would not want to pay the hourly rate for the time spent on transactions that don’t close.
I don’t have a problem with other fee structures. I just think people don’t really understand what it takes to get a deal done. If it were really so easy, one would expect that flat fee would have taken off decades ago.
Well, prepare to be surprised (or, alternatively, have fun watching my business go down in flames). But in the meantime, a couple of more thoughts. Buyer’s don’t have cash lying around? Last time I checked, buying a house required a down payment. As for a flat fee taking off “decades ago” — agents control the market and they are extremely adverse to a flat fee. Under those circumstances, change is difficult.
Craig, it is hard enough for most buyers to come up with down payments and closing costs. Heck, we can’t even get buyers to pay “points” half the time these days even if it might save them money in the long term mainly due to the fact that they don’t want to part with a whopping 1% of their loan amount which could be a couple of grand.
If you want to see agent commissions fall dramatically, completely divorce commissions from the price of the home and make all buyers pay for them in cash. I guarantee that buyers agents would be an endangered species at that point or working for less than half of the typical commission they normally receive.
Real estate is
Russ — less than half of the typical commission? I think that’s just about right, actually, for the services they provide and the value they add. If agents don’t want to work for that fee, then lawyers will gladly step up and do so. [Full disclosure: right now my office charges a flat fee of $2995 for respresentation of a buyer.] Its still a decent living.
Russ,
If real estate agents become extinct it will be primarily for two reasons:
1) Because they continue to insist that the highest cost option is the ONLY option and what everyone “needs” always.
2) Because there are too many of them and the Brokers don’t control those numbers to make the business profitable for their agents vs. just themselves. What good is a company that survives at the expense of its most valued components, its agents and its clients? Brokers have, by and large, become “landlords” of people who interact with the public.
A broker doesn’t care if every agent has a few sales in a year, as long as “they”, they being the Company, survives. Most companies don’t care if an agent is good or barely passable for the consumer, as long as they get their monthly desk fee”, except to the extent of their liability for the agent’s possible misdeeds. NONE, not a ONE fully supports the training needed (which doesn’t even EXIST!) for good and BEST Buyer Representation. They continue to ignore those issues that elevate buyers to client status, and perpetuate the seller as the client in the room in most cases, except to sell something TO a buyer vs. represent them well. THAT is a National and not a local problem.
A company should fail if it doesn’t support the majority of the agents in it succeeding, and the clients of those agents succeeding. Until and unless brokers build their business on fewer successful agents vs. any warm body that can hold a pen, the system is “broken”.
That is the truth and the heart of the matter.
And let me just add…
HALLELUJAH!
Russ,
There is nothing wrong with flat fees, and the flat fee doesn’t have to be drastically lower if the sale price is low. In fact for many real estate sales in this Country, a flat fee of $5,000 per agent would be a raise 🙂
I think we’re going to see mortgage originators’ compensation move to a “flat fee” as well–not tied to the loan amount (points).
Where this guy is going wrong, at least in California, is this demand: “At closing, you will refund the entire 3% co-broker fee to me minus a flat fee of $5K.” He’s not a licensed agent and can’t receive the commission kick-back this like that. And yes, this is a kick-back which may not be legal. Plus, unless the agent who did this is a broker and doesn’t need to split his commissions, the agent ends up with less than $5K in his pocket and his brokerage might have something to say about this deal.
All cash $1M deals are rare. Most of the people doing those are smarter about real estate and understand the nuances of the business and what can go wrong. I wonder what the IRS will say, since there is a paper trail which the buyer isn’t aware of. He will have tax consequences and who knows what else from the department of real estate of his state.
Some time being penny wise makes one pound foolish.
Only a real estate agent could claim that saving TWENTY FIVE THOUSAND DOLLARS is being “penny wise”…
Lenore,
I know many agents in California who come to many and varied arrangements with their clients. No State is immune to “all commissions are negotiable”.
What you are failing to see is that the buyer IS a client just as much as a seller IS a client. I write on these topics from time to time to help educate agents like you who think the buyer is a “3rd party” to the transaction. The only person in the room who is a 3rd party is you…and the agent you may pay a referral fee to.
The buyer negotiating their fee for services with their buyer agent is NOT a “kickback”. Kickbacks are to lenders, and mortgage companies and warranty companies and entities that are not parties to the transaction.
The only thing “wrong” is the the thinking of some agents that the buyer is not a client who is entitled to a conversation about their costs in the real estate transaction. Most of the old norms recognize the seller as having a higher position in the transaction than the buyer…but that is finally changing some 20 odd years after Buyer Agency came into being…and about time.
Craig,
I recently assisted some clients who wanted to buy X house. As a result of my representation and advocacy they re-evaluated their entire situation and bought a completely different house in a completely different place some 60 days later. They were better informed about their choices based on their stated objectives overall, and that added information totally changed what they decided to purchase and where.
That is the element I see missing in some lower cost services, so I would never move to a one size fits all answer. Always paying a certain flat fee can be just as bad as always paying a certain % fee. The only business model that makes sense is one where people can get as little or as much as they actually need. Sometimes people don’t know what they need until they get it, as in my example in the first paragraph. So many and varied options under one roof is likely the better and best answer.
Clearly no one has perfected that best answer, but many are thinking out of the box, at least 🙂
With Patrick’s specific situation, I see nothing wrong with it if he finds a willing agent. That’s essentially Redfin’s business model, in general terms.
Josh Sanders
Founder, Shiloh Street
Since our errors and omissions insurance has a $5000.00 deductible, accepting $5000.00 for a transaction may be very foolish. If an agent fills out the paperwork, then that agent and their brokerage could potentially be responsible if something goes sideways. In a lower-priced home, the potential damages are lower, so accepting a smaller amount may be ok. But in the million-dollar price range where their may be tens of thousands of dollars at stake, accepting such a small amount may not be prudent.
In addition, there are many real estate brokerages that would not allow this kind of haggling. Some firms require that a minimum percentage per side be charged and ask that the agent make up the difference if that minimum is not met.
Marlow,
I just answered that on Trulia, as raised by several agents there. There are many transactions where full % does not cover that $5,000 deductible in this Country. There are also many insurance policies available that have no deductible. In fact several offices I have worked in, not in the Seattle Area, were “self insured” with no deductible. An idea worth looking into, maybe.
Also if every single client has to pay $5,000 for liability on a stand alone basis for potential liability, then many should get refunds when the purpose of that cost does not happen.
…then there’s the potential for companies to have a smaller deductible, if they find that of benefit to them and their clients. In a RE/MAX Company I worked in years ago, we as agents paid money into a “self insurance” account with a dollar cap on it. Many ways to resolve that issue without charging every single client ten times over for the possibility of one going sideways.
I do not defend this person’s “dollar amount”. I defend his right to ask and I defend the right of some agents to accept. Not all. ALL never fits one answer.
I love it, especially if the buyer happen to have used Redfin’s free site to help him find/decide upon the property.
For all the agents who are unhappy with the buyer for making this offer: just say “no. This guy cannot force you to do his paper work or take on potential liability exposure for a lousy $5K, so don’t worry about it. The fact that one of your many brethren said “yes” should not concern you. If doing this work for $5K is not worth it, this is his problem, not yours.
It’s up to the buyer (and the agent that said “yes”) to figure out the best way to structure their deal with respect to minimizing taxes and/or ensuring they comply with any lender disclosure requirements (whether by adjusting the purchase price to $975K or otherwise). If they fail to structure the deal in the “best” way, they will provide a “how not to do it” road map for the next buyer.
When will “buyer’s agents” start advertising their low-price fixed rate fee structure to buyers like this on Craig’s List??? I see a business opportunity is this: “Agentwilldopaperworkforbeer.com”
Lawyer Craig B – no worries, “lawyerwillreviewpaperworkforsomeofthatbeer.com” can be a partner site.
Patent Guy,
There are already several companies who have “$500” flat fee, “80% back to buyer”, “1/3rd back to buyer”, etc… Not sure if they advertise on Craigslist specifically, or even if they CAN advertise there for “free”. I think that type of advertisement, even on Craigslist, would be a paid one, and so maybe there are better places to put that advertisement.
If you go to Seattle Bubble, you will see at least one of them advertising in the sidebar.
As to “agents” advertising that, the general rule is the agent can do it, but they can’t advertise it, as it makes it appear as if all of the agents in that Company would. So the only way to advertise it is if the whole Company of agents is willing to do whatever that agent is advertising.
Consequently most think ONLY agents who are associated with the companies that have that overall model offer various fee structures, which is not the case. Most any agent can negotiate with any client, but they can’t advertise with the Company name and the can’t advertise without the Company name either. That’s why Patrick’s method was so awesome!
Ardell,
How about we get together and pitch Priceline on a new business line: House buyers (and sellers) will “name their price” for their Realtor.
Just like hotels, there can be one-star, two-star, up to five-star agents. And, just like airlines, you can bid for a “non-stop” (premium), or “multi-stop” agent, the cheapest selection including a 14 hour layover in Atlanta.
Shatner will do the ad campaign.
What do you think?
PG,
It has been done on the seller side. Didn’t work out too well. The Company is still around with a different owner than the original Founder. I was not a big fan of it as it drew in the worst of the worst agents most times.
Truth is I’m very glad there are services available to buyers where the agent doesn’t fully inform them or correctly advise them. How else would the market rid itself of all of those “dogs” on market that better agents tell their clients not to buy?
Truth is I threw my hat in that ring because I knew every possible house he might buy and had ruled them out for my client who is paying me much more than Patrick was offering. Since I was fairly sure the house would not have met my standards to recommend to one of my full service clients, I was more than happy to help someone who removed “product selection criteria” from the table.
As my Mom would say, “Be careful what you wish for.” 🙂
Um … my Priceline idea was just being silly with a touch of scarcasm. No worries, I don’t wish for a “name my price” realtor, although the “I-will-fill-out-your-forms-for-beer” concept may have legs …
PG,
Not silly at all, and as I said there is such a Company on the sell side, but since they have changed their model because the “priceline” concept didn’t work, I choose not to name who they are.
I don’t drink beer, PG, and I fill out the forms for free for any buyer who wants to buy one of my listings. So save yourself the cost of a beer on that one 🙂
Patent Guy — to be perfectly frank, I liked the “Priceline” idea. Funny concept, and yes an efficient means of determining professional compensation.
Now, the “work for beer” lline, not so much. “Earning a living” means more than working for beer. I don’t think agents or lawyers will ever be willing to — whether in a bidding war with William Shatner or otherwise — just work for beer.
On a related note, I’m amazed by your dismissal of five thousand dollars as “lousy.” That, in my mind, is a fair sum. Fair enough, in fact, that it should pay for competent professional services necessary (or at least highly recommended) for purchasing a home.
In fact, one could make a very good argument that “Patrick” overpaid. There are, right now, a variety of “alternative” models for providing real estate services, including models that charge $5k and those that charge significantly less. Some of those models even provide better representation. In other words, “Patrick” may have overbid right out of the gate. If only he knew William Shatner…..
“On a related note, I’m amazed by your dismissal of five thousand dollars as “lousy.
Wow..I missed this whole thread due to yesterdays excitement.
I’m prepared to offer Patrick a 500 Realty Sweat Shirt for this story! It is simply OUTSTANDING. I rarely offer a sweatshirt to anyone.
Its stories like this that will assist us in changing an industry that surely needs it.
BTW any questions on tax consequences of Buyer Rebates? Per Red Fin:
http://www.redfin.com/about/press/releases/pr-irs-ruling
PG: Sarcasm — absent inflection, expression, or even an emoticon — can sometimes be difficult to detect. But don’t give up! I love to laugh.
Seeing your comment in an entirely new light, I guess my question is: What’s your point? You ridicule agents for pooh-poohing the $5k offered. Your “Priceline” comment was apparently just a gag (albeit a good one). Your “work for beer” idea was pure frivolity. Other than making readers laugh, is there some point to your comments?
Craig,
If all that matters is price, then predictably the low cost winner will very likely be poor quality. In any industry, manufacturing or service. Agree?
My “will work for beer” example was simply taking the process to is extreme, and while the buyer-consumer will very likely not be pleased by the performance of said agent working for beer, the buyer will certainly get a great price (on the agent, not other stuff; just on the agent. I understand there are other consequences for choosing an agent that works for beer).
Adequately explained? Still too subtle? Just frivolous?
And, yes, the buyer in this case is not searching based solely on price. He he set a reasonable, not overly generous (since still depends on “closing”) price point. Presumably he will feret out the other qualities he seeks when he interviews the respondents.
“He he set a reasonable, not overly generous ”
5000 to write up his offer that is all CASH! I find that EXTREMELY generous. Are you kidding?
My wife being a nurse for the last 15 years would have to work 164 hours to get that 5k!
Good Lord!
PG: Thanks for the clarification. As a general rule, in an efficient marketplace, I agree with your point that low cost will correlate generally (but not completely) with poor quality service.
However, RE commissions are NOT an efficient marketplace. Agents, and particularly buyer agents, have done an excellent job of insulating themselves from market forces and protecting their historical fee structure, notwithstanding (a) major advances in technology that increase efficiency and (b) a substantially greater-than-inflation increase in their wages. Under these circumstances — where the status quo is under attack by a variety of “alternatives, and where there are probably too many agents for today’s market (another indicator of an inefficient marketplace) — I think consumers will find that there are very often BIG discrepancies between cost vs. quality in regards to service alternatives.
I appreciate the workd-for-beer hypothetical, but I don’t think the larger point holds today, in the RE industry, given its current state.
Commissions will always exist. But as for the industry moving to a total flat fee system, I highly doubt it. We have enough issues with antitrust when people use the word standard commission or full commission. Imagine if there is a standard flat fee being touted in the industry. Can anyone say price fixing?
I believe commission rates will continue to average down, but they will never reach the mentality of online stock brokerage as the complexities of real estate will always keep the pay scale related to a risk reward ratio.
Being rational and reasonable, brick-and-mortar offices have overhead, running a business has overhead. So any idea that real estate services are going to be highly discounted is crazy. It will definitely change in the future and will settle somewhere in the middle between our old dinosaur brokers and the proponents of high discount flat fees.
As to whether flat fees or the value of agents are going to change in the future. It will ultimately come down to how much a salesperson is willing to sell a house for.
What happened with Patrick not unusual. You’d do the same thing for your brother or sister or very close relative, it happens everyday.
“What happened with Patrick not unusual. You’d do the same thing for your brother or sister or very close relative, it happens everyday.”
” May I add its also been happening for decades. ”
The future of Real Estate is looking VERY VERY bleak for the old brick and mortar. The MLS system, as we know it, will NOT survive another 10 years in its current form. Google and their vision of real estate announced 11 years ago, we are quickly evolving to and brace yourself for a far more efficient system that is FAR MORE consumer centered and cost effective.
It simply evolves a facilitator (1 agent), a coordinator, and a closer (attorney). When the data base is completed you will see a RAPID halt to an insane profession.
The time is coming with or without all of us. If you choose to stay in Real Estate adaptation to what the CONSUMER has been asking for the last 15 years is essential.
We will all look back and laugh at how we conducted real estate and realize the “The Gravy Train” is over but it was one hell of a ride.
Ted, you just hit the nail on the head (and Ardell will back me up on this one):
With all due respect, a buyer’s agent should not be selling a house. The buyer’s agent should protect the buyer’s interests in buying a house. But the agent does not “sell” anything. The fact that this mentality continues — notwithstanding changes in the law — speaks volumes about real estate agents generally.
Also, I think — and I’m betting my future on it — that notwithstanding rent, insurance, utilities, etc. (i.e. overhead) a broker can make a fair living charging $5k per transaction, and can probably even charge a little less. I don’t think five thousand dollars constitutes a “high discount fee.”
“Also, I think — and I’m betting my future on it”
Craig, I would NOT bet your future on your model as I will not bet on mine. Both of our models are simply cost efficient alternatives to saavy Buyers that will meet the same fate when the MLS system comes to an end.
When the new data bases are rolled out (as described many years ago) your model and mine will quickly evaporate however you will be ahead of the curve in understanding early what the consumer has been saying for many years.
How quick you can adapt to the certain future of real estate will dictate your future and mine.
I dunno, Ray — you and I fundamentally disagree on what the future will look like. I agree that the MLS will probably wither away, although it is a powerfully entrenched interest that has shown some ability to adapt to new realities.
Where we disagree is on the services a buyer and seller need to engage in the transaction. You seem to think that, once we get agents out of the way, birds will sing, rainbows will shine, and buyers and sellers will always work cooperatively towards the “deal.” Well, I think human nature is such that, even without agents (arguably, even more so) buyers will look out for themselves first and foremost, and sellers will do the same. That means that there will always be a place for some type of representation. Indeed, the law reflects society’s desire to insure that buyer and seller have access to a representative who will protect their interests.
So, in a nutshell, I am very comfortable with my wager.
I always Bank on Google for their innovation and strongly agree with their Pre Determined ideas they have for their future of real estate.
Agents will STILL exist according to Google but there will be one per transaction . They will facilitate the transaction for Buyer/Seller. The closer will be the “Attorney” who has a very limited role. The coordinator is the behind the scenes organizer that keeps everything moving a long.
When you see the price structure that gets split evenly between Buyer and Seller, all paid to the entity “Google”, you will see why your model, mine, and the NAR and all MLS’s that currently exist, will come to a rapid halt.
I can hardly wait.
Well, Ray, that Google vision for the future runs counter to about 800 years of legal history, plus ignores the reality that Americans are a litigious bunch. In this instance (perhaps the only one) I think Google is off the mark. There will ALWAYS be a place for lawyers (or similar representatives who have a duty of loyalty to the principal and who can provide legal services necessary to effect the transaction) where the assets being sold cost hundreds of thousands of dollars. Google’s vision ignores this reality.
Should we plan on meeting here at this site in 20 years? Loser buys lunch-of-the-future? (hopefully not Soylent Green)
Yes, the bet is on..But, I say less then 10 years.
Remember the Atty is not going anywhere under the Google model but just has a limited role, as does the Agent.
Until then, the bet is on!
I agree with Craig that the future may not be so Googlie. But, Ray is also onto something, since the technology makes it easy to bypass the traditional RE broker model.
We have 50 states, each with their own legislatures that create laws unique to that state. Laws get passed by these state legislatures based on the amount of $$$ funneled to the politicians.
Just like public employee unions, lawyers and RE brokers have traditionally been big time lobbying forces $$$ wise. Look at how the “trial lawyers” or whatever sugar coated name they call themselves these days have been able to prevent any sort of tort reform presence in the various health care “reform” bills; and then there is the damage that the NAR has inflicted and continues to inflict on our country through payments to congressional campaigns (IMO).
I have no idea what the future will bring, but I don’t see RE brokers or lawyers going down without a fight, which will include doing everything they can to influence lawmakers in their respective states to create laws that keep them in business. It will all be presented as consumer protection, but it will have the opposite effect.
I am not so sure Google will want to pony up $$$ to 50 different state legislatures over this “fight.” Instead, there will be some sort of compromise that will not help consumers.
Enjoy your lunch.
PG: I’m curious, then. What would the “perfect” world look like to you? I ask because you’re clearly down on both lawyers and agents. Do you think Google has it right that the parties simply do not need “representation”? But that such a world will not come to pass simply because of the entrenched interests of agents and lawyers?
“Do you think Google has it right that the parties simply do not need “representation
PG — coming from you sarcasm works, drama does not. How about answering my question: what would the perfect world look like?
In any event, per Google (as related by Ray, so we’re trusting him here 😉 ) neither the buyer nor the seller has a “representative” i.e. a person reasonably devoted to protecting the buyer or seller’s interests at the expense of all others, including even the representative’s self interest. That said, under Google I guess you are right in that buyer and seller are equally represented by not really being represented at all.
Was I being dramatic? You’re tough to please, my friend.
I did not say people could not or should not be represented. Am I down on RE brokers and lawyers? I was merely pointing out the reality that $$$ make laws. If I am down on anyone it is myself and my fellow citizens for allowing ourselves to be governed by whores; I do not so much blame the “Johns.” RE brokers, lawyers, unions, oil companies, defense industry, big agriculture, you name them – whomever have the $$$ to tilt the playing field in their favor will do so because they can. (Q: Was the foregoing sarcasm or drama?).
IMO, someone selling a house should consult with a competent RE attorney in the jurisdiction to understand their disclosure obligations, and anything else particular to a seller of residential RE in their jurisdiction that they may be better off knowing beforehand. Should, not must. A RE Broker/Agent, etc. is a sales person. You can sell it yourself or hire someone else to sell it for you. IMO you are foolish to rely on a salesperson to explain the law to you, especially if giving you an accurate explanation may interfere with their collecting their commission. But, that’s just me. Seller beware.
On the buyer side, I would recommend consulting with a RE attorney with expertise in the locality to make sure you are informed and aware of whatever issues may be lurking. Again, I would not count on a salesperson to tell me these things, especially a commissioned sales person that only gets paid if the deal closes. This is a possible kink in the present buyer’s plan. Whoever he hires will likely not talk him out of closing. Would you rely on a used car salesman to tell you whether or not buy his car? Would you rely on a stock broker in deciding on whether to buy a stock? Buyer beware.
So, should a buyer hire a house buying expert (e.g., an Ardell) to help him/her vet houses? Probably a great idea, but it also depends on the buyer’s experience with the locality and house buying in general. So, this is really about cost: How much should the buyer pay for a home buying consultant (e.g., Ardell or Ray)? This should be up to the buyer and the consultant. This thread is (or was) discussing the reaction of the RE community when one buyer named his price. I believe Ardell is using the term “savvy” as a compliment in describing this buyer, because said buyer recognized that he, and not the seller, was actually paying for “his” agent. So many RE brokers and agents use the term “savvy
PG,
I agree with pretty much everything you have said, combined with my lengthy comment below.
I want to take a moment to talk about “savvy”.
You said: “This thread is (or was) discussing the reaction of the RE community when one buyer named his price. I believe Ardell is using the term “savvy
PG — at last, common ground! Now that you’ve explained your position I can tell you I am pretty much 100% in full agreement. In particular, I agree that a “salesperson” is a terrible “representative” in a transaction. On a totally unrelated note, I saw Glengary Glen Ross at the Rep — great show!
My only comment would be that you should rope “lawyer” into your universe of “buyer consultants.”
Most of the scenarios everyone is talking about in this thread are already happening today. We don’t have to “wait” ten or even 20 years to find out whether these scenarios will function well and replace the real estate industry as we know it.
Let’s assume for a moment that I am an agent model that represents agents as they are “supposed to” be. A strong advocate when and if needed, adjusting cost of service, as appropriate, without needing to be “asked” to do so, etc… Using myself as the example, here are my thoughts:
1) To Ted: Flat fees absolutely do work well and best. Your flat fee can about equal your % of choice, by the way. “Flat” just means it is a set dollar amount that doesn’t go up or down depending on how much the client pays for a house.
2) To Craig: “representation” does not start and stop at the house the buyer “wants to” buy
3) To Ray: Only one agent in the room does not work well
Everyone knows agents say 1% or 2% or 3% etc… because it sounds smaller than it is. That’s in Real Estate 101 class. Saying $12,000 vs. 3% has an impact on everyone in the room and agents should be forced to say and show in neon lights the BIG number and not the small %. That alone would help bring costs into a more realistic vein, especially on the buy side where they are calling $12,000 “free” (“because the seller pays it”).
Everyone knows that a flat fee removes some of the conflict of interest over “what price?” That is why people are trying out salaried agents.
I can tell you that flat fees work best, because I have experimented many times with all of the options one can think of…a few examples:
FLAT FEE EXAMPLES:
Client A. – Recent client buying between one and two million. I have a $20,000 cap (no client can pay more than, many can pay less than). So in that range of pricing, what I charge has no change whether they buy a home for $1M or $2M or anything in between.
The result was we had some enormously important discussions regarding whether a house at $1.6M offered enough more than the one at $1.2 to justify the $400,000 cost difference. Not with regard to valuation, each was “worth” those respective prices. The question was if we break these two houses down into their individual components, and which would serve my client best, would the higher priced home offer an additional $400,000 benefit to them personally? In fact they did choose the highest priced home. But there was no question as to whether I steered them in that direction. I had nothing to gain or lose by recommending the lower priced home. In fact I did everything to keep the lower priced option in the eye of consideration, so they would not lose sight of it, and would constantly evaluate higher priced homes against it.
All agents should have a “cap” on the amount they will charge to anyone ever. Every agent has a cap on what they will pay to a broker in a year’s time, so “caps” are not unfamiliar to agents here. Time for “what’s good for the goose is good for the gander” and apply the same benefit to your clients that you insist on for yourself.
Client B – An interesting flat fee scenario. I met the client at River Trail townhomes in Redmond. At the time I had a listing on market there, and a “pocket” listing that was being “readied” for market. While this was one of the transactions I made the least on in 2009, it was also my favorite.
Buyer approaches me with a $4,000 offer of compensation. Average price at that time was $400,000 to $450,000 for those townhomes. After some discussion (and people the big missing link with buyers and agents is the discussion vs the “discount”) We came up with a different set of rules. If he bought one of my two listings, the cost would be zero, and I would only represent my seller and not him. If he bought in Rivertrail Townhomes he would pay $4,000, but if I saw something convincingly better and different elsewhere that he should buy instead of in Rivertrail, the commission cost would double to $8,000. This is an excellent example of customized commission strategy worked out between an agent and a buyer, each with equal input on the net result. The end agreement ranged from zero cost to $8,000. For those wondering, the end fee was $4,000…a year later, and the buyer saved $50,000 or more as he purchased for $350,000 which continues to be the lowest price paid in recent history. All HIS doing. He was an excellent client. Sometimes the best client pays the least amount. 🙂
To Craig re 2) above. The missing piece in your business model, or your model as I see it, is that the buyer assumes all responsibility for the choice of home. This is a typical shortcoming of all “services” that begin when the buyer “finds his own house”.
Examples – CHOICE OF HOME:
Client A – (same as client A above in flat fees.)
Client approached me with the request to help them buy a specific house that they already had an offer on. Yes, sometimes people don’t realize that they need separate representation, until they are up to their neck in a transaction.
First I helped my client figure out that where they thought they were going to buy was not the best place for what they wanted. Not just the house, but the city it was in. I spent several weeks introducing them to a new location that they were not considering at all. Yes, they could have still chosen the original city, but this new information that I presented made it more difficult for them to do that. In fact they bought in my choice of “where” vs. their original thinking. My job, as I saw it, was to be sure they had all the “facts” on the table at the time of their choice. That in and of itself is worth a considerable amount, given they ended up buying in a city that they did not know well when I met them, and was not an area they were searching homes in at all.
THAT is what I see missing in all of the “cheapest” fee scenarios and it is a hugely important piece of the puzzle in most (though not all) cases. Any “professional’s” duty is to help a client come up with their best result by making sure they have all of the information important to that decision on the table. No breast cancer victim wants to be told about all of their options after they have both breasts removed, and no homebuyer wants to find out 6 months after they buy their home that the “where” was wrong, even though the “what” was technically “correct”.
Services that help people buy that specific “what”, do not take into consideration whether or not that is the correct ‘where” or even the correct “what”. Yes, any buyer can view homes on the internet. But I can tell them with some degree of accuracy what WILL be on market that is better than that isolated limited option, within their given time frame. The best is not always on market TODAY. So choosing from only what is on market today, without predicting with realistic accuracy what might be better and on market tomorrow, is not usually a good way to approach buying a house. And yet it is often the way most people do approach it.
CLIENT A and Client C:
We’re still at “CHOICE OF HOME”
Both Clients A and C gave a list of 4 homes they were wanting to see. I showed them those four homes plus one of my choosing. They chose to buy the one I chose. This happens fairly often.
By being able to find the one of 20 homes priced well over their price range that I know will, or at least should, eventually sell in their price range, I have expanded the choices beyond “the internet search”. THAT is clearly what an agent should be bringing to the party over a “you pick the house; I’ll help you buy ‘YOUR it’ service”. Of course I will also have a different fee if I only help a client buy their chosen “it”, as in the RiverTrail townhome example above (Client B). Not everyone wants someone else interacting with their choice of “where” or “what”, so that service is available.
BUT I still would not refer that client to Craig or another service, as they will then lose the option of doing something else that I might later recommend. If I get to their what, either before the offer or during inspection, and my expertise suggests that they need to rethink that choice for any reason, they have that added benefit available if and when needed. Sometimes you don’t need it until the end of the home inspection, and not always because of the home inspection result. Buyers often see a house for maybe a total of one hour before making an offer. The home inspection phase gives them (and me) an additional four hours or so to REALLY see the house more thoroughly, sometimes the neighbors as well. A dog may be barking next door for four continuous hours during the home inspection 🙂 Sometimes the thing I find during the inspection is more subtle, and has nothing to do with what the inspector is looking at and is not as obvious as a dog barking.
Again…during the Due Diligence and legal OUT phase, the agent must be constantly looking for reasons why the buyer should NOT buy this house. It’s OK if you don’t find any. But that is what “due diligence” means…try to find something that says “don’t buy this house” during that phase.
I don’t do this for everyone, and I clearly offer a service that does not include that kind of due diligence, but if I do notice something without trying too hard, and that does happen, I cannot keep that information to myself. I guess I “could” if my contract allowed it, but I “couldn’t” based on my personal ethics. If someone wants a stripped down cost of “just help me with the mechanics and not the due diligence”, I usually send someone else to the house and to the inspection for that reason. I did it once for a 75% discount for a former past client who was buying an investment property. In that case he did not hire ARDELL and my brain that goes with, he hired “a service”. That is an option and I can send a new licensee with duct tape on their mouth to perform that limited cost service. I did help with decisions by email and phone, but I never personally viewed the property. I was a consultant as to his decisions during the process, but not as to whether or not he should buy that property, or whether or not he should buy at all.
Sorry this comment is so long, but then again it is my post 🙂 FIXING the real estate industry is a big black hole if anyone thinks there is ONE replacement answer. THERE IS NOT!
All of the things that are wrong are simply being used by various new models to help promote their business. That is just replacing an old “broken” with a new “broken” and putting money into the pockets of alternative models vs. traditional models. Neither can help consumers as the Traditional Model is good for some people and the Alternative Models are good for other people.
The only answer is to have all options under one roof. I don’t think that can be accomplished on a grand scale. I have tried and failed on that. Yes, I personally can offer each client only what they need and no more. I can also change the service as their needs change through the relationship the same way you can go to a dentist for a filling and end up with a root canal.
What I can’t seem to do is train others to do it that well. Train others to reduce cost when appropriate. Train others to force a sale to fail if that is what is best for the client, vs “holding it together” to get paid.
I do not give up trying, and in fact have an apprentice now who has never been in the real estate business before, and is getting a license simply to be my apprentice. But even if I succeed with making ONE “Ardell clone”, I have to admit that this answer will not change the industry as a whole. It will at best shed a bit of light at the end of the tunnel, by merely proving that it’s possible if we had the right training available.
Reality is that it will ALWAYS be up to the consumer to choose the best option for them in the marketplace. The industry as a whole will never be an unbaised source of information on how to choose an agent or how to choose a house or whether you should be buying a house at all. Teachers can’t replace parent’s duties and the Real Estate Industry cannot replace the consumer’s duty to choose the best professional to help them. Suggesting that the industry can or will come up with one good answer that is best for everyone…is just “marketing”.
And I thought War and Peace was long…
Your point about seeing the property and assisting in its assessment — both long before and after offer — is a good one. WaLaw Realty (our brokerage) is a work in progress, and your comments have me thinking about how we might tweak the model to specifically include such a service, perhaps for an additional fee beyond the standard flat fee. Ultimately, I think “under one roof” will work in only a few, limited circumstances (perhaps including WaLaw). Instead, I think consumers will be best served by a variety of models that differ on amount and method of compensation, services provided, and any other potential variable. Thankfully, we are clearly headed in that direction.
Craig,
I agree…and here is where “we” disagree.
1) I do not think you should sweep your model’s weaknesses under the rug by touting your representation is best and better than an agent’s. Maybe when I die that will be true and not “false advertising”. But until I croak, we both know that is not the case. I refuse to believe there are not many other “ARDELLL’s” out there, so lets assume that your “representation” is NOT ALWAYS better representation than that of an agent. You can say many agents and maybe even most agents. But blanket statements about best representation is simply not true for anyone. I can say I am one of the best, but I can’t presume to know that there aren’t many out there at least as good as me, and some even better than me. That would be false advertising.
2) My general views regarding Ray and his model and Redfin and their model were spoken by me in the latter half of this interview with Jonathan Miller in NY.
http://thehousinghelix.com/2009/11/23/interview-ardell-dellaloggia-associate-broker-blogger-seattle-real-estate/
I have no real “beef” with Ray, as Ray is so transparent, and his reasons for saying what he does seem to come from his awesome respect for health care professionals. In fact his whole thinking seems to stem from the fact that he believes health care professionals should make more than real estate agents 🙂 He’s a loveable guy and my feelings on him and his model are expressed in the linked interview.
How I feel about Redfin is also clearly stated in that interview in the latter half, (which is transcribed on my blog for those who would rather read it than listen to it, or who can’t hear.)
My beef with Redfin at the moment is not that they don’t do Short Sales. It is clearly every company’s right and every agent’s right to refuse to do them.
But the reasoning on the website is making it look like the reason is because it is better for the consumer that they not do them, than it is a Company decision for the Company’s own reasons not to do them.
“Because short sale offers are usually unsuccessful, Redfin does not currently support short sales for tours or offers.”
I’m pretty sure I’ve closed all of the short sales I have engaged in except for one where the owner filed for bankruptcy during escrow, and the investor client decided not to buy the house at that point, not necessarily due to that fact.
To suggest that one should not buy a short sale in this economy because they “won’t get it” is just a bit “off” to me, given many are succeeding at getting screaming deals via pre-foreclsoure short sales. I have the same problem with agents who ignore a good property for their client because it is a short sale.
That brings us to the “other” HUGE Trulia Voices success story where a buyer needed help in buying a short sale, not because his agent was refusing to show it, but because she was totally ignoring his requests to see it and buy it. She didn’t even give him the dignity of answering his request, and kept calling him to see everything BUT what he was asking to see and buy.
http://raincityguide.com/2009/10/07/truliaboy-gets-his-house-and-a-puppy/
“you won’t get it anyway” is really not a valid reason why an agent or company won’t attempt it for a client. At least be honest and give the reason from your personal “waste of time maybe” for the company or the agent standpoint. That said, I did suggest and do suggest that a client “won’t get it” with regard to a short sale if I determine the seller does not qualify for a short sale approval. It’s not 100% fact, but the truth about short sales succeeding or failing has nothing much to do with the buyer at all. It has to do with the seller and whether or not their request for short sale approval is remotely realistic…but that’s another topic and a different post.
NO company can claim to be the best at all things. Any company advertising that they are the best always and for all people always, is likely engaging in false advertising.
Ardell — I must have missed a comment. When did the conversation switch to my “touting” of the representation I provide?
In any event, and as I’ve made clear previously (including but not limited to my revision of my bio at your request to address this very issue), my comments are based on the SYSTEM in which agents and lawyers operate, respectively. Per each regulatory system, each professional is held to a certain standard and allowed to engage in certain professional practices. Given the role now assumed by agents (they are representatives and no longer salespersons, at least buyer’s agents), lawyers are better suited for that role. Hence, speaking BROADLY, a lawyer is better than an agent given the respective regulatory schemes that apply.
Now, are there exceptions? You betcha! Anyone who reads this blog knows you are the greatest agent ever! 😉 I simply do not compare, and neither does any other lawyer, to your particular skills, diligence, ethics, etc. But that does not eliminate the fact that agents are held to a significantly lower standard.
You should include seeing the property in your business model.
David,
I know you know this, but I’m restating that for Craig’s benefit. Seeing “the” house is important, but seeing all of the other houses they didn’t buy is often just as important. Having seen 100 houses and 100 inspections before seeing “the” house is part of the “full” service and “experience” that matters most, in many cases.
Adrell,
My avatar SUCKS. How do I change that. 😉
email me at ARDELLd@gmail,.com about the avatar, Ted.
Ted: How odd… when I click on your RCG profile, it’s pulling your avatar just fine, but for some reason it’s not showing up in this comment thread… I’ll look into it, but at the moment, I’m not even sure where to turn since you’re clearly doing everything “right” on your end, but it just isn’t grabbing the avatar. I would also say “give it a day” and hope it’s a caching issue, but it looks like it’s already been a day! 😉
Craig,
Speaking BROADLY, no, a lawyer is not better than an agent. We can agree to disagree on that one.
The best “representative” of a home buyer or even home seller, is one who is more out at houses than in an office. One who is more with buyers and sellers and inspectors IN those houses, than in an office looking at paper. One who sees at least 10 to 20 houses a week and has been to lots and lots of home inspections.
So no, “an attorney”, any attorney, is not better by definition than any or even most agents. In fact quite the opposite. The paper of “it” is not a very big aspect of it. The “contract to close” phase is not the most important part, and often can be handled well by a “transaction coordinator” for $250, if it were only about the paper, which it is not.
Ray says he is “full service” because he deems what he does to be “full service”.
You presume that what you do is a HUGE part of the real estate buying and selling process, because it likely represents what you might need or want if buying or selling a house.
Most “alternative” business models are founded from a consumer vantage point of what consumers think agents “do”. Yours, Redfin’s, Ray’s….etc. The “full” service becomes the piece that the consumer sees, more than the actual reality of what “full” service is.
The statement you make is simply not true. An attorney “representing” a buyer in a home purchase is not better than someone who has been to 1,000 home inspections. A negotiator in the purchase and sale of a home is not better if they are an attorney, than someone who has been involved with 1,000 negotiations between home buyers and home sellers. Largely negotiations are often about the particular “terms” of these people who are moving in and moving out. About the 100 little things, like security systems and sprinkler systems and trash pick up and removal, and lots and lots of things that have to do with people, and children, and pets and property specific issues that make things go “smoothly” for all involved.
The reality is you DO have a conflict. If the people fight over the little things because they were not “arranged” well by the “representative”, you have a chance to make a bigger amount via a lawsuit that might result from all the things an agent does, not being addressed adequately.
A HUGE part of representing someone is knowing when they are “right or wrong” about something AT that house. Knowing the house is a HUGE part of assisting and representing, as is knowing the people well.
Knowing what the inspector MISSED is more important than getting the inspection report. Being AT the inspection and telling the inspector to come back and look at X, is of more value than reading and negotiating the inspector’s report. Knowing when to bring in a different and second home inspector, and when not to do that, is more important than hiring “the best home inspector” and negotiating his findings. Telling the buyer what the inspector is not saying, or even required to say, and can’t say in a report, like that ceiling likely includes asbestos, is a HUGE part of representing a buyer well.
The BROAD premise that an attorney could ever be better than an agent is simply not true. Yes, you may be better at those things you choose to do and Ray may be better at those things he chooses to do, but no limited service at limited cost option does all of the things an agent regularly does. Do they all do all of those things? Likely not. But ALL limited service models at limited cost base the total picture of what needs to be done, on only that part that they do, and not the true big picture.
The reality of representing a home buyer is that it can take weeks and even months and sometimes years before the part where “the house” is determined. So MOST of the cost in many cases has very little to do with only “this real estate transaction” limited to “buying this house”. Any service that starts and ends at “this house” by design, is not full or best representation.
Hearing the seller say the refrigerator in the basement is the one they are leaving and not the one in the kitchen, stops a problem in its tracks. Hearing the seller mention verbally “I’m leaving this one curtain for the buyer” as a nice gesture, stops a problem in its tracks (all curtains are included here) and my warning them that when they buy in the State they are moving to, that state does NOT include the curtains, and only the rods, is helpful as well.
Hearing a buyer say the inspector will address a cosmetic issue, is hugely important, so the matter can be addressed differently than the buyer thinks it will, but won’t.
Spending lots of time with the client and watching and listening to everything they say for many, many days on end is “full” service.
Residential real estate will never, ever fit a limited service. It’s not a cell phone. It’s about people, and families, and pets and children and appliances and…emotion. Answering an email or text message at 10 p.m. can equal a good nights sleep on any number of days during the escrow phase.
Small example…I just showed a house that has a huge problem that will NOT be addressed in the inspection, unless I cause that to happen and write the contract differently than the norm. The seller doesn’t know about it. The seller’s agent doesn’t know about it, or is relying on it not being part of the inspection and hoping for a “representative” like you to come along who would never pick up on it.
Nothing, nothing, replaces knowing houses well when it comes to “representing” people well who buy and sell them.
Craig,
For the record, I never said these things because you usually tout your services on one of your own posts. and as a courtesy I would not “invade” your space with my thoughts on your model.
If this is uncomfortable, we can avoid discussions of your model on my post, but only if you do not tout it here. I apologize as I have bit my tongue for years on this topic, as you usually do not raise it in one of my posts, but on your own.
In other words you can and have on many occasions made the claim that lawyers are better than agents, and as a fellow writer here at RCG I would not and have not come to your post to dispute that, as much as I did here today. I feel badly about that, but once it is written in the comments of my post, I have to be fully honest about “limited services” being…well…limited, and never BROADLY best or even better.
There is a reason it is cheaper and that is because it is a limited service.
Ardell, please point out to me where I touted my services (as “best and better than an agent’s”) in this thread. I don’t recall doing so, and I don’t see where I did so above — and certainly NOT in my last comment that precipitated this attack from you. We agree on many, many things, and I respect the point that an “agent” should have an in-depth understanding of both the market generally and the house(s) in play for a client specifically. We disagree on whether agents/brokers or lawyers are better suited for the modern approach to buyer representation (entitled to their own, not one loyal to the seller).
I agree that these issues should be addressed in another post. Unfortunately I’ve been blacklisted by the host of this site (whose initials are Dustin Luther 😉 ) from shamelessly plugging my business any further. So I’m not sure I can/should post on the issue of the differences between an agent and a lawyer. However, if you author such a post you can bet I’ll comment (we can explore the laughable concept that I make money by “creating” lawsuits and all the other nonsense you cite above).
Craig,
I do sincerely regret that you consider my opinion on this topic “an attack”.
You said: “Hence, speaking BROADLY, a lawyer is better than an agent given the respective regulatory schemes that apply.”
I do not agree that the small portion of what an agent does overall, that may or may not be addressed by “regulatory schemes”, makes a lawyer better than an agent in the process of buying a home or even selling a home.
The fact that I don’t agree with your broad assertion that a lawyer is better than an agent when it comes to buying and/or selling a house, is not an attack. In fact your assertion that a lawyer IS better than an agent is more of an attack on all agents, than my disagreement of your broad statement is an attack on you or your business model.
Ardell — I almost qualified my use of the word “attack” with “(in the rhetorical sense — I don’t construe this as a personal attack). Sorry if you were offended by my unclear use of the word.
Now, your “attack” began with your comment in #345413 above: “I do not think you should sweep your model’s weaknesses under the rug by touting your representation is best and better than an agent’s.” You went on from there. Prior to this comment, I had not “touted” my services or the difference in quality between an agent and a lawyer. You just threw this out there, without any obvious reason for doing so (it does not seem to be related to any of the prior comments).
Regardless, once being hit with this broadside, I felt compelled to respond. I did so with my “speaking BROADLY” comment. In any event, I’m happy to have this debate — again — but Dustin will kill me if I post on the topic (“Agents vs. Lawyers: who, speaking generally, is better at representing a buyer?”). Fire away, and hopefully you do so when I have sufficient time to respond.
I think I will have 10 of my clients list TEN of the “things” on which I represented them well…and we’ll count how many of those you do not do at all. Maybe they can list them in priority order so we can see if the ones you don’t do have significant priority. I’ll work on that for you 🙂
The thing about seeing the house is that you never know who is sitting in your office. The person may be a doctor, with lots of money, seem reasonable, and buying an ashram from the prophet of New Guinea. True story, but I’m not sure about the New Guinea part, but the prophet was from some place.
The transaction was a complete sham, but this is what the people wanted to do. Is this something you want to explain when the IRS comes in to ask about the good doctor? No.
Aside from that, most buyers, contrary to what you assert, are completely out of their element when it comes to property. To the people who work in the field, and see thousands of houses, they get a sense.
A long time client of mine saw the perfect house. He went under contract and told me about the great deal he got. When he showed me the house I had him drive three blocks over to another complete block taken over by crack addicts. After a while you just know if a deal’s too good to be true, you should at least look at the neighborhood.
Anyway, way back we charged $250 to look at a house, and neighborhood. That still seem fair. I would run a Comparable Market Analysis and cruise the houses. It usually fell below my 4 hour rule, never more than 4 hrs, or $60 per hour which was my contractor rate.
“Unfortunately I’ve been blacklisted by the host of this site (whose initials are Dustin Luther ) from shamelessly plugging my business”
Ah haaaaaaaaa. You must have exhibited troll-like behavior. You Rebel Craig!
Time for you and Marc to buy a truck, place your message on the side, and cruise around Seattle. Hint—it works better to give the trucks to your clients. They are happy to use it while it works 24 hours a day for you.
Who knows maybe you will end up on the news!
Craig,
Ray puts his “shameless plug” in his avatar. That seems to “pass muster” 🙂
Ardell,
“Every agent has a cap on what they will pay to a broker in a year’s time, so “caps
I’m not sure why, but there is a huge misconception about what an MLS is. I can tell you with all assurance that it is not a database of properties that is under the control of the “evil empire”.
The MLS is a universal compensation agreement between brokers. The sole function of the MLS is to create a set of rules so brokers can cooperate on the sale of real estate in any given market. The side effects of the MLS is the repository of inventory. But this repository of inventory exists because of the advantages of commission-based sales.
The MLS and its compensation agreement will live far longer than any understand. You have to be a licensed real estate broker to gain membership to the MLS “club”, and there is no way around it. You cannot transact real estate and collect commission without having a license. These two facts are huge problem for those who think the MLS will one day become irrelevant.
The MLS creates markets for home sellers and home buyers. It is a critically important function in the lives of homeowners. I would argue that the market the MLS creates is good for homeowners in that there is a competitive sales climate.
A real estate license is needed to transact on the behalf of home sellers and home buyers. The state laws were created to protect buyers from sellers, sellers from buyers, agents from buyers and sellers, and buyers and sellers from agents.
Any ideas that the real estate industry will turn into a drive-through service is malformed. The MLS cannot exist without licensed brokers. Home buyers, home sellers and real estate agents need protection from each other under the law. The law should favor a pro consumer attitude.
The fees home buyers and home sellers are willing to pay will fluctuate based on the consumer’s perceived value of the service. Commissions are negotiable, price-fixing is illegal so I will negotiate a fee with my clients that works for them and works for me.
And that’s all I have to say about that
-Ted
The MLS is just a database. You can try to sugar coat it, but at the end of the day, it is just a repository of homes for sale. Yes, there may be rules in place, but it isn’t unlike any other repository of information. The only thing that has kept Realtors from being disintermediated on a large scale is they still control access to that information.
The reality is that the vast majority of agents do nothing other than put the home in the MLS. Consumers know this which is why they are so adamant about avoiding the Realtor commissions. As Ardell pointed out, when you have a system where almost anyone can get a “license” to sell real estate, you have to question whether that license is worth anything. No one says “Gee, I will go to law school to avoid hiring a lawyer.” Or, let me get my medical degree so I can avoid paying for doctors. However, people frequently get their real estate license just to transact personal deals because for some people the cost relative to the savings it is justified. In addition, you really have to question how much value is there if pretty much anyone can do it.
I am not against agents earning a decent living and I am certainly not against discount brokers. However, the entire residential market is broken imho. Consumers clearly are looking for more value some where as I think the industry as a whole has let them down due to low barriers of entry. You simply cannot have every tom, dick, and harry running around “practicing real estate” and not expect a devaluation of the services provided and an erosion of quality. Everyone seems to see this except real estate industry. This also applies to the mortgage world.
Russ — I agree wholeheartedly. Low barrier to entry, high compensation. Its a bad model, but when you own the playing field (or, more accurately, the de facto market) you make the rules.
Russ said: No one says “Gee, I will go to law school to avoid hiring a lawyer.
Ted,
As you may have seen in the comments on Trulia, a future home buyer is considering getting a real estate license to buy a home. We in our area (not sure about yours) saw much of this happening in the hot market. David Losh, whom you see here and on Trulia is just one of the many who admit their “license” was obtained purely for personal use in buying and selling property.
At the point where the public can’t tell a professional from a self-serviing licensed person in our “system”, we must admit that something is broken in our “system” to cause people to feel the need to circumvent it in that manner.
The consumer on Trulia clearly does not want to do that. Clearly is wanting something other than that, but at times feels drawn to that alternative by our industry’s inherent overall weaknesses.
His comment: “..I actually asked about taking the real estate class and getting licensed JUST to save the commission cost from buying my own house. Apparently the other costs involved would more than offset any savings I might enjoy. If I could get a discount price (cash back) on the commission (however you want to say it) that would be a strong incentive for me to choose someone IF they met other criteria. I bought a car in Florida instead of Virginia because it was $600 cheaper. Why would I not choose a real estate representative for the same reason?”
At the point where one in 5 or even 1 in 10 persons has a real estate license, many for reasons other than to offer quality representation to consumers, one has to question where we as an industry have failed, in order for that to seem like a viable course of action.
Ardell,
Many licensed agents here in my area that have an active valid license and are now working at a regular job are hiring local Agents to help short sell or sell their homes. If someone finds it worth their time to get a license to save their commission more power to them!
-Ted
I agree Ted, but that disputes your theory that the mls is not a place where consumers hang out…consumers can pretend to be agents all the time…heck there are many agents pretending to be agents in there, as you say 🙂 What that THAT do to the “mls” system? Dilutes it at least to some degree, I’d say.
Craig, please. In almost every post you make, in your comments, and on your website, you tout your services and criticize and attack real estate agents. It’s disingenuous to suggest that you are innocent. We all know what you’re about, we all know what you do and we all know what you’re selling.
Marlow — such vitriol! Its not becoming.
I compare myself to agents because I am a cost-effective alternative. I do that every chance I get because I am truly swimming upstream. The current broker/agent system is deeply entrenched and very powerful (due in no small part to its lucrative nature — much like the despised “trial attorneys”). Most consumers still don’t appreciate the alternatives, let alone my particular alternative which I think is a very, very good one. I have never, ever denied that I self-promote. When I blog at work, you better believe I am doing it to make money.
I’m curious, though — in your opinion, what AM I about? What DO I do? And what, exactly, am I selling? I certainly intend to be selling an ARGUABLY superior method for enlisting the services of a professional to assis in buying or selling a home. What’s your take?
In any event, I am not “selling” a home, unlike an agent. That’s their culture, that’s their legal title (“salesperson”), that’s what they do. If you’re a buyer and you want someone to sell you a home while providing you limited legal services, then use an agent. If you want unbiased advice and comprehensive legal counsel to protect your interests, use a lawyer. As an added bonus, they cost a lot less than an agent! 😉
OK, Marlow, now bash me some more. I would hope you would respond on the merits, i.e. like Ardell, and craft a cogent argument as to why my pitch is off the mark. However, I suspect you will just attack me — and NOT in the rhetorical sense, more in the personal sense — as some sort of snake oil salesman. That’s a pretty common response from agents, because most of them — unlike Ardell — refuse to even recognize the drawbacks to their industry as currently structured. So they resort to personal attacks. I look forward to yours.
For the record, given many if not most agents don’t do all the things agents are “supposed” to do…or do them all well, running into Craig is likely better than running into most any agent sitting in an Open House 🙂
1) When I am in an Open House, I am there representing the seller…so Craig is even better than me for a buyer in that case.
2) When the agent in the Open House is not the listing agent…odds are Craig is likely better than they are too, because agents of my caliber rarely “sit Open Houses” for other agents.
So odds are…comparing Craig and his service to choosing an agent at an Open House…Craig would win.
How’s that Craig? You know I love you and clearly do not mean to attack you in any way, even though I don’t always agree with you or your BROAD assertions.
Ardell, the love is right back at ya! 🙂
And the kind words are very much appreciated. Thank you.
One of my former clients from over a year ago is reading us and already sent her list of 10 things LOL! Actually she has 13 on the list…
Will post it Monday.
This referring to my comment above about actual clients listing the things I do to “represent” them.
Wow everybody bashing everyone. I have 4 words for all of you that was quoted to ME on Trulia from Mack the knife, and now I pass it on to all of YOU!
***DONT MESS WITH ME!******
Ray…Craig and I are now having a lovefest… Feel better now? 🙂
“Craig and I are now having a lovefest’
Yeah, and it’s fogging my blackberry screen. You guys should rent a (virtual) room already….
This is my 40th year servicing the Real Estate Industry.
My specialty is distressed properties, usually with deferred maintenance. This allows for creative financing options that are sorely needed in today’s market place.
My companies have prepared thousands of properties for sale for hundreds of the top agents in the Seattle area. We have had the opportunity to do all kinds of crazy projects.
A contractor friend of mine used to make fun of me, and say that I had people buy properties for me. My deal was that if you bought it, we can fix it. Many of those people still have the properties today, and that’s what lead to me having a Real Estate license.
Even though we have worked on some of the finest estates in the Seattle area, dirty, stinky, disgusting properties are an area of interest to me. Restoration, and renovation, is what I do.
Affordable housing is one of the things that we fought for in countless meetings with the city.
From my perspective the web 2.0 transparency people want to exploit years of work by decent, hard working, traditional Real Estate people.
Real Estate agents earning that measly 6% commission, for all the hours that they put in, have made it possible for you to be here today. Real Estate is a 24/7 business for these “sales” people who go out into the field, know the product, and participate in the community at large.
In terms of the web 2.0, I point to what the internet has done to the travel industry. We pay more for less service. We pay more even though there is an over supply of hotel rooms.
Amazon.com has a money back guarantee, and when the Real Estate web 2.0 people start offering that, then they will have something.
David Losh said: “From my perspective the web 2.0 transparency people want to exploit years of work by decent, hard working, traditional Real Estate people.”
David…you are really quite odd. Do you think we jumped off the back of a turnip truck…we “web 2.0 transparency people”?
I’ve been a real estate agent for 20 years and a Bank Officer for 20 years before that. Many years of being a “hard working Real Estate people.”
What the heck are you talking about? Not that if you answer I will know what you are talking about any better than I do now 🙂
David is from Mars; ARDELL is from Venus. Somebody translate for me.
It’s very simple Ardell. I have lived and worked in Seattle my entire life. My niche is distressed properties. Guys that I have worked with, for years, have made millions of dollars, and my core clientele is retired.
The internet is a tool in the Real Estate business model. Financing is a tool. Marketing is a tool. Sales negotiation is a tool. Product knowledge is a tool. Land use, and Mucipality development are tools. You get the idea, it’s a package.
I have found in my years of working in a market place, forging relationships, learning my products, and being involved in the community, that a Real Estate transaction is set of building blocks.
The traditional Real Estate agent is a part of the Real Estate community. They have worked years to establish credibility. They know the market place, and work within it. Some times you have to tell a buyer, or seller, what they need to hear, and get them to hear it. Your credibilty goes a long way in getting them to listen.
So as some people like to point out I know my place in the Real Estate community. I honestly thought in 2006 that the Real Estate market would crash and that my area, my work with distressed properties, would be a driving force. It would be my time. As it turned out the crash has become a whimper so I have to change my business model to adapt.
Which brings me to Dustin Luther’s blog. It also took me to Tim Ellis’ blog, along with Marlow Harris’ blogs. The internet is a good tool. It can reach a lot of people in a short amount of time. It can generate business.
So as long as you have these long comments going, let me share with you what I’ve accomplished with the internet.
I took the tools that Dustin, Tim, and Marlow presented, and applied them to our little cleaning business. Seattle House Cleaning at http://www.SeattleHouseCleaning.com
While it may be difficult to get to the top of the Google, Yahoo search in Real Estate you can apply the same principles of SEO to other businesses, and get them to do very well, on the internet. 25% of our cleaning business comes from the internet. We get two calls a week. We get internet inquiries, and people use the online pricer.
The site is leased from Ripple Applications who do large company web development. They are based here in the United States with web development offices in Egypt.
The response to our web presence is really overwhelming. I can not keep up. The business keeps expanding around me. What do I know about residential cleaning? Even though I have had cleaning companies for years they have been for property managers, or Real Estate agents. Residential is a different animal.
So now I would like to take what I have learned about web presence and apply it to Home Improvement. With today’s technolgy I think I can consult on fairly easy home projects on line. We tried the photo uploads about three years ago and they worked pretty well. Now it’s a dream.
So I have worked on my two Real Estate companion sites http://www.BuyingSeattle.com and converted my national site http://www.FixerFixer.com to http://www.SeattleFixerFixer.com I’ll redirect the sub domain when that site hosting expires.
So I’m sitting here working on web presence.
In the mean time I resent all the Real Estate agent bashing that goes on from online marketeers. There’s no point to it. Real Estate is a community the same as Internet Marketing is a community. The web 2.0 people are incensed that I would attack them. I get threats, and insults.
So how much reponse are the online Real Estate models going to get from the people they are bashing. Does the bashing do the consumer any good?
Of course I have to delete out my domain names, because they are spammy, but I hope you get the idea.
David,
I don’t have time to read all of that at the moment, but I will. I choose to leave your links, and have done that in the past, because you are trying so very hard at doing it well and right and I don’t want to discourage that. “it” being social media, blog commenting, etc.
So no…I will not take out the “spammy” links in your case today…I did not do it in the past…and as long as you don’t stop by every day leaving your links, we’re copacetic 🙂
David,
I have read the entire comment, and I believe links in comments are “no follow tags” and do not help you with google, etc. I find your “story” fascinating” and if you would allow me to interview you over coffee, I will write a post “on” you, with you present to approve it, and include the tags in the post. Those would do you more good, as “in the post” tags are of greater benefit.
I could write the post without meeting you, but I really couldn’t because I have never met you and don’t understand you well enough to attempt to do one without you in the room.
Your story is fascinating, and I believe would be of interest to our readers. Shoot me an email or give me a call if you are interested.
OK, let me outline what I think is a better business model for you here. Real Estate, home ownership, is a whole experience. Once you own the home you have to maintain it.
Real Estate agents also make broad statements when showing properties like the most common: “you can just open that wall to make the kitchen bigger.” We see the properties after the purchase, and that wall has the upstairs heating duct in it.
What I have proposed to agents is that they refer us if a client is even thinking about selling a home in the next year, or two. We set up a list of projects, and do them over time. After the sale an agent can refer us as a resource.
In the past many years I have had my own set of resources to provide cost effective alternatives to more expensive contracting. This year we will be passing the torch on the contracting, and concentrate on cleaning. As one of the top agents in Seattle said to us 10 years ago: “anything will sell if it’s clean enough.
Real Estate agents were some of our best regular customers, but lately, not so much. We do have a good high end client list which we work hard to maintain. Some agents refer us clients before, or after a sale, as an additional resource they can offer.
The web sites are a new resource for agents. They are safe places for clients. Like the analogy of a restaurant, I never mind giving some one the recipe. Once they see what it involves, once they grasp the concept that it’s more than throwing things in a pan, they become better clients.
I prefer the full service business model. Collaboration on the market place, with an experienced agent, is essential to making a good home decision. The 6% fee structure is very low to the over all process. We work with some agents for years with a client. Bringing a property to market, and maintaining the relationships needed to build a Real Estate, is an exhaustive process.
I haven’t got all of those answers, but am willing to puzzle it out.
David,
First and foremost, it was truly a pleasure speaking with you this morning. Thank you for taking the time to give me a call and I look forward to meeting you. You remind me that I need to write a post on REbarcampSea.
One thing I would like you to elaborate on, if you have the time. You said: The 6% fee structure is very low to the over all process.” Wouldn’t you agree that depends on the price of the home? I have a friend in Florida who sells in an area where the typical price of a home is $150,000. The typical commission in that area is 7%. I sometimes have a client selling a $175,000 condo and sometimes another client buying a house for a million or two.
Doesn’t the price somewhat determine if the 6% fee structure is appropriate? One of the reasons the Seattle Area is more verbal on commission issues, is we are one of the few areas in the Country where an agent might be helping someone with a $150,000 transaction in the morning, and a $2M transaction in the afternoon, and those two properties can be within walking distance of one another. Most agents around the Country don’t face that kind of disparity in pricing on a daily basis.
The commission sales model is a problem. Most agents agree that it favors the Brokerages. Our standard commission was 7% until prices began climbing in the late 1990s. There was talk of a 5% commission which is more normal after a couple of million dollars in price.
The saddest part about a commission is when you do the work, and another agent gets the commission. As we talked about, for me, I need to get paid for the work I do. Too many times a client would have me drive them around to worthless properties they “found” on line.
In a commission sales world you could keep your mouth shut, and say these were wise investments. In the real world you would have to throw in your experience.
Like I said I would like to puzzle out something that is fair. I have, and know people who have, used a consulting fee for people who want advice, or agents who want advice.
Pretty much since my start as a Real Estate agent I have been an old timer because of my involvement in the business as a contractor. Many agents did consult with me even when I was a kid in his twenties because my partner Tam Hutchinson and I got to do so many nutty things for agents.
The consulting is hard to sell because every one is an expert. It helps to have a prop like web development, or in my case, home services. We just work the consulting into the price.
Agents are also restricted by the Brokerage. Brokerages have monopolies. Windermere has sections of the city tied up by virtue of the work the agents do. If the agent leaves the Brokerage they are competing directly with the Brokerages. A lot of good agents have been side tracked in the independent Brokerage model.
Anyway I would like to see more discussion about business models that reward traditional agents who have worked the market place these many years only to be attacked financially by discounts and rebates.
David L,
You seem to be having some “who moved my cheese?” issues (aka “where the hell did my cheese go?” and, of course, “who cut my cheese?”). Small town stores do not last after Wallmart moves in, and it’s not because Wallmart offers better service or higher quality….
Number one, there is nothing bigger than ReMax, or Coldwell Banker, Century 21, or Prudential. Then locally we have Windermere, and John L Scott.
Discount Brokerages come and go. They nip at the ankles of the big players. Redfin is for sale as sure as I am sitting here. Zillow is a mortgage broker model.
The problem today is that every one thinks they know what they are doing. I set value by rental income of properties to see where they fit into the over all economy. I separate out housing units, from Real Estates. I work in building Real Estates for people.
My goal in 2003 was never to wear shoes again. The money however was very good, and we ramped up. In my opinion this will be a great market place to position yourself. Before the government intervention the market place had greatly improved toward affordability.
Now we have to wait again to see what will be the level of affordability. Unemployment is bad. Congress is squabbling. Banks have a strangle hold on inventory by the shear volume of inventory they control.
My cheese is there in a trap. Now if some one would just come along and spring it…..
David,
Have you ever asked yourself how much the bigger companies may have contributed to the demise of the “come and go” lower cost alternatives? There is a famous case where the little guy sued and won, claiming the bigger guys established a boycott…refused to show the listings…generally caused the newer company to fail.
I can’t remember the case exactly, but I’m pretty sure there were 3 companies in town and a 4th opened an office. I think it was a regular traditional office. The 3 long standing companies decided they didn’t need 4 companies in town and quietly ignored them and their listings. If one of their clients insisted on seeing one of the 4th company’s listings, they surreptitiously found things wrong with the house to steer their clients away from buying it.
The company failed, sued the 3 real estate companies, and won against all three. Sometimes alternative models or “the new kid on the block” fails for reasons other than not being “good enough” to gain business. We all know there can be huge hatred for lower cost business models.
Patent Guy,
The problem with “Who Moved My Cheese” references, is it begs an answer to the question: “What Would You Do If You Were Not Afraid?” …and one would be hard pressed to find anyone who is not afraid in this economy.
For Patent Guy,
When I started in real estate in NJ in 1990, it was pretty much a market like this one following a strong run up in prices. Volume decreased dramatically. No one put a home on market unless they had to sell. There was blood in the streets.
There was a note pinned to one of the agent’s cubicles that I never forgot. It said: “Lord, if you can find it in your heart to give us another strong market like we just had, we promise not to piss it away this time.”
God found it in his heart…few remembered the promise. 🙂
It’s tough to have your cheese cut out from under you. Afraid, or brave, or whatever, nobody wants somebody else to come along shred their cheese.
The prayer ending with “I/we promise not to piss it away this time” shows up here and there. But, of course, we very much do piss it all away again.
PG,
I don’t fault the alternative models for the cheese cutting. I fault the agents who walked off with 6% when their $2M listing sold in 3 hours. When an industry acts irresponsibly, especially a primarily self-governed and monopolistic one, they deserve what follows. For no one to do anything would be worse.
The truth is I closed a $175,000 property recently and will shortly be closing on one that is almost $2M (actual price cannot be disclosed until it closes). In a market like ours, percentages be damned. In a market where you can walk from a $200,000 condo to a $5,000,000 house in five or ten minutes time, the public interest needs the industry to be much more responsible than in areas where most properties sell at somewhat equivalent prices.
One point that I would like to make clear is that some traditional Real Estate agents have had the best year ever last year.
When things get bad people need better representation. Many failing banks just handed over huge blocks of properties to get marketed, and sold. People who had equity in homes, or rental properties, were motivated to sell.
A company like a redfin is technology. The parts, and pieces of that technology, once developed are marketable. In my opinion redfin will be sold, and broken up into snippets of programming code that will be sold for greater profit.
The gimmick age, or the “we will do it cheaper,” is what is rapidly fading. In my opinion the discount, and rebaters are the ones who have been feeding from the buffet.
This post is WRONG for just so many reasons that I will just smile and say……Good God!
Ray? I thought you loved it when buyers used new things like Redfin and Findwell, and in this case Trulia to get lower commissions?
Or did this one bother you because the buyer reached out to “traditional” agents and companies, and not ONLY to the “new” business models?
I’m confused…isn’t it great if a buyer can get a more experienced full service agent for a fraction of the cost. How is that “wrong”?
This is what I disagree with on so many points:
” company like a redfin is technology. The parts, and pieces of that technology, once developed are marketable. In my opinion redfin will be sold, and broken up into snippets of programming code that will be sold for greater profit. ”
The gimmick age, or the “we will do it cheaper,
LOL RAY! A little blog terminology problem.
You said “This post is WRONG…”
The “post” is the thing at the top that I wrote. Everything below it is a comment. So you meant David’s comment vs. “this post”? 🙂
The truth is that a full service commission on a moderate or lower priced property is in fact appropriate. The issue of commissions becomes problematic as the prices get into higher ranges.
Many years ago when I was in the Trust business as a salaried Fiduciary, we charged something like 1/2 of 1% of the principal value UP TO a certain amount. Where the industry fails is when it doesn’t have a reducing scale or a flat fee cap.
I likely could not have a service based only on people finding their own houses. Too often the assistance they need from me is helping them re-evaluate what they think they want. Not always, for sure. But I don’t want to remove that option from what is available to my clients.
I do wish all of the models would stop saying they are “full service” when “full” STARTS after the buyer finds the house themselves. Often people think they are only going to look in one place, until I talk to them about some other and possibly better options, given their overall objective. “Full” has no bounds, really. FULL is whatever the client needs, and often that is help in determining their list of “wants” and “wheres”.
I dunno, David, it sounds like I’ve read this before:
“The gimmick age, or the “we will do it cheaper,
I’m all for comparing Industrialization with Technology.
These are both termed Revolutions.
In fact they are both means to an end of who can make more money for less cash out lay. Then you have volume that makes it all cheaper, giving more profits.
To create wealth, true wealth, beyond being rich, is to own the biggest profit center you can build. Having a monopoly is perfect. Like the new richest man in Mexico, or Bill Gates, Rockefeller, or Ford.
Redfin is after a 3% market share of a multi billion dollar Industry. They have nothing to offer, but I’m surprised by how high the minimum is for that service. What they own is the technology, and of course what must be a huge data base of people entering name, address, phone number, property details, and e-mail contact information.
Redfin is a technology with data base. What do you think that’s worth? Maybe 1% of a 3% market share of a multi billion dollar industry, or sell the parts?
The idea that they do it all for the consumer? Come on, we’re in business to make money.