Dirty Little Secrets Behind White Picket Fences:

The Good, the Bad, & the Ugly about all things Real Estate

Are Traditional Real Estate Companies the “Dinosaurs” of the Real Estate Industry? The Dawning of a New Type of Ice Age April 16, 2007

DON’T LET HIGH COMMISSIONS TAKE A BITE OUT OF YOUR HOME’S EQUITY

With the Internet finally invading and ultimately controlling the real estate market, how will traditional real estate agents continue to justify their 6%* commissions to Sellers?

As a real estate agent, I can honestly say that buyers do not need me to find out detailed information about a property for sale. Even if I am the listing agent, they can log onto their favorite website and find the property they are interested in, learn the details about the home, view 10+ photos of the interior and exterior, see virtual tours, examine the location by using Google Maps, and evidently, decide whether to see the home or not without ever picking up the phone to ask me a single question.

They do have to call me (or another agent) to actually see the home’s interior, but my importance to them is more like a gate-keeper or key-holder than a facilitator of information.

And yes, I do the administrative work of listing the home and providing the pictures and information on various web sites and in the local multiple listing service, but does that justify a 6%* commission fee? Absolutely not.

Enter the discount real estate company: all the benefits for often less than half the traditional cost.

I am biased, though. I work for a discount real estate company that charges sellers reduced commission and flat fee commissions. Other than the charge for my service, I do not perform any less for them than another “traditional” agent would. There is essentially no difference between me and “them” except for what I charge. Our motto is “Full Service with Savings”. There are other discount real estate business models that charge even less than we do, but in general, do not provide the traditional full service Sellers are accustomed to receiving from big-name dinosaur real estate companies. They are valid and do work, especially for experienced sellers, and provide yet another successful, alternative business model to the traditional game-plan.

Some agents may argue that I am selling my value as an agent short. After all, good real estate agents hold their Sellers’ hands throughout the transactions, making sure their home is priced properly, advertised profusely, and most importantly, help them to avoid legal pitfalls. When working with Buyers, I am helping them navigate through the often confusing escrow period that follows a signed agreement to buy a property: home inspections, appraisals, financing, title issues…the list goes on and on. I am also supposed to be working to make sure sellers get the most money for their home and that buyers pay the least amount of money possible for their home, depending where my fiduciary duty lies. And although I personally do this, many unethical agents care only about their commission and will guide buyers and sellers in the wrong direction all in the effort to make a buck. In truth, every agent sells a home to make money—they may enjoy helping others purchase and sell homes and may truly uphold the Code of Ethics Realtors “MUST” adhere to, but in the end, they and I wouldn’t work for free

I have always wondered who set the magical “6%*” commission rate? Who actually came up with a price for the services we as agents perform and then made it stick for so many years? After all, commissions are negotiable by law, and it is illegal for a group of real estate companies to come together and say they will all charge a certain price for their services, so where did the 6% mentality originally derive? Ten years ago, when homes were priced hundreds of thousands of dollars less than they are now, a 6% commission was significantly less than it is today. For example, in 1997, a home that today would sell for $275,000 was listed for $75,000. The commission in 1997 would be only $4500. Today, the commission to sell the same home would be $16,500. Add to that the fact that it is now in many ways EASIER to sell homes than before, and you have to wonder why the 6%* mentality still exists.

Agents may claim to “hate” discount agents, threaten not to show their homes listed (thereby violating their fiduciary duty to their buyer-clients and breaking the code of ethics and a variety of other licensing laws), and insist they are worth their weight in gold, but chances are, they’ve discounted in the past too. Ever listed your house with an agent who said his fee was 6% only to mention that another agent was willing to do it for less? What happens? Usually, the set-in-stone six-percenter* agrees to lower his fee in order to obtain the listing. All agents discount—they just do it under the table, so to speak. If the discount model of doing business didn’t work, why would other traditional agents reduce their fees to compete instead of just waiting for the listing to not sell and the seller to “see the light”? And, why does my company have a 99% listed to sold ratio?

I truly feel I do more for my clients than many traditional agents do. I know this because the majority of my business comes from referrals. I also feel I would have a very successful career in a “6%” real estate office, but I would be delivering the exact same services I already do now. I honestly could not justify the extra cost to myself, never mind a potential client. It is kind of like a moral dilemma for me.

Luckily, I jumped aboard the discount ship many years ago. Sooner, rather than later, traditional agents will have to recognize that with virtual freedom of information, 78% of Buyers using the Internet to find homes, and the gate-keeper ideology becoming a thing of the past, it is just a matter of time before we all must adopt more of a consultative approach to real estate and the services we provide. Or prepare for extinction.

Disclaimer: All commissions are negotiable by law. 6% commission used for comparison purposes only. Savings are compared to paying 4, 5, or 6% commissions.

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5 Responses to “Are Traditional Real Estate Companies the “Dinosaurs” of the Real Estate Industry? The Dawning of a New Type of Ice Age”

  1. Trevor Smith Says:

    That is true… even traditional agents discount, but they don’t do it until they think the are going to lose the listing. The last I saw the average commission in the US was about 5.2% and falling. It is very likely that in the next 10 years the average commission for selling a home will be around 4% total. People like yourself are just leading the pack in what will prove itself to be an inveitable industry change.

  2. Hi Trevor. Thanks for stopping by. I think in ten years, the industry will be nothing like what it is today. Commissions may be a thing of the past entirely. The thing is, if real estate agents DO take on a more consultant approach, why wouldn’t I, the consumer, just hire an attorney?

    The internet completely reformed the travel industry in a very small amount of time. It will do the same for real estate.

  3. Todd Reashore Says:

    Here in Alberta Canada, home of the “still” booming economy; realty rates have been traditionally and continue to be 7% on the 1st 100K, 3 thereafter.

    My point is this; in the past 5 years, housing prices here have literally doubled. So, a realtor who made approx 10,000 dollars on a 150k home; Can now sell the same home 5 years later and make 20,000. And the home will most likley sell in a week.

    How on earth can then realty industry NOT adjust it’s commission structure DOWNWARD. Who else in society has doubled their income ?

    I fully agree that a realtors experience is worth something, but it sure the hell in not 7 % 3 percent; but you’ll not hear a wisper out of the industry.

    regards….

    “Sold by Owner” in Spruce Grove, Alberta Canada.

  4. Todd, did you see the 60 Minutes piece about this same subject? Pretty good stuff—FINALLY. I am sure you can search it on YouTube if you missed it, and I wrote a new posting about it recently. Thanks for writing and reading—business is booming for us, so I haven’t had a lot of time to write, but plan on doing more in the future.

  5. Bruce Says:

    Realtors are alreadt a thing of the past. Anyone heard of the Internet. Bye, Bye commissions and kick backs.


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