[Smarten originally posted this on Chase Nation. Since it was not specific to the conversation about Reno-Tahoe real estate and more of an industry piece, we had to make it visible to friends-only over there. However it’s a great little post challenging our entire current commission structure, making it perfect fodder for the free-for-all we have going on at the Reno Realty Blog. I have often wondered if there isn’t a better way for our industry to do business and appropriately bill consumers for service, but making these changes would be no easy task. -Diane]
And no, I’m not talking about baking. Rather [and I apologize in advance], I’m questioning whether the time has come to change the industry’s archaic sales commission system?
It used to be that the MLS was a closed [and the only] source for securing up-to-date local real estate listing/sales information. But now the MLS is open to everyone with access to the internet. And there’s craigslist, zillow, trulia, realtytrac and many other online sources [including ChaseNation] similarly available so the student of real estate has more information available at his/her finger tips than ever before. And just to make sure all your “t’s” and “i’s” are being crossed and teed, the non-agent has equal access to title companies, attorneys, property inspection services and staging companies.
Furthermore, there are many real estate professionals out there [with their own expertise] who: don’t happen to be sales agents; and honestly, don’t require the services of an agent.
So why use the services of a local agent?
Please don’t respond that if you’re a buyer, there’s no cost because if there were no commission to the seller, the buyer could presumably purchase a property he’s/she’s interested in for at least 3% less [as an example, see "last chance before agent listing" (http://reno.craigslist.org/rfs/641553325.html)].
And if you’re a seller, please don’t respond that your full 6% sales commission represents money well spent. 6% on today’s sales prices can be a very substantial number [how about $120K on your typical $2M Montreux McMansion?].
Now if that 6% were something closer to 1% +/- [depending upon sales price], I imagine many could see why the additional expense [to both seller and buyer] might be useful [which is the very reason why the discount/online agents of the world (like Redfin) are becoming so popular]. We understand your services are valuable, but at $120K or more?
Just like cable/satellite television and travel [agent] fees have evolved, isn’t it time for the real estate industry to offer the public reasonable ala carte pricing? If I need an agent to preview housing on my behalf, I agree to pay my agent an hourly fee. Or if I need a sales contract to be written up, I agree to pay my agent [rather than an attorney] another fee. Or if I need my agent to make a sales presentation on my behalf, I agree to pay another fee. And of course if I’m a seller, I have a completely different menu of fee based services targeted to my particular needs.
I submit that these types of payment options will actually encourage [rather than discourage] the use of a real estate agent. And really in the long run, aren’t they more fair to the agent?
Let me give some examples. A delusional seller comes into your office and wants you to list his/her grossly overpriced home. By agreeing to accept a straight commission contingent upon the property selling, aren’t you in effect agreeing to a contingency fee? I can assure you an attorney would NEVER take a case on a contingency fee unless the odds were overwhelming he/she was actually going to realize that fee. Do you feel that way about ALL your listings?
And who ends up paying the up front out-of-pocket costs to place that listing on the MLS? What about to advertise the property for sale in the RGJ, Bonanza or one or more of the various local magazines [like Premier Homes]? What about to maintain a web site where the home is featured? What about to create a virtual online tour? What about to create and prepare flyers, etc? Is it fair the agent absorbs these costs for a listing which currently has a 95% or more chance of never selling?
And what about your “evil buyer?” You know the one you show 24 or more properties over a three day period, and then he/she won’t write an offer because he’s/she’s waiting for prices to go down further? Or what about the buyer who will write an offer [or a number of them] at "hideously low ball" amounts which are guaranteed to be rejected?
If the delusional seller or evil buyer were presented with up front ala carte pricing, do you really think he/she would be as delusional or evil?
So you Chase agents tell me; in today’s online world, why use the services of a local agent?
At 6:00pm on Apr 17th, 2008, Diane Cohn said…What consumer would pay an hourly fee when they can go to the next agent and get everything on contingency, for free until something closes? People have tried to change the system, but it never seems to change, because inefficient or not, it gets the job done.
At 4:57pm on Apr 18th, 2008, Green NV said…Who would pay an hourly fee for Realtor services? ME for one. If I were a serious seller, priced to sell, and could get engage the services of a top 20 agent and save some cash by going hourly and cost plus, I’d be all over it. I think some agents would be game for it too, but the BROKERS can’t figure out how to extract their pound of flesh yet in this business model.
K(no vowels) Realty offers just the smörgåsbord approach you are talking about (so does Help-U-Hell, but their name is too cheesy). Anything from a $499 bare bones MLS and internet listing for 6 months, to full service representation, to their pick and choose Ala Carte program. All options are supposed to include access to a library of all the required disclosure, offer, and escrow forms.
I am in the process of listing one of my vacant lots with them – why pony up 10% commissions for agents who know nothing about water rights, sewer connection fees, TMWA, planning and zoning, sphere of influence, and especially Washoe Water Resources, and can’t read an AutoCAD file? I’d be doing all the work anyway. I’ll report back in on the experience.
I have no idea how the pick-a-service model is working for K(no vowels), but the Chasers might want to take a look at the web site to see what might be the wave of the future. What do you guys make of it?
Dave Blockhus
I think there are some very strong arguments for a fee for service type of compensation agreement. Some seller’s/buyer’s will jump at it, but most won’t. Let the market dictate.
As agents, its our fault for allowing the consumer to think that the services/advice we give is all the same. The average consumer out there thinks real estate agents are a dime a dozen. No wonder fee for service or a la cart pricing seems appealing. The reality is that a smart and seasoned real estate professional can (because of his/her experience) deliver results quicker and for better value than your cousin who just got their license last month.
I stronger believe that the method in which an agent gets paid is less important than the value/knowledge/experience etc. that the agent brings to the table. Increase the educational requirements and costs involved in obtaining a real estate license and maintaining it, and you’ll weed out the one transaction a year agent. This, in turn, will make the profession much stronger, more reactive to consumers needs and overall a more proactive group of agents.
Frank Borghetti
Hello Diane,
Fee for services have been around for quite some time, however they have not been well accepted by the consumer. I suggest you check out Julie Garton-Good’s book “Real Estate a la Carte. She makes a strong case for this business model.
Diane Cohn
Dave, you are right that an experienced, seasoned agent can really work it hard for a client and deliver superior results. I have seen this happen many times in my office amongst our veterans. All agents are not the same, and yet commissions for the most part are, which makes it tough for the consumer to dissect what they’re getting and where the value resides. But as you say, the market will dictate.
Frank, thanks for the book recommendation… sounds like a good one. I will check it out.
Tom
Above comments by Diane and Dave are accurate, but consumers don’t understand this. This is similar to my own field, where many people think that`an attorney is an attorney,’ and their contact from their lunch club group who handled their divorce or P.I. case can also do a sophisticated generation skipping trust or handle an apartment building exchange transaction for them. The truth of the matter is that a state bar license is just a starting point; it takes a good number of years of study and learning in a specific field to reach the point of truly adding value to the assignment. Most personal injury lawyers shouldn’t even try to do complex estate planning or real estate transactional work, and vice versa.
I think the issue for the real estate industry is perhaps as much client educational in nature as it is the reformation of its fee structure.