Beware the games Realtors may play, and yes, commission charges are very important
Background – We live in a digital age, an age in which virtually every industry is undergoing massive change. Those who attempt to cling to decades-old orthodoxies cannot and will not remain competitive for long. That is a 21st century reality.
We accept this reality in almost every major industry in the world. But despite economic reality and technological changes which are gripping the world, enhancing our lives, and making us more productive in almost everything we do, there remains one industry which is often viewed as bound and determined to resist it all: the real estate brokerage industry.
There is no longer any reason for buyers and sellers to be locked into paying high fees to sell a home, nor for the buyers not to participate in the commission pay-out if they buy a home.
A Quick Review of the Status Quo – Let’s be honest with each other: as a homeowner and future seller of your home, you cannot understand why virtually every real estate brokerage office, and almost every Realtor, presents the 6% commission level as the “base” payment you must make to have the privilege of allowing them to sell your home. You say that is outrageous? Of course it is. But it is still today’s reality.
Given the enormous improvements in technology and information flow, this mentality will eventually doom the traditional brokerage model. But the traditional industry hangs tough in 2016. Inman News, a distinguished real estate publication, posted an essay by James Hussaini last year, entitled “Why the traditional brokerage model is obsolete”. A link to this outstanding article is below:
Rarely do I read an article with so much substance in which I do not question at least something; however, Mr. Hussaini’s analysis is so sharp and on-point that I want to thank him for sparing me the time and effort to write a similar piece myself.
Many are beginning to challenge the existing orthodoxy, with good success – A year ago, after reading Mr. Hussaini’s article and realizing that continuing to pay monthly fees (some refer to it as “alimony payments”) to a longstanding company for little more than a company brand and logo was illogical, I switched to Samson Properties. At the time, Samson had maybe 700 agents; a year later we have about 1,300. This is testimony that the desire for better agents to seek more freedom, flexibility, and business cost savings is very real.
The most obvious intrusion into the status quo has been the introduction of Redfin as a full service brokerage operation. The traditional brokerage offices are unified in using the term, “discount brokers” when the subject comes up that Redfin, and others, are willing to charge substantially less to sell your home. Statements such as, “you get what you pay for” creep into the discussion, but such condescension does not pass logical scrutiny: if this statement was a universal truth, why does every Realtor at a “traditional firm” cling to the same 6% number? Is the new agent as valuable to the seller as your 30 year veteran? Then why are they both charging the same amount?
There is no reason a good agent cannot charge substantially less than the traditional model and provide better service – The idea that there is a linkage between price paid and value given, as an absolute, was buried many decades ago. It needs to be buried in the real estate business. Initially, Apple was often accused of “undercutting the market,” because they produced quality products people wanted and charged less than the soon-to-be-obsolete competitors. And Apple clings to the “fair price for quality product—don’t ask for a discount” model.
In my personal business, I attempt to follow the Apple example. The listing fee is 4 1/2%. Why waste so much time in a listing appointment discussing Realtor commission, and doing a “value proposition” song and dance? Let’s discuss how to best market, promote, and sell your home instead.
Zillow is often seen as a major “threat” to the existing legacy firms, but they are a major reason the full service agent can reduce costs, expand market knowledge, and reduce cost to the seller, while making more money- The “new age” technologies and entrepreneurs driving these business models amaze me. I heard Zillow’s founder, Rich Barton, say that the name Zillow is short for “zillions of bits of information.” Nobody accumulates and dissects real estate data in a more meaningful and user-friendly way than Zillow. I have had the honor and pleasure of meeting and discussing the business with Zillow’s President, Spencer Rascoff, who is clearly at the forefront of technological change and spearheading breakthrough changes enhancing all of our knowledge…if we choose to use it.
Like other past products and service delivery techniques which resisted change and tried stop their own legacy dominance from slipping through their fingers, many (if not most) Realtors and real estate traditional firms have been training each others in ways to “combat” Zillow. What a shame. The Zillow model is designed to help Realtors better serve customers, and it should be embraced and used by both the customer and the Realtor. Rather than trying to poke fun at the “inaccuracy” of Zilllow “zestimates” or ignoring the many positive, user-friendly features of Zillow, too many continue to try to preach a mythical “value proposition” game of their own. The short of it is this: the Realtor community as a whole works to develop statistical games to make you believe they present extraordinary “value”, which a “discount broker” could never, ever provide. Often the “factual” numbers do not really support their conclusions, and I will discuss that in a minute.
A major difference in Zillow and Redfin, given that most people incorrectly lump them into the same bucket as on-line information providers: their business models are totally different and they are major competitors to each other. This is as much a philosophical difference as anything. Redfin is an actual brokerage firm, which divides the sales process into many buckets, and the payment to agents is mostly salary. Zillow has no interest in being in the brokerage business, but makes all its money through agent advertising/fees. Zillow has a vested interest in understanding the sales process and working with commission-based, highly motivated, people whose goal is to learn and use the always-improving tools at their disposal. So it is logical for agents to team with Zillow as partners, and have the Zillow information and knowledge as one of the many arrows in our quivers. The traditional agency objection to Zillow, and other technological improvements to our business, is mind-boggling to me. There is no reason why a full service agent with great skill cannot provide superior service while also charging “Redfin prices”.
However, all you need to know is this: in today’s world and that of the future, technology has educated the customer as never before. This is a very positive development, and makes the Realtor’s job much more efficient, while putting a premium where it should be placed: promotion and marketing skills (with much of this knowing/understanding promotion and marketing on the web); negotiating skills and knowledge, based on financial acumen; hiring an agent who is comfortable as the face of your home and an advocate for getting you the highest possible/logical price for your home; willingness to understand every seller’s unique position and skillfully adjusting strategies, as necessary (as opposed to a “one size fits all” presentation method taught in most brokerage meetings). And more.
Beware the following “facts” which many will use to claim some sort of sales superiority- There is an old saying that, “When you have been around as long as I have, you have seen it all.” I disagree. Everyday, I see something new.
And what is “new” in the competitive Realtor business is an attempt to promote some sort of “value proposition” by both firms and more often, by individual agents, based on numbers which seem logical, and may indeed be factual. However, the facts and numbers do not really support any sort of superiority conclusions at all, and in fact, may point out a defiency.
Let me provide two examples of statistical numbers many try to promote as being an indication of their “superiority”, and a means of determining your list price which is fraught with deficiency. You have undoubtedly heard these before:
- Days On Market – For an individual agent, there is nothing at all magical about having a history of “fewest days on the market” for their listings versus others. In fact, it may be a negative to the seller. Rather than assume that this is a measure of sales superiority, which it is not, it is more likely a measure that the agent is pricing their listings at a low level, and the low price is driving a quick sale. If faced with similar homes in similar neighborhoods, one priced at, say $475,000 and the other at, say, $500,000, are you believing the $475,000 sold quickly because of an agent’s superior sales skill? Of course not. In fact, if any individual agent is consistently selling homes very quickly across a broad range of neighborhoods, the first question you should ask is, as always, “Why?” And that answer is likely because there is a consistent pattern of listing homes at a low price.
- Selling Homes At a Higher Percentage of List Price – This is related to the days on market, and is a function of the same mentality. The listing agent sets the listing price and their is nothing to support that this is a true “market value”. So to use that to compare to other agents’ “inability to get full list price” when they are listing at a much higher, and more market-driven, price level and then accepting lower-than-list contracts is, quite frankly, a fraud. Compare these two scenarios: 1) Agent One lists a home at $450,000 and it sells in two days at $450,000; 2) Agent Two lists the neighbor’s similar home at $495,00, and it sells in 75 days at $480,000. Who did the better job? We both know the answer, although Agent One is likely to parade his/her “superiority” because, “I got full list price and sold it in only two days!”
- The misuse of MLS-driven “Market Analysis” Charts to Get you to “Price Realistically” – Let’s get this out of the way immediately: The oft-used “you must price your home ‘realistically’ ” approach is a by-product of much traditional brokerage sales training. This theory is that if you price slightly below market, your home will sell quickly, and the agent can not only get paid immediately, but then claim skill in “quick sales at list price.” The MLS-driven “CMA”(Competitive Market Analysis) is a nice tool for general information, but the inputs are in the hands of the Realtor, and the results in no way tell you true value. Nothing can replace the knowledge and experience of an authentic real estate professional who knows your market, the current trend in supply/demand, and the many other factors which make these pricing decisions more of an art than a science. Logical knowledge of recent sales is important, but knowledge of the factors leading to that sale are at least as important. Beware of a CMA which is constructed to generate a slightly below-market estimate as the “real” list price for your home. And understand that the inputs to any CMA can often be quite arbitrary.
Don’t get trapped by the above misuse of statistics. The Listing Agent’s job is to get you the highest possible price for your home, and to do so at the lowest cost to you. Pricing low for a quick sale (especially if also charging 6% sales commission) is something the seller needs to protect against. Of course, every seller’s needs are different, and these individual needs should be a major factor in setting list prices.
The above is the opinion and analysis of the individual agent. It is not meant to be the opinion of Samson Properties, or any agent, working for Samson Properties.
Ray Wedell, CFA, Realtor
Zillow Premier Agent