Technology has allowed many industries to cut out the “middleman”. In business terms, I believe its call disaggregation. In many industries there were/are people who aggregate information and services, then repackage and sell them to buyers. Travel agents and music stores are a good example of business models which have been challenged by technology, because the value they brought to the customer has eroded now that customers can directly access this information on the internet.
I’m sure by now you know where this is headed…..what value do Real Estate agents really add to a real estate transaction? Prior to mass access to the MLS, they helped bring buyers and sellers together. Now what do they do? They unlock a door for a buyer to see a house (that the buyer picked out on the Internet), or they host an open house. Of course there are a couple phone calls involved, and they set-up and coordinate appointments for closing escrow. And for all this they get anywhere from 2-6% commission. Yikes, no wonder there are so many soccer moms becoming real estate agents.....especially with the high price of homes these days.
My proposal is this: structure the fees so they are consistent with the value the Agent brings to the customer. Several businesses have started down this path like ZipRealty, Help-U-Sell and BuySide/Iggy’s House. I certainly applaud their efforts. But none of them really get away from the percentage based commission.
The Buyer’s Business Model –
Charge a fixed rate for showing a house. If a buyer sees 2 houses, they shouldn't’t pay the same as a buyer who sees 20 houses. Perhaps packages can be arranged (1-10 houses, 10-20 houses etc). Currently buyers have no incentive to minimize these visits, since it’s all built in. This has the potential to waste a lot of time for everyone involved. A fee should also be included for closing. These fees should be a % of the house value up to a certain amount. An $800,000 does not really involve more work at closing compared to a $200,000 house. So perhaps 1% of closing up to $3000?
The Seller’s Business Model –
Many sellers’ need help staging their house so it shows well. Sellers should have the option to host their open house or have the agent do it. Again perhaps they can purchase a package deal at a flat rate. The closing fee structure would be the same as the buyer. (With our selling agent in the D.C. area, we negotiated his commission based on a time frame, 2% if it sold within a month, and 2.5% if it sold after that.)
The biggest change, which I don’t see happening anytime soon, is that both sides should pay their own commission. Thus they both have an incentive to minimize the realtor transaction cost.
I’m sure I am missing something here, like other value added activities that realtor's perform…..(I’m not sure if giving referrals is a value added activity, since it can create a conflict of interest.....but with many Internet services like Angies's list popping up...this too is becoming obsolete).
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3 comments:
If I want to look at a house, I call the listing agent. There are no true buyers agent in CA. Other states are different.
I'm a firm believer in RE attorneys, worth every penny. If I can't find one, I'll hire Agent Bubble. He's just about the only agent I have any respect for.
You raise some very valid points. I've always wondered why the commission was so high myself. I know of some brokerages that will not list a house for less than 6%. If people only realized how easy it really is to list a house, they'd be amazed they had to pay anything at all. We're talking about filling out a listing agreement, putting a post in the ground, and entering some data into MLS.
What about the cost for flyers? I get several e-mails after any new listing I enter from mortgage brokers and title reps begging me to let them create flyers and postcards for FREE.
What about time spent at open houses? Let's be honest here, 99.99% of the time, open houses benefit the listing agent because they're going to pick up prospective clients. Selling a home through an open house is pretty rare.
And what's with this "buyer's agent" stuff? As Gwynster pointed out, there are no buyer's agents here. We're all just agents.
I gotta tell you, crediting 75% of the commission back to the buyer is a heck of a deal. In the past, I've generally credited 50% back or listed a seller's home for free if they bought a home through me, so I think they have a great deal going there.
Agent Bubble -
Thanks for confirming my suspicions! I use the term buyer's agent, since an agents role in the process is slightly different depending on who they represent. It might also be a regional thing. It was a more formalized arrangement in Virginia.
I'm with Gwynster, you have certainly earned my respect...and my business...unfortunately, it looks like it might be a while yet before things get back to a reasonable level.
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