My brother called me late last week. He lives in Dallas with his wife and kids – he’s in his early 40’s, smart, tech-savvy and owns his own business. He wants to buy a new home. The home he wants isn’t currently listed with a real estate agent – it’s a pocket listing FSBO so to speak -the owner would like to sell but doesn’t want to actively list and sell it. She’ll sell at the right price – she’s not going to go out of her way to find a buyer.
My brother has bought and sold a few homes, rarely with the assistance of a real estate agent – he’s open to cooperating with an agent when he wants to sell his home, but simply not keen on paying a commission for something he feels he is more than capable of doing himself.
I am not an evangelist. If he wants to do it himself, more power to him.
Funny thing happened, however – his call was a plea for help. He wanted me to review the standard real estate sales contract – he doesn’t know what boxes to check – or at least wants to make sure that he’s checked the right ones. He needed to move relatively quickly so he could get his hook into the “unlisted” home before word got out that she would entertain offers.
“Listen Tom, I really need your help – I’ll even pay you.”
Putting the whole lack of being licensed in Texas aside, a smile came across my face. ALAS, my brother of all people understands the value of expertise and knowledge – and you know what, it ain’t free.
I asked him how he knew whether or not the house he wanted to buy was actually worth what the seller wanted?
Not sure but felt her price seemed reasonable. I told him to go to Zillow and find out what it’s Zestimate was – the good news was it fell within a few thousand of the seller’s target price of $1M.
I walked through the contract with my brother – not only telling him what boxes to check, but to explain the significance of checking one box over the other – what does the language really mean in terms of putting an actual deal together. Alot of the discussion revolved around what happens “if” … There are subtle nuances.
I called on Tuesday to see how the presentation went. According to my brother, all went well. He is expecting a response from the seller ideally by the end of the week.
While I wanted to make sure the presentation went well, I was also really interested in learning more about why he didn’t want to involve a real estate professional.
“They don’t provide value – er… I mean … um no offense Tom. I mean, if someone could tell me exactly how to put a deal together – what forms I needed, how to fill them out, who to contact – what information I needed to tell them – I mean, that’s what I need. After reading the documents, I looked through them and I realized I didn’t know what I didn’t know. I need someone to tell me what I don’t know – I’ll pay for that.”
As my younger brother, I could easily tell him he didn’t know anything – BUT he’s the one buying the $1M home while I struggle to sell junior 1 bedroom condos – an entirely different story, but I digress…
I found my discussion enlightening – not that I didn’t think I provided value, but that my brother – consumers are still in the dark regarding how the process works AND that as technology solutions have evolved, few have focused on the real needs of the consumer.
Two recent posts got me thinking about how technology needs to be better in line with what consumers want and need.
John Rowles recently posted about the de-commoditizing of listings – consumers want listings! That’s what consumers want – listings! Again, consumers don’t know what they don’t know. They want access to listings – and even tools to help they identify valuation – but they don’t entirely understand the process of buying or selling. From purely a consumer’s perspective, why do I – as a real estate professional – want to invest resources improving the visability of a commodity – a listing – when my real value is in consumating a transaction? The real value isn’t in the property identification – the real value is getting the property under contract and closed.
Are we monetizing what counts?
Greg’s recent post regarding Active Rain’s recent subscription challenged the merits of charging a fee to new members who post content viewable to consumers, rather than just other AR members. I read the myriad of comments – why pay for a subscription service when the costs of hosting your own site – with your own content – is less expensive. I agree – this is a far better solution for some – but not for all.
Again, I pose the question, are we monetizing what counts?
I believe AR’s subscription strategy zeros in on monetizing the right kind of content – shared knowledge and expertise. My issue isn’t the subscription fee – my issue is that the content still remains free to consumers. I don’t believe it makes sense to rely on advertising revenue when the real value lies in the expertise and knowledge that is created – hence why I believe the subscription service at least moves in that direction.
Is it perfect – no.
As a new generation of buyers and sellers enter the market – The Millenials, the role of technology will become a requirement. Millenials have been raised with technology – they have been raised in a generation where information is readily available via the internet or through the use of technology. What they don’t know, they seek knowlegde via the net. They are willing to pay for expertise where and when needed.
I don’t think a business model that transforms the real estate business will really take hold unless the role of the agent is truly at risk.
If a technology solution can address the real content that consumers want and need – the process knowledge of consumating a transaction, real transformation will take place.
Mark Madsen says:
We can have the same debate with our clients about a mortgage transaction. Points, rates, terms, tax benefits, financial planning, responsible leverage, market conditions that influence multiple daily rate changes…..
It still boils down to helping a client complete and submit their paperwork properly. One of the main values of an experienced real estate or mortgage professional can be realized in those “What If” conversations that you described, Thomas.
I write on my consumer focused mortgage blogs simply to establish my authority as an expert so that I can build trust. For me, technology is simply a way lay a solid foundation for a personal connect via phone or email.
Buyers may say that they only want to look at properties or shop for the lowest rates online, but I think they are really just collecting data so that they feel like they have made the most educated decision. Unfortunately or fortunately (depending on which side of the transaction you are on), too much data induced by a technology overload generally leaves people with a false sense of security.
February 19, 2009 — 12:44 pm
Michael Cook says:
Easy equation when you think about a $1M home. 3% of $1M is $30,000. I cant imagine you gave him $30,000 worth of advice??? Or even if he needed it for that matter.
More concerning, however, would be going to Zillow to determine if he is paying the right price. It would seem to me for a $1M investment, I would look well beyond Zillow. Thats a little scary, but if he is comfortable with that, so be it.
February 19, 2009 — 12:46 pm
Gail Tassey says:
Perhaps those who are deeming themselves Real Estate consultants are the ones who are going to lead the way, consultants would be more appropriate to where we are going, much like engineering consultants and how they work now.
Zillow is notoriously bad for its zestimates here in Texas, because we are not required to give to the tax appraiser office what was actually paid on a sale. It truly becomes a guesstimate.
February 19, 2009 — 1:15 pm
Thomas Hall says:
@Mark – I agree with you re: too much data – data is information, not knowledge.
@Michael – like I said, I am not an evangelist – Zillow helps provide a guideline – reality is, once negotiations begin, it becomes an issue of how much either party is willing to give/take. I think the estimate is an indication of reality, however.
February 19, 2009 — 1:19 pm
Dan Connolly says:
One the most important benefits an agent can bring to the transaction is advising the Buyer as to market value in the area. Although there may be three comps in the area that support the price on Zillow, there may be several hundred others who tried to sell unsuccessfully.
A computer generated market analysis doesn’t factor in views, traffic patterns, upgrades, proximity to other factors that affect price, or the fact that only a small percentage of those who tried to sell may have had any success. Most agents who are ethical and knowledgeable earn the commission on that aspect of the negotiations.
February 19, 2009 — 1:28 pm
Tom Hall says:
@Dan – I would argue that the market analysis of a particular property is a big benefit for some – not all.
Regardless of what we believe our value to be, the real answer comes from the consumer. In many cases, I believe my knowledge about a property’s location and associated value is important – again – for some.
While Zestimates may not be perfect, our interpretation of value can be equally inaccurate.
How often during negotiations has a seller said “I don’t care what the comps say, that’s not what my property’s worth!”. Unfortunately they may lose an opportunity, however, value is finally settled by agreement between buyer and seller.
February 19, 2009 — 1:54 pm
Mark Madsen says:
“Easy equation when you think about a $1M home. 3% of $1M is $30,000. I cant imagine you gave him $30,000 worth of advice??? Or even if he needed it for that matter.”
Michael – You’re asking a rhetorical question that relies on so many unknown factors about this specific transaction.
For example, what if the property was worth $30k less, or soon to be based on pending foreclosures in the neighborhood? What if the seller’s appraiser and loan officer friends were able to “bring in the value” just to make this deal work?
I mention this scenario because I had a big FSBO marketing campaign before the market completely went to hell here in Vegas. It was a great way to meet buyers and refer clients to my agents.
However, it seemed like 90% of the time my sellers wanted to know if I had an appraiser who could hit their desired price, and how I planned on marketing their overpriced listing as a great deal based on the fact that there weren’t any agent commissions.
I hate dealing with FSBOs for those two specific reasons. Not to mention, I’m a loan officer, not an agent. Either way, this type of “screw the buyer” mentality appeared to be the common theme with sellers who targeted buyers that did not have professional representation.
“Save $30,000 if do don’t use a real estate agent” is appealing to a buyer, regardless of how cautious or smart they think they are.
So, Michael, I totally understand your point about the actual value of 15 min of advice, but a hired real estate agent spends way more time serving a client than just helping them fill out paperwork. Insurance, liability, litigation…. there are other benefits that go along with hiring an agent.
February 19, 2009 — 2:47 pm
Dan Connolly says:
“value is finally settled by agreement between buyer and seller.”
…and the appraiser, unless you pay cash.
February 19, 2009 — 2:49 pm
John Kalinowski says:
Tom- I have to agree with the comments about recommending he check the Zestimate. It’s pretty hard for us to make a compelling argument for what our services are worth if we just tell them to check Zillow. I can’t imagine ever using that as even a starting point with a client.
Also pretty dangerous to give anyone, even a brother, advice about filling out a contract in another state where you’re not licensed. What a nightmare that would be to get dragged into a law suite based on that advice, particularly without E&O coverage. I would have referred him to a good Texas agent and asked that agent to rebate the referral fee to your brother instead of paying it to you (if that’s legal in Texas, of course).
February 19, 2009 — 3:57 pm
Tom Hall says:
@John – small disclaimer – my family lives in Dallas so I am quite familiar with the area. While I don’t sell in Dallas, I know the neighborhood better than most.
Again, Zillow is a just another tool for making a reality check. My brother has lived in this particular neighborhood for a number of years – he has a good sense of the values with or without a detailed analysis.
Bottomline is – we often try to sell our value to those who are simply remain unconvinced – there are some consumers who simply don’t need full service. It doesn’t make them wrong. I believe we simply need to be in-tune with what consumers want/need.
February 19, 2009 — 4:24 pm
Michael Cook says:
I would argue most customers dont need full service and I think the cost is very debatable. Its hard for me to imagine that a $250,000 is that much harder to sell than a $1,000,000 house and therefore merits thousands of dollars in increased fees. But hey, I am just a stupid buyer, what do I know???
February 19, 2009 — 11:19 pm
John Kalinowski says:
Michael- at least you’re comfortable with who you are 🙂
If sellers don’t want full service, they are free to use any of the discount or fee-based models that exist in every market. What you’ll also find is that many of those companies are closing offices and slowly disappearing in a challenging market like we’re in now.
You can’t just stick a home in the MLS anymore for $395 and expect it to sell. If your home sells for 3% less or takes 6 months longer, did you really save anything with a discount or no-service broker?
I market to expired listings every day, and the majority of the homes were listed with some sort of discount or low-service broker. Tell me where the seller saved if their home didn’t sell in 6 or 9 or 12 months?
February 20, 2009 — 5:01 am
Michael Cook says:
Not really sure that answered my question John. What merits the extra $22,500, if we only assume a 3% commision. Are the agents that sell more expensive houses better, is there more paper work (it would have to be quite a lot) or is there no reason?
My point is that when you have a pricing system that does not correlate to value of services received, you will inherently not be trusted. Its one of many reasons that buyers to look disintermediate realtors when ever they can.
I justify my salary everyday I come to work. If I work at a smaller firm, I would essentially make the same salary for the same perhaps slightly harder work, certainly not 4x less. Again, I am sure I am missing the value equation here, but can someone tell me why my logic is wrong?
February 20, 2009 — 8:17 am
Mark Madsen says:
I understand, Michael. As a lender, it is the same debate that I have with my agents who think my full 1% (front and back) commission on a $200k loan is unreasonable, yet they’re making 3% plus an additional $695 “doc storage” fee.
My points earlier were mainly about the benefit of hiring a real estate agent. As far as measuring value – hmmm, I’ll have to think about it for a minute. There is a win win, but I don’t know what it is right now. Good questions though, thanks.
February 20, 2009 — 9:06 am
Bob says:
All kinds of real estate companies, regardless of biz model, are closing in this market.
Sure you can. If you have equity and price it right, it will sell.
You are 100% correct – the only play is monetizing the knowledge and expertise of others. The question is why someone would pay to let others profit on their knowledge and expertise, instead of making the same investment in themselves and monetizing their own knowledge and expertise.
February 20, 2009 — 10:29 am
Tom Hall says:
@John – why should consumers feel compelled to use even a discount broker? Again, a discount broker typically doesn’t deliver the value of where consumers fall short on the process knowledge – I think many of he miss the point. Where is the value created by simply putting a listing on the MLS? Some consumers drive just as much interest posting on Postlets or Craigslist.
@Michael – I believe we are of like-mind regarding the value provided when it is based on the price, not the value of the actual knowledge/expertise. Our value as professionals gets diluted.
@Bob – few if any really grasp the concept of ownership – I want to own mine, however, for those who need exposure, the trade-off may justify the opportunity cost. Ultimately it boils down to serving the consumer BUT the consumer needs to understa d their is a cost associated with knowledge and expertise.
February 20, 2009 — 10:59 am
Bob says:
The “opportunity” cost is almost $500 a year. What happens when you quit paying? More importantly, how do you quantify any of this?
Many of the folks who are loudly beating the drums have an edge that others will NEVER be able to have. The changes that have been instituted on AR pretty much guarantee that a newbie wont have much SEO value from AR at all, unless they know how to effectively spam the site in order to juice their profile.
February 20, 2009 — 12:09 pm
Bob says:
Then educate them instead of justifying a trail that leads them into a black hole.
February 20, 2009 — 12:19 pm
Tom Hall says:
@Bob – preaching to the choir here, hence why I said it wasn’t perfect. I believe the emphasis is too much on the agent’s presence and not enough on the real needs of the consumer.
February 20, 2009 — 12:34 pm
John Kalinowski says:
@Michael – There’s obviously some value associated with time spent, contract knowledge, etc., but the major point you’re missing is negotiation. If a good agent can help a buyer get a better price through expert negotiation, then does the commission as a percentage of sell price really matter? If I help a buyer purchase a home for 4-5% lower than they can on their own, then I’ve earned my 3% and then some, no matter what the price range. If your agent gets 3% and you bought it for 5% less, you win no matter if it’s a $100,000 home or a $3mm.
Just so you know, 3% is extremely rare in the Cleveland market, and the co-broke commission on higher-end homes typically scales down considerably, so it ends up being less than 2% to the buyer’s agent on higher priced transactions. Some people, like you, may be expert negotiators and can take care of that part on their own, but 99% of people aren’t, and without a good agent they’ll almost always pay more. Are there bad agents who don’t know how to negotiate? Of course, but it’s on the public’s shoulders to do a better job of interviewing to find the best, instead of grabbing the first person they meet.
As far as buyers looking to “disintermediate realtors whenever they can”, I just don’t see it happening. You can argue all day over who pays the commission, buyers or sellers, but right now buyers don’t care and still see it as the seller paying. Let’s say you do succeed in getting buyers’ agents’ commissions reduced to some flat amount, say $3000. Using your 3% on a $1mm home, that’s a commission reduction of $27k. Where will you see that savings? Are sellers going to start accepting that much less in the sell price since the buyer’s agent is getting less? Not likely, as the sellers see it as money in their pocket. This is where FSBOs usually blow it. If they’re not paying a commission, they should be trying to sell their home at a price that is 3-4% below market, and they’ll sell right away, but instead they typically price their home right in with the same numbers asked by sellers who list with an agent. Buyers aren’t stupid, and they know there’s no commission, so they expect to save it in the price they pay for the home. It becomes a losing game for everyone, as the net to the seller ends up the same, and there’s no representation on either side.
@Tom- Consumers are driven to discount brokers because they think they are saving the commission. The lure is obviously that there home will be in the MLS, but what usually happens is the home is overpriced, sometimes drastically, by the up-front fee companies who make the majority of their revenue from charging sellers to put their homes in the MLS. Since they make their money primarily from listing homes, not selling them, they’ll tell the seller anything they want to hear just to collect the up-front money. Overpriced? Who cares, as long as they collect the check. Now that pricing is even more important than in an up market, sellers are realizing that the discount companies’ listings aren’t selling, so they’re much more willing to use a full-service broker.
Again, 6% is cheap if your home sells faster than your competition, and for a better price than you’ll get 6-9 months out after wasting your time with a discount broker who overpriced your home. You are correct, there is no value “by simply putting a home in the MLS”. The home must be properly priced and presented, with excellent pictures and premium web exposure, or even the MLS won’t sell it.
Will there always be people who can do everythig without the help of an agent? Of course, and more power to them. The reality today is that I don’t see many buyers or sellers clamoring to disintermediate agents or reduce commissions. Sellers just want their homes sold quickly, and for the best price, and buyers want to buy a house for the best price. Not much has changed.
February 20, 2009 — 4:29 pm