There’s always something to howl about.

The Imperative of Divorced Commissions, Part 2: The Inherent Value of Free

By far the most entertaining marketing presentation I’ve ever suffered was in the mid-eighties. I was representing a small shoe manufacturer in Worcester, MA. It was early in the comfort revolution, and the company owner had come up with a way to put a donut in the insole for the heel to rest. He’d asked a local ad agency — his brother-in-law, actually — to come up with a bottom to top marketing plan: name, packaging, hook, advertising.

Cleverly focusing in on the donut, thinking waaaaaaaaay outside the box, this is what was unveiled:

Manistee presents: ZER0&174;s!!
with
ZER0&174; Styling!
ZER0&174; Affordability!
and
ZER0&174; COMFORT!!

We never made it to the packaging.

=====

Here’s Kendra Hogue, editor for the real estate section of the Sunday Oregonian, a couple months ago:

For those of you who haven’t purchased a home before, “hiring” a Realtor to help locate a house costs you nothing.

Well.

No matter how we try to twist statutes or the code of ethics, no matter how much we argue among ourselves as to who actually pays the buyer’s agent, the fact is the debit remains on the seller’s HUD-1 and the perception is that buyers’ agents come free. And the value of ‘free’?

Zero.

No? How many Buyer Presentations have you been on in the last year? Why is it buyers are much more willing to work with the first person they meet — or with Aunt Rose’s pedicurist’s live in girlfriend’s little brother — than a seller might? Why do they often drift, as if one warm body is the equivalent of another?

No matter how much we plead that buyer’s agents are as important to buyers as listing agents are to sellers — and they are — the market price tells buyers a different story, and the argument falls largely unheard. And note importantly that the price isn’t set by the market — the customer — but artificially by the industry. Price-by-fiat is almost always disastrous [Google ‘Nixon price controls’].

The consequences are both obvious and counter intuitive. The fact that buyers don’t scrutinize their hires is a boon to the inexperienced and inept. That keeps the people Kris just (brilliantly) profiled in the business a bit longer than the market would otherwise dictate. In turn, those people add to the stereotype of the venal ‘only in it for the commission’ agent, worthless except for the key into a gated community. More, even our own industry buys into the ‘listing agents are king!’ mentality, largely because right now that’s the case.

Intuitively one would think ‘free’ would mean everyone would have one; but because of the perceived zero value, that’s emphatically not the case. Ron Ares wrote a couple weeks ago about the sudden appearance in our area of buyers who want only to deal with listing agents. I’ve had three sign calls on my listings in the last week from buyers who wanted to deal only through me. I opened a listing of a friend of mine (she was out of town) to a buyer who condescendingly declared he didn’t need an agent; he had a lawyer…

So why would someone pay extra for a lawyer — without the market knowledge, not to mention the key — when he could have a representative for ‘free’?

Bigger questions: A) Is this a real problem?; and B) If so, how should it be remedied?

Answers: A) Yes. In the aggregate buyers are not being represented well, leading to an industry spillover where sellers can suffer a similar fate. Not only can buyers end up paying too much, but, as Kris points out, the biggest challenge agents have today is finessing a transaction from offer to close. How many lawyers can finesse the decommissioning of an oil tank?

And B):

Pause here. I’d give up half my income for a year to be mentored by Russell Shaw. I asked a friend who’d moved from here to Phoenix if he knew who he was and he said “Are you kidding? He’s a legend!” But even legends can be wrong:

Divorce the damned commissions.

The immediate effect would be confusion as the market tries to sort out lower listing commissions as reflected in listing prices. Lenders would have to factor in BACs to their loans, temporarily dumbfounding them even though they’ve been doing it all along. Buyers would have to be faced with the sudden recognition that, yes, if they want real representation it’s going to come out of their pocket, and they’ll have to shop accordingly. The industry would have to begin acknowledging the value of a buyer’s agent, instead of the toss-off ‘Buyers’ agents free!’

But in the long run: Buyers will interview agents, weeding out the inept. The inexperienced will have to become assistants, creating by default a mentor program that benefits all, especially the consumer. On the whole, good agents will survive, bad agents will not. Thus fewer but more competent agents, better representation for the customer, and much better for the industry as a whole.

The free market at its very best.

PS For the record: Donuts in the heels of shoes is a really dumb idea.

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