Radiohead is selling tracks from their upcoming album “In Rainbows” online. The price per track, according to the site, “is up to you”. Fans can choose how much they want to pay for the MP3 tracks, or not pay anything at all.
Was there ever a more confident display of “knowing your value to your clients”? Of course, many of Radiohead’s fans will pay an optional download fee.
To make this question relevant to us here at Bloodhound Blog, let’s see what our readers think:
Todd Carpenter says:
I voted zero. No offense to RE agents, it’s just human nature. Ask any software developer how much money they make on shareware. Think about why the old local hardware stores that had awesome service have all been replaced by Home Depots. Why Best Buy is in and Mom & Pop audio stores are out.
Lot’s of people would pay something, but when even 1% of something equals thousands of dollars, most people are going to choose free.
October 2, 2007 — 8:36 am
Greg Swann says:
I voted for zero also. I’m not a cynic, I just know that people don’t pay when they don’t have to. I’ve had enough transactions fall completely apart that I don’t lose sleep over them, but only once has a client voluntarily paid me for my lost time and effort. I’ve worked with clients sporadically for years without getting paid.
October 2, 2007 — 9:36 am
Smithers says:
I suspect my comments will not be popular, but they are honest.
You guys on this site are mostly RE agents and brokers, so you know much better than I do about the difference in time a realtor must spend (and marketing $) on high priced versus low priced homes. I’m sure there is some difference, but I am skeptical that this difference equates to linear percentage of the purchase price.
We live in high priced Silicon Valley CA, and the purchase price of our last home (in early 2004) was close to $2M. From my observations, the seller’s realtor (I did not use a buyer’s agent, although I have on home purchases in the past) did little beyond list the house on the MLS with very good pictures/home tour video, and plant a sign out front. The sellers had priced well compared to the market, and the interior/furniture/art work/furniture was sparse, emaculate and tasteful. How much their realtor influenced these things, I don’t know.
We already knew the neighborhood. Kids were already in the same schools. I saw the sign when passing by, and immediately checked out the specs on the internet, including past purchase amounts. We worked directly with the sellers on getting through the inspections, prior building permits, termit work, minor price adjustments, etc. Their realtor was nowhere to be seen once we were in escrow. The purchase contract specified seller was to pay no more then 3% total commission (I don’t know what they actually paid), and when we made our offer, we emphasized that while our price was low by maybe $50K, we were not bringing along a $60K buyer’s realtor, which I believe was meaningful in their accepting our offer. (Of course, I don’t know for sure).
If I could have hired a buyer’s agent for $5K or so to help out (would have been more than $150/hr for that person), I would have. But the local agents that I spoke with would lecture me about about the “value” of their ‘full service’, that they were “worth a full commission,” that it was the seller and not the buyer that pays the commission so why should I care, etc. (that was my favorite!) OK, I tried.
On the other hand, if it was a $200K or $300K house, I would have no problem paying a “full” commission to the seller’s/buyer’s agents, and I would definitely use a buyer’s agent if I were shopping for a lower priced house, since the total commission fees are not nearly as much.
October 2, 2007 — 9:44 am
Ron says:
Todd, people definitely pay for *useful* shareware. I have one friend who wrote a useful app and he gets $100,000 per year in unsolicited shareware contributions. Another friend actually pulled his software because he felt it was too much hassle to CASH ALL THE CHECKS!! Yes, software developers are different from you and me 🙂
I think this poll gets to the whole issue of RE agents, which is: how much value is being delivered? For too many clients, the value seems to be a lot less than 5-6%, especially with high home prices. For example, we are looking to sell a $1.5 mil home and buy a $3 mil home, in a market that is still pretty solid. It’s hard to see that the agents are delivering $225,000 combined worth of value ($4.5 mil X 5%) on this transaction, since we are doing most of the legwork via internet searches, there are no special financing needs, etc.
The value is certainly not zero, but it’s hard to see the case for $225K, despite all the stuff about marketing costs, gas costs, etc.
You should add a question to the poll that says “How much would you be willing to pay PER HOUR to an agent to help you sell your house?” This seems to work for attorneys, who also have self-marketing costs, collection, costs, etc., so I just don’t see a real case for it not applying in RE. Now, I can see why an agent wouldn’t want this, as it’s doubtful that they’ll make as much per hour as they do at 5%. But, it is certainly in the client’s best interest, and provides a lot more transparency. If it really takes a huge amount of work to sell my house, then you’ll bill me for the hours. If you are really a top agent, then you can get away with a high hourly rate. My RE attorney charges $450 an hour, but he’s a highly trained and experienced pro, and his advice can save 100X that amount.
October 2, 2007 — 9:54 am
Michael Cook says:
Wow, first, can I say that I would love to have the problem of paying a 5% commission on a $3 million home. I was quite bitter about the 5% commision on my $650,000 home.
Realtors probably would make more charging by the hour because all of the homes they list would earn them something vs. getting nothing from all of the homes that dont sell. Additionally, the hourly charge would do away with the seller paying all of the commission. I would be all for the hourly rates.
October 2, 2007 — 11:43 am
Reuben Moore says:
Ron: “…since we are doing most of the legwork via internet searches, there are no special financing needs, etc.”
I can agree with you that the commission rate can, and perhaps should, be inversely related to the home price. But if you believe that you have done most of the legwork because you identified a few properties on the internet, then you have been drinking too much of Kelman’s Kool-Aid. If you are entering a six- or seven-figure transaction, you might just want to do a bit more due diligence than a simple internet search.
October 2, 2007 — 1:42 pm
Todd Carpenter says:
The problem Reuban, is that RE agents rarely make a case for why they are worth such fees. I think it’s because many can’t.
October 2, 2007 — 1:50 pm
Reuben Moore says:
Todd – The value proposition of the typical real estate agent is certainly debatable. The fact that most of the work in a real estate transaction occurs post-internet search, is not.
October 2, 2007 — 2:27 pm
Todd Carpenter says:
It might be a fact, but it’s not always a perception. Who’s fault is that? Not Redfin. Not the consumer.
Many RE agents are better at selling houses than they are at selling themselves. The difference between the two becomes important when price becomes a factor.
October 2, 2007 — 2:35 pm
Reuben Moore says:
Many “consumers” will do more research on their next plasma television purchase than they will on which firm/agent to hire to assist with a six-figure transaction for a place to raise their family. And, these are the “consumers” most likely to hire a low-value proposition agent.
October 2, 2007 — 3:38 pm
Jane says:
I voted zero, too.
I say people can pay 0% commission and sell will all the benefits of a real estate agent. Teach yourself. For Sale by Owner is the way to go.
October 2, 2007 — 4:51 pm
BR says:
I think you have this post titled incorrectly. Folks can pay nothing- just do it yourself. No one said you couldn’t, but if you want me, I’m not for free- ever.
To add to that I have never had a client even blink an eye for what I could do for them which I promise is more than most would be able to do for themselves- I have had a few clients who knew what they were doing and used me as another tool in their portfolio. These clients are rewarded with a longterm relationship that serves there bottomline.
Where buyers aughta be looking is at lending and what in the hell is that extra two points added to the front for? Afterall, the origionator really does nothing unless they are processing their own loans, and even then you can hire that out from start to close for $200 – I think before a lender chunks a stone, they might want to get out from under that glass roof. jmo
October 3, 2007 — 8:41 am
Dan Green says:
BR, I think you may have missed my point. It wasn’t me chunking a stone.
What Radiohead is doing is pretty amazing — it’s similar to the shareware point made in the comments above. What’s most amazing is that people WILL pay for it because there is value.
Real estate agents have value, too. The hourly concept is an interesting one. Maybe the question is answered differently if it is posed differently:
Which real estate agent would you work with? The $100/hour agent, the $200/hour agent, the $300/hour agent?
What about, which attorney would you work with? The $100/hour agent, the $200/hour agent, the $300/hour agent?
Certainly, you can get legal advice off of Google and use the pre-made legal documents available online to DIY in the legal version of FSBO, right?
My point isn’t that real estate agents shouldn’t be paid. My point was the Radiohead is giving away their product and asking people to pay what they think it’s worth. That’s astounding to me.
October 3, 2007 — 9:48 am
BR says:
In all matters of money, people are best served by experience- experience is valuable, therefore you’re best served by not being skimpy. Buying or selling your home is not a bargin basement item on a store shelf, or song on a label. It’s just my opinion, served by personal experience that tells me the guy who can brag a 30 day contract on your home, or the guy who can whip you up a home well below market, shave another couple percent off of that & get the buyer even more seller concessions, topped off with a nice fat discount on the mortgage end with a savvy lender is a lot more valuable than the time blown pointing, clicking & procrastinating online praying to the google god for answers- that don’t exist. I agree that in a world of shareware, saying “donations appreciated” may work, but I cannot think of a single time I pressed that button even if I thought the software was keen. Why? Because I’m a consumer, a greedy greedy consumer who wants it ALL for free. Anything wrong with that? No way, that’s how it is, but if I want something, really really want something, I’ll click the purchase button and shell out what is needed to get the tool that best serves me- just ask Adobe (I have about $1k of software on one machine alone).
I realize I’m preaching to the choir as you are the epitome of worthwhile experience, and that you’re just testing the blog waters, but for readers out there who are misled- you get what you pay for.
October 3, 2007 — 10:35 am
Todd Carpenter says:
You get what you pay for to some degree. But for RE agents that holds far less true than for Mortgage Brokers, or virtually any service professional. At least, until recently. This is because most RE Agents get paid exactly the same. 6%, or whatever the local established rate is, and split based on whatever the tradition CO-OP is. But for the seller, 6%.
Sure, a seller can pay zero to sell it themselves. But if they want an agent, the fee is usually the same. So if you get what you pay for with the best RE agents, then you certainly overpay for most of them. Or maybe to best are a bargain.
Like every industry, MOST RE Agents, really aren’t all that good at it. (Same goes for lenders). So when a discount broker comes along, with half their service missing, and the other half online, many sellers will still be interested because they never received all that expert analysis with their last agent.
That’s why I said RE agents have to get better at selling themselves instead of houses. LO’s sell themselves. Attorneys sell themselves. Accountants sell themselves. They make trade offs between price, service, and expertise to come up a position that will attract consumers. They all know that if they can’t come up with the correct mix, someone else will. RE agents count on tradition. A brand new agent, who barely passed the licensing exam can expect to make as much on a transaction as an experienced, expert, veteran.
The first few sellers who work with that newbie probably don’t see “you get what you pay for” in the same light you do.
October 3, 2007 — 6:09 pm
Smithers says:
“So when a discount broker comes along, with half their service missing, and the other half online, many sellers will still be interested because they never received all that expert analysis with their last agent.
”
Exactly.
Since all realtors cost the same, you rarely get what you pay for. And when even the best realtors cost too much, because their fees are tied to the transaction price instead of a realistic hourly rate based on competition, then people get po’d that they are forced to pay the commissions.
October 3, 2007 — 8:34 pm
Reuben Moore says:
> …most RE Agents get paid exactly the same. 6%, or whatever the local established rate is, and split based on whatever the tradition CO-OP is. But for the seller, 6%.
This is simply false. The national average for the total seller commission (including buy-side co-op) is now less than 5%. See: http://tinyurl.com/268xe3
I can only speak for my market, but sellers can easily find brokers to list their property for 3.4% to 5% including the buyside co-op (which is typically 2-3%). And yes, this is for “full service”. The range variation is often dependent on expensive print advertising. And, even if 3.4% is too much, there are many reputable discounters available.
Are there brokers charging 6%. Of course. But if that is all you see, then like Lesley Stahl, you are simply not looking.
So the “sacrosanct” 6% is a myth. The more interesting question is: Who is promulgating this fiction and why? Arguing that “the rate is always 6%” drives consumers into the arms of discount brokers because it obscures the fact that the consumer has choices. It is blatant deception.
October 4, 2007 — 7:06 am
Todd Carpenter says:
Reuban,
It’s only “simply false” when you edit away the rest of my comment. “Until recently” being key.Discount brokerages, online or otherwise are a concept that only recently have gained popularity. For most homeowners, their last realty transaction was several years ago. That’s where they draw their own perceptions from. Nobody has to make any effort to deceive them.
October 4, 2007 — 9:37 am
Reuben Moore says:
Todd –
So, let me get this straight. Your argument no longer applies?
Let’s be perfectly clear here, I am not only pointing to the availability of “discount brokerages, online or otherwise”. Rather, I would argue that today’s real estate market is a spectrum with deep discounters at one end and six-percenters (more?) at the other. AND, some firm or agent at just about every price/service-level point in between.
The deception (and that is exactly what it is) is that there are only two products in the market, the end-spectrum business models. And, this is false. And yes, this is an ever-increasing state of affairs, but it has been going on for some time now.
As I see it, you, and 60 Minutes, and Kelman, and someone named Smithers, are very much trying to deceive the consumer. And, your argument seems to be: “Since, everyone else charges six percent for varying service levels and competency, you might as well use us”.
It is a lie. And, I for one, will not let you off the hook with a simple “until recently”.
October 4, 2007 — 10:27 am
Todd Carpenter says:
The argument still applies. The market has changed, but realtors (small R) have done little to change the way they are perceived.
October 4, 2007 — 10:31 am
Smithers says:
“As I see it, you, and 60 Minutes, and Kelman, and someone named Smithers, are very much trying to deceive the consumer. And, your argument seems to be: “Since, everyone else charges six percent for varying service levels and competency, you might as well use us”.
Rueben,
I went back and looked at my posts. There is nothing in there about how “you might as well use discounters.” I don’t distort your posts; please extend the same courtesy.
I AM a consumer, not a realtor (big R or small r). I related my last home buying experience in my first comment. I chose not to use a buyer’s agent on our last purchase because I did not want to saddle my offer with an an $50K or $60K in fees, when I needed, maybe, $5K in “service”. I did not need a “realtor” to find the house, price the house, or help get me a loan for the house. I realize that this is not the usual circumstances. I never said my experience was typical.
IMO, the only reason Redfin (or some other outfit with a similar appraoch) has a chance to succeed is because realtors tell sellers that they have to offer at at least “2.5%” or more to a buyer’s agent, since somehow these buyers’ agents control which houses prospective buyers will look at (buyers apparently having the inability to act independently from what realtors tell them), and will boycott your house without at least 2.5% on the table. As a result, you get Redfin.
Buyers that choose Redfin probably know they will get poorer service, but because they assume (correctly or otherwise) that sellers are stuck paying the buyer’s agent commission, they might as well get a piece of it, since they would rather have the money than the “service”.
Personally, on a higher priced home, I would rather go without “representation” and have the seller go without paying any commission in order to make my offer superior. If somehow the seller was stuck paying a buyer’s agent commission, despite my offer to not bring one in, then I suppose I would run out and find someone to be my agent on condition that they agree to kick back a high percentage of the commission to me in exchange for their not having to do much work. If the only agent I can find to do this is Redfin, then I am stuck with Redfin under that limited circumstance.
Start pricing buyer’s agent services in line with the “value” that buyers are willing to pay for, and Redfin will go BR that same day.
How does this “deceive” consumers?
October 4, 2007 — 1:48 pm
Reuben Moore says:
Smithers – In your last comment, you said: “Since all realtors cost the same, you rarely get what you pay for.”
What conclusion did you intend the reader to draw from this?
If you would like to now make the argument that buyer agent compensation should also be inversely related to the price of the property, see my first comment above.
Real estate has become a dynamic, competitive marketplace. I question the motivations of anyone who denies this.
October 4, 2007 — 2:34 pm
Greg Swann says:
For what it’s worth, I’ve read Smithers’ comments as a wake-up call. It’s not really news to us, and there may not be a tidy solution. In many cases, transactions can be just as smooth as he recounts. In others, the value delivered far exceeds 3% of the purchase price. On the listing side, predicting costs is easy. On the buyer’s side, not so much. An al a carte plan would suit some buyers very well, but others would end up spending a ton of money — which they don’t have to begin with. It’s a knotty problem.
October 4, 2007 — 3:25 pm
Smithers says:
Reuben:
“Smithers – In your last comment, you said: “Since all realtors cost the same, you rarely get what you pay for.
What conclusion did you intend the reader to draw from this?
[How about the conclusin, “you rarely get what you pay for when everyone charges the same amount”? That was my statement. Where is “discount broker” mentioned? I don’t see it mentioned.
Do you get my point, Reuben? I would have liked to have a realtor to help me on my last purchase transaction, but not for $60K. That does not mean I am “misleading consumers,” Reuben, or telling them to use “discount brokers”, whatever that means.]
If you would like to now make the argument that buyer agent compensation should also be inversely related to the price of the property, see my first comment above.
[Did I make this argument, Reuben? I don’t see “inversely” in my comment, or how it can be inferred.]
Real estate has become a dynamic, competitive marketplace. I question the motivations of anyone who denies this.
[I did not “deny” anything. Again, read my comments. Where is this denial? My “motivations” was to take the time to tell the RE industry persons that read this blog site the view point of just one consumer (me!). You “question [my] motivations” to speak my mind? Do I have a sinister plot by leaving a comment on a blog? Maybe you will be happier with the comments on Realtor.com.]
Greg,
Thanks you for letting me post my comments. You have a great blog, and I make a point of visiting nearly every day. (I hope you spend some time off the computer, too.)
Yes. a knotty problem that (in great part) has been conveniently financed by lenders for all these years. It took me 4 or 5 house moves to figure this out. House prices got so high realtive to salaries, yet the unwritten (written?) rule of always having to pay a 2.5-3% buyer’s agent commission stayed in place. Where I live (and lots of VCs live), this is a big chunk of change that looks ripe for picking, even if it really isn’t (especially outside of high priced localities). Hence, Redfin! I must admit, I had never heard of Redfin until I started reading your blog site. Now I know all about them. They are toast without a high buyer’s agent commission rate. Good thing for them that this “dynamic, competitive marketplace” has not yet broken down that last standing wall.
October 4, 2007 — 8:49 pm
Greg Swann says:
> Thanks you for letting me post my comments.
No, thank you for being here.
The issue of lender financing is interesting, too, one which ties back to the idea of divorcing the commissions.
So: Stick around. The best is yet to come.
October 4, 2007 — 11:24 pm