Our friend, colleague and personal marketing god, Richard Riccelli is getting ready to FSBO his Boston townhouse. He’s spent a year planning this down to the last detail, including condo-izing his property into two apartments so that they can be sold separately — or together if someone wants a residence plus servant’s quarters.
Richard was all over the idea of being a risk-loving seller, offering “broker participation” in such a way that a buyer can choose what, if anything, to pay for representation. This is the language he’s using on his promotional materials:
Buyers or buyer-designated brokers receive 2.5% of sale price at closing.
Perfect! A 2.5% commission is normal in Boston, and agents are always looking for that “broker participation” rider on a FSBO sign before they’ll invest any effort. But if a buyer wants to come in as a BUBBA — a buyer unrepresented by a buyer’s agent — the money’s there for closing costs or whatever.
It’s not quite right out there that the buyer can decide how that money is to be divided, if the buyer hires an agent, but there is nothing to keep the buyer from figuring it out. Either way, Richard gets what he wants: Avid interest either from buyers or from their agents.
With three exceptions, the silence from the real estate community on the idea of paying the buyer to pay the agent, rather than paying the agent directly, has been deafening. But there is more to real estate than Realtors. Unrepresented and semi-unrepresented sellers aren’t going to be invited to the Association of Realtors golf tournaments anyway. Writing their “broker participation” language the way Richard did makes perfect sense for them.
And that’s why it makes sense for Realtors, too. Whether they are correct or not, many people believe they can buy a home by themselves. In states where one or more attorneys are going to be involved anyway, they just might be right. Even in Arizona, if you have identified the property, agreed with the seller on terms and have effected the due diligence amicably, a title company will do all the necessary paperwork in exchange for title insurance premiums that the parties are going to pay anyway. On a $300,000 home, is the risk premium of working without a Realtor really $9,000 and not a penny less? If it isn’t, you just lost every potential FSBO buyer who can do math.
Why should you be empowering your buyers by putting their money in their hands, then negotiating back a reasonable fee? Because it already is their money, and as soon as they figure that out, they won’t talk to you at all.
To repeat: I think there should be a lot of discussion about this now. Even if there isn’t, I think the FSBO sites and the flat-fee brokerages should jump on this idea right now. In states where buyer agency is the norm, we could be done in six months.
Technorati Tags: blogging, disintermediation, compensation for buyer representation, real estate, real estate marketing
Jeff Brown says:
Greg, I know why I didn’t comment. It was because in my practice, which is the investment side of the business, investors come to me because I know more than they do. If they didn’t believe that I’d have no value to them. Furthermore, if they didn’t believe I could significantly and positively impact their net worth and/or their retirement income they wouldn’t be in my office in the first place.
Most of my clients are exchange clients sooner or later, but I still make use of Buyer/Broker Agreements, even though in my opinion it doesn’t seem to have teeth. My clients know what the cost will be up front, because I go out of my way to explain in lurid detail how it works. It’s humorous for me to think any client would even bring up the possibility of telling me how much they’ll pay me for my services. I’m either worth it to them or not. And if I’m not, I take one shot at finding out why they think that, then graciously let them know there’s no hard feelings, but we won’t be working together.
I’ve lost exactly two clients in the last decade because I wouldn’t discount what I thought my services were worth. I haven’t regretted either.
In my opinion you’re either better than the rest, or part of the rest. Results are the key. Nothing else matters. Honor, integrity, and work ethic are assumed. Clients are a discerning breed.
Like my Uncle used to say, “Son, either you ride the bull, or the bull rides you. Your choice.”
September 9, 2006 — 7:08 pm
Greg Swann says:
Jeff, that’s a good answer, but, of course, you’re the exception and not the rule in real estate representation.
Here’s a scenario:
Bob wants to buy a FSBO — because he has always wanted that house, and now it’s for sale. He’s already agreed to the seller’s price and signed the seller’s contract. He comes to Betsy the Under-Employed Realtor (her last name? It is Legion), saying he wants her to supervise the inspections and get him through the repair negotiations. The seller is conceding 3% to Bob, but he offers Betsy $1,000 of that for what amounts to five hours’ work. Should Betsy take it or continue to starve?
Or how about this?:
Betsy’s neighbors offer to take Betsy along when they go to pick out their new-build home — with the proviso that Betsy concede back any commissions over 1.5% and sit in the back seat of their minivan. Should Betsy take $4,500 for an afternoon of standing around or stand on principle instead?
Surgeons charge whatever they want, and we pay them gratefully. People with more fungible skills learn to negotiate — sooner or later.
September 9, 2006 — 7:21 pm
Jeff Brown says:
If by fungible skills you mean skills you and I could teach an eighth grader in three weeks, then I agree.
I’m not talking about the buyers in your examples. I’m talking about the buyer who comes to your office Greg, and says ‘please take care of me – here’s exactly what I want and where I want it. Is there anything else I need to know?’If at that point you think you’re only worth 1 or 2%, then we truly are in disagreement on this. I guess it boils down simply to two schools of thought.
If I’m the Padres manager, and have to win one game to make the playoffs, I pick Peavy to start, and I pick Hoffman to close. They’re the most expensive pitchers we have, but then I picked them because my bottom line was results.
September 10, 2006 — 7:51 am
Greg Swann says:
My point is to negotiate with buyers to make sure that the professional fee they are paying is proportionate to the value delivered. If you like, I can come up with something for your circumstances. Like this:
“Mr. and Mrs. Investor, you are taking a risk here, and I’d like to help you offset some of that risk. But at the same time, I am very confident that this is a good investment, and I’d like to express that confidence as resoundingly as I can — at the same time that I capitalize on the good advice I’ve given you. The seller on the property we’re buying is paying me a 3% commission on the sales price. That’s a standard commission, and it’s how most Realtors make a living. But, if you like, we can structure my compensation a little differently. Instead of taking 3% at close of escrow, I will take only 1%, contributing the other 2% to your down-payment. Essentially, I will reduce your front-end risk by about $5,000. In exchange, when we sell this property, I would like 2% of the sales price paid back to me. In essence, I want to buy in now for $5,000 in the hopes of cashing out later for $7,000 or more. That’s how confident I am that you’re doing the right thing. We can do it either way, it’s your choice.”
You could probably structure the numbers better than this — and it might not fly with the lender in any case. But the point is this: Why are you working for only 3%?
From the broadest perspective, if you’re scrounging for business, you’re probably charging too much. If you’re turning business away, you’re probably charging too little. Either way, in every business except this one, price is how you reconcile contradictions.
September 10, 2006 — 9:19 am
Jeff Brown says:
>My point is to negotiate with buyers to make sure that the professional fee they are paying is proportionate to the value delivered.
I agree 100%. The value they receive from me is not being professionally represented with me protecting them and getting the forms right. Although those are included of course, they get wealthier, retire earlier, and with more cash flow working with me. That is if they follow my advice. (He says humbly.)
There is no negotiating with me fees. they pay at least 6% listing, and at least 3% as a buyer.
The value received on their end is easily worth that. My clients don’t quibble. They are results driven, and therefore view my fees as a bargain.
Like I said to a client not long ago – “If you’re retired and using your Social Security check for spending money, you did ok.” 🙂
September 11, 2006 — 12:08 pm
Greg Swann says:
> They are results driven, and therefore view my fees as a bargain.
And I’m with you five by five on all of that. In the long run, I think Realtors who want to make a good living in this business will need to deliver with more/faster/cheaper or much, much better. I don’t hate either model — and we may end up doing both — but, as you say, three weeks’ training for an eighth-grader ain;t going to cut it.
September 11, 2006 — 12:13 pm
Jeff Brown says:
Amen
September 11, 2006 — 6:43 pm