At Brown and Brown, we’re undergoing moderate to extreme changes in our business model. Extreme at home, mild to moderate away from home. We’re leveraging our Rainmaking ability through these changes. Below, I’ll address what we’re about to launch in our own backyard.
At home we’re eschewing the 3% listing side fee for a relatively modest monthly fee.
The fee will be $500-1,000 monthly, ’till sold. The buyer’s agent will still get 3%, sometimes more. Properties sold in 90 days or less will save, on average, five figures. This model is custom designed for our specific client profile locally, which is an income property investor who should be taking that equity to places out of state. (Preferably by around 4:30 yesterday afternoon.) Our niche has been 2-4 unit properties, but we’re gonna market hard to SFR’s/condos/townhomes also, if they’re rentals.
It’s my belief this model will work incredibly well for house agents. Here’s how I see it working for them.
1. Massive Old School and 2.0 marketing. The methods really aren’t important as long as you’re hanging cat skins by the dozens on the wall. Once the pipeline is full, entrance and exit, it’ll become almost self perpetuating. Not really, but close enough for jazz.
Thought
The marketing? We’ll be using postcards/snail mail with warm call follow-ups. ‘Course we have a distinct advantage when calling. House agents can’t convince a homeowner to sell. We can. They don’t live there. If we can convince them they should sell/exchange through our experience, expertise, and general all around charm, they’ll list. We’ll be using other methods, but that’s another post.
2. As many buyers’ agents as required. In the current buyer’s market, maybe more than I’d need when things normalize. Then again, depending on your market, ‘normal’ may mean the explosion of pent up demand lookin’ for a place to light.
Thought
Another advantage for Brown and Brown in San Diego. We have no need whatsoever for even one buyer’s agent. We think it’s silly to invest here, so we won’t be representing buyers. We couldn’t sleep at night if we put folks into San Diego investment property on purpose. The rare exception would be when the buyer intends to live in the units. Still, buyers will be generated — lots of them. The investors will be counseled to buy where the seller is heading.
(Note: For Brown and Brown — Our most conservative projections indicate what each listing will be worth in terms of commission dollars per listing. Assuming $200,000 net proceeds, each exchanger would generate an absolute minimum of $48-52,000 commission dollars. This doesn’t include what buyers, generated by that listing’s marketing, would buy. Our last five years experience tells us that would be an additional $30-70,000 — per buyer.)
3. Listings will act as magnets for serious buyers. Each listing will lead to 1.5-4 closed sides at normal commission rates. This is the power plant. In a market with a $200,000 median value, the buyer side at 3% means each listing is worth, in new buyer sides, $9,000-24,000 in gross commissions to the team. A house agent in San Diego would be selling homes in the $400-600,000 range, depending upon location.
(Note: Median price in San Diego for our niche properties averages $400,000-900,000 depending upon location and number of units. A recent client sold his fourplex for just under a million bucks earlier this year.)
4. Buyers’ agents will be paid 40% commission splits. (Maybe less.) In San Diego that’s $4,500-6,000 per buyer side. If we use just $5,000, and they’re doing only two deals monthly, that’s six figures per buyers’ agent. Please name the buyer’s agents you personally know, working on a team, who make six figures. They exist, but they’re not exactly flooding the land out there.
5. Because the listings will be physically prepared, and marketed using most if not all of the Method de Swann, the Team’s reputation will allow for the ‘cold’ showing of listings. Ditto with pricing. No stone will be left unturned in the marketing of our listings. If your Aunt Minnie in East Toilet Seat, Wisconsin is interested in investing in SoCal real estate, she’ll know about our stuff.
6. Only very serious home owners will list with you, due to the monthly payment for fees. This makes arriving at the right price & terms, and the owner spending money getting the home pretty again, far more likely. Since you’d tell me serious sellers are the only ones you’d deal with anyway, I’m not seeing the problem with this approach.
(Note: When the client/owner of our upcoming first listing asked us where the monthly fee goes, we told him. First to marketing, then to the company Starbucks card.)
7. This model feeds on itself in a very cool way. Many buyers in your local market will need to sell their own place. Duh. They first see how well your sellers are prepared, then they learn about the huge listing side discount. Hhmmmm. Wonder what they might conclude their next step should be? (Jeopardy theme music playing in background.)
8. Significant referral fees will be a side effect of this new model. Some of the buyers will no doubt want homes in different areas than they first thought. If I was a house agent in San Diego’s East County, and a buyer wanted to be in Scripps Ranch, (another world altogether) I’d go to the Yellow Pages and…wait a minute — doesn’t, what’s her name? Kris Berg — I’d refer that buyer to her. She’d then owe me 20% of the listing side plus dinner at some La Jolla place with west facing windows and no prices on the menu. Whining would be involved.
9. This model will, if you’re so inclined, provide for consistent opportunities to sell your own listings. (Give Greg some water, he’s looking a little faint.) More double-ends will be possible with this model than most I’ve seen. If you’re not comfortable with that notion, you’ll need to plan for how you’ll handle those particular buyers. Understand though, over time there will be buyers generated by this model wanting to offer on your listings. It’s inevitable.
We’re launching this new ship after July 4th with our first round of mailing/calling. We already have our first listing ready to go, as soon as the tenants bail. The seller is an existing client who has invested with us (currently) in out of state property. He’ll be acquiring even more with the exchange of this rental home. He’s looking forward to it. We’ve already accounted for a complete remodel of the master bathroom. Any and all deferred maintenance will be addressed. Landscaping will be freshened up, so the place shows a little leg when the buyers drive up. Anything in or out that doesn’t move is getting painted, all carpet is being replaced, and all this using the talents of a really sexy interior design babe I know. (Greg would be proud.)
I’d love to get feedback.
Don’t be shy. The only dog I have in this fight is one who knows how to skin cats. 🙂 We’ve taken this model apart and put it back together a dozen times. It’s not my original idea, but then I’ve never made a secret of my admiration of Japan. I steal with dignity.
Seriously, this model is new to me, not the world. That said, I’ve only found it in current use by one broker. It’s been producing for him. However, it’s my contention he’s got a V-12 engine while only using four cylinders. Josh, the other Brown, agrees — though he’s far more critical of the quality of this broker’s execution. Still, the guy’s doing very well in a cruddy San Diego market.
We’re convinced we’ve discovered how to make it blow the doors off. Again — Japan. They looked at Detroit’s cars, and came up with Hondas, Toyotas, and Datsuns (Nissans). We’re betting a whole bunch of dead presidents the results will reward our faith in this model.
Please — your thoughts.
jp moses | REI Tips says:
“$500-1,000 monthly, ’till sold.”
Very interesting. I’ve done flat fee listings for fellow investors before, but never a monthly charge. I like it! Thanks fot the innovative idea!
…jp
June 17, 2008 — 10:27 am
Malok says:
I think the biggest potential issue is that a great many consumers, particularly in today’s market w/ gas prices sky rocketing, etc – are cash strapped. Its generally easier for them to tap into their equity at a closing even if it is at a higher fee, than it is to come up with several hundred a month out of pocket.
But, it could be an interesting alternative to augment a more traditional listing option for those consumers that are able to cover the cash outlay.
June 17, 2008 — 12:31 pm
Jeff Brown says:
Malok — Excellent point. Also, there will be upfront costs in making the home gorgeous. Any required repairs, painting, carpet replacement, landscaping, fence mending, etc. will also be a huge factor.
I fall back on what Greg say, and I paraphrase: “The business of listing is about selling the listing. Taking listings you don’t think will sell ain’t good business.”
And listings that don’t knock the buyers’ socks off don’t make sense to market.
June 17, 2008 — 1:02 pm
Thomas Johnson says:
A brilliant step in removing the contingency from the process. OK, Mr. Seller, I save part of the marketing risk to you and you save big bucks. I really hope that 2.0 transparency evolves into divorced commissions, where sock knocking performance on both sides is so obvious that there is no room for slugs.
It is a daunting new world out there. We all think we are pretty good, this new model will let you know pretty quickly where you stand. Bravo.
June 17, 2008 — 3:19 pm
Thomas Johnson says:
Sorry: “I shift part of marketing risk…”
June 17, 2008 — 3:20 pm
Dave Phillips says:
Jeff, this sounds too much like a real business. Next you will tell us you keep a profit and loss statement and track receiveables. Common wisdom is that no business models that use actual business principles will work in real estate. I suspect we’ll find you wearing a tie and suspenders. You maverick you. 🙂
June 17, 2008 — 6:03 pm
Jeff Brown says:
Thomas — thanks.
What appeals most to me about this is just what you see. It’s a perfect marriage between full court press marketing and deadly serious sellers. I’ve spoken with two clients so far. One was smiling after a few minutes, while the other began challenging me on how I was spending ‘his’ money.
I told both exactly what the post said: It goes to marketing then to my Starbucks card. I didn’t blink, either.
The ‘smilin” client laughed at the Starbucks comment, knowing I’ve created a script putting both of us on the same side of the table. We’re both motivated toward the same result: A closed escrow as quickly as possible.
This model by definition puts agents and sellers in a room dressed only in their boxers. Put up or shut up, no lame ass excuses allowed.
Divorcing commissions? Not on my watch. 🙂 My clients are big boys and girls, and know which way is north on the map. I realize they’re no doubt more sophisticated than the normal homeowner. They’re looking at a bigger picture, sometimes several years down the road, and understand why it makes sense sometimes to take less now to get far more tomorrow.
Just try playing fast and loose with an investor and watch how quickly they eat your lunch.
June 17, 2008 — 7:30 pm
Jeff Brown says:
Dave — You crack me up, thanks.
If this new model is anything for us, it’s an adjustment to the new reality. Seems that’s all we’ve been doing for the last several years.
In adjusting we’ve found ourselves in several states with multiple teams. We’ve now become Rainmakers in many of those states for both LO’s and RE agents.
Adjusting not only puts off financial death, it pumps new healthy life into the heart of your business. Instead of persisting in banging a square peg into a round hole, we began to look around for square holes. 🙂
Business is nothin’ if it’s not dealing with reality. We’ve all seen that principle demonstrated brutally for the last three years.
June 17, 2008 — 7:47 pm
Tom Vanderwell says:
It’s been 17 years since I was a Realtor (now I’m a lender) but I have to tell you that I think we are in a market where we need to think differently and do differently that what we did. I like the approach and I think that for the non-cash strapped serious seller, it will play well.
Let us know what sort of reaction you hear from people after the 4th of July and thanks for stimulating additional thoughts and comments about how we can all work in the “new reality” of today’s market.
If I can help you navigate through this real estate and mortgage market, give me a call.
Tom Vanderwell
(616) 292-7559
Thomas.vanderwell@53.com
June 17, 2008 — 7:48 pm
Don Reedy says:
Jeff,
I think you and I talked about this a little at Unchained. Here’s the ONLY problem I see, and it is a big one.
>Still, buyers will be generated — lots of them.
>We have no need whatsoever for even one buyer’s agent. We think it’s silly to invest here, so we won’t be representing buyers.
Okay, there’s the problem. You don’t think anyone should buy right now in San Diego, at least for investment. I think you’re clear on that point.
So, where in the world will “lots of them (buyers) be generated?”
This is the biggest problem seller’s of investment property have had for quite a long time. This is simply not an area in which to invest. It’s a great place to live, raise a family (dogs included), and brag about our US Open (greatest one ever, perhaps).
What’s the incentive you are going to offer the buyer? Is is simply that the seller will pass along his listing side commission savings to the buyer? That doesn’t sound like a new idea, or even a workable one. Buyers just won’t know enough to see the value. And any buyer who IS saavy enough will know that even if the seller is saving $20,000 in commissions, and passes that along to the buyer, he or she will still be buying an investment property in a market that just will not cash flow or pencil out. That’s Brown and Brown’s take on the market…..so why should it change for buyers who come to Brown and Brown’s listings?
Let me know if you see this as a potential problem, and if so, why it won’t be a pretty big weight around the buoyancy your plan has otherwise.
Best regards!
June 17, 2008 — 8:33 pm
Jeff Brown says:
Tom — maybe we should talk.
We think we’ll know what’s working by Halloween or so. We’ll keep you in the loop from time to time.
June 17, 2008 — 8:42 pm
Tom Vanderwell says:
Jeff,
616-292-7559 – or thomas.vanderwell@53.com. I’d like to talk any time.
Tom
June 17, 2008 — 8:46 pm
Jeff Brown says:
Don — I remember talking with you about this at Unchained.
Your point is well taken, but doesn’t fit the reality we’re seeing. Take Palo Alto for instance. Their market makes San Diego prices look like a K-Mart Blue Light special. It takes 40-50% down payments just to make income property there break even.
Yet when Josh and I were there, there were some investors who took umbrage at us even saying those things aloud. At first my son, Josh, said he thought one lady was kidding. She wasn’t. In fact she couldn’t believe WE didn’t see the error of our ways. Seriously. You can’t make that stuff up.
The point is, San Diegans still think the sun rises and sets on their stuff. There will be plenty of buyers, relatively speaking, willing to invest. Just not through Brown and Brown. Perish the thought. If we can’t convince these buyers to let us take them to greener pastures, we’ll refer them to local folks.
WE WON’T SELL THEM SD INCOME PROPERTY. We gotta sleep at night too. 🙂
There are buyers who think SD is still a good place for their investment capital. If that’s not true, no model is gonna work.
June 17, 2008 — 8:53 pm
Tom Vanderwell says:
Jeff,
Call or e-mail me any time. I’d love to talk.
I applaud you for taking a stand and saying, “This is who we are and we don’t think it’s right so we’re not going to do it.”
More people on both sides of the fence need to think that way.
If I can help you navigate through this real estate and mortgage market, give me a call.
Tom Vanderwell
(616) 292-7559
Thomas.vanderwell@53.com
June 17, 2008 — 9:05 pm
Don Reedy says:
Jeff,
>There are buyers who think SD is still a good place for their investment capital. If that’s not true, no model is gonna work.
Well, I already told you that any investors who come my way are coming through me to you, if I can help them see the light.
But still, as part of your plan, I’ll just say that I think you’ll need a strategy for helping your buyer’s agents provide rationales for their investment buyers. While investors may come a-callin, it wouldn’t hurt to give your buyer’s agents (that is, those to whom you refer) some warm muffins to soften up the investors, and you’ll have to do this while still trying to be able to get that sleep you’re talking about.
Man, I love your ideas. And I really want you to blow the socks off your market. Thanks for sharing and thinking out loud.
June 17, 2008 — 9:35 pm
Ken in Chicago says:
Jeff I think this is an interesting approach. Would like to hear how your target market reacts to the idea.
June 17, 2008 — 9:36 pm
Jeff Brown says:
Don — Just ‘cuz I don’t pull the trigger, I’m still an accessory if I sell them the gun, right? 🙂
Seriously, those who still think SD is a great place to invest don’t just drink the Kool-Aid, they mix it themselves.
June 17, 2008 — 9:43 pm
Jeff Brown says:
Ken — Once we get a more or less reliable feel for what’s happening — or what’s not — I’ll write about it here.
June 17, 2008 — 9:44 pm
Bob says:
Jeff,
The last time I checked, it was illegal in California to charge an upfront fee for anything more than an open listing. Am I wrong on this?
June 17, 2008 — 10:37 pm
Jeff Brown says:
To the best of my knowledge, you’re correct, Bob.
We’ve been in contact both with the broker who has been doing this for over a year (CA) and his RE attorney. We’ve been told there’s not a problem as long as it’s handled correctly. We’ll be finding out what that is exactly some time next week.
The agent in question also checked with CAR, who, when given the full context, didn’t have a problem. I don’t anticipate a hitch. I’m also having our guy talk to their guy to ensure there’s no lines being crossed. Though I thought, as you do, it was a big issue, it apparently isn’t.
Actually, there are two such brokers doing this. The very first guy also ran it through the legal ringer — not a problem. I’m gonna go out on a limb and say it’ll come down to what it’s called. Go figure.
June 17, 2008 — 10:46 pm
Bob says:
I’m looking forward to seeing how this works.
June 17, 2008 — 11:17 pm
Doug Quance says:
I’m glad to see you are getting close to bringing this idea online.
It will be interesting to see how this will play out. My guess is that there’s a place for it… and if you are witnessing other brokers who are doing this successfully – then the proof is in the pudding.
June 18, 2008 — 7:45 am
Joseph Bridges says:
Jeff,
You make a great point of this being able to locate the most motivated sellers. Nothing is more motivating then a monthly bill and you can guage a sellers motivation by asking them to come out of pocket a bit.
This sounds great and something we may want to experiment with this in Long Beach.
Joey
June 18, 2008 — 9:35 am
Jeff Brown says:
Doug — It’s interesting about the other brokers. One is ironically closing his doors to move back home. He was doing ok, but in my judgment wasn’t taking the right listings or marketing them correctly.
The other guy (just spoke with him) has put this on he back burner ‘cuz he just struck gold. He’s secured a near exclusive with a ginormous lender for the sale of their REO’s. Trust me, he’s not charging a low monthly fee. 🙂
Even though he was doing very well with the monthly fee approach, a guaranteed high volume stream of the lowest priced listings around at 6% was too good to pass up. Duh.
June 18, 2008 — 10:31 am
Jeff Brown says:
Bob — All returns have come in on the monthly fee legal side, and they’re all singing the same song, same verse.
1. Billing, as we both agreed, must not be ‘in advance’. It needs to be ‘in arrears’. Not a problem.
2. It must list what services were rendered for how much.
Again, not a problem. It doesn’t need to be a recitation of my costs, just what I charge for the service(s) listed.
Small bump smoothed out. Our attorney is triple checking, but off the record, agreed with the above.
June 18, 2008 — 10:35 am
Jeff Brown says:
Joseph — I believe strongly this approach would work like gangbusters in Long Beach. The average savings would be pretty high.
June 18, 2008 — 10:39 am
KC Investments says:
Interseting post…even more interesting comments. Keep me abreast.
June 18, 2008 — 12:29 pm
Tom Vanderwell says:
Hey Jeff,
I wanted to let you know that you helped me today. I was in an appointment tonight with a young couple who are contemplating selling their condo (with a $10K loss) and buying a house. Their Realtor hooked us up and we had a very good hour long discussion about finances, debt ratios, affordability etc. During the discussion, it became obvious to me that there was a pretty significant chance that making a move right now is not in their best interest (she’s going to go back to school for 2 years and quit her job). I thought, “If Jeff Brown can say tell people that San Diego is not a good place to invest, then I’ve got to bring up the possibility that maybe they would be better off staying put until she’s done with school.” So, I did, discussed the ramifications of both a move now vs. a move later and told them I’d rather write a mortgage later than write the wrong one now.
I don’t know how the Realtor is going to take it, but I’ll sleep a lot better tonight knowing that I did the right thing.
Do the right thing, no matter what.
Thanks!
If I can help you navigate through this real estate and mortgage market, give me a call.
Tom Vanderwell
(616) 292-7559
Thomas.vanderwell@53.com
June 18, 2008 — 6:43 pm
Jeff Brown says:
I’m curious to find out the conversation you had with the agent afterward.
June 18, 2008 — 6:52 pm
Tom Vanderwell says:
The conversation I had with the agent (before he went in to talk with the potential client) went something like this:
1. They have a much better feel for what is possible and what isn’t.
2. Due to her taking 2 years off from work to go back to school to be a Physician’s Assistant, we have some debt ratio issues.
3. There’s a fair amount of “uncertainity” in their minds at this point as to what’s the right thing to do.
His response was – ‘Good to know, we’ll see where it goes.’
I’ll let you know if they have anything else to say later.
Tom
June 18, 2008 — 7:14 pm
Jeff Brown says:
Sounds like their agent was a decent guy. Have you done business with him before? Was he referred to you?
June 18, 2008 — 7:38 pm
Tom Vanderwell says:
I’ve done a little business with him before. He works on a team with one of the most experienced people in the area and I’ve done business with them on and off for close to 20 years. Not a LOT of business, but they are starting to send me more and more of the few buyers they have. (They deal mainly with developers and listings – and that part of our market sucks right now).
So, I guess I’d say, “Yeah, I’ve done busines with “them” before.
Now it’s time to call it a night (Eastern time ends earlier than yours does!)
Tom
June 18, 2008 — 7:42 pm
Jeff Brown says:
Thanks — have a good one.
June 18, 2008 — 7:48 pm
Kenneth Cox says:
very unique strategy. I’ve used listing discounts, flat fees but have never tried a monthly set fee. I did consider this option but after feedback with flat fee listing, 86’d the idea because most were not happy paying up front with possibility their home would not sell. I’ve found that offering 1-2% listing discount with no fees paid until home sells seems to attract the most attention and produce the best results in local DFW market. I would be very interested to hear update and some figures on new strategy after a couple quarters of trial.
June 20, 2008 — 10:39 am
Bawldguy Talking says:
Kenneth — Possibly the difference in our approaches comes down to one factor. I’m only interested in sellers willing to listen and execute what we ask of them. If sellers are afraid their places won’t sell, it my view it’s because they’re not doing what we think necessary to sell them.
Pricing, perfecting interior/exterior appeal, and marketing will sell just about any property anywhere.
Those sellers willing to do what it takes are the only ones with which we’ll do business.
June 20, 2008 — 11:08 am
Bob says:
getting paid in arrears sounds like you just entered the collections business.
June 23, 2008 — 8:02 am
Ken in Chicago says:
I have to agree on this one. If a listing doesn’t sell you are going to need to get the seller to pay you outside of closing. That sounds like a potential nightmare.
June 23, 2008 — 9:27 am
Bawldguy Talking says:
Ken — There’s no nightmare at all. Beginning the 30th day of the listing period the seller makes payments to me. If the listing doesn’t sell, a remote possibility in this case, I may be out a month’s payment — less than a grand. I won’t be losing any sleep.
The idea here is motivated sellers, proactively doing everything in their power to ‘team’ with us in the sale of their income property. They’ve already spent a few thousand just getting the property ready for sale. They’re committed to the process in a very positive way.
The two brokers who’ve used this haven’t run into any such ‘nightmares’ so far. I expect at some point there will be a problem, as there are in every model, but not being paid $750 isn’t gonna generate nightmares for me, know what I mean, Verne? 🙂
June 23, 2008 — 9:51 am
Ken in Chicago says:
When you said in arrears I pictured not until the sale or cancellation of the contract, not once a month. That isn’t nearly as bad as what I pictured.
If you are out one month it isn’t a big deal, if you lost multiple months on multiple properties with one investor trying to unload some properties then it would have been a painful.
June 23, 2008 — 10:47 am
Bawldguy Talking says:
Ken — Gotcha. That would’ve raised my eyebrows a bit too.
If there are several investors not paying it’s a lock I”M doin’ something very wrong indeed.
June 23, 2008 — 11:51 am
Bob in San Diego says:
My understanding is that not in advance means not in advance of it selling.
June 25, 2008 — 4:11 pm
Joshua says:
I think I’ll need to go back and re-read this post a few times to really understand how this will all work.
Maybe even a http://www.commoncraft.com video would help me to understand it better!
July 31, 2008 — 12:23 pm
Will says:
So can we have an update on how this practice has been performing?
September 2, 2008 — 4:10 pm
Jeff Brown says:
Hey Will — Good idea. As in most large undertakings, this one has gone more slowly than planned, but we’re still doing every single thing mentioned in the post, plus a few new wrinkles.
I’m thinkin’ an update will happen in about a couple weeks, give or take.
The momentum has caused us to face a new reality we hadn’t expected. Our daily schedules, especially mine, aren’t gonna be modified, they’re gonna be rewritten.
For me, it means going back literally to the 80’s. Has its good and bad points, but one thing’s for sure — there’s no choice involved.
September 2, 2008 — 5:24 pm