Responding to my post on the spec-home I’m working on right now, John Keith commented
I still don’t get where you guys are coming from. Is it the actual dollar amount that bothers you, the percentage, the feeling that agents don’t add value equal to their commissions, or what?
How does Bloodhound Realty do things, and how are they different?
I might add, at most agencies, you wouldn’t end up with $12,000 off a $200,000 sale. The company might take up to 50% of the commission.
Again, is it the size of the commission, the rate, or the entire commission structure that is the problem, and what are the solutions you suggest?
It is the compensation structure. And probably the fact that the “company might take up to 50% of the commission.” And of course there’s a problem with “agents not adding value equal to their commissions.” None of these is the main point, but each is certainly an issue. And, I don’t think it’s a matter of where us guys at Bloodhound are coming from. The grumbling and discontent is out there in general. Anyone who doesn’t hear it isn’t listening.
There are people, lots of people, who are emotionally invested in the idea that our profession should just disappear! I know that it would not be a good thing for the consumer if everyone who wanted to buy and sell a house had to manage the transaction for himself. But there’s a big pool of should-be prospects out there who don’t see it this way. Why do so many people mistrust our profession? What does the public think is broken? How can we fix it?
In my corporate life, before entering real estate, I was the buffer between IT and the end user… at different points when implementing different applications, I might have fulfilled the roll of systems analyst or project manager or user support. Too often I saw a technology being readied for implementation without listening to the end user and basing the product on his wants. Instead, the project was driven by what some pompous leader wanted the end users to want. If you don’t design it so the end users want to use it, it won’t be used. This results in a lot of frustration, a lot finger pointing, people losing their jobs and system failures.
So applying this lesson to real estate, when I say I know that we perform a valid, important service to home buyers and sellers, what I think doesn’t matter if the buyers and sellers don’t believe it. Just because some top producers draw a line in the sand and say “look how successful we’ve become doing things the way they’ve always been done,” doesn’t mean the way things have always been done is satisfactory to people who aren’t real estate professionals. If we want to continue to be real estate professionals, I believe the challenge is ours to figure out why so many people mistrust our profession, what the public thinks is broken, and how we can fix it.
The questions John asked in his comment are important. We’re still trying to figure this out. Our Posts of Enduring Interest listed in the column to the right contains many of our stabs at this. The blog sites I recognized in Let The Day Begin are working toward answers, too. Real estate weblogs are an excellent format to help sort through these issues, especially since they encourage the free exchange of ideas. Reminds me of the Project Planning Workshops I used to hold. Here were some of the ground rules:
All of the stakeholders should be represented (I’m disappointed that the real estate weblog community hasn’t been able to draw more participation from consumers and industry leadership… usually we hear from representatives of these segments only when someone wants to shout down an idea… we need more active, thoughtful participation).
There are no bad ideas (but the solely self-serving ones aren’t going to be given as much weight).
And “this is the way things have always been done” is not a supportive argument for not changing.
Now just so John doesn’t think I’m delibertly evading his tough questions, I’ll try to answer as they relate to buyer representation on a new build specifically:
It’s my goal to make every transaction a win-win. I want to do well, but never at the expense of my client. If there’s a conflict between what’s good for me and what’s good for my client, I’ll concede to my client. Everyone who has objected to Greg’s article or my post declares that they would never try to influence their clients to buy a house that offers higher buyer broker incentives over one that does not. (In fact, some of those who objected said that agents have no influence at all over their clients… really?)
So, if those agents will be fairly compensated by a builder offering 3% co-broke, or if last year they accepted a $5,000 flat fee co-broke, how can they justify a 6%, 8%, 10% commission as being appropriate? No matter how you spin it, the client is really paying that co-broke. Sure, he would have had to pay it even if he came in without a buyer’s agent… then the builder would have kept it. The builder built it into its cost of doing business, which is being paid for by the client through purchase of the builder’s property. But isn’t it better for my client if he doesn’t have to pay for me to enjoy a windfall? And when I concede back to the client that which is above and beyond what I had already identified as a fair fee in exchange for my services, I am letting my client hang on to his own money.
Even if an agent has to give up 50% of his commissions to his broker, has he been able to afford to represent buyers in the purchase of a house when the co-broke offered is 2% or 3%? If the answer is “yes,” if that was fair compensation for the service he delivered, then what is the justification for a greater commission? Will he be providing a more valuable service in the transaction where he’s being paid 5% than he does in the transactions where he’s being paid 2% or 3%?
Ardell DellaLoggia often discusses the fact that she negotiates her commission up front, and I think she is certainly going in the right direction. I just haven’t figured out how to handle situations where the co-broke is less than the client has agreed to pay for my services. If Ardell ever comes to Phoenix, I would love to take her out for Margaritas and pick her brain… ahh, that brings back some other fond memories of Project Management…
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ardell dellaloggia says:
There is some confusion in the equation. $12,000 on a $200,000 sale would equal $6,000 to the listing company and then $6,000 to the selling company and then the 50/50 split would be $3,000 to the agent. Can someone clarify that before the discussion commences?
September 24, 2006 — 10:22 am
Cathleen Collins says:
Sorry about the confusion, Ardell. The details are better fleshed out in my original post. But here’s the short of it: I’m talking specifically about a new build being offered by the builder. In the current Phoenix market, builders are trying to attract buyers’ reps by offering them very attractive co-brokes. In the case I’m talking about, the builder has offered the buyer’s broker 6%. The houses in this new subdivision cost around $200,000, so the co-broke to the buyer’s broker will be about $12,000 on that $200,000 home. There is no listing agent. The 50/50 split is a wrench that John Keith threw into this case, because it’s one I hadn’t considered, since I personally don’t have to deal with a split.
September 25, 2006 — 11:13 am
ardell dellaloggia says:
It amazes me how many consumers actually believe that agents only get to keep 50% of their commission. You know any agents who have been in the business for more than a year, who acually DO pay their broker 50%? I think many like to lead the public to believe that it is generally the case, when we all know it is not.
The agents who say it never say “I only get to keep 50%”, they say “The company ‘might’ take up to 50%…” (from some other guy). Somehow the public doesn’t call them on that by saying, but what do YOU pay YOUR Broker? Maybe you want to ask John that question.
September 25, 2006 — 3:03 pm
John K says:
I keep 100%. I work for myself.
September 25, 2006 — 4:25 pm
ardell dellaloggia says:
See Cathleen, it wasn’t a wrench after all. If you can be forced to take one step back by an empty comment, just imagine how a false statement like that affects consumers. Agent’s like to create the perception that they only get 25% of the pie, but in how many cases is that really true?
September 25, 2006 — 9:24 pm
Cathleen Collins says:
You’re still up, Ardell?!!! You should be getting your rest! Good luck!
September 25, 2006 — 10:32 pm
Jeff Brown says:
>No matter how you spin it, the client is really paying that co-broke. Sure, he would have had to pay it even if he came in without a buyer’s agent… then the builder would have kept it. The builder built it into its cost of doing business, which is being paid for by the client through purchase of the builder’s property.
Cathleen, I respectfully submit that your basic premise, that the buyer is paying the co-broke, is the sand on which your concept is constructed. More clearly stated, your premise says – The builder put the broker fee into his price – which implies that by doing that it had anything whatsoever to do with the actual market value of his end product. By implying it had anything to do with his final product you are then able to conclude (falsely) through a series of small steps, that therefore your buyer is really paying the fee offered by the builder.
Adam Smith is spinning in his grave. That builder can only sell his homes for the amount the free market will bear, and not a cent more. Whether he pays thousands of dollars to you or not doesn’t have a scintilla of relevance to what the market decides his homes are worth.
>So, if those agents will be fairly compensated by a builder offering 3% co-broke, or if last year they accepted a $5,000 flat fee co-broke, how can they justify a 6%, 8%, 10% commission as being appropriate?
What does fair have to do with anything in a free market? We use gravity in the production of electricity at Niagra Falls, yet the same gravity killed the poor roofer who fell from the third story roof on which he was working. Is that fair? No, because gravity is simply a principle of physics that never fails. The free market also operates sans the concept of fair. The builder paid a lower fee to brokers last year because the market was different last year. He’s also selling the house itself for less – because of the market, AND paying you a higher fee to boot. Is that fair? No, it’s the free market.
Whether the builder is selling for a higher or lower price, or paying the broker a higher or lower fee, it’s HIS bank account that’s affected, not the buyer’s.
This false premise has led many an agent to denigrate their value in the market. It reminds me of what my grandma taught me about false premises.
About the time the farmer taught the old mare to work without eating, she died.
September 26, 2006 — 8:51 am
John K says:
Somehow I feel accused, I’m not sure of what. I never implied I made any type of commission.
I have no idea what the average split is for an agent. I wasn’t suggesting otherwise.
I worked at Coldwell Banker for two and a half years. I’m sorry to say that I made 50% split during year one, and 55% split during year two. I guess I was in the lower percentile, then?
One thing I just read in one of Bloodhound’s 100 posts was that 80% of real estate agents drop out after one year.
If that number is anywhere close to being accurate, then the average agent (average meaning mean) probably never gets much above 50%.
Each agency has its own scheme, though. Everyone here in Boston is moving away from the old-style companies into those where you keep a higher percentage split, but receive less marketing support.
In a slower market, this might mean less income, for those who work as listing agents.
For people such as me, who work solely with buyers, there was no reason to pay 50% of my commission to a company, when it did very little to bring me new clients.
September 26, 2006 — 6:41 pm