Taking on Mark Nadel’s white paper on real estate commissions, Kevin Boer at Three Oceans Real Estate points out that there is more at stake than any one particular negotiation:
Successful agents, however, know that a solid business is built on long-term relationships with satisfied clients. If a past client indeed thought his Realtor had left $10,000 on the table, that would be the end of that relationship. No more future deals, and no more future referrals.
For agents who think long-term, however, the math goes something like this:
20 extra hours of work =
75% greater chance of doing another transaction with that same client in 5 years
+
75% greater chance of getting 1 referral a year for the next 10 years from that client.
No matter how you slice that one, that’s a lot of money the Realtor is leaving on the table by being shortsighted.
This is a reasonable argument, and a one-off transactional analysis is common in economics, where entrepreneurs succeed by taking account of The Big Picture.
To be fair to Nadel, he suggests short-term incentives to offset what he views as short-term disincentives. His suggestion comes pretty close to a net listing, though, a type of listing contract that is frowned on by regulators in Arizona.
Here’s why: I convince Mrs. Newlywidowed that her long-time family home, now an empty nest, is only worth $90,000. I offer to sell it “for free” unless I can get more than $90,000, in which case I will take $.50 on the dollar for every dollar over $90,000. I sell the home for $300,000, taking $105,000 in commission, leaving $195,000 for Mrs. Newlywidowed, where she could have netted $282,000 or more.
That notwithstanding, Kevin has a fun take on this idea.
Technorati Tags: blogging, compensation for buyer representation, disintermediation, real estate marketing
Jay Thompson says:
Sad to think there are agents out there that would do something like that to Mrs. Newlywidowed. But we both know there are….
Perhaps a clause to the effect of, “if home sells for X% over suggested list price, then Y commission structure will be used.” Perhaps with “Y” being a “standard” commission structure (or worse). This could prevent the unethical out there from snookering Mrs. Newlywidowed.
October 18, 2006 — 9:43 am
Greg Swann says:
> This could prevent the unethical out there from snookering Mrs. Newlywidowed.
Actually, her biggest peril comes from the “we buy houses” folks. Instant cash in four days and we brought all the comps you’ll need. Yikes!
October 18, 2006 — 11:13 am
Galen says:
Perhaps the problem is that most people don’t actually know that they overpaid. If your agent seems nice and you “feel” like you got a deal, you’ll use them again.
Check out the documentary Slasher – there are a lot of ways to make people feel like they got a deal without actually giving them a deal.
October 18, 2006 — 12:46 pm