Why I share 20% of my commissions to (most) buyers and why it makes sense

When the New Jersey Real Estate Commission  authorized the "rebate" of commissions, as many other states do, I immediately recognized what a great bonus it is to home buyers -- and to savvy brokers.

Although they will swear otherwise, brokers and agents do less for their huge commissions than they did in the past.  This is because most consumers begin their search on the internet and most of the information they need such as taxes, schools and home characteristics  are right there for them.  In an astounding number of cases buyers contact a broker about a property AFTER they have done most of the leg work.  Well, if consumers are doing a lot of the work, shouldn't they be compensated?  I think so although most brokers do not allow their agents to rebate saying it's a sign of weakness.  I think it's a sign of consumerism!  You know the old saying "Time is Money" -  so if a buyer is saving me time it's only right that they be paid.  That's consumerism!

Now, I don't just gift away 20% of my compensation.  Buyers have to EARN it. and here is how and why they can IF THEY CHOOSE.

1.)  They must be pre-approved by a reputable lender BEFORE looking at houses

2.)  They must come into the office for a consultation on the process.   Most buyers have no idea what is happening as they view houses or write out an earnest money deposit and are unaware of the many protections a sales contract gives them, the mortgage process, etc.  At the end of this consultation they have a tremendous understanding of the how and why of what they are doing.  And they feel much more comfortable and confidant.

3.)  They must  register for the Help-U-Sell "First to Know" program which alerts them as homes come on the market or are reduced into their range.  Buyers LOVE this.

4.)  They must have some knowledge of the area and know what town they desire, what type of home and we also develop a "Must Have, Would Like to Have, and Can Not Have" list.  This is usually developed during the office consultation and winds up saving everyone a lot of time.

5.)  They must drive by the property before a showing.  Many houses look great in pictures but what about the neighborhood.  Are the houses around it well kept?  Is there a fire house or water tower near it.  Is it near a busy road.  These may not bother many buyers but if it does let's know before viewing it.

6.)  Two days before the closing they must give me a written or video testimonial.  Self explanatory.

Most buyers opt in since the above "tasks" are easy and enjoyable.  So now they receive anywhere from about $700 to a couple of thousand dollars at the closing.  And they can use this "found money" for anything from furniture, carpets, appliances, patio sets or WHAT EVER THEIR HEARTS DESIRE.

The vast majority of agencies, especially large ones, will not offer this important benefit but some small brokers do and can.  For the agent, there is less time wasted and more spent with their families and other activities.  And for the broker, it's simple math.  20% to the buyer is much more efficient than paying 50% - 70% and more to agents.  That's Help-U-Sell.  Smaller, more efficient operations while netting more per transaction.  Win - Win!     Win - Win!     Win - Win

TO MLS OR NOT TO MLS

There is a little controversy right now about the concept of a ‘Pocket Listing.’  There have been a number of recent news and opinion pieces, mostly from Realtor groups, condemning the practice of keeping a salable listing out of MLS. (Multiple Listing Service)   Before I tell you what I think, let’s examine the Realtor point-of-view.

Since the advent of the MLS, the residential real estate business has operated on a cooperative basis.  Because most MLSs require that every home listed by a member broker be offered for sale through the MLS (unless the sellers signs an op-out waiver), every Realtor has an opportunity to sell any property listed with a competitor and earn a portion of the commission.

This is marketed as being in the best interest of the seller because it maximizes the opportunities for exposure of the home, getting it in front of more and more potential buyers through their individual agents. And after all, whether another Realtor comes in with the buyer or the listing agent finds the buyer him or herself, the cost to the seller will be the same; it won’t cost any more.

And that’s where the problem lies.

In general, when a seller lists with an ordinary broker, s/he agrees to pay a percentage based commission.  The actual percent varies, but will often be in the 5% – 7% range.  Consider something right in the middle, say, 6% on a $500,000 home. That’s a $30,000 commission!  Huge, right!?  But one of the reasons it is so high is the listing office has to be prepared for the likely event that an outside broker and agent will bring the buyer – and they’ll have to be paid half of that commission.  Of course, if there is no outside broker, if the listing brokers finds the buyer his or herself, the seller still pays $30,000 because . . . well because that’s just the way it’s done!

At Help-U-Sell Bay Beach Realty, we don’t charge a percentage based commission, we charge a Low Set Fee.  AND we unbundle commissions.  If there is no outside broker involved, you don’t pay one.  Now that’s a real benefit to a seller, one you can put a dollar sign on!

There are situations – locations and marketplaces – where we recommend most sellers go into the MLS.  These are the situations where we need all the exposure we can get.  But in a good location, with a properly priced house, sometimes it makes sense to stay out of the MLS – especially if that means saving the seller a lot of money.

Right now, in various locations around Central Jersey homes are selling in 60 days or less and sellers are getting 99% of their Listing Price in a Sale.  Clearly demand is high.  In a market like this it might make sense to market the home for a time – say, 30 – 45 days without the MLS, without offering it for sale through outside brokers.  If a buyer can be found without the MLS, the seller of the $500,000 home mentioned above would a TON!

At Help-U-Sell Bay Beach Realty, we are about two things:

• Getting your house sold for top dollar
• Saving you the most money in commission expense

We will consult with your at the time of listing and continuously thereafter about how best to market the home, whether the MLS makes sense or not, and how to maximize your savings while selling for the greatest possible price.

Where do brokers advertise and WHY?

Sellers love to see their home advertised because, of course, exposure - along with proper pricing - is how houses are sold.  But modern technology has changed the importance of WHERE a property is promoted. When you get right down to it, the Multiple Listing Service is all the advertising any home needs.  That's because the real estate community - the members of the MLS - ARE the market place and because sellers usually pay the same commission regardless of WHO sells the property.  (But not at Help-U-Sell)

Now once the home is entered into the Multiple Listing Service, the MLS syndicates it out to up to 75 websites like Realtor.com, Trullia, Zillow, etc.  This is automatic by the MLS and NOT by the broker.  And if they property is sold by another broker the listing broker has to split the commission.  Darn!

Even if the listing broker NEVER uses print ads a properly price home will sell.  So why do brokers still use print ads?  There are 4 prominent reasons:

1.)  To keep the seller happy.  As stated above, sellers love to see print ads although they play a minuscule role in the sale.

2.)  To make the phone ring.  When a potential buyer calls in a great contact is made and brokers skillfully train agents on desk duty to tell the buyer about all similar houses.  When advertising a seller's house, the broker is essentially advertising all similar houses.  So that phone ringing is music to their ears.

3.)  To attract listings.  All ads must have the brokers contact information in them so even if an agent pays for the ad themselves, they are still promoting the brokerage.  Brokers LOVE that!

4.)  And the grand daddy of them all ----- TO RECRUIT!   Bringing in new fresh blood is the life line of most real estate offices (other than Help-U-Sell) since over 80% will be gone in a year or two.  (More later.  This will be a whole new post)

So, as mentioned above, print ads do very little for the seller but plenty for the broker.   And guess who pays?  Yup - the seller.  Think about this.  Successful sellers not only pay for their own marketing expenses but for the unsuccessful sellers too.  Kind of like welfare!  We all love welfare, right?

Ok, we do some advertising too - for the same reasons stated above.  But not nearly as much because the Help-U-Sell system is designed to maximize efficiency and pass the savings on to the seller.  That's what we deliver -  EFFICIENCY, EFFECTIVENESS and VALUE!!

What is full service in real estate? Do you get what you pay for?

Consumers intuitively know what ‘Full Service’ in real estate means:

• Expertise/Consultation (preparation for sale, pricing, planning, staging)
• Marketing (which might include MLS, Internet, Open Houses, advertising, signs, flyers, etc)
• Representation/Negotiation (weighing offers, avoiding mistakes, anticipating next steps)
• Transaction Processing/Problem Resolution (making sure everything is done properly, handling problems as they arise)

The problem is that almost everyone in the business – traditional percentage-based brokers, discount brokers, flat fee brokers, fee for service brokers and so on – claims to do all of those things!  The only brokers who might admit to NOT doing some of it would be self-described ‘Limited Service’ brokers or ‘MLS Only’ brokers.

With so many different kinds of brokers laying claim to  ’Full Service,’ the term becomes  meaningless . . . except that consumers don’t realize this.

In the muddled mess of real estate company marketing, they have come to believe that  ’Full Service’ must also mean ‘Full Commission.’

>>>(and therefore, less than full commission means less than full service)<<<

Of course, nothing could be further from the truth.

If your less-than-full-commission offering is based on a better, more efficient business model that enables you to be profitable while charging people LESS . . . then the debate is not about the level of service, it’s about how much the consumer wants to pay to sell a house.   And here’s a news flash:  s/he wants to pay as little as possible to get the job done quickly, efficiently and effectively.

At Help-U-Sell Bay Beach Realty, we charge LESS because our business model is more efficient.  And even though we charge LESS, we make MORE than our percentage based competitors because of this efficiency.

That can be a frightening proposition to ordinary brokers stuck in the old percentage based commission prison.

On the defensive, the ordinary broker sometimes spreads false rumors about us.   When Suzy Sixpence from Acme Realty says

Help-U-Sell?  Oh, they’re not Full Service . . . I know they’ll say they are, but they really don’t do anything for their sellers except put the sign in the yard.  Sometimes they won’t even put you in the MLS – and of course, without that, you’re not even on the market!  We all know you get what you pay for, and that’s really true when it comes to Help-U-Sell and the other discounters,

When she says that, she sometimes gets a head nodding Amen from her audience. But they are not nodding because what she’s saying about Help-U-Sell is true. They are nodding because they know there is a difference between Nordstrom and Wallmart . . . and she successfully uses that knowledge to twist perception in the real estate arena.  She reinforces the irrational belief that Full Service means Full Commission . . . and sometimes it works.

Listen:  we do everything they do, and in fact:  we do more; but we charge LESS because we do business in a more efficient, modern way.  Don’t be derailed by the hype – contact us directly to find out what we do, what we charge and how much you could save.

Charles Schwab and Steve Jobs created the "Time of Change". Real Estate, get ready - here it comes!

We often look at the history of the securities business in the last 15 years and draw parallels to real estate.  Remember?  We used to have to contact a broker to trade a stock and we paid a percentage based commission for the privilege.  Stock trading was mysterious, complicated, beyond the grasp of most people and the commissions were, well, just the cost of entry.

Then along came Charles Schwab with $15 flat fee trades.  Consumers loved it and the industry took note.  The forward thinkers not only shifted to the new model, they enhanced it by putting powerful analytic information into consumers’ hands on the Internet.

Sound like the real estate business?  You bet.

The same kind of change happened in the Music business.  Remember when we used to go to the music store to buy vinyl LP records, and then CDs?  That’s how music was distributed.  The whole industry was built around the idea of making and marketing these plastic objects called ‘records.’

But then, technology made it possible for people to take the records, digitize them and then share them (often illegally) over the Internet.  The industry reacted not by looking forward at how they might capitalize on this,  but by looking to the courts, suing the most prolific pirates.  Meanwhile, Steve Jobs – a music industry outsider – quietly invented the Ipod – nothing more than a solid state drive with a simple user interface – and the ITunes store for making digital music accessible to consumers.  For 99 cents you could buy a song . . . and, today, that’s what we do.

Just as in real estate, we had a music industry fighting to preserve the status quo . . . and losing; because you can never preserve the status quo.  It is impossible. In both cases we have industries struggling to keep information out of the consumer’s hands . . . and losing, because you can’t stop the consumer.

Want another example?  How about the Travel industry.  Not too many years  ago we used to call a travel agent to book a plane trip or a vacation.  They had all the information:  schedules and fares and so on; and they earned a nice commission for helping us navigate this mysterious process.

How many travel agents do you know today?  Really:  they have become largely extinct!  And how do we book travel today?  We go to the Internet where all the information is housed and make our decisions for ourselves.  Unfortunately, the pricing model for travel has not changed significantly . . . which makes me wonder:  who is getting that commission today?

And here we have real estate:  an industry that justified its percentage based commissions for decades largely by hoarding information.  Then along came the founder of Help-U-Sell, Don Taylor (and by the way, he came along a good ten years before Charles Schwab had his epiphany).  He saw a way to do the real estate business not for a nonsensical percentage based commission, but for a Low Set Fee.  He saw all of this hoarding going on and decided that Information Without Obligation would be one of his new company’s core values.  The maturation of the Internet twenty years later put that value on steroids . . .

And how did the Industry react?  It ran in terror for the hills, dug foxholes, locked up the valuables (the information), put its fingers in its ears and refused to hear what consumers were saying.

Even today, with a real estate market undergoing upheaval, with change swooping down around us like a Tsunami, how many of the big national brands are talking about their pricing model?  Um . . . none.

Even today, when consumers can (with the click of a mouse) get all the information REALTORS used to hoard, how many are talking about how we can use that fact to streamline the process and make the experience better for the home buyers and sellers?  Um . . . none.

At Help-U-Sell Bay Beach Realty, we embrace the new way to buy and sell real estate.  We want our buyers and sellers to be as involved in the process as they want to be and give them all the tools and information they could possibly need to have a stellar experience.  Our approach to the business is not mysterious and it makes sense . . . just as our Set Fee does.  Think of us as the Charles Schwab/ITunes/Orbitz of real estate, and then call us when it’s time to buy or sell.  609-242-0506

WHERE DID ALL THESE PEOPLE COME FROM?

Very few people realize how many agents are involved in the sale of their home.  Here's a quick accounting -- probably the only one you'll see.

In most transactions there are 3 or 4.  The listing agent and maybe a selling agent in the same office and their broker.  OR  The listing agent and broker plus the selling agent and broker.  All agents MUST work under a broker.

Now, a new twist in the real estate industry is the concept of teams.  The broker pays the team leader more money and the team leader recruits agents under them.  Sort of like a manager.  Teams are a waste of money but they're getting popular so now we could be up to 6 fingers in the pot.

But wait, how about referral agents?  See, in addition to the 1 million +- members of the National Association of Realtors, there are untold numbers of referral agents.  They do so little work that they don't want to or can't afford to pay the annual dues so many brokers set up a separate company which is NOT a member of the Boards of Realtors and ware house these agents to refer business.  Getting crowded isn't it?

And believe it or not, at least 2 national firms pay recruiting bonuses to agent who bring in other agents anywhere in the country.  So part of your hard earned equity could be going to someone far away who will not be involved the your transaction and never see your house!  Ouch!

It's unlikely all of these people would be involved in any sale but the average is about 5.  At Help-U-Sell it can be a little as 1-3 - and we pass the savings on to our Sellers.  (Hey Sellers, we love you!)

So if you plan on selling a home in Toms River, Beachwood, Bayville, Forked River or Lanoka Harbor in Lacey, give us a call.  We ever service Waretown, Barnegat, Manahawkin and Little Egg Harbor.  Our Common Sense approach is guaranteed to save you lots of money for the same services.

609-242-0506.

Real Estate Sales Commissions Revisited

Most traditional real estate brokers – what I like to call ‘ordinary’ brokers – charge a percentage of a property’s sale price as commission.  It’s been that way for  . . . well, for as long as anyone can remember.  It’s what we do because . . . it’s just what we do.  To question it would be like questioning why we eat three meals a day or why we go to bed at night.  So, while percentage based commissions irritate real estate consumers to no end, they are rarely challenged.   Here at the Set Fee Blog, we challenge them every day.  We believe the future of real estate will be better for consumers who will pay a logical (lower) set fee to market their property.

Let’s take a breath here in the Spring of 2013 to, once again, chip away at that tired old percentage based paradigm.  Let’s take a look at why percentage based real estate commissions make no sense.*

REASON ONE:  Percentage based commissions are arbitrary

In my examples I am using 5%.  But why?  What does 5% of the sale price have to do with what it takes to get the property sold?  What does it have to do with effective representation of the seller’s interest and the effectiveness of processing the sale?  Nothing.  It’s just a number I pulled out of the air, remember?  And that’s how ordinary brokers set their commission rates:  they usually just pull them out of air.  There is no connection between the fee charged and the level of effort and resources it will take to sell the property.  

From an ordinary broker’s perspective, the arbitrary percentage based commission is full of possibilities!  Because it is a percent of the sale price, the amount of dollars collected in commission goes up as more and more expensive property sells!  A typical strategy for an ordinary broker who wants to improve his/her bottom line is to target ever more expensive property . . . because 5% of $500,000 is a heck of a lot more than 5% of $300,000 . . . and, honestly?  It usually takes no more time, effort, energy ormoney to market a $500,000 home than a $300,000 home. Yea!  Let’s hear it for arbitrary commission rates!

REASON TWO:  Percentage based commissions are inequitable

Let’s assume you want to sell your $300,000 house.  It’s a nice big 4 bedroom with 2,200 square feet of living space.  You decide to list with a fictitious company, Hypothetical Realty, and agree to pay their 5% commission when the property sells.  That’s $15,000 (Gulp!).

 (Wait a minute . . . I’m having trouble catching my breath . . . I’m thinking about YOU in your $300,000 house.  If you are a typical $300,000 house homeowner, you might earn in the neighborhood of $80,000 a year.  That means YOU, the owner of this house has to work about 2 1/2 months to pay your real estate commission!  Really:  take your paychecks for January, February and half of March and give them to your real estate broker because that’s what it’s going to cost to sell your house! )

Now, when your neighbor sees the For Sale sign in your yard, he starts to thinking . . . ‘maybe this is a good time for ME to sell.’  So he calls up Hypothetical Realty, has them over for a chat and agrees to pay their 5% commission, too.  But his house is smaller: it’s just 3 bedrooms and 1,800 square feet.  Price: $240,000.  If it sells for full price, the commission will be $12,000.

Wait a minute!  You’re paying $15,000 for the same service delivered by the same company that your neighbor is paying just $12,000 for!?! WHY?? Where is the logic in that?? Are you paying $3,000 more because it will take that much more advertising to get the job done? (Hardly)  Are you paying $3,000 more for a better For Sale sign??  Oh, I know: you’re paying $3,000 more because your agent is going to work $3,000 harder, right?  WRONG!  There is absolutely no reason why you’re paying $3,000 more than your neighbor other than this:  you’ve been conditioned from the moment you had your first real estate transaction to accept without question the notion that real estate commissions should be a percentage of the sale price.

Usually it takes no more time, energy effort or money to sell a $300,000 house than a $250,000 house in the same neighborhood.  So why aren’t they paying the same thing?  I really have no explanation.  I think, next time you talk with Hypothetical Realty, you might want to ask them.

REASON THREE:  Percentage based commissions are inflexible

Ok.  You listed with Hypothetical, remember?  They are selling your $300,000 house and charging 5%.  The reason the fee is so high is that in all likelihood there will be TWO real estate companies involved in the transaction – yours (the listing company), and a different company who comes in with the buyer. Both companies will need to be paid.  And, of course, each of those companies will be represented by an agent who needs to be paid, too.   So that 5% you agreed to pay is not just one commission, it’s four:  one for the listing company, one for the listing agent, one for the selling company and one for the selling agent.  Ok, maybe there is some logic in this lofty commission stuff after all! There are a lot of people who have to get paid!

But wait:  what if your listing company finds the buyer?  What if there is no outside broker involved?  Do you still have to pay all four commissions?  Yep.  That’s what you agreed to when you signed the listing agreement.  So what does the listing broker do with the extra cash he got to keep?  Well in other industries it’s called overage or breakage . . . and it’s one of the keys to pocketability . . oops, I mean profitability.

Or, how about this sad tale: you list your home with Hypothetical on Friday and on Monday you meet the new person transferring into your company from out of state.  They hear about your house, fall in love with it and want to buy it.  You call up your agent to write it up.  Now YOU found the buyer, right?  Are you still going to have to pay all four commissions?  Yep.  That’s what you agreed to when you signed the listing agreement.

You see, there is no connection between what it takes to make the sale and what you’ll pay.  It is a completely inflexible, one-size-fits-all system that, I’m sure you agree, makes no sense.

I could go on, but I think three reasons why percentage real estate commissions make no sense is enough.  It’s important that you know that it doesn’t have to be this way.  There are alternatives out there, though they can be hard to find.  One I know and believe in is Help-U-Sell.  They charge a logical Set Fee to sell your house.  It’s just a wild guess on my part, but that $300,000 house?  The one Hypothetical was going to charge 5% or $15,000 to sell?  Help-U-Sell Theoretical Realty (a fictitious company operating in the same fictitious neighborhood) might charge something like $3,950 to sell it.  Oh, and they’d charge your neighbor with the $250,000 house the same $3,950.

Now I want to be completely clear about this.  That $3,950 is this particular Help-U-Sell office’s Set Fee.  It covers the consultation and advice you’ll be getting, the marketing of the home, the negotiation, representation and transaction processing you’d expect from any Full Service real estate broker.  

What it does not include is any commission for an outside broker or agent.  You don’t have to offer it for sale through outside agents, and in some hot markets, that might be advisable.  I mean if you can sell without paying extra people, why do it, right?  However, most sellers opt to go into the local MLS which means agreeing to pay outside brokers and agents a fee if they bring in the buyer.  So you’ll be adding their fee to your Help-U-Sell $3,950 in the event that’s how the sale is made.  How much would it be?  For your $300,000 house, you might offer between $6,000 and $9,000 to compete for an outside broker or agent’s attention, but the amount you offer is entirely up to you.  

And here’s the best part:  suppose you do want to offer your home for sale through outside brokers as well, you go into the MLS and you offer to pay an additional, say, $7,500 to an outside broker should they find the buyer . . . but then, you go to your office and, as in the example above, you find your own buyer.  What do you pay?  Just the Help-U-Sell Set Fee, $3,950.  You see, with Help-U-Sell, you pay a fee based on how your home actually sells – with or without outside broker help – not based on an arbitrary percentage based commission that was intended to compensate four different entities.

*In this Blog post, I will be using examples of percentage based commissions.  For convenience sake, I’m going to use 5% as the commission rate.  It is a number I plucked from air and is in fact a rather unusual number in today’s real estate universe:  most charge more.  It is important to remember that real estate commissions, whether percentage based or set fee, are fully negotiable between the broker and the consumer.  There is no ‘going rate,’ and each situation is (theoretically) handled differently.  Brokers set commission rates for their individual offices and if rates are negotiated, they are done so only with the broker’s approval.  Price fixing occurs when two or more brokers get together and agree to charge the same thing.  That is a highly illegal activity.  At Help-U-Sell, different offices charge different set fees for a very logical reason:  the cost of carrying a listing varies from location to location as does the number of days it takes to get a listing sold.