A study covered by the New York Times today that researched home sales in Madison, Wisconsin over a period of several years concluded that people who sold their homes through a real estate agent typically did not get a higher sale price than people who sold their homes themselves. When agent commissions were factored in, the for-sale-by-owner people came out ahead financially.
This directly hits at our industry’s standard response to attacks on the “traditional” real estate commission – “A full-service Realtor will get you a higher price for your home.”
As of right now, on the New York Times website, there are 192 comments from consumers in response to this article. This will continue to grow as this article spreads virally.
Are they wrong? Possibly. Can we pick apart the study? Certainly. But please, let’s not go down that road. The consumer is speaking. It’s time to accept what they have to say and meet their challenge – not offer one in return.
My point here is not to diminish the role of the Realtor or give up the ship, but rather to help our industry understand why their arguments for The Way Things Have Always Been are now hurting more than helping.
The bottom line is that if “traditional” real estate wants to effectively justify itself and its fees, it needs to start addressing real issues. Like standards. Professionalism. Training agents in the skills that will make it unquestionably clear that working with a Realtor is always in the consumer’s best interest. Then it needs to formulate a campaign that speaks those truths.
That’s the response I’d like to see.
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Right on!
You're absolutely correct, the industry needs to be listening… there are people who actually want to sell their home themselves… they like it and want to do it because its important to them. Can you imagine Home Depot attacking the DIY crowd?
This is the only response that makes sense. The defensive stance that is often taken only serves to illustrate some of the roots of the problem. This is right on. We do need to "start addressing real issues. Like standards. Professionalism. Training agents in the skills that will make it unquestionably clear that working with a Realtor is always in the consumer’s best interest."
I feel like there is a glut of misconception out there.
On some of the comments, I see people blaming Realtors for driving up the prices of homes. C'mon, economics is what does that not some Realtors conspiring together to gouge people. I'm an honest person and I have a thick skin, otherwise I may wither away.
The amount that a Real Estate Agent charges for commission is set by the individual agent. It is negotiable.
I have seen some cases where the commission has been more than 6%.
Let's be clear about something a Realtor's job description is much longer (much, much, longer) than what people realize. It more than selling, being a taxi driver, or just doing the contracts. It is more than negotiations.
I have had to be an errand boy, stand in long lines, go to all home improvement stores, research imported rock, deliver food, wash cars, bicker with security guards, on and on and on.
Not all agents are worth it. That is fine, no one is forced to work with them. But if you sit in front of me, and ask me how much I'm worth, I will show it to you and prove it every time period.
The internet isn't going to replace Realtor's because ultimately there is a huge difference between raw information (which the internet offers) and knowledge.
Knowledge would be the understanding of that information (be it pricing data, sales figures, appraisals etc.) as observed in the backdrop of experience, and a long running history of performance.
I'll give you knowledge every time.
Right on Rory. Your point about "worth" is the basis for what we at 1000watt believe is one of the crux's of the problem. Real estate has a value proposition buried under the carnival tent of one-sided debates, full service propositions that the consumer doesn't need anymore and an unwillingness to push industry wide changes so that guys like you who actually go the extra mile aren't hidden secrets.
The argument to use a full service Realtor to get more money for the house is a useless, empty argument. It must vanish.
If real estate needs a better defense, here's one: The reason to use a full service Realtor and pay for it is based on the same principle people happily wait in line at Starbucks to buy a $4.00 cut of steamed milk and coffee instead of making it home. Convenience. And a belief that what they pay for is actually better than anything they could do on their own.
I'm referring to the principle here. Americans have made big choices with regard to Trading Up. The buy into value. Prestige. Luxury services. There is plenty from that well that real estate can draw from. We both know that. Now we need to convince the other 1.2 million.
I'm sure that it would be easier if that argument would just vanish.
Let's face it, if a person wants to sell their home on their own, that's fine with me, more power to them. I'm not coming down on someone who wants to do that. I am full service Realtor. I am a relief valve for those people when frustration is there, and they have sat on the market carrying their payment longer than they need to.
The truth of the matter is with the prices of homes here, a few months worth of payments easily eclipse 6% in many cases.
We're also talking about a market here where a starter home can cost a million dollars.
We're also talking about a region, (this county) that has 22,000 agents.
Either way, if you are a Realtor here, or a discount broker, or a FSBO if you intend to sell a house here in the OC you have to come with your A-GAME on a daily basis. That means those who don't aren't getting the top dollar for the sale.
Just because anyone can go learn to fly a cessna, does not mean they are automatically fit to land a 747. The same is true in this stratus of a highly competitive market. Would you argue that pilots are overpaid because you'd like to see airline tickets come down?
It's a great analogy see, because you're free to pick whichever company suits you. The full service agents aren't going anywhere, but their ranks will be thinned because those who don't get technology will retire. The same is true for real estate agents in almost all business models.
I just remembered something, that's that most full service agents forget to break down the logic behind why they claim to get top-dollar. If they fail to do the breakdown and properly explain that, then they aren't likely to justify their fee prices or be very convincing to their potential client.
Some agents aren't smart enough to do this.
I'd like to do the breakdown though.
First, I have to reiterate that this is with respect to my market in Southern California, it may be different in Boise or Green Bay.
1) We are swimming in real estate advertising. Every newspaper, circulation, magazine, classified section is packed to the gills with advertising.
2) Real Estate is a numbers game. '
There are 2 groups of buyers:
A: Buyers that know about your house.
B: Buyers that don't know about your house.
The more people you are able to transfer from group B into group A, the higher the statistical probability that you will you get someone willing to pay you the asking (or close to it) price.
3) There are times that lightening strikes right off. The times that a person sells by owner (or with an agent) and a buyer swoops in to buy that house right up.
These cases are usually played up really big, to make it seem like this happens all of the time.
In this market, those would be instances that fall outside the statistical norms. While they are possible, they are less probable.
4) In order to maximize the market saturation of your new listing, and swim as described in #1, a full service agent markets (read not the same as advertising) your listing. This is the basic difference between full service and everything else.
Marketing a property to achieve high saturation in a place where people are bombarded with advertising is critical.
Marketing costs money, that's a big chunk of the money that the agent foots with the aim of getting the commission.
5) The ultimate goal of the marketing is to transfer the largest possible number of people from group B into group A, and give the seller a higher probability of getting top dollar.
6) It's possible for people to do lots of free marketing on their own with the internet. Full service agents aim to do this, but also participate in the marketing that does carry a cost.
For the average household, I have always advocated they try it themselves for the first two weeks or so for the reasons stated above. (They just might find that buyer fast)
Granted They have a lot to do in order to do a FSBO correctly and pricing and advertising are at the top of that list then preparation, presentation and contracts and negotiation kick in.
As a prior duel licensed agent and an investor, I put together a little e book that show the potential FSBO how to go about successfully doing it themselves.
If after two weeks of try this http://www.magicbullets.com/gifts/final%20cows%20from%20kendall-1-s.pdf doesn't result in a buyer than at the very least the sellers are well equipped and best positioned to turn it over to a professional for the larger audience gained through the agent connections and organized channels etc…
Dan Auito from http://www.magicbullets.com
This discussion continues on digg:
http://www.digg.com/tech_news/Web_sites_can_generate_higher_prices_than_Realtors
Marc,
I completely agree with the spirit of your response to the article in the NY Times. It seems to me that the real obstacle to focusing on "…real issues like standards. Professionalism…." is that everyone already claims to be doing just that!
With the exception of fee-for-service a la carte brokers, there aren't any agents who aren't already claiming to be "full service agents" — certainly everyone commenting on your post has seized upon that title as a means of "differentiation". Of course, when everyone is claiming the "full service" title — there is no differentiation!
I have yet to meet an agent offering a discounted commission who claims that they do less — that they are not offering the identical quality standard when compared to a full-commission agent.
When everyone is "professional" and when everyone is offering the "highest standards of service" then those terms become commoditized themselves. They no longer carry valid meaning.
If NAR is serious about producing true professionals, we can't just be having conversations about training and standards…we have to actually be willing to raise the bar. Create real barriers to entry so that "real estate" isn't the fall-back vocation for anyone who wants to earn a big paycheck without having any particular qualifications. If our industry wants to be perceived as "professionals" then we should be prepared to explain to someone from outside our industry exactly what it takes to gain that "professional" standing. What meaningful and credible training should we require in order to become a licensed agent?
In reading some of the comments posted right here, it's hard to believe that agents are willing to justify their "full commission" status by reminding the world that we're willing to drive around to home improvement stores, deliver food and wash cars! Is this how a top professional in any other field would go about listing their credentials?
And while I agree that full-service agents can gain an awful lot by observing the Starbucks business model, I'm not with you at all when you point out that people stand in line and pay $4 for a cup of Starbucks coffee because they perceive it as being "better". People visit Startbucks because it makes us feel good about ourselves. And that's what a "brand experience" is designed to do. As of this moment, only a scant few real estate brands (salute to Real Living) even have a clue about creating a brand experience for their clients.
To me the good news is that as an industry, we have almost unlimited room to improve. If enough of us who care deeply about the future of this industry can help our associates uncover their heads and shake the sand out of their ears, we have a tremendous opportunity to affect real estate's future. Or we can just continue to whistle past the graveyard.
Great post Jon. I will expand on my Starbucks comparison in my next article titled "Real Estate Americano" to be posted this weekend and get to the heart of what consumers consider better and what Starbucks did to reinvent the coffee business and the experience that surrounds their growth.
Starbucks has infused itself into our rituals albeit morning, noon, or nighttime. They provide people with a social experience based on the thing that mattered most to their customers. This has transcended coffee from a drink to lifestyle activity.
Personal trainers, interior decorators, plastic surgeons are just some of the very highly paid service providers who have accomplished the very same thing. I am of the belief that there is a place for high end real estate services where fees of 6% are totally legit but real estate is going to need to do some hard work to build that model.
But it's there by virtue of how many people visit real estate on a daily basis. Destinations like Trulia, Zillow and others are proving this but in truth, the ultimate provider of an amazing experience is still in the capable hands of any amazing agent.
What the NY Times article tells me is that real estate has failed to make it case to the American public. The blogs by agents to that article continue to reinforce how they still don't get it. Its time to stop being defensive and start taking the criticism seriously. Respect it and then do something about it.
Your paragraph says it all. It defines what we at 1000watt is all about. Thanks for getting involved.
Hi Jon,
I see that you're taking a dig at me in your comment.
I'm professional because I present myself that way, and give my clients the value that they expect. People who don't see the value won't hire me, that is plain and simple. Stating that I do those errand type things is just an illustration of how I'm prepared to go the extra mile.
If you think it is professional to take digs at other peers in your industry, I suggest that you let your clients know that is how you expect to gain their business.
I'm secure in my business, and all the criticism in the world can't phase me; because in the end I will work smarter, harder, and longer for my clients, and I know that the results speak for themselves.
This topic is serious and there's no doubt there's going to strong opinions expressed. When I read Jon’s post it made me think of my first home and my agent who came over the day after I bought it and scrubbed my kitchen. I sure did appreciate it but I have to say, I looked at her a different way after that. Her professional air dropped a few notches, as would a physician if he performed the nurse’s duties.
What I got from Jon's statement is the public views the many things agents market themselves around, judges them accordingly and determines whether they amount to the value agents assign to them. Consumers may appreciate the effort but they may not value it.
If heart surgeon markets themselves as someone who also drive you home form the hospital and makes your bed, would that serve his image in an upscale way? Would it get his more money than his competitor who doesn’t do that? That might be really cool but is it of value.
The point of all this is consumers and industry peers are believing that Realtors need to address and then repair the public’s perception of its value by showcasing its strengths those public views as valuable.
Take the paperless transaction. We know it’s incredibly valuable to a Realtor due the tremendous savings it bears on their bottom line yet how many actually moved to that platform? Are they in touch with how valuable that is to the consumer? Juxtapose agent Bob who drives around with papers all day getting signatures at point A and drives them to point B so they can stand over several machines to copy, fax, bind, file, staple and mail them against Agent Steve who captures a signature at point A with Real Estate Dashboard technology and moves the entire document into a TMS platform like Relay right in front of his client who then offers his client a secure login to view everything. No copies, faxes, mail, files folders”nothing.
Yet how many agents actually practice’s Steve’s way? Why not? What's the hold up? Cost? Can't possibly be. The savings of using this method has been proven. The consumer views Bob’s way as old. Wasteful. And costly which they feel they are paying for.
With HGTV, TLC, etc., portraying the Realtor as over dressed, over made up, tour guides pointing out the obvious "this is the bathroom" with no core talent.
Bottom line: Real estate has got to find its core. The one simple core item that goes to the heart of what it offers that is worth the commission. Then it needs to build a strong campaign around that.
Read Making it Stick. Its required reading