Are REALTORS afraid of the FSBO Market… scared enough to spend $25 million!
Yesterday, the NAR announced a new $25 million Public Awareness campaign with ads targeting the newly (politically correct)coined “unrepresented sellers” or commonly known as FSBO. I’m surprised that this did not get more attention… considering the other issues the NAR currently has with the DOJ.
Here is a quote from their press release…
“One of the new spots, called “Don’t Try This At Home,” explains how choosing a Realtor® to sell a home is a smart financial decision since home sellers make more money when they rely on the expertise of a real estate professional. Homes sold by a real estate agent sell for 16 percent higher on average than those sold by an unrepresented seller, according to NAR’s 2005 Profile of Home Buyers and Sellers.”
You can view this commercial from the NAR website which requires FLASH.
You don’t spend $25 million on a image problem… unless your concerned about it! What I gather from this NAR spend is that the 2005 Profile of Home Buyers and Sellers may have also shed other information that the NAR did not anticipate… maybe a growing trend towards FSBO?
I discussed this in detail from my previous homebuyer profile post but here are some of my general thoughts…
A) The FSBO market is much greater than the NAR wants to admit as most would consider the “$399.00 Flat fee for MLS listing” model… really is a FSBO… as they are “unrepresented” by the REALTOR from the negotiation point of view. The fact that these types of listings are most likely factored into the NAR figures, as “represented” by a realtor does not paint a clear picture of how big the FSBO market really is.
Do you think the NAR is using the new term “unrepresented” because they don’t want to reinforce the branding of the term “FSBO” or “For Sale by Owner”?
B) NAR touts the figure that.. “Homes sold by a real estate agent sell for 16 percent higher on average than those sold by an unrepresented seller” but as I indicated before, many of these FSBO transactions are inter family deals, which are purposely discounted… this was quoted from Inman News…
“13 percent of sellers conducted transactions without the assistance of a real estate professional in 2005. Of those, about 39 percent of the transactions were "closely held" between parties who knew each other in advance, up from 32 percent in 2004, the association reported.
Now if 40% of the sales are “Closely held” don’t you think that these figures should be left out of the figure “16% higher…”? This is an obvious spin of the facts.
C) Also, if you have 5 million more sales to factor into your average… there will be a lot more high-end properties included, which will artificially skew the average.
Here is what I’m fairly sure of… the NAR would not be spending this money if they did not feel threatened!
You would think that they would be focused on the general image building considering the issues with the DOJ. Maybe they know that they won’t win that fight, so might as well go after the FSBO market before it gains too much traction, especially as the real estate market cools and home sellers become much more concern at preserving their “equity” at time of sale.
What I also read into this, is there is more of a focus on “Selling” vs. “Buying”… which I assume they (the NAR) feel that the real estate market will be slowing and there will be significantly more homes for sale… with a fair portion trying “FSBO” before possibly listing with an agent.
So my theory regarding $25 million NAR spend is quite simple.
Real estate market cools off, sellers become much more aware of the “costs” of selling as they don’t have as much equity due to slowing appreciation and negatively amortized mortgages. They explore other home selling options such as selling by owner before immediately listing with an agent. As property inventory on FSBO sites build, homebuyers continue to explore these sites looking for real estate listings. Especially considering that sites like For Sale by Owner Center.com offers better search experiences like map searches, satellite views, date listed, rss feeds and provides the actual property addresses unlike Weichert and other real estate sites, which are designed to create leads for their agents.
As more and more successful real estate transactions occur and the FSBO market starts to gain traction nationally as it has in Madison Wisconsin, REALTORS will need to defend their value position (with something other than the current “scare tactics”).
Home buyers will realize that they are only being shown properties which offer a commission vs. the entire inventory of available homes as quoted by a REALTOR in Madison who does not show the 20% of available homes for sale in Madison because they are FSBO. This according to a quote on the NYTimes article on FSBO Madison. This will frustrate homebuyers and allow other real estate service companies and FSBO services to fill the service void left by agents.
Although, I may seem anti-REALTOR, I’m really not and I don't think people are either. I do believe that most people don't spending $35,000 in real estate commissions to get their home sold but everyone is willing to pay for the service.
I do think that a large majority of the real estate community has difficulty in changing a flawed business model. As proof with the all the bus benches advertising REALTOR’s and the lack of Internet advertising by local real estate companies in their area. Although the NAR reports that 77% of homebuyers are on the Internet… the agents are not there yet?
Until agents learn how to charge “home buyers” for their services… we are in for some big changes and the NAR will need to continue spending money advertising. This will make Madison Avenue happy and Madison Wisconsin FSBO’s even happier!
Here is a quote from their press release…
“One of the new spots, called “Don’t Try This At Home,” explains how choosing a Realtor® to sell a home is a smart financial decision since home sellers make more money when they rely on the expertise of a real estate professional. Homes sold by a real estate agent sell for 16 percent higher on average than those sold by an unrepresented seller, according to NAR’s 2005 Profile of Home Buyers and Sellers.”
You can view this commercial from the NAR website which requires FLASH.
You don’t spend $25 million on a image problem… unless your concerned about it! What I gather from this NAR spend is that the 2005 Profile of Home Buyers and Sellers may have also shed other information that the NAR did not anticipate… maybe a growing trend towards FSBO?
I discussed this in detail from my previous homebuyer profile post but here are some of my general thoughts…
A) The FSBO market is much greater than the NAR wants to admit as most would consider the “$399.00 Flat fee for MLS listing” model… really is a FSBO… as they are “unrepresented” by the REALTOR from the negotiation point of view. The fact that these types of listings are most likely factored into the NAR figures, as “represented” by a realtor does not paint a clear picture of how big the FSBO market really is.
Do you think the NAR is using the new term “unrepresented” because they don’t want to reinforce the branding of the term “FSBO” or “For Sale by Owner”?
B) NAR touts the figure that.. “Homes sold by a real estate agent sell for 16 percent higher on average than those sold by an unrepresented seller” but as I indicated before, many of these FSBO transactions are inter family deals, which are purposely discounted… this was quoted from Inman News…
“13 percent of sellers conducted transactions without the assistance of a real estate professional in 2005. Of those, about 39 percent of the transactions were "closely held" between parties who knew each other in advance, up from 32 percent in 2004, the association reported.
Now if 40% of the sales are “Closely held” don’t you think that these figures should be left out of the figure “16% higher…”? This is an obvious spin of the facts.
C) Also, if you have 5 million more sales to factor into your average… there will be a lot more high-end properties included, which will artificially skew the average.
Here is what I’m fairly sure of… the NAR would not be spending this money if they did not feel threatened!
You would think that they would be focused on the general image building considering the issues with the DOJ. Maybe they know that they won’t win that fight, so might as well go after the FSBO market before it gains too much traction, especially as the real estate market cools and home sellers become much more concern at preserving their “equity” at time of sale.
What I also read into this, is there is more of a focus on “Selling” vs. “Buying”… which I assume they (the NAR) feel that the real estate market will be slowing and there will be significantly more homes for sale… with a fair portion trying “FSBO” before possibly listing with an agent.
So my theory regarding $25 million NAR spend is quite simple.
Real estate market cools off, sellers become much more aware of the “costs” of selling as they don’t have as much equity due to slowing appreciation and negatively amortized mortgages. They explore other home selling options such as selling by owner before immediately listing with an agent. As property inventory on FSBO sites build, homebuyers continue to explore these sites looking for real estate listings. Especially considering that sites like For Sale by Owner Center.com offers better search experiences like map searches, satellite views, date listed, rss feeds and provides the actual property addresses unlike Weichert and other real estate sites, which are designed to create leads for their agents.
As more and more successful real estate transactions occur and the FSBO market starts to gain traction nationally as it has in Madison Wisconsin, REALTORS will need to defend their value position (with something other than the current “scare tactics”).
Home buyers will realize that they are only being shown properties which offer a commission vs. the entire inventory of available homes as quoted by a REALTOR in Madison who does not show the 20% of available homes for sale in Madison because they are FSBO. This according to a quote on the NYTimes article on FSBO Madison. This will frustrate homebuyers and allow other real estate service companies and FSBO services to fill the service void left by agents.
Although, I may seem anti-REALTOR, I’m really not and I don't think people are either. I do believe that most people don't spending $35,000 in real estate commissions to get their home sold but everyone is willing to pay for the service.
I do think that a large majority of the real estate community has difficulty in changing a flawed business model. As proof with the all the bus benches advertising REALTOR’s and the lack of Internet advertising by local real estate companies in their area. Although the NAR reports that 77% of homebuyers are on the Internet… the agents are not there yet?
Until agents learn how to charge “home buyers” for their services… we are in for some big changes and the NAR will need to continue spending money advertising. This will make Madison Avenue happy and Madison Wisconsin FSBO’s even happier!
posted by Jessie B at 3:57 PM
10 Comments:
Once again, comments from someone who is identified as "not anti-Realtor", yet needs to gain more insight into the role of a Realtor.
No colleague of mine is worried about nor afraid of FSBOs. Those of us who are ethical, respectful and provide truly remarkable customer service have home sellers beating our doors down to assist them with their transactions. The bottom line is, FSBOs cannot afford the marketing that the larger RE companies can - nor do they have the national and now world-wide exposure. While we are the experts (or should be, I can't speak for ALL Realtors)in Real Estate law and transaction management, we are also marketing a home for sale just like any other commodity.
The plain and simple truth is that with the "do-it-yourself" craze a few years back, many people figured they actually could sell their homes on their own - why use a Realtor (and if someone is getting paid $35,000 in commissions for a residential sale, I am in the wrong area). People have gotten smarter about time management and realize that they are not able to work full-time and market/show/advertise and otherwise promote the sale of their homes full-time.
I love to see FSBO signs put up in my area - I just count the days until they walk into my office and ask for help. The old addage, "Pay me now or pay me later" really applies to the housing market. People don't realize what they are getting into many times when they take on the challenge of representing themselves. When buyers take advantage of sellers, or lie (as they often do), or get to closing day and haven't really secured financing or insurance, more often than not those representing themselves say "we should have hired someone to handle this...we didn't know what was involved!"
I truly feel for these people. And DO NOT lump all Realtors together. We do NOT all use scare tactics to get our business. Those of us who do competent and reliable business get many referrals from past clients. We provide a SERVICE for a fee. We are state licensed for a reason - we are held accountable for our actions. Buyers who contact Realtors, ask the Realtor to show them 20 houses, spend unlimited amounts of time with them every weekend and then end up approaching the owner of one of the houses shown them by the Realtor should be strung up! The PUBLIC is not held accountable for their actions, but one Realtor makes an ethical misjudgment and the world claims that all Realtors are "crooks".
I would urge you to get to know a Realtor, what they do, what type of continuing education they must seek, and how hard they work before you make blanket statements about NAR or Realtors.
Hello REALTORGeorge,
Thanks for taking the time to respond. I appreciate your enthusiasm about real estate and thought I should research who posted this comment. I read your blog profile at http://realtorswhohateclients.blogspot.com/
and it indicates the following…
“Wednesday, March 01, 2006
Welcome!
As a relatively new Realtor, coming from the nursing profession, I found it necessary to have an outlet where I can bitch about clients and their stupidity. Anyone want to join me? Just random posts - no need for a long story. --- this posted on your blog: http://realtorswhohateclients.blogspot.com/
So, when I saw this I was a little taken back… as your anonymous blog is probably a better reflection of who you really are. In fact, I was not going to publish this post but I thought some readers would benefit. So I will take that time to respond.
First, I think that it’s interesting that as a “relatively new REALTOR, coming from the nursing profession” you already feel that you have so much insight into the real estate business.
I glad you our your colleagues are not worried… since that is the exact reason why alternate real estate models will gain traction. I’m shocked that you feel that obtaining your real estate license with 20 hours of at home study courses now qualifies you as an “expert in real estate law”… while it takes attorney 4-6 years to get a law degree, so that they can call themselves an expert. It’s this kind of perceived knowledge you believe you have acquired by getting “state licensed” that makes some of the public have certain sentiments towards you.
“and if someone is getting paid $35,000 in commissions for a residential sale, I am in the wrong area”
You are obviously not in California or on the East Coast were agents can make $35,000 for a sale (I.e. 6% of the California median priced home of $551,300 (http://www.car.org/index.php?id=MzU5NTQ=) assuming they double end the deal or 3% of a 1.2 million co-op in New York? Also, it you were it sounds like you actually lived in these areas you would not pay want to pay this fee.
But from all of your comments, here is the one that bothers me the most… “I love to see FSBO signs put up in my area - I just count the days until they walk into my office and ask for help”
Here’s why… you have a fiduciary responsibility to your customers that you are showing homes too… I’m sure that if one of your clients indicates that they like a home that is “FSBO” you immediately bad mouth the home, saying it’s over priced or something… and start showing them other properties were you can EASILY earn a commission on. You most likely do this because you do not have the negotiation skills to approach the seller to present an offer and secure you commission. In fact, your own buyers most likely would not pay you directly for your services… right?
The fee you charge for your SERVICES is paid by the seller. Selling a free service to a buyer is fairly simple… getting people to pay you for your services is what separates professionals from rookies.
Instead, you wait to see the FSBO fail (as indicated in your comments above)… in fact you will do everything possible so that is what happens. If this is not what you do… please educate me?
Here is another fact that bothers me…
“Buyers who contact Realtors, ask the Realtor to show them 20 houses, spend unlimited amounts of time with them every weekend and then end up approaching the owner of one of the houses shown them by the Realtor should be strung up!”
Are you kidding me? This is life and business George… again, this attitude that you are “owed” something for the time you spent helping a “buyer” is wrong
Obviously, this has happened to you, maybe you should work on educating your “buyers” about your services and how you are paid? Tell them why it’s important that they be loyal to you. Maybe you should charge a refundable “hourly fee” upfront that is reimbursed once they have successfully purchased a home with you… instead like most REALTORS you take the easy route and advertise your services as being “free”… of course buyers are going to waste your time.
Why do you think that you are owed a commission?
If every business in America had your attitude about “shoppers” than there would be no businesses in America.
I think it’s funny that you assume that I don’t know a REALTOR… since one in 300 people in the US are REALTORS are everyone probably knows more than one.
Maybe, you can provide me with more insight into the role of a REALTOR as you indicated from you opening statement?
I would LOVE to educate you on many of your erroneous comments.
As to the slander of my character you attempted by posting my blog, I will be the first to admit that there are many facets of this career that irritate me. If someone out there has a career that is totally care, stress and irritant free then they are either liars or highly medicated. I stand behind my right to "bitch" if I feel like it - that's the beauty of America.
You make several assumptions about my business practices,so I intend to educate you yet further. Firstly, it may only require 20 hours of home study in your state to obtain a real estate license, but in Florida, it requires 64 hours of class room study, a state proctored board exam and 45 hours of post-licensing education within the first year following licensure. Each subsequent license renewal period requires 14 hours of continuing education, the majority of this education pertaining to core real estate law.
In my first 6 months of real estate, I was honored by my peers for the highest sale volume in this area of the state, honored by my company (which is 100 years old and the largest in the world) as best new agent in the state and also one of the top 13% of all Realtors in the nation.
I hold a bachelor's degree in Nursing Science and a Master's Degree in Psychology. I maintain my Registered Nurse's license, my certification as an Operating Room Nurse, my certification as a surgical assistant, critical care nursing specialty and various other certifications. In all, my continuing education hours total 294 per year. In all, I have approximately 9.5 years of university level education -slightly more than a real estate attorney - and surprisingly a real estate consultant to a number of real estate attorneys in the state.
As far as working with a buyer who is interested in a FSBO, please do not assume that (a) this has not happened to me before and (b) that I would not go up to the door of a FSBO if requested by my buyer. I have done this numerous times and have been offered upwards of 5% by the seller to manage the transaction without representing the seller in a fiduciary role (though ethically, I behave as though each person I come into contact with represents a fiduciary responsibility).
I do NOT represent my services as being "free". They are not. If you think very carefully about a real estate transaction, it is ALWAYS the buyer who pays the commission of the realtor, whether it be through monies from a lender, cash from the buyer to seller or 1031 Tax Exchange. The one reason heard time and time again from FSBOs for not listing with a Realtor is that they would have to build the commission into the price and then it would be too high. Most don't realize that buyers looking at FSBOs automatically deduct the commission from the stated price since the seller is not using the services of a Realtor. They believe they are getting a bargain.
I am owed a commission for the simple fact that I work because like most Americans, I have to. I fulfill all promises made to clients or potential clients not because I enjoy volunteering my time. Would you approve of doing your job to the best of your ability and not receiving a paycheck? I think the problem is the connotation that the word "commission" carries. If our remuneration were termed otherwise, I doubt the general public would have a problem with it.
I do not wait for FSBOs to fail nor do I work to that end. Statistics PROOVE that 82% of FSBOs fail to sell their own property and a full 79% of FSBOs turn to Realtors to assist them.
Yes, in my opinion I have much insight to share regarding real estate despite my short tenure as an agent. Please let me explain slightly further about my character, since you falsely assert you understand all you need to about me from my blog posting; in my nursing career I lived, ate and breathed nursing. I learned all I could about the surgical environment, nursing, health, anatomy and other topics which could be listed ad nauseum. I have treated my real estate career no differently. I am totally committed to being the best and maintaining my integrity. Knowledge is power and while I will admit that I don't know everything there is to know, my track record thus far proves I have extensive knowledge in the field. Time doesn't buy you experience; experience buys you experience. If we are to banter further in the future, please stick to facts and do not attempt character assasination - it's ugly and useless. Side note, I have been appointed to the regional Realtor Ethics board by my peers - there are realtors in the business for 20+ years who are never asked to serve on the ethics committee.
In short, I am not a stupid nor inexperienced person. I am not the crook you believe all Realtors to be and I honestly have all of my clients' best interests at heart.
My entire response regarding FSBOs was to illustrate the fact that the real estate industry exists for a reason - there is a genuine need. Since the industry is fairly young, we have revamped, revised and reorganized ourselves to meet the demands of the public. We police ourselves so as to uphold ethical behavior and service along with the state laws which govern our licensing.
“As to the slander of my character you attempted by posting my blog”…
slan·der (slăn'der)
n.
1. Law. Oral communication of false statements injurious to a person's reputation.
2. A false and malicious statement or report about someone.
According to the definition of slander… that’s not what I did. Your "blog" is your words… not mine. I may have exposed your blog but that’s not slander especially considering anyone reading your post only has to click on your name to view your blogger profile.
Anyway, my original point was that you used the word “real estate law expert” very loosely and I don't agree with that. If I took 64 hours of “Nursing Science” classes and worked in a hospital for 6 months with maybe 15 patients I would not call myself a “Nursing Expert” and I don’t think you would necessarily approve me of doing so, right?
Real estate classes are in no way as in-depth as traditional college degrees required for your nursing degree and your masters in Psychology. In fact, I think you are an “expert” in Psychology, since you have a Master’s Degree and the definition of Expert is:
A person with a high degree of skill in or knowledge of a certain subject.
a. The highest grade that can be achieved in marksmanship.
b. A person who has achieved this grade.
You may very well be successful at one of the large real estate franchises like Century 21 but your less successful colleagues have yet to experienced the slow and difficult times of your business ahead. These times will really separate the pack and it seems like you will be at the top of that pack since you are in the top 13% currently. That is a great achievement and I wish you continued success. So getting back to our discussion of the facts.
The average real estate agent is involved in about 9 transaction sides per year and at the current Florida median sales price of $246,300 = $2,216,700 in sales volume x 3% commission = $66,501 x 70% average commission split with broker = $46,550 in income. In fact, my estimate is probably generous as this article in the Feb. 7, 2006 Wall Street Journal ( http://www.realestatejournal.com/buysell/agentsandbrokers/20060207-hagerty.html?refresh=on ) article states… “median annual income of real-estate sales agents in 2004 was only $37,600”.
My point is that agents are well rewarded for inefficient and mediocre results and selling 9 homes a year in a hot market is a lot easier than finding and working a full-time 40 hour a week job paying then $22.09 per hour. (which is equal to about $46,550 a year in income).
I don’t think that any real estate agent would admit that they “really” worked a full 2000 hours (40 hours a week for 50 weeks) to sell just 9 homes, which would be equal to 222 hours spent per client.
In fact, a recent report from the California Association of REALTORs indicated that the average Internet home buyer made an offer to purchase within 1.94 weeks with an agent . (Note: that the REALTOR and buyer are not working 8 hours a day for 1.94 weeks) and according to the 2005 NAR home buyers report that is as much as 77% of the market now.
This low barrier to subsistence in a decent paying career attracts many individuals who should not be in the business and don’t really have to (or possibly care to) work hard to earn a living or improve the business. But yet these same individuals who do 9 transactions a year will consider themselves experts and some times provide misinformation to close a sale for the most expensive asset a person will typically ever own. A typical CFP financial planner needs more education than a REALTOR to sell a $1,000 mutual fund.
I think good agents will continue to do good business and earn a good living although they will need to do a lot more sales volume than currently. I think the average agent will be economically squeezed out of the business due to downward commission pressures and consumers themselves who will begin holding agents to a higher standard and lower compensation.
So let’s get back to you educating me and our readers about real estate and the FSBO market. I have 5 questions that I hope you can provide your professional real estate insight on:
1 - Why should home sellers pay 5% - 6% in real estate commissions to sell their home?
2 – Why should a seller compensate the party (the buyer’s agent) whose job is to negotiate against him / her to sell their home at the lowest possible price? For example: I would not pay for both my attorney and another attorney to defend the guy that I’m suing, right?
3 – What is the average amount of time a typical REALTOR actually spends working with a homebuyer from point of contact until the close of escrow?
4 – If a home buyer could not finance the real estate commission for the services rendered (of a buyers agent) into the price of the home, do you think buyers would / could actually pay an average $7,389 ($246,300 x 3%) for those services out-of-pocket?
5 – What are the reasons you believe that… “82% of all FSBOs fail to sell?
I would wholeheartedly agree with you that agents who sell 9 units per year are FAR from experts and should not deign to call themselves so (I sold 9 properties my second month in RE).But you also fallaciously assert that all real estate agents make 3% commission on one side, which is the exception rather than the rule. This is due to the glut of limited service brokers promising to "sell your home for 2% commission". Exactly what they do - they list the property in MLS, most times require the seller to do the negotiating and then expect the buyer's agent to complete the work for BOTH sides of the transaction for 1%. You also falsely assume that the job of transaction management once a contract has become effective is easy and that we all just sit back and collect our commission checks. It IS easy for the realtors who rely on others to complete the required work, but it is not easy for those of us who genuinely care about our clients, that they don't default on the contract, and that promises are kept. There ARE bad realtors out there, just like there are bad doctors; but I don't assume ALL doctors make horrible medical mistakes just because I have heard of a few.
I will endeavor to answer your questions:
1 - Why should home sellers pay 5% - 6% in real estate commissions to sell their home?
For the very same reason anybody pays anybody to work for them. Many people have lawn care companies that take care of their yards and pay them monthly. Could these people take care of their own lawns? Probably. Most likely they have neither the time nor inclination to do so, so they contact someone who is in the business of lawn care and probably does it full time. Could people sell their homes on their own? Absolutely and many do so quite successfully each year. But why not leave this to someone who does nothing BUT sell real estate full time, can advise of potential hazards and make sure that things are done according to the real estate laws of the state - earnestly protecting the assets of the client all the while? If your question was related to the AMOUNT of commission paid, rather than a commission being paid at all, I will submit that a bicycle and a car do exactly the same job; they provide transportation from point A to point B. Why then doesn't everyone purchase a bicycle instead of a car? And why are people willing to shell out tens of thousands of dollars for a car as opposed to a few hundred for a bicycle? Convenience? Why do I collect the amount of commission that I do with each transaction? Because I am WORTH that amount and prove it consistently to my clients illustrated by the fact that over half of my clients have referred others to me.
2 – Why should a seller compensate the party (the buyer’s agent) whose job is to negotiate against him / her to sell their home at the lowest possible price? For example: I would not pay for both my attorney and another attorney to defend the guy that I’m suing, right?
I assume that we have a state-to-state difference here and I will explain how things work in Florida. If a buyer asks to see and then eventually purchase a FSBO, we sign a "One Time Listing" agreement with the seller which in fact allows us to represent the seller AND the buyer as a transaction broker in that single transaction. It does not give us the right to market or show the property to other clients, only the protected buyer we are working with on this particular property. In that event, I DO represent the seller as well, and manage the transaction according to the best interests of both parties. The duties of the transaction broker are, but are not limited to: dealing honestly and fairly with the client, accounting for all funds received by the brokerage, using skill, care and diligence in the transaction, limited confidentiality (and this simply means that anything the buyer or seller tells me is held in confidence unless the statement shows intentional harm planned toward the other party or concealment of material facts). And depending on the market, if the home is priced correctly, I may actually talk my buyer into making a HIGHER offer than they originally intend to. If we are talking about a seller's market, as we saw in this state over the summer, then prices were extremely overinflated, bidding wars were occurring only to find out that the properties were not appraising for the sale price.
3 – What is the average amount of time a typical REALTOR actually spends working with a homebuyer from point of contact until the close of escrow?
This depends on the agent and the buyer. I have spent upwards of 6 months with some buyers where other agents may have given up. I realize this is the biggest investment most people will make in their lives and they either like a property or they don't. I try to match properties with the buyers wants/needs to the best of my ability, but many times you find the property that meets all of their criteria only to find they have another list of secret criteria that aren't met; back to the drawing board. If we are talking about buyers who are ready to buy, you may spend 3-4 days looking at properties for about 4-5 hours per day and once a contract is written, the average time I spend on each transaction from contract to close is 41.7 hours (and yes I do keep track of those things - it comes from having been a director of surgery and in charge of patient quality control). If there are problems or extenuating circumstances involved in the transaction, that number can increase by 10-12 hours.
4- If a home buyer could not finance the real estate commission for the services rendered (of a buyers agent) into the price of the home, do you think buyers would / could actually pay an average $7,389 ($246,300 x 3%) for those services out-of-pocket?
I didn't create the real estate market or the way things work. If things had been done differently, and the buyer actually paid the commission instead of the seller from the beginning of time, I FIRMLY believe people would still employ Realtors to assist them with home purchases. As you said, it is the largest investment many will make in their lifetimes and the smart consumer knows what they don't know, in turn employing a professional to advise, consult and assist. There are STILL people who don't know how commission works and I can think of 4 different buyers over the past year who have come to my office, looked at property with me, sat down to write a contract and asked me to figure out 7% of the purchase price for them so they could write my company a check. This leads me to believe that people still assign value to the services I provide and are willing to pay for them.
5 – What are the reasons you believe that… “82% of all FSBOs fail to sell?
Absence of the property from the market. When you are FSBO, anytime you are not home, your house is off of the market. Unless you don't work and can be available to show the property at the drop of a hat, today's instant gratification buyer will not wait until you get off of work - they will move on to the property they can get into within half an hour. Also, FSBOs have nowhere NEAR the marketing power of a reputable and competent brokerage like mine (and no, I do NOT work for Century21 - think larger!). I believe that FSBO sellers are also instant gratification consumers and expect to place one ad in the classified section on one Sunday and the world will beat their door down to buy. When this doesn't happen, they become dejected. They may host one or more open houses to which not many people come, and again more dejection, rejection and sense of failure. Eventually, they tire of the process and seek out the services of a professional. I have actually offered to assist some FSBOs in selling their homes without a listing or representation agreement by holding open houses for them, providing them with the necessary forms for the transaction, etc. simply because if they are not going to list with me, I at least want them to remember that a Realtor was still willing to help them - doing my small part to better the reputation of Realtors. Perhaps in the future, if they know of someone buying or selling, they'll say "You know, this really nice Realtor helped us out when we sold our place...maybe you should call him!" In short, I believe the statistic that 82% of all FSBOs fail to sell simply because they don't know what to expect from the process and tire of it quickly.
Hello REALTORGeorge,
The 9 transaction a year real estate agent is the typical agent. This groups probably represents 500,000 – 700,000 agents, which means that when most home sellers and home buyers are involved in a real estate transaction, they are dealing with an agent who has this amount of limited experience. Again, maybe you are an exception but the normal agent is far from full time and professional. Remember that my original post was about the NAR and agents in general, not you personally.
As for assuming that all real estate agents make 3% per side, that’s what the Association and the majority of the members are fighting for (and the DOJ against)… trying to keep it as high as possible. According to most statistics the national average is 5.2%, which still is 2.1% per side as an average. Again, I was giving the benefit of the doubt, so in fact most agents make even less than what I stated… but as most agent will proudly state… 6% will become normal again as the market cools off (or so most agents hope).
If the average commission amount was only 2% total for both sides then we probably wouldn’t be having this conversation but please note in your post: “due to the glut of limited service brokers promising to "sell your home for 2% commission"”
This what my original about the NAR spending 25 million was about…
“A) The FSBO market is much greater than the NAR wants to admit as most would consider the “$399.00 Flat fee for MLS listing” model… really is a FSBO… as they are “unrepresented” by the REALTOR from the negotiation point of view. The fact that these types of listings are most likely factored into the NAR figures, as “represented” by a realtor does not paint a clear picture of how big the FSBO market really is.”
You are actually reinforcing my original statement from my post, as you are saying that this is there is a “glut” now.
Since you are saying that this is common now… it appears that it works… as you stated that agents are doing these deals… as supported by the amount of sales volume in the Florida market. Maybe you and many other agents are not happy about having to work for only 1-2% but this is a business reality.
I don’t think that companies who sell products to Walmart, like it when Walmart tells them that they must cut their prices by an additional 8-10% or be replaced… but they do… to keep that business. Then these businesses analysis how they can be more efficient to make up the cost difference from Walmart to continue operating profitably. What’s unfortunate is that the real estate community in general is protesting vs. changing.
Again, maybe you are very good at what you do but the agents that sit back and let the mortgage lenders, the escrow, the title and everybody do what they have to do… represents the majority.
Agents are basically high-paid messengers once the transaction is open. As you stated, it’s “Transaction Management” which is really just “People / Emotion Management”.
There is not a high level of skill required to follow up with other real estate related services who also stand to gain financially for completing their jobs (remember that almost everyone’s compensation in a real estate deal is based on a successful closing). Getting the proper real estate disclosure documents signed and explaining them is not real difficult, neither is coordinating appointments and making sure everybody is doing their jobs in a timely fashion. Yes it’s frustrating… difficult it’s not. This is why most large real estate brokerage companies have low-paid transaction coordinators, so that agents can spend their time looking for new clients.
As, I stated before, in my original post, I never stated that real estate agents were bad or crooks, so I’m not sure why you are coming back to this issue.
Realtors cannot be compared to doctors. Doctors have specific mental and physical skills that have been honed through years of schooling. Their jobs require significantly more thought process and physical skills than an agent. Doctors need to understand how the most complex machine in the world works and what the repercussions are of doing a specific action. Realtors only need to know how fill in the blanks of disclosure forms that has been professionally prepared by attorneys, that protects them (the agent) 100% unless they commit fraud. The main skills of a REALTOR is marketing, basic negotiation and most importantly providing emotional support to the parties involved and that’s not very difficult and is fairly easy to get good at. Most realtor negotiations are 2-5K increments in 1-3 counter offers at most… with fighting over whose in-house escrow, title or mortgage broker will be used.
So going to my original questions.
1- My question was why should people pay 5-6%.
Of course there will always be “ real estate services” for a price but the question was more so, why should they pay such a large amount of their equity. Just like why people go to the restaurant when they can cook at home. Ease, convenience, etc.
The real issue is that most agents appear to feel that they are “Worth” 2-3% of a $250,000 home for their services. My question is why should clients pay $5,000 - $7,500 for 40-70 hours of work as you mentioned. How can agents in general justify this cost when apparently selling for just 2% appears to work and some agents are willing to do it?
I personally think your analogy for the car vs. bike is way off. Most people buy cars because it’s a necessity. It’s pretty hard to get your groceries home and take your kids to school on a bicycle. Riding a bike 40 miles a day back and forth to work does work for most people. Although there are cities in the US that are densely populated with good public transportation such as NYC and San Francisco where many people don’t own cars.
So to rephrase my question.
“Why are real estate agents services “Worth” 5-6% vs. only 2-3%?” especially as you indicated when “Could people sell their homes on their own? Absolutely and many do so quite successfully each year.”
Or
“Mr. REALTOR, I want to sell my home, why should I pay you 5.5% for your services?” … how do you think most of your colleagues respond to this question?
2- My question pertained to the current real estate model. Why are sellers responsible to pay for the entire commission including the buyers agent commission?
My point is that since one person (the seller) is paying for the representation of both sides, it actually makes no sense for the agents to negotiate the best deal for both parties. I know you will present the argument that the buyer “pays” for the service but most do not view it that way. My argument is that the average buyer would not pay for the average agent to represent them and the average seller is tired of paying 5-6% for the average agent.
The current real estate model is a high priced “mediation” service. Here is the definition of “mediation”
Law. An attempt to bring about a peaceful settlement or compromise between disputants through the objective intervention of a neutral party.
Real estate is “mediation” between the two parties over price and terms. The agents have nothing to gain to “negotiate” long and hard over price and terms as the compensation model does not justify additional time for the return. (i.e. extra $30,000 in price only nets agent additional $900 before splits). Agents actually push to make more when the deals come together faster. This argument is supported in the book “Freak Economics” where a study revealed that the agents marketed their own properties for up to two weeks longer and typically got a higher percentage of the asking price (bigger return, i.e. $30,000 vs. $900) vs. the properties they represented for sellers.
The agents job is to mediate the deal and support the buyers or sellers decision to sell at the price agreed to by both parties. This is why most homes are sold to the first buyer who makes an offer.
So, I will ask my question again in a slightly different format.
“Why should sellers continue to pay 5-6% for full service real estate, were is the benefit to them?”
3 - So in your case, you spend about 60-70 hours per client… do you think that is normal for most of your “colleagues”?
It appears from your statement that you spend “more” than normal with clients, so this would mean that the “average” agent spends less then 60-70 hours, right?
I read this statement and highlighted
“There are STILL people who don't know how commission works and I can think of 4 different buyers over the past year who have come to my office, looked at property with me, sat down to write a contract and asked me to figure out 7% of the purchase price for them so they could write my company a check. This leads me to believe that people still assign value to the services I provide and are willing to pay for them.”
In this statement you say… “STILL people who don't know how commission works” but then you assume that they were willing to pay you 7% because of the great services you provided?
According to this, it looks like they assumed they had to pay you 7% because they “did not know how commissions work” vs. them thinking you gave them a great deal and provided excellent service and they were willing to give you a $10 - $20,000 bonus… I don’t think so.
Here is one thing I agree with you, you did not create the way the real estate market works but you and the majority of agents are also not embracing any of the changes that appear to be coming mainstream as evidenced by your apparent frustration of “glut of limited service brokers”. Also, must of these discount brokers charge a flat-fee of $299-$399 to put the house on the MLS and require the seller to offer a minimum of 2% commission to the buyers agent. Typically these flat-fee agents are NOT involved in negotiations and they make that very clear up-front that the seller is “un-represented”.
I do agree with you the people will ALWAYS employ REALTORS… the real question is how much are they willing to pay for these services provided? Will real estate agents be view as providing “professional skills” or simply “Convenient services”. Personally, I think it will be 1.5% per side at most for the “services”.
What do you think?
5) I was reviewing your statements regarding my question #5 and had a few statements.
“Absence of the property from the market. When you are FSBO, anytime you are not home, your house is off of the market. Unless you don't work and can be available to show the property at the drop of a hat, today's instant gratification buyer will not wait until you get off of work - they will move on to the property they can get into within half an hour.” – I believe that a serious buyer will wait to view the property until later in the day.
The Internet offers photos inside and out, virtual tours, satellite images, etc. Buyers would be more than willing to wait to view a home they love, if they like the photos from the outside. The bigger problem is evidenced by REALTOR.com listings… a majority of which do not offer photos of the home. In the hot market of the past, buyers felt a sense of urgency but this appears to be disappearing quickly.
“FSBOs have nowhere NEAR the marketing power of a reputable and competent brokerage like mine”
Really… for $299 - $499 anyone can put their home on the local MLS and on REALTOR.com. They can also, post the same ad as any real estate agent in any local paper. They can take 15 minutes to set-up a free blog, upload pictures and do the same pay per click advertising on google and yahoo.
Interestingly, for example, if you search “Tierra Verde Island, FL” on Google (here is the link: http://www.google.com/search?hl=en&q=tierra+verde+island+fl ) the number 1 listings is from our little FSBO site features one of our listings… no Century 21’s, RE/MAX or Coldwell Bankers sites are visible? I think this is pretty good exposure for that seller as 77% of homebuyers start their search on the Internet according to the NAR (especially when it’s free to the seller). Additionally, the seller knows exactly how many “views” he has received, which most realtors cannot provide that feedback.
You are also right about… “they become dejected. They may host one or more open houses to which not many people come, and again more dejection, rejection and sense of failure. Eventually, they tire of the process”
This is often the case, but not because the seller is doing something wrong. It typically has to do with the fact the agents (I’m not saying you) will refuse to show the property to their buyers and only show listings, which offer a 2-3% real estate commission.
What’s odd is that often, the moment when the property is listed with a 2-3% commission, even if the property is now priced higher, it will sell. I think this is because agents are now working on emotionally re-assuring their buyers (instead of talking them out of) that the home is “priced right” a “good deal”, “it’s in a good area” etc…
I was surprised that you did mention the fact that most FSBO are over-priced… is that because you have seen them pricing their properties more accurately?
I will also reiterate, that I believe agents will ALWAYS be around… the question is just what will people pay for their services and how will the industry be perceived?
From my experience most Realtors are honest and work hard.
Boston Condos
I listed over 800 homes in the last 14 months and the pace of my listing business is accelerating because of the many referrals from very happy customers. Simply stated, the traditional model of charging 3%, more or less, is rapidly becoming difficult to justify when so many agents offer some form of flat fee mls listing, or a reduced commission mls listing. Within the next couple of years I expect that the 'norm' will be the flat fee model and the exception will be full fee listings.
Actually, the justification of 6%, 7% or even 8% has become increasingly easy in our market in Florida DUE to the discount brokers and flat fee model. People are tired of it. I had to take on a partner and hire an assistant to conquer all of the work we are getting.
Keep it up, discount brokers! Keep disappointing people.
I am not an agent but have had good and very disturbing experiences with agents. I worked with a top agent in Delray Beach that listed my property only to have the buyers walk out on the day of closing for spurious reasons. The part that pissed me off about the agents, the broker and title attorney involved was that EVERYBODY stated that they "were not lawyers" when it hit the fan. I have no problem paying a professional realtor to bring me qualified buyers and close the deal but I would like the industry to be honest about its services because everyone of you agents out there will run for the hills and give the "I'm not a lawyer" statement when things go sideways for your clients.
And yes - I sold a 525,000 2 bedroom home 8 years ago (Delray Beach the lawsuite), a 433,000 2 bedroom condo (Delray on A1A) 15 months ago and a $315,000 1 bedroom condo in DC 8 months ago. Commissions ranged from 6% to 5% to 0% for a closely held transaction on one of the properties.
The marketing techniques are changing with the Internet but a good sales person is still a good sales person. I'll pay the commission if it's justified by a good agent that can deliver but let's not get carried away with the fact that real estate agents are only as good as their ability to market and close. Their legal advice ends at the tip of their nose as does the rest of their advice. If you go the FSBO route use a trusted title attorney to go over the contract with you and offer advice. Maybe he/she can offer your buyer a discount if they choose your title attorney.
Best Regards,
Cory
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