Real Estate Commission Limbo...
Here is interesting post at the Inman blog which I commented on. Agents still fighting over commission rates. Here is my post:
The problem is that most agents cannot seem to break-down what they do. Most just say it's going to be X% to list. Instead agents should try to truly explain what your services are and really provide a break-down and explain the most important facet, the emotional support you provide. Obviously I'm not an agent but here is a tool we use to show the hourly savings between FSBO vs. REALTOR transactions and I think that the more an agent can do to provide tools like this the better chance of holding onto your current pricing structure. Also, keep in mind that the traditional real estate industry has yet to feel the real effect of new alternative realty agencies. Buyside, Zip, Redfin, Expert, etc. which will capitalized on the marketing aspect that buyers can save a significant amount of money using their models in this new buyers market. Traditional agencies have only felt the attack from one side so far and look at the impact, the selling commission from the discount and flat fee brokers, which have only about a 3-5% market share. Now the buying commission is also coming under attack and let’s assume they too can pick up the same market share.
Where most of the companies will make true head-way in this battle is that they will capitalize on the inefficiencies of individual agents. Real estate is an individual business with each agent trying to out market each other spending lots of money in advertising, instead of focusing on the customer and pooling their resources into massive marketing power. When companies like expert and buyside have a 24/7 customer service centers, there is no way individual agent can compete with the service level provided and the marketing power they can provide just based on the discounts they receive on bulk buying. Just think about what NRT / Cendant / HomeServices do, buy a dominate local company which spent millions a year in advertising / branding budget. They reallocate this money back into the main franchise brand saving millions and increasing the bottom line without really changing a thing,. Individual agents can learn a lot by studying M&A.
The commission limbo is just starting and the bar is decreasing pretty quick, those that want to stay in the limbo better stretch your back and... Mind.
Am I way off base or what?
The problem is that most agents cannot seem to break-down what they do. Most just say it's going to be X% to list. Instead agents should try to truly explain what your services are and really provide a break-down and explain the most important facet, the emotional support you provide. Obviously I'm not an agent but here is a tool we use to show the hourly savings between FSBO vs. REALTOR transactions and I think that the more an agent can do to provide tools like this the better chance of holding onto your current pricing structure. Also, keep in mind that the traditional real estate industry has yet to feel the real effect of new alternative realty agencies. Buyside, Zip, Redfin, Expert, etc. which will capitalized on the marketing aspect that buyers can save a significant amount of money using their models in this new buyers market. Traditional agencies have only felt the attack from one side so far and look at the impact, the selling commission from the discount and flat fee brokers, which have only about a 3-5% market share. Now the buying commission is also coming under attack and let’s assume they too can pick up the same market share.
Where most of the companies will make true head-way in this battle is that they will capitalize on the inefficiencies of individual agents. Real estate is an individual business with each agent trying to out market each other spending lots of money in advertising, instead of focusing on the customer and pooling their resources into massive marketing power. When companies like expert and buyside have a 24/7 customer service centers, there is no way individual agent can compete with the service level provided and the marketing power they can provide just based on the discounts they receive on bulk buying. Just think about what NRT / Cendant / HomeServices do, buy a dominate local company which spent millions a year in advertising / branding budget. They reallocate this money back into the main franchise brand saving millions and increasing the bottom line without really changing a thing,. Individual agents can learn a lot by studying M&A.
The commission limbo is just starting and the bar is decreasing pretty quick, those that want to stay in the limbo better stretch your back and... Mind.
Am I way off base or what?
2 Comments:
The increase in the number of reduced service brokers like Help U Sell, Zip Realty, etc, etc. are a result of the white hote real estate market over the last five years. As the market becomes more normalized (cools) these reduced service brokers will fade away. The reason is that since the market is cooling sellers will need the marketing expertise of full service brokers. When the market was white hot any Tom, Dick, or Harry could sell there home. Not any more.
You say "marketing expertise" of a full service agent. NAR studies show that in about 65% of the time, home buyers find the house they purchase on their own by one of the following means: Internet, Yard Sign, Flyer, Newspaper Ad, Word of Mouth, Driving Around.
What is this magic "marketing expertise"? A free Flat Screen TV, cruise, moving truck, home warranty policy with purchase or does it just come down to a big fat commission so that an agent can emotionally convince a buyer that they are making the right move by purchase said home.
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