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I’ve been ruminating on the 60 Minutes story thinking about how much of the story was wishful thinking and how much was fact.

I wonder how much Redfin.com just saved in advertising by getting their side of the story pitched on 60 Minutes. I think the casual observer would have been quite taken in by the story. It was a strong example of yellow journalism at its best for students out there. You start with the premise, “Realtors make too much and do very little,” and build that into a story. It’s a shame that it was so one-sided. I agree that the real estate industry as a whole needs to be disrupted. Many agents do very little for the money they make. But there are other agents that earned every penny of their 6%-7% commissions. Their clients would swear by it. Change is coming to the industry, but it won’t be Redfin that makes it through the change. To all you VC’s out there that are all caught up in the hype of Redfin, you should take a break. The business is more expensive than you think. There is much more overhead than you are observing. One in every 86 adults is a Realtor. That’s a lot of competition. While everyone agrees that the Internet is changing how real estate is transacted, the Internet is not the method most people use to choose their agents. Whatever the case, the 60 Minutes story was misleading to consumers.
Here’s my observations on the story.
1. Does Redfin deserve a commission at all? They don’t do enough to earn 33% of the commission. The money they’re rebating to the buyer is the buyer’s money. Why not just knock it off the price? Do they even show the home to the buyer or do they encourage the buyer to meet the listing agent at the home? After the buyers have taken advantage of the listing agent, why should they involve Redfin? They aren’t knowledgable local experts; they’re just filling out forms. I don’t see how working with Redfin.com has any value to the consumer. Buyers are the only ones showing up with any money. They ultimately are the ones paying for the broker’s services. If you’re paying anything for a buyer’s agent, I hope you’re getting at least a level of service that can inform you what the true value of a property is. I’m not talking about referencing local sales and checking the Zestimate. I’m talking about the art of pricing.
2. Realtor commissions are not fixed at 6% as Leslie Stahl would have you believe. They vary all over the country. There are a wide range of service options currently available to the consumer. My brokerage model is based on the idea that if you offer full service for less, you’ll spend less money on acquiring more business, because you’ll benefit from the referrals of your past clients. We actually do the whole listing side of the sale for 1% of the sales price. That includes all the things traditional brokers would be expected to do. There are other models that attempt to offer less service in various forms but I have yet to see one successful, profitable business model. If it was out there, I’d be in it. HQHomes of Denver is one of the few profitable discount models in Denver. When the Help-U-Sell’s and Assist to Sell’s are failing, we are still growing. It’s not perfect yet but there’s no discounting service. The agents make money, we save our clients money and we do everything you would expect of a full service company. At the least, my clients can be assured that I handle more sides of a transaction a year than 95% of the brokers in Denver. The consumer can have expertise and save money without having to lower their expectations.
3. I cringe at the term “discounters”. It’s an offensive label. I’m a full service broker. I might not hold a costume-themed open house with men on stilts, party favors and clowns but I do hold open houses if I think it could help sell the home. How about calling us “industry pioneers”?
4. Reduced levels of service are currently available to the consumer. But that doesn’t mean it’s a good idea. Unfortunately, in any market buyers and sellers should be working with agents that have a firm grasp of value. That’s where most of these limited services fall apart. The agents at a place like Redfin don’t know anything about the local markets. Most homes in Denver are overpriced by as much as 20%. Will Redfin be able to show their clients when a home is overpriced and when they’re not? If they tried, how could they possibly be right without actually going there?

5. The value of service will vary depending on the type and quality of service provided. On a million dollar home, paying $60,000 for commissions might seem like a lot but really that depends. If your million dollar home would only fetch $850,000 as a FSBO (limited exposure), $900,000 with a limited service listing agent and you could possibly get $1.1 million for it listed with a full service agent. At which level of service did the agent earn his $60,000? That being said, as a buyer’s agent on the same million dollar home, if I let you write an offer for a home $1,050,000 when you could easily have got the house for $950,000 with an agent that actually knew the market, did I earn my $10,000? (33% of a 3% commission). If all I did was show you a picture on my website, you filled out an online form for the offer, I made a phone call and faxed over your offer, did I even earn $10,000? Just because you save money doesn’t mean you get a good value. You can’t automatically assume that saving money means you got a good deal.
To those that have read this, here’s what some other good folks have to say.

• 60 Minutes’ Redfin.com story delivers 400 hits in 60 minutes flat . . . Bloodhound Blog

• Redfin On 60 Minutes Tonight - Real Estate Market Disruption TechCrunch.com

• Redfin’s Corporate Blog

Here are some similar articles where I discuss this topic:

• Why I can’t justify high commissions

• What should be in a market analysis

• Think before making your first offer

Technorati Tags: Redfin, commissions, “60_Minutes”, discount, brokers

When I read this, I had to laugh. I’m always interested in how agents try to justify their commissions. This one’s pretty funny.

The settlement sheet shows that I’m going to receive ___% of the sale price of the home. But I don’t get to KEEP all of that. I take out a dollar bill and hold it up as a visual example. If another agent listed/sold the home, I have to split my money in half with them. RII-IIIIIP! (Ripping money, even just a dollar, gets people’s attention.) Then there’s my split with my broker (riiip!), my franchise fee (riiip!), my split with my partner, my E&O insurance, Uncle Sam’s portion, and all the money that I put in up front in gas, marketing and so on. Gentle reminder: my job does not have insurance or a 401K, so for those I’m on my own. We end our discussion looking at my little confetti pile and the tiny scrap of dollar that I’m still holding. It’s very small, if I’m lucky about the size of a postage stamp, but usually less than that. I do not earn what the public thinks I earn. Educating my clients keeps them from feeling rippped off at the successful end of our quest, more likely (I hope!) to use me again or refer me to friends and family. A quote from Sarah Cooper’s Blog

Here’s why I don’t think you can justify high commissions selling a home in Denver. (and probably just about anywhere with a good MLS)

1. Nobody cares. All businesses have costs and overhead. There are thousands of people out there who are self-employed in the same position as a Realtor is. You don’t see them tearing up money just to make a point. Most business owners manage business costs closely. Realtors, as a whole, do not.
2. As home values go up, so do commissions. 10 years ago in most parts of Denver, the cost of a home may have been $150,000. Your commission at 6%? $9000. Today, it still takes the same amount of work to sell the same home. Home value? $350,000. Today’s commission, $21,000. Even after splits and co-ops this is a lot for the amount of work that’s involved. Even after calculating in cost of living adjustments, you’re still in pretty good shape.

3. It’s easier than ever to sell a home. Especially for a listing agent. When you look back at the time spent it’s typically much less than that spent with buyers. Denver has a very cooperative MLS. If you offer a co-op, all those agents out there spending money to find buyers will come with their buyers to the house. In the end, 80% of homes on the MLS sell with the help a a buyer’s agent.

It’s pretty short-sighted to gouge consumers for more than you need to in order to make a good living. I’m not saying it’s not expensive to be a Realtor. There is definitely a point where you can’t go any lower without operating at a loss or cutting service. Most discounters go straight to cutting service. That’s why not all discount agents are successful. They believe that they really are worth those high commissions so they cut their services proportionate to their fees. Bad idea. Work a little harder for a change.

I like being busy. I sell homes for less because it makes me more money. That may seem funny to other Realtors but not to the rest of the world. If I offer the same service for less, who do you think they’re going to go with? It’s amazing how easy it is to get listings when you are telling people what they already believe. Just wait until they tell their friends.

Want to talk about selling a home in the Denver Area? Click Here

Technorati Tags: Denver, Real, Estate, Marketing, Commission, Realtor

I first came across this Picasso legend a few years back with regards to valuing someone’s time. I believe the moral also applies to the valuing of services in real estate. After all, real estate is a business.

Legend has it that Pablo Picasso was sketching in the park when a bold woman approached him.

“It’s you — Picasso, the great artist! Oh, you must sketch my portrait! I insist.”

So Picasso agreed to sketch her. After studying her for a moment, he used a single pencil stroke to create her portrait. He handed the women his work of art.

“It’s perfect!” she gushed. “You managed to capture my essence with one stroke, in one moment. Thank you! How much do I owe you?”

“Five thousand dollars,” the artist replied.

“B-b-but, what?” the woman sputtered. “How could you want so much money for this picture? It only took you a second to draw it!”

To which Picasso responded, “Madame, this took me my entire life.”

It’s always amazing how the public views what you get paid strictly by the amount of time you spend on something. Truth is, it’s not that simple. There are costs and risks that are above and beyond the time itself that you spend. Not to mention that nothing can replace the experience you gain going to more closings in a month than most people do in their entire life. There is definitely a line you have to draw with clients when it comes to valuing your time. The public wants a Realtor’s opinion, access to people’s homes, and access to the database that Realtors have been maintaining for years. But few want to pay you for it. I’m not here to argue the point of how much an agent should make. Should it be flat fee or a percentage? I don’t care. But when it comes up, each agent needs to decide what the best long term approach should be for his or her business. There are still good agents out there that bring real value to their clients. I’m sure every Realtor who reads this will feel that statement applies to them. We aren’t offering a free public service. Sooner or later you need to decide what your time is worth and let those that want to ‘go it alone’ do just that.

Technorati Tags: Realtor, commissions, picasso, real_estate, buying, selling, home

How about that. I actually got quoted in Money Magazine. Albeit my statement appears a bit truncated, it is not incorrect. I’m quoted as saying “People offer higher commissions because it works”. I’ll stand by that. Offering a higher commission to a buyer’s agent does help sell your home. It doesn’t necessarily help you get a better price but it will get you slightly more traffic. I’ll explain, but first, this is what I’m talking about. The February 2007 Article entitled “Is your Realtor on your Side?” by Stephen Gandel discusses the value of having a buyer’s agent. More than that, it actually gets into the morality of the strategies some homeowners and builders are using to sell their homes. 

Steve’s seems to be trying to get his fingers on the pulse of real estate but can’t seem to get past the waiting room. I spoke with Steve on the phone after he wrote an article in the December issue of Money Magazine, “Best Ideas for 2007″. I had disagreed with him on many of the assertions he had made regarding strategies buyers could use to get a better deal. To be fair, I agreed strongly with his suggestions for sellers. In our conversation, he admitted that he ‘doesn’t have access to the same information that agents have’. Thus he has to “rely on other people” in order to write these real estate articles. He’s essentially trying to analyze data from hundreds of markets and collate that into advice that could be applicable nationwide.  He’s not an expert in the sense of personal experience but rather is forced to rely on so-called experts from across the country to give him accurate information regarding the stories he researches in order to make the valuable conclusions. I’m honored that I can fall into that category. Unfortunately, I disagree with some of the advice in the latest article. It seems the article plays more to what buyers would want to believe rather than the truth about what will help get you a better deal.  But then again,  who knows what agents across the country tell him.  This is how it works in Denver and what I disagreed with…

(If your not sure what commissions are and how they work, check the end of this post)

 Why would offering more money to a buyers agent work? Because brokers want to make a living and will be more likely to show your place in among others of the same type. This is often true in the case in newer condos or builder-owned homes where there is often a lot of competition. If you have ten other condos in your building that are essentially the same home at the same price, and then there are lots of other condos in other buildings, most agents want to narrow down what building their client wants before showing them everything that is available in one building. There are literally hundreds of condos that are similar. Do you want to go view all of them or would you like someone to help narrow it down? Most people would like some help here. Well, if I have to pick which one to show first, and they appear all the same, why wouldn’t I pick the one that pays me better, especially if they’re are all priced the same? That’s just good business. 

Unfortunately for sellers, this doesn’t seem to bring them a higher price, it just gets you more showings and helps to sell your home faster. From all the home sales I analyzed to prepare my information for Steve, I noticed that of the homes that had higher commissions sold slightly faster than homes that didn’t.  It’s not obvious when looking at homes offering co-ops slightly higher than the average because often that money is being offered to get brokers to overlook the obvious problems with the home and bring someone by.  While it might not have been as clear in the ’slightly more’ group that higher commissions bring faster sales, it definately becomes clear in the ’slightly less’ group.  When you offer less than the average commission, there is a marked difference in time on market.

I took a look at this and noticed that time on market goes up immediately when offering even slightly less than the average co-op.  Days on market increased by 12% when agents offered less than the average co-op.  This can affect the sale price since a long time on the market is viewed poorly.   Read the rest of this entry »

  Long term success in real estate is built on trust and referrals.  With this in mind, it’s a shame that some fly-by-night agents are abusing their position at the expense of an industry’s reputation.  A recent article in REALTORâ„¢ Magazine discussed the problem of loan fraud. 
   I know there are many naysayers that are highly critical of the National Association of Realtors and would expect the article to be more of a ‘how to’ than a critical condemnation of the practice.  The truth is Realtors as an organization have high standards designed to protect the public and the reputations of Realtors.   If you truly believe you benefit yourself by working without one, I highly encourage you to take on the process of buying or selling a home yourself.  If you get sick of the experience, try it with a Realtor and you’ll begin to appreciate the whole idea of specializing in a practice.  That being said, I was once a naysayer too. 
         Realtors have a Code of Ethics.  If they violate the code or the law, they can be fined, have their license stripped from them, and be publicly humiliated. (All decisions and judgements are published in a newsletter.) One lapse of judgement and they may be barred from working in real estate all together.

  One of the best things people can do to protect themselves in real estate transactions is to keep in mind the following: Read the rest of this entry »