Help-U-Sell brokers: are you still charging a percentage based commission or using some kind of sliding scale in your pricing? I know there are a few of you out there and I understand why.
We went through our own ‘Dark Ages’ around 2006-2008 when you were led to believe that you were actually a discount brokerage and so charging consumers the same way ordinary brokers do (just a smaller percentage) was fine. I also understand why that horrendous bit of advice has stuck with some of you. From 2006 until, well, today, our market has been dominated by short sales and REOs – both situations where the entity paying for real estate services was a Financial Institution (not a homeowner interested in savings). Baffling as it may seem, the Banks and Lenders who were using brokers to market properties and facilitate sales were not particularly interested in savings. To them, the low set fee was something unfamiliar and they didn’t want to think about it; they insisted on paying 5%** or 6% or sometimes even 7%. So, for five years or more, most of the listings you sold were paying a percentage based commission anyway. This was true for those of you charging a set fee as well as those charging a percentage. Really. I’m remembering a conversation I had with a good Help-U-Sell broker early in 2012 about his 2011 production. He charged homeowner/sellers a set fee, not a percentage based commission. But in all of 2011 he had only one listing sold that paid that set fee. All of the others paid 5% or 6% or something similar because ALL OF HIS LISTINGS (except for 1) WERE SHORT SALES OR REOs!
(Cue the Chicago song, ‘Hard Habit to Break’)
To summarize: you charge a percentage based commission because you got bad advice from someone you trusted 7 or 8 years ago, and the advice was reinforced by the worst real estate market in history. That’s why you’re charging everyone, say, 4%. It’s a flat 4% so you feel comfortable calling it a ‘Flat Fee.’
What’s Wrong With This?
1. Close your eyes and think like a home seller for a moment. You’ve just sold your $300,000 home through Acme Realty* agreeing to pay a 6% commission. You are sitting at the closing table scanning the HUD-1. You come to the line for Commission and you see . . . . $18,000. Your heart stops for a moment. You look up at your agent. She’s nice enough, dresses well, drives a nice car. The transaction went well, no big surprises . . . but . . . $18,000?!? Really?? Ok, open your eyes now. Every homeowner you ever work with has that memory. Every single one. Every one of them has wondered what the heck they got for their $18,000. Every single one would have chosen a less costly, less mysterious alternative if they’d seen one. The smartest thing you can do to ensure the success of your real estate business is to look as little like your ordinary competitors as possible, and looking different begins with how you charge for your services. Imagine the absolute delight that same seller – the one with the $300,000 home – would feel when s/he looks at the HUD-1 and sees a neat $4,950** on the commission line!
2. When you charge a percentage based commission, but one that is less than what most other brokers charge, what you’re saying is that you’re just like them, except you are a discount service. Consumers understand ‘Discount.’ It means you pay less because some stuff is stripped away. At Penny’s, you have to search for the cash register kiosk and the person there is there only to take your money and bag your purchase . . . which is of inferior quality to something similar you might buy at, say, Nordstrom. Nordstrom, where you will be met on the floor by a sales associate who knows everything about almost everything in their particular department and who will, if you want, shepherd you through the entire shopping experience, all the way through bagging your purchase, which will be of outstanding quality and fully warranted. The natural question to ask any discounter is: ‘what am I giving up?’ Help-U-Sell – Low Set Fee Help-U-Sell – is not a discount service. The consumer gives up nothing. We do what the other guys do, and actually, more. We charge differently (Low Set Fee vs. Commission) and we charge LESS because our business model is different. It’s not particularly different in the way we work with buyers and sellers, but it is radically different in the way we run our offices and the way we market. Ordinary percentage based brokers can’t emulate what we do to make our model feasible and profitable without absolutely blowing up everything they have in place and starting from scratch.
3. Percentage based commissions – even ones that save consumers money – are nuts. They make no sense whatever. (Look me in the eye): THEY REALLY DON’T. Why is the person in the $350,000 4 bedroom paying $6,000 more to sell his house than his neighbor with the $250,000 3 Bedroom? Why? I’ve been asking that question for a dozen years and still I have yet to receive a rational answer. That’s because there is no rational answer. It’s a stupid system devised and maintained to keep a dead business model on life support. And if you don’t think the consumer is thinking this same thing, you’re naive at best. I could go on and on, but I already have. If you want more detail about the insanity of percentage based commissions in real estate, just go HERE.
4. Some of you believe you have to charge a percentage based commission because you have agents in the office who take listings and you need that lofty percentage to be able to pay them. What? Are you sure you’re Help-U-Sell?? We’re the guys who understand and acknowledge that it doesn’t take a rocket scientist to market a home. In our offices, marketing is a SYSTEM: a predictable, repeatable, effective system. There is no magic to it, no smoke and mirrors. It’s simply push this button, pull that lever. And you don’t have to have a super-star’s name on top of your for sale sign to get it done. In our offices, the Broker (or his assistant) takes the listing. The listing belongs to the Office, not to an agent. We have one less person to pay when the home sells, and that’s how we make a ton of money charging people a lot less. I’ve looked at it and looked at it and for the life of me I cannot see how you can split a Low Set Fee on the listing side with an agent and make it as a Help-U-Sell broker. Not only is it NOT who we are, it’s also financial suicide.
OK, there are four reasons to get back to basics, re-think your fee and who you are. It’s a perfect time, too. Equity sellers – who ALL want to save – are returning to the market. Inventory is getting scarce in many areas and what comes on the market sells quickly with little effort. This is OUR market, the one in which we thrive. Make the adjustment, return to who we are, and start marketing it! It’s time.
*The ‘Acme Realty’ referred to in this post is completely fictitious. Any resemblance between it and any other Acme Realty is purely coincidental and unintentional.
**Commissions, whether percentage based or set fee, are always negotiable between the consumer and the broker. They are not set by law, consensus or REALTOR rule. They are set by individual brokers for their individual offices and vary from office to office and from location to location. Various percentage based commissions and set fees are used in this post for illustrative purposes and should not be taken to imply a ‘going rate.’