Category: Attitude

The Set Fee vs. Commission Debate

Well, the great debate is just a couple of weeks away! On April 25, Help-U-Sell broker, Dan Desmond, of Forked River, New Jersey will take on Scott Einbinder, an industry veteran and speaker in a verbal joust about which model (set fee or percentage based commission) is best for consumers. The event takes place at the Tom’s River Clarion and the $10 tickets (proceeds will be donated to Habitat for Humanity) have sold out.

Dan, I am so proud of you! You were so persistent, consistent and correct in your pronouncements that you caused this ‘Debate’ to arise. I know you will represent all of us well. The buzz is already in your favor – as it should be. After all, you are defending what most everyone agrees will be the future of real estate. The other side is defending the status quo – which we already know consumers don’t like.

In fact, it’s hardly a fair contest. It’s already over. The decision has already been made. Percentage based commissions in real estate sales are stupid and the public hates and/or doesn’t understand them. Set Fee pricing is logical and accomplishes the same result as percentage based commissions with much less cost to the consumer. If you took 100 potential sellers and lined them up, gave them an overview of each of the two models and asked them to choose, I bet 95 would choose the Set Fee. The debate has already been decided in the court of public opinion.

One of the arguments percentage based guys always use (and one you may hear on the 25th, Dan) is that, with percentage based commissions, the agent has an incentive to get the seller more money because when the sales price is higher, the sales commission is also higher. Let’s debunk that, shall we?

Let’s imagine that we have a $300,000 home listed for sale with a seller who has agreed to pay, say, 6% of the final sales price as commission. Let’s assume a buyer comes along and offers $280,000. If the seller takes the offer, s/he will pay $16,800 in commission. Let’s say the agent, wanting to get as much out of the deal as possible, waves his/her magic real estate stick over the buyer and convinces him to pay $10,000 more: $290,000. Now the seller will pay $17,400 – just $600 more in commission – not that much money. Now consider the likely possibility that the buyer is working with another agent from another office. Now that $600 has to be split in half. The listing office’s portion is just $300. And of course, the agent doesn’t get all of that. Let’s assume s/he’s on a 70% split. That $10,000 more the agent ‘got’ the seller is worth a grand total of $210 to the agent.

Come on. Who are we trying to kid with this kind of logic?

Truth is, an agent in a $300,000 marketplace on a 70% split with an office that charges, say, 6% commission will probably need to sell about 13 homes in a year to make $100,000. That’s assuming their sales are a mixture of one sided and two sided deals, with the bulk being one sided. If this agent works a 40 hour week (and most don’t), that’s about $50 an hour. So getting the seller and additional $10,000 is only worth about 4 hours of the agent’s time, 4 hours that could be spent making a 14th sale for the year.

Unfortunately, consumers take the myth that the agent who has a percentage based interest in their transaction will get them more money to mean: ‘If I pay a lofty percentage based commission, my agent will get me MORE than market value for my home…’ and we all know how ludicrous that is!

So, Dan, when you hear this spin-doctored nonsense about percentage based commissions motivating agents to work harder, meet it head on. Pull out the chalk and do an example. Show everyone how little $10,000 more in sales price means in the agent’s pocket.

And by the way, it’s been my experience that most agents, whether commission or set fee based, will work very hard to help their clients – whether buyer or seller – achieve their objectives regardless of what happens to the commission. That’s certainly one of the characteristics that separates the really good guys from the really bad.

Brian Buffini Scripts

I titled this post ‘Brian Buffini Scripts’ because that is a search term used frequently to find this blog. I think I mentioned Brian’s Scripts in a post or two, so people, trying to find a free dialogue come here searching. I could have easily called this ‘Mike Ferry Scripts,’ or ‘Tom Hopkins Scripts,’ or ‘Danielle Kennedy Scripts.’ The point is: REALTORS seem to always be searching for the magic words that will turn their business around. Somehow, we think we’re failing because we don’t have the right words. If we just had the words . . . the magic script . . .

Trust me: there is no magic in the words. You’re not failing because you have a bad script. You’re failing because you don’t know your business.

All good scripting is the same thing: packaging something that is true in a powerful way that consumers can understand. When the script master says, ‘There are three factors that influence the sale of any home: Price, Condition and Exposure,’ it is true. It’s also true when the marketeer says ‘The single most important thing we can do to make your home marketable is to price it right.’ In these examples, truth is packaged numerically: ‘Three Factors,’ and ‘Single most important thing.’ Breaking down concepts into a few key components makes them easier for consumers to grasp and remember.

You can’t package something that is essentially un-true and expect the packaging to make it believable. Telling a FSBO, ‘There is no way you will ever be able to sell your home yourself,’ would be a good example. It’s a false statement. People sell their homes themselves all the time. Telling a FSBO, ‘You may well be able to sell your home yourself in today’s market. What I’d like to do is stay in touch every few days to see how you’re doing. My hope is that, if the time comes that you need help, you’ll think of me.’ . . . well, that’s about as honest a statement as you might make. It’s so straightforward that it may be disarming. The agent who takes this tack and then follows up every few days with ideas and suggestions that might help the FSBO is going to be at the head of the pack when – somewhere around week three – the FSBO gets stood up again . . . and that becomes the straw that breaks the camel’s back.

Don’t get me wrong: I’m not anti-script. I think scripts are fine, when you are learning your business. Good scripts will help you see, understand and remember the truths about selling real estate. They can be the fast track to mastery. I guess I’m a good example. My first six months in the business, I sucked. I was so bad I had serious doubts about my ability to sell real estate at all! But then, one frustrating day, I wandered down to my Board library and checked out a set of Tom Hopkins’ tapes (it was 1977). I’d drive around in my car listing to Tom reciting his scripts, thinking to myself, ‘There’s no way I’ll ever do that. It’s not me. It’s so phony!’

And then I called on a FSBO. I arrived at the door prepared, as usual, to get absolutely nowhere. But when the door opened, out of my mouth came Tom Hopkins’ words. As I talked, I could see the seller relax just a little. Then she asked a question, and another Tom Hopkins’ script came out of me. Next thing you know I had the listing. And then I got her son’s listing. And then I sold both of the houses and sold them each replacement homes! I still didn’t like Tom Hopkins’ scripts, but I sure was glad they’e found their way into my brain.

As the years went by, I learned everyone’s scripts. And I also realized that what I was doing was learning key bits of information about the home buying and selling process that I could call up whenever they were needed. I learned that, despite Tom’s near constant harangue to ‘Use the script exactly as it is written, word-for-word,’ I did best when I simply spoke the truth contained in the script. I came across as genuine and sincere . . . because I was. I was telling the truth and if felt good – to me and my clients.

So, good luck finding Brian Buffini’s scripts for free. When you do locate them learn them well, recognize the truth in them and then make them your own. And if you want some of the very best scripts and information about the home buying and selling process, get Danielle Kennedy’s book, ‘How to List and Sell Real Estate.’ It’s absolutely the best thing ever written for a real estate salesperson to read. It’s in its quadrillionth printing and was revised just last year to reflect new market realities. I’m serious: go get it.

Mistakes Real Estate Agents Make

My last post was all about brokers – Help-U-Sell Brokers in particular. This one is different not just because it’s about agents, but because it’s about ALL real estate agents.

Real estate agents are . . . what? En Mass, they are overpaid, unproductive, ineffective and blah blah blah. But that’s not the whole story. The good ones are really good. They are worth their weight in real estate paperwork. In fact, good real estate agents are heroes. Trouble is, there’s just not that many of them out there. Most are mediocre at best, hoping to make quick and easy money selling a very expensive commodity.

So how do you tell if your agent is good or mediocre? Start with production. The average agent in America today does about 7 deals a year. That’s hideous. Not just for the agent, who on average will make about $34,000 on that kind of production, but also for the consumer who gets stuck with an agent who does so little he/she can’t possibly be as sharp or up to date on the business – and particularly on how to solve transaction problems – as someone doing, say, twice as many deals. So ask your potential agent: ‘How many deals did you do last year?’ You should hear something in double digits and ideally, the first one should probably be a 2 or better. But don’t fool yourself into thinking the one with the largest number of deals done in the previous year must be the best agent. Not always true. In fact, not usually true. You’re looking for the one who not only has decent production, but has clients raving about their buying or selling experience. Ask to see testimonial letters – the good guys have tons of them – or do what you’d do if your were hiring an unfamiliar babysitter: ask for references . . . and then call them.

Ordinary real estate agents make money by securing clients – either buyers or sellers – and working with them to affect transactions. Agents work on behalf of Brokers. In most cases Agents can’t do anything without their Broker’s supervision and approval. When you list your home for sale, you may think you’re listing with Sally Agent, but you’re really listing with Bill Broker. Sally is just there on behalf of Bill. Commissions are paid to the Broker, who then splits the commission with the agent (there are exceptions to this compensation scheme, but they are rare).

Ok, so there are three paragraphs of consumer education about real estate agents. Now let’s get on to the mistakes agents make.

#1 – Thinking that their commission split is the most important factor in their decision to affiliate with one broker over another. You know those ‘average’ agents doing 7 deals a year? In many markets around the country they can command 70% of the commission dollars coming into the broker. Sometimes even more. Many agents simply shop and negotiate with brokers until they find one who will pay them the highest split . . . so they can make the most money on the 7 transactions they will do each year. It’s as if the high commission split affirms them as successful and desirable as real estate agents, somehow blotting out the fact they they do only 7 deals a year. What they don’t seem to understand is that a broker who will pay them big splits on lousy production will probably bring NOTHING to the table to help them build and develop their businesses. A broker who gives 7 out of every 10 dollars away before he/she even begins to pay the bills isn’t going to have money for marketing, for support staff, for lead generation . . . for anything except the legal ‘blessing’ of the agent’s transactions.

It doesn’t have to be that way. In truth, the relationship between broker and agent can be very powerful. If the broker is really IN the real estate business, s/he attacks the local market strategically. S/he studies it daily, schemes and plots, builds and pays for a comprehensive marketing program that produces leads, leads, leads. The broker builds an operation so powerful that s/he needs help to handle all of the business it has created! That’s where agents come in. They are the ‘help,’ the ones who take all of the business the broker has created and turn it into sales. Wonderful! But, a broker who is taking responsibility for marketing, for generating leads, for expansion and business development cannot afford to pay huge splits even to good agents. And S/he can’t afford to keep the 7 deal a year crowd around either: they blow many more leads than they close! So the agent who works for such a broker probably has a lower split: 50% – 60%, but has the benefit of a steady stream of business created by the broker. That’s a value for value relationship; everyone wins. The broker keeps enough commission on each deal to make a profit and the agent does far more production and makes much more money, too!

Look. My dad got licensed to sell real estate in 1967. He went to work for Ted Tamminga, a local broker who had placed an ad for ‘Help’ in the newspaper. Ted had been in business for 30 years and was a fixture in the community. His connections and his marketing produced dozens of leads every week, leads he was too busy to handle. He was missing opportunities because he was maxed out. So, my dad went to work for him to handle the overflow. Ted threw him the crumbs, the buyers with problems, the sellers with unrealistic expectations; and he paid my dad 50%. Dad worked for Ted for 4 years, I think; and by that time he had his own client base (all of those leads Ted had fed him), and he opened his own shop. Ted was delighted with the help and wished him well . . . and placed another ad in the newspaper.

Now THAT’s a broker/agent relationship that makes sense, don’t you think? A little like the master/apprentice relationship in the olde days. My dad built a client base on Ted’s lead generation effectiveness and had the benefit of 30 years of experience as he learned how to run a successful real estate company. That’s worth far more than the measly 20 percentage points more he might have made in commission split paid by a broker on life-support in 2013!

Agents, when you shop companies, it’s not about split. Split is almost irrelevant. It’s about the Broker: what business is s/he in? Is s/he in the recruiting business? Constantly chasing and hiring ever more agents (and watching the failures sulk out the back door)? Is s/he in the training business, spending most of his/her time working with the non-productive agents on staff in hopes of magically making them into super stars (and ignoring the truly productive people)? You want a broker in the real estate business, one driven to achieve ever increasing market share in a clearly defined target market (that coincides with your own). One who masters in marketing, studies it, tracks it, plans it, executes it and tweaks it. One who believes job one is lead generation. (Why lead generation? Because it is leads that will serve his listed sellers the best).

If you can find one of those, you don’t even have to ask what the split is. It doesn’t matter. You’re going to make more, do more transactions, and have a heck of a lot of fun in the process!

#2 – Getting caught up in the real estate ‘cycle.’ Many agents wake up and realize they have no business; so they do what they should: prospect, prospect prospect . . . which leads to a few listings . . . which take time energy and effort, especially when the offers come in. The prospecting stops because the agent is too busy with listings and offers. And then s/he is too busy processing the ensuing transactions to prospect for new business, until all the transactions close and then . . . YIKES! they have to start all over. Their production (and their income) looks like a mountain range: peak – valley – peak – valley. The answer is systems. Prospecting is neither mysterious nor magical. It’s just an activity, a routine, repeatable process. It can become a system that runs almost on auto pilot, but for that happen it must be given sacred space: time that is scheduled, set aside and inviolable on the daily calendar. It must continue even when all hell is breaking lose in other aspects of the business. Taking care of listings, presenting offers and shepherding transactions to closing must also continue every day no matter what. And, hopefully, you’re seeing the impossibility of all this ‘continuing.’ Unless the agent is willing to hire and develop help to get it all done, to take on servicing, buyers, transaction processing, etc., s/he will be limited in the number of transactions s/he can do.

But, once again: it doesn’t have to be that way.

There are rare brokers who take the burden of lead generation off the agent’s shoulders, who do the prospecting for listings and who have systems in place for servicing and transaction processing. Agents in these special offices simply take the buyer leads the office has generated and turn them into pending sales – which are handed off to the processing entity. The lucky agent then goes back and gets another office generated buyer lead and repeats the process. It’s a heavenly, non-cyclical real estate existence!

#3 – Believing their office is one big happy family. Uh-huh. In ordinary real estate offices, it’s every man (and/or woman) for himself. With leads in short supply, and everyone competing for the same customer . . . well, don’t leave your new buyer’s phone number laying around on your desk, ok? Let’s reality test that ‘one big happy family’ idea. How many licensed agents are in your local Board of REALTORS? Got the number? Great. Now, how many transactions were done in your local Board/MLS last year? Got it? Ok. Now, divide the number of transactions by the number of licensees. You’ll probably get a number like 5 or 6. That’s how many transactions each agent would do if the leads were distributed equally. WAKE UP! There is not enough business to support all the people trying to make a living in real estate, not in your Board, not in your MLS, and not in your office! Your ‘happy family’ is probably more like ‘Cutthroat Island’ (by the way: that’s a great movie!). Only in offices where the broker takes responsibility for generating the leads and then takes ownership of them (assigning them to capable agents and holding those agents accountable) can this kind of gunslinger ethic be avoided.

#4 – Thinking that if they just keep doing what they did last year and the year before, they’ll do better this year. That’s the definition of insanity, remember? Doing the same thing and expecting a different result! The problem is most agents are stuck in a dead and/or false paradigm. The picture of what their career should look like is in stark contradiction to reality. The only way out is to adopt a new paradigm . . . which is very hard for anyone to do in even the most favorable circumstances. Until the agent is willing to question every assumption they’ve made about their career: the function and value of a Broker, their own value in a transaction, what needs to be done to sell a listing and so on, only then can the old paradigm begin to crumble. And truth is: few are willing to be so bold, so brave.

It almost goes without saying (I mean: consider the source, right?), but the solution to all of this agent angst is Help-U-Sell. That idealized broker referred to above actually exists. S/he runs a Help-U-Sell office. S/he understands that job one is to generate leads, which are assigned to agents. Agents whose job description is focused and manageable. If you’re wondering why your real estate career sucks, why you never can seem to get ahead, why not do something different? Question your own attitudes about commission splits and lead generation and then go see a Help-U-Sell broker. It could be one of those life changing events.

Handicapping Your Career

Yesterday I visited the Museo de Filatelia en Oaxaca. If you take it by name only, it is a postage stamp museum. But that’s only part of it. It is an amazing facility, housing stamps and much more, in an 18th century building that has been remade contemporary on the inside. Remarkable!

What captivated me most were the actual letters Frida Kahlo wrote to her doctor. They were much more than doctor/patient: they had an intimate relationship, and often these are love letters. One 13 page+ missive presents Frida’s anguished questioning the news that her leg needed to be amputated. It was.

There are also a number of photos of the artist: using a device that enabled her to paint in bed as she lay in traction, the body cast she wore for awhile and painted in her iconic style, the mesmerizing portrait with those eyebrows and that little touch of a moustache . . . and make no mistake: she was a beautiful woman.

While she only produced about 200 paintings, they represent some of the most powerful and influential images in 20th Century art. In Mexico she is almost a Saint. In the Mercados, whole tiendas are set up to sell items with just her image or those of her paintings on them. It is rare that a tourist escapes without buying something Frida.

Here is a woman who suffered a horrendous accident as a girl, whose body was nearly destroyed. Her life was filled with pain and long spells where she was confined to bed, in traction or a cast of some kind. She lived only to age 47. But despite the pain, she produced.

There are similar examples in almost every field, every location: people overcoming remarkable circumstances to attain their full potential. I am remembering the Will Smith movie, ‘The Pursuit of Happyness.’ And Oscar Pistorius, the South African Double amputee runner. Autistic Temple Grandin, who has a Phd in animal science and is one of the foremost animal behaviorists on the planet. Stephen Hawking.

Almost all of us have handicaps to overcome in almost every aspect of life. And maybe that’s what life’s about: overcoming the handicaps that keep us from our full potential.

My question today is: What are your real estate handicaps and what are you doing to overcome them?

Are you stuck in a cycle of bad thinking?

  • Do you believe that 2005-2006 (the good old days) were normal and, when they return, you will once again be successful?
  • Do you believe that the problem is the market and not you?
  • Do you believe that your 75% split somehow makes up for the fact that you did only 8 transactions last year?
  • Do you think that it’s just too hard today and like Scarlett O’Hara, you’ll think about it tomorrow?

    • Are you mired in a self-created universe of scarcity?

  • Are you unwilling to expend the resources it would take to get the help you’d need to get to the next level?
  • Are you NOT marketing because you don’t have the cash?
  • Are you doggedly pursuing D level clients because they are the only clients you have?

    • Are you trying to pound your old skills into a new Universe (rather than pound new skills into you)?

  • Are you intimidated by new technology and unwilling to invest the time and effort to achieve a comfort level?
  • Are you still using the schtick you learned in that seminar 7 years ago, the script that sounded so good at the time but that hasn’t really produced for you?
  • Are you not (calling FSBOS, door knocking, doing a thorough market analysis, cold calling, etc.) because they just don’t work?

    • I could go on and on, but you get the picture. What’s holding you back? And what are you going to do about it? Frida was challenged by the fact that she had to be in traction or a cast for a long period of time. Her attitude was not: Ï am incapacitated, therefore I cannot paint. It was: I must paint, therefore I will design a tool that enables me to paint while in bed.

    The question really boils down to this:

    What do you want your life to be about? Your handicap or how you overcame it? Stricken with Parkinson’s Disease, Michael J. Fox could have stepped out of the spotlight and quietly waited for the inevitable, but he didn’t. Bill Clinton could have let the Monica Lewinsky scandal drive him into isolation and end his career as a Statesman, but he didn’t. (It really doesn’t matter what you think of Clinton or the scandal; the point is he didn’t let that become the story of his life. Neither did Richard Nixon after his famous, ‘You won’t have Nixon to kick around any more,’statement.)

    If you’re not finding a way around the obstacles that are holding you back, you are making a decision. It’s a decision to make the story of your life a Greek Tragedy about a flaw you could never overcome. Why not make it about how you became successful despite the challenges you encountered along the way.

    Frida Kahlo painting in bed

    Postscript: 2/14/2013
    Imagine my surprise, two days after I wrote this piece, when I opened my news channel and saw this: Pistorius Accused of Murder So much for heroes, I guess. I wonder how he’ll rise above this . . .

    Three Things To Remember On Your Next Listing Consultation

    (Note to self)

    1. Show up. That means come sharp, prepared, and ready to help these people make a good Decision (even if that decision doesn’t involve you getting paid). You are focused on them, not distracted by your own trials and tribulations, ready to bring the great wealth of knowledge you posses to bear on their project.

    2. Pay attention. Listen; really listen. Count your own punctuation: if at least 40% of your sentences don’t end in question marks . . .well, you are probably just doing a dog and pony show, aping some silly script you learned in a seminar. That’s not consulting. Listen to what they say, ask a follow-up question, and listen again.

    3. Tell the truth. Once you truly understand their situation and their objectives, present the options as you see them. If the house is not saleable, tell them. Then tell them what would make it viable. If they want to overprice, explore it first: why? and based on what? The answer might surprise you. Then tell them everything you know about overpriced listings. Bring out your stats and graphs. But stay focused on them: It’s about them making a good decision about price, not about you getting a listing you can turn quickly.

    (In my business life , at least 6 people have taken credit for those 3 rules. I hate to say this, but I think they may have originated with NLP (Ewwwww). No Matter: The Big Three have been very helpful to me, in real estate, and in life.)

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