Category: Help-U-Sell

Not Charging a Set Fee? . . . Um. .

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.’

What Percentage Do Real Estate Agents Charge?

I check my stats and other metrics for The Set Fee Blog fairly regularly. It helps me to know what’s drawing visitors and what’s not. It’s also helpful to see what search strings people are using to find me on the web.

Today, I had the following as a search string:

“What Percentage Do Real Estate Agents Charge?”

Ok, so it’s not that unusual. In fact I’ve seen it in the results for this blog before. But today it just jarred me:

What a sad, stupid and unfortunate question!

Seventy plus years of REALTOR double-talk has trained the public to expect to pay a percentage of the sale price of their house to an agent when it sells . . . and that makes no sense whatsoever.

What does a percentage of you home’s value have to do with getting it sold? Nothing!

Think about it:

Here you are in your $350,000 house. Thankfully, you are not upside down. You have roughly $60,000 in equity. So you decide to sell, and list with ABC Realty**, who charges you (and every seller with whom they work) 6%*. When your house sells (for full price), that’s a commission of $21,000!

I’ll give you a moment to catch your breath . . . before I point out that that may be 6% of the sales price, but it’s 35% of your equity!

Meanwhile, your neighbor down the street also wants to sell, but his home is smaller. It’s only worth $250,000. He also lists with ABC and agrees to pay their 6% Commission. When the house sells for full price, the homeowner is going to pay $15,000 — still high, but not nearly as high as your $21,000 commission.

Now, here’s the question of the day: What did YOU get for the extra $6,000 you paid to sell your house through ABC?

More Advertising?

More Open Houses?

A better Sign?

Oh, maybe your agent worked $6,000 harder! Yeah, right.

What you got for the extra $6,000 you paid is this:

Absolutely Nothing

In almost every case it takes no more time, effort, energy, money or marketing to sell a properly priced $350,000 house than it does a properly priced $250,000 house. There are some situations in some areas where a market niche, say, luxury homes, might take a little more time and might require additional or specialized marketing. But these situations are rare . . . and $6,000 extra dollars to sell your $350,000 house? That’s absurd.

It makes no sense today, made no sense yesterday, and will never make any sense at all.

Come on: you don’t pay your dentist a percentage of your net worth when you have a tooth filled, do you? Of course not! There’s no relationship between the two things! Just as there is no relationship between the percentage based commission you are paying your real estate firm and the effort it will take to market your home and process the sale.

Smart Brokers – by the way, ‘Smart’ is a synonym for ‘Help-U-Sell’– Smart Brokers charge a set fee. Everyone pretty much pays the same thing no matter what the sale price is. It’s logical. The Broker works very hard to determine his or her hard costs of carrying a listing, then adds a reasonable profit to it, and . . . that’s it: the Set Fee the office charges everyone.

Here’s a little bit of scripting I actually heard in a REALTOR seminar some years ago. It’s what an agent is supposed to say when a potential seller is shocked by the high percentage based commission.

“I know it seems like a lot, Mr. & Mrs. Seller, but think about it for a moment. We’re getting 6%, yes, that’s true; but YOU’RE getting 94%! I think you’ll agree our commission is actually a bargain!”

I hope next time you need to sell, you’ll do the right thing and call a Help-U-Sell set fee broker. You’ll save a bundle (the set fee is usually thousands of dollars less than whatever percentage based commission you’re being quoted). And you’ll have the satisfaction of knowing that, finally, for the first time in your real estate life, you haven’t been taken to the cleaners!

*Commissions, whether set fee or percentage based, are always negotiable. They are not set by law or REALTOR rule. They are set individually by office Brokers. Price fixing occurs when different Brokers get together and agree to charge the same thing. That’s highly illegal. Different Help-U-Sell offices charge different Set Fees, because the carrying costs of marketing a listing vary from market to market, as do the number of days it takes a properly priced listing to sell.

**The “ÄBC Realty” referred to in this blog is fictitious and is used only for illustrative purposes. Any resemblance between it and any other “ABC Realty”, is purely coincidental.

Mega-Wow Marketing

If you haven’t seen them yet, Mike Paholke and the folks at Excel Print/Mail have a couple of great new marketing products. First are standard sized post cards Excel is calling ‘Rounds.’ I have called them ‘Arounds,’but it’s the same idea: When a new listing comes on the market (listed by some other office) in your target market, you quickly mail your marketing message to the neighbors. ‘Rounds work because when a new listing comes on the market or a new Sold sign appears, people tend to be more open to receiving real estate related messages. Since your message is the best one in existence (sell fast, save thousands), you have a high probability of achieving good results. Excel will fully customize the cards, print them and mail them to whatever radius you specify around a property. The cost is (get this) 25 Cents a card.

When you go to the Excel website you’ll notice upgrades to their card editor. Now there is GREAT flexibility in designing your marketing pieces. Every box, every photo, every bit of text can be edited. It’s great!

The other new product is called the Office Co-Op. It’s an 8.5″x 11″, two sided, card stock mailer. Again it’s fully customizable, but for me, the best content would be to emulate the old ETM: pictures and descriptions of homes for sale, sold and saves, testimonials and an Easy Way. Excel will print, bundle in lots of 200 and mail them for you for 27 Cents apiece! Now that’s a special price only good through February 27, so don’t drag your feet.

You can see these great pieces at Excel’s Website: www.husmailnow.com. Go there, create an account and get busy.

A special note to those of you who may have abandoned the idea of geographical target markets during the downturn: that may have been a good idea at the time, but you are going to drive yourself into inefficiency and non-productivity (not to mention grey hair) if you continue. These new products present a great opportunity to return to the basics you know work. Do your Market Analysis (McCoy will be happy to help you – he has so much fee time!) and then spend a little coin on building your business. You can dominate your target market by year’s end if you get started today.

The Reason Why Everybody Doesn’t Do This

As Help-U-Sell Brokers we have the pleasure of delighting sellers when they learn about us. So often, when we lay our program out before them, they get almost as excited as we are. Often, they say:

‘Wow! This is amazing! Why doesn’t everyone do it this way?’

The answer is too complex to share with a seller on the verge of signing a listing agreement, so we take the question to be rhetorical, and reply, ‘I don’t know . . .’ or ‘Beats me!’

But there is a reason. It’s a stupid reason, but it is the reason:

Our industry is organized around the notion that the average agent should make a decent living.

Thirty years ago or so, Brokers (not Agents, Brokers) made a shift in their business models. They put the accent NOT on serving buyers and sellers but on recruiting, retaining and serving agents. In a sense, the Agent became the Broker’s client.

Today, Brokers go to school not to learn how to better serve buyers and sellers, but to learn how to recruit. Keller-Williams, Exit and a host of other companies have invented new wrinkles in their operating systems to reward agents who bring other agents into the company. Basically, they’ve found a way to get their agents to do the recruiting for them.

In ordinary residential real estate today, it’s all about the agent: how to find more, get more, keep more agents. The Broker believes his income stream is dependent on agents, not on buyers and sellers, and that belief colors the entire operation.

So who are these average agents (the ones everyone is working so hard to recruit)? Nationally they do six or fewer deals a year. Really. Think about that. What kind of service do you think an agent doing only six deals a year brings to the table for a buyer or seller? Compared, say, to one doing 25 deals? Who’s going to be sharper, more up-to-date, better able to negotiate and solve problems as they arrise?

But, because the ordinary Broker’s business is dependent on his getting and keeping as many six-deal-a-year agents as possible, he has to find a way to make doing six deals a year appealing. He has to find a way for the average agent to make a reasonable living.

There’s a two-step formula for this.

First, charge outrageous sums of money for your services and do it with a percentage based commission so that your fee is tied to the sale price of the house. That way, when your agents sell more expensive property, they bring in more cash. Never mind that in most cases, it takes no more time, effort or money to sell a more expensive house. Just be glad you get paid more when you do.

Second, give the lion’s share of that bloated commission to the agent. You’re going to have to pay them really well so that they can appear successful even though they’re only doing six deals a year. If they appear successful, you’ll be better able to attract more six-deal-a-year agents who also want to appear successful.

Ok. I’m overstating the case. But I think you see the lunacy in this system. And it is lunacy, madness. The ordinary real estate business is so off track, it may never be able to right itself. It is so lost that the moment Google or Microsoft decides to jump into the business with both feet, automate it like Schwab did the brokerage business 25 years ago . . . well, your friendly local real estate agent could become extinct. . . like the dinosaur.

Thankfully, there is an alternative.

  • It is a system where the Broker is IN the real estate business, where his or her client IS the buyer or seller, where the agent is part of the Broker’s operational system to provide excellent service to clients.
  • It is a system where the Broker’s income stream is dependent on how many buyers and sellers he or she serves, where growth is driven by careful marketing, not by recruiting.
  • It is a system orchestrated by the Broker to drive ever increasing numbers of leads into the office, leads that are handed to the agents who are charged with the important task of turning them into happy clients.
  • It is a system that nurtures truly successful agents, who outperform their ordinary competitors in spades because they don’t have to worry about cold calls, door knocking, FSBOs, angry sellers, and open houses. All they have to worry about is the client they picked up at the office today.
  • It is a system that charges a reasonable Set Fee for the service it provides, a fee that stays the same regardless of the sale price of the property.
  • It is a system that offers sellers a menu approach to services and pricing, where one size does not fit all, and where the fee paid has a direct relation to the tools it took to affect the sale.
  • It is a system that delights customers because: it works, and they save money.

It is Help-U-Sell.

*By the way, in case you missed it, in 2012, the median gross income for an agent was $34,900, according to NAR. That’s gross, before expenses.

Arounds

Of course, you have your ‘Just Listed’/’Just Sold’ programs mapped out and happening automatically, right? Good! You do that because you know it works; and there’s solid psychology behind it.

When a sign appears in your neighbor’s yard, a window of opportunity opens in your mind. Suddenly you are curious about why they are selling, where they are going, what they are asking, why they chose that particular real estate company and so on. In essence: you are OPEN to receive a real estate oriented message.

If I can put MY Help-U-Sell real estate message (sell fast-save thousands) in front of you while this window of opportunity is open, the chances of you receiving the message and perhaps responding to it are greater than at any other time . . . except, perhaps, when YOU need to buy or sell. And there’s not that much time to get the message to you. It’s a window, and windows shut.

Now, let’s expand that concept. And let’s change the pronouns. Now YOU are a Help-U-Sell broker. As such, you have carefully analyzed a ton of data about your area and have judiciously chosen a couple of ripe target markets within that area. You’re just getting started (or just getting re-started) and don’t have much of a presence in your target markets. You can use the ‘window of opportunity’ concept that works when YOU get a listing even when YOU don’t have one. Here’s how:

Start cruising your target markets every day. By cruising I mean driving and checking the MLS. You’re looking for new listings the moment they hit the market. They can be listings taken by anybody. All of the neighbors – and ‘all’ might be 40 or 60 or 100 – now have their real estate windows open. They are ready to receive a real estate message. Why shouldn’t it be yours?

Work with Excel Print/Mail (husmailnow.com) and The Alexanders (brandsawonline.com/helpusell) to create a postcard program to go AROUND the new listings that come up in your target market. I think the best thing to do is be fairly generic. Create an ETM-like Jumbo postcard with content that doesn’t change or doesn’t change much. That way, the program is easy to administer and you can get your message out faster. By an ETM-like card, I mean one with pictures of homes for sale, sold & saved listings, testimonials, an Easy Way, and a bulleted description of your program. Decide how many homes you’d like to reach whenever a sign appears and lock that geography down with Excel or Alexanders. Maybe it’s 20 homes across the street from the new listing and 10 on each side. Maybe it’s more.

Now when a new listing comes up, Push The Button. Get your message into those open windows as fast as possible and listen for the phone to ring.

What are the ethics of prospecting around someone else’s listing? Excuse me: last time I read the REALTOR Code of Ethics it didn’t say anything about this! But shouldn’t this kind of prospecting be reserved for the agent who worked so hard to get that new listing or to make that sale? Absolutely not! Because in all probability, the listing agent will NOT make any attempt to reach the neighbors. They will not have taken the time to create an easy to administer program for this kind of outreach and they will be too busy to do it now. It’s YOUR window of opportunity – take advantage of it and watch your target market share bloom.

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