Category: Help-U-Sell

Gearing Up For Summit

The Help-U-Sell Success Summit takes place next week in Las Vegas.  It’s an annual event where family members from across the country gather to energize and plan.  I love this meeting because it is the time when I get to interact with a sizable group of really good real estate people.

I’ve been working on my opening comments and it seems this year I have a lot to say.  I believe we are on the verge of big change in our industry.  I can see everything shifting rather quickly leaving all but the bravest and most forward thinking out in the cold.  I believe what happened in the securities business after Charles Schwab and what happened in the travel industry after Expedia Orbitz and Travelocity is about to happen in the real estate industry.

Empowered consumers, armed with information that used to be available only to Realtors and with increasingly intuitive tools are doing more and more of the job for themselves.

When Schwab put information and tools once reserved for stock brokers online for anyone to use, he also slashed commissions.  Because his clients were doing a lot of the work on their own, he started charging a Low Set Fee for trades.  The industry was transformed.

Not so in real estate.  Consumers have the information, they continue to get the tools and today do more and more of the work that goes into buying and selling on their own.  What hasn’t changed are the fees ordinary brokers charge.  My yoga teacher said it best:

I don’t know what our agent did.  We found the house, we negotiated the sale, we did all the running around.  She opened the door and collected a commission check that was bigger than our down payment!

I’m not saying Realtors aren’t important.  In truth, they provide a good and valuable service.  It’s just that the service provided is not worth 6% of the sale price.  With consumers increasingly able to do the work themselves we’re just moments away from the tipping point where they decide the good and valuable service real estate agents provide is not worth the price.

It  is then that ordinary real estate agents will become irrelevant.

Add to that dynamic the fact that affordability is becoming a huge issue . . . and you have a near perfect storm.

Affordability?  Yes.  Today, fewer Americans can afford to buy a home than in years gone by.  Prices have continued to slowly rise while median household income as fallen.  Yes, it has.  Today’s families earn less than they did 5 years ago and that fact has pushed many out of the housing market and  into the rental market.  In parts of California, fewer than 30% of the population can afford to buy the average home.

So on one hand we have these dinosaurs, these Realtors, clamoring for their 6%.  On the other hand, sale prices (which include that 6%) are getting out of reach of consumers. Something has to give.

My guess is that the guy who can’t sell his $300,000 house and  pay his $18,000 real estate commission will opt to get rid of the ordinary agent, drop the price to $285,000 and list with a Help-U-Sell broker charging, say, $5,950.  That’s how we make homes affordable AND restore the value-for-value relationship between real estate services and fees.

Coming Soon to a City Near You: The Affordability Crisis

It’s starting to show up in pockets across the country – growing pockets.  Most people can’t afford to buy a home.  We are becoming a nation of renters.

In parts of California, fewer than 30% of the population makes enough money to afford the average home.  The effects on the real estate market are predictable and real.

What has caused this situation?  Two things.  First, the slow but steady increase in values after the real estate collapse. After plummeting between 2006 and 2012, values have been rising.  We had a brief period of huge increases but that has settled back to a more sane 3% – 5% a year.

The other factor – the one nobody wants to talk about – is a corresponding FALL in wages.  All across the country, median household income is down from where it was five years ago.  Here, in San Diego, the decline is 6.3% – $61,426 vs $65,575 in 2009 – while in Phoenix the decline is closer to 10%.

The only metro with positive growth is Pittsburgh.  Those lucky Pennsylvanians experienced a 2.1% increase in median household income over the past five years.

It is an election year and it would be easy to become very political in a conversation about why wages in the U.S. are falling, but that is not our purpose here.

Looking forward you have to wonder if we’re not headed toward another drop in prices.  If people can’t afford to buy houses and houses need to be sold, something must give.

But this is also the type of climate that sometimes produces innovation.  Perhaps a new wrinkle in real estate financing will enable people making less to afford more.  That’s what happened back in the early ’80s.  Houses became un-affordable because of a huge run up in interest rates.  Lenders responded with Adjustable Rate Mortgages, marketed as temporary financing.

In addition, there would appear to be a big market for affordable housing, and the construction industry will certainly respond.

But for the average American needing to sell a house . . . the future looks murky at best.

Of course, the way to make your home MORE affordable is to reduce the price.  And one way to mitigate the impact of a price reduction on your net proceeds is to drop your high priced, percentage based real estate broker in favor of one charging a much lower Set Fee.  Clearly, a price reduction is going to hurt a whole lot less if, instead of paying your broker $18,000 to sell your $300,000 house, you’re paying a low set fee of, say, $4,950.  Where do you find such a broker?  At Help-U-Sell.  Use the link to the right to find an office near you.

Us, Them and You-We-They

Sometimes I think the way we market ourselves reinforces all of the bad rumors ordinary real estate agents spread about us. By ‘WE’ and ‘US,’ I mean Help-U-Sell.

There is a great book by Al Reis and Jack Trout called ‘Marketing Warfare.’ Really:  it is an absolute MUST READ for anyone trying to establish a real estate company (or any other kind of company, really).  One of the principals they advocate is studying your competitor’s strength, and then finding the weakness within the strength . . . and exploiting that.  I think our competitors have done a pretty good job doing it to us.  We offer home sellers the option of finding their own buyer and thus saving tons of money.  That’s a strength of our program.  Our competitors turn that against us by telling sellers we are a For Sale By Owner company and they will have to do all the work.  That bad rumor is further reinforced by our name:  Help-U-Sell.

Our primary marketing message – which is:  we are here, people use us, it works, and they save money – does a pretty good job of opening many doors.  However, I think it sometimes falls on deaf ears if the bad rumors have become established as if they were fact.

I wonder if one of our key tools – The Seller Savings Comparison (you know:  the You-We-They chart) – doesn’t further reinforce the mis-information about us that is out there. We all know it’s a perfectly logical document that sellers can have difficulty understanding because it flies in the face of what’s normally done in the industry. We know we have an educational challenge when we use it to explain our fee structure;  and the first thing we usually talk about is how they save the most money by finding their own buyer.  I think that taps into the well of bad information the other guys have installed in the general psyche, reinforcing that false picture of us.

Maybe the YOU option should just be a footnote.  Maybe we should stop talking about a showing fee or buyer agent fee.  Maybe we have only two options:  WE find the buyer or THEY find the buyer.  For example:

Untitled-presentation

 

Discussion about seller participation and saving even more ends up being a conversation, a footnote, not the featured attraction.

One of the things I find interesting about this ‘Two Way’ approach is that it shows we have an incentive to find the buyer ourselves that ALSO increases the seller’s bottom line.  They save MORE and we make MORE.  In the traditional ‘You-We-They’ chart, the fee is seen as going up, not down.

NOW HEAR THIS:  this is not a change I am advocating (yet).  I’m putting it out here to see what you think.  Are we feeding into the mis-information about ourselves that is out in the marketplace by over-emphasizing seller participation and finding your own buyer?  Would this kind of presentation be easier to explain and easier for sellers to understand?  Please, click the ‘add a comment’ link below and tell me and everyone else in the company what you think!

They Don’t Call ’em BROKErs Fer Nuthin’

You are a real estate broker, an ordinary real estate broker – which means you charge sellers something like 6% of their homes’ sale prices and hire a bunch of agents to work in your behalf.

Since the day you started learning about this ordinary business, you understood that the way to build your business, the way to grow and make a healthy profit was to recruit more and more agents.

Agent’s, you learned, come to you with their own sphere of influence, their own un-tapped client base.  Every time you add an agent you acquire the ability to pocket some of the dollars that will fly when he or she sells something to their family, friends or neighbors.

You attended seminars where you learned you weren’t actually in the real estate business, you were in the people business; and your single most important task was to recruit!

You lusted in your heart over 500 agent offices!  You bought mahogany desks and Herman Miller chairs in hopes of attracting more and more agents.

You also made adjustments in your commissions splits to make your office more competitive on the recruiting front.  You started brand new, ‘green’ agents at 65%.  After 3 closings, they went to 70% and then more as they did more and more production.  You even had a 100% program that kicked in for the balance of the year once an agent generated $24,000 in Company Dollar.  Your average commission split to agents is 75%.

All of this emphasis on recruiting has netted you 30 agents!  Very good!  So . . . how’s that workin’ out for ya?

Because you have a mix of new and experienced agents, your average per person productivity is 8 closed sides a year (about industry average).  That’s .67 closed sides per agents per month.

Since your average sale price is $300,000 and your average commission % per side is 2.65%, your gross per closed side is $7,950.

Because you average paying your agents 75%, you get $1,987.50 of that!  Since your agents average .67 closed sides per month, you can count on $1,332 per agent per month and since you have 30, that’s almost $40,000 in company dollar each month!

Here’s a breakdown of your monthly expenses:

Franchise fees (6%):      $9,587

National Ad Fee (2%):  $3,196

Office Rent:                      $6,500

Dues/Memberships:        $300

Office salaries:                $6,500

Your salary:                     $5,000

Insurance:                            $500

Equipment/supplies:      $800

Utilities:                               $600

Vehicle Expense:             $800

Miscellaneous:              $1,000

Marketing:                      $4,000

Total:                              $38,783

All of your hard work has netted you $1,217!  That’s a 3% profit!  I know that sounds really low.  Any reasonable business person would be looking for 15% at least, right?

Well . . . I’ve looked at the profitability of ordinary real estate companies for years – 30 years to be exact.  There were 10 years at the end of the last Millennium that I looked at balance sheets a lot.  The very best offices I saw made between 3% and 5% in profit.  Most made 0% and many lost money every month.

But the solution to your problem is right before your eyes!  Obviously, you just need 3 – 4 new agents!  Your costs will not go up significantly and 3 more agents will add almost $4,000 to your bottom line!

But, wait a minute.  Currently 35% of your gross is being generated by your top producer, Sally.  She’s been with you for years and loves you!  But your biggest competitor just converted his office to a new franchise that pays agents a residual based on the production of the agents they recruit.  Sally’s just announced that she’s leaving – she’s going over there and is planning to build a nice team of agents.  And where are most of these agents going to come from?  Right:  your office.  That’s where her closest friends are.  I think you can expect your gross to drop by 50% in the coming months.

You might need to start looking for a second job.

This nightmare is sooo common in our industry.  I’ve seen it over and over again.  And the problem is right up there at the top.  The ordinary broker believes that he is in the recruiting business, that hiring agents is the way to expand his business and profitability.  History clearly shows that that’s simply not true.

If you want to be successful in the real estate business, GET OUT of the recruiting business.  GET BACK INTO the real estate business.  Expand your business by:

1.  Having a superior offer for consumers.  It can’t be nebulous stuff like professionalism, quality service, a personal touch or anything like that.  You have to give them MORE than your competitors and charge them LESS.

2.  Becoming a Marketer.  Market your superior offer aggressively to homeowners in your target market.  Track meticulously, adjust constantly, and own the leads that are created.

3.  As your business grows (and it will), hire agents ONLY when you have more business than you can handle with your current staff.  Hire them not to save you, but to help you take care of the business you have created.  Pay them accordingly.

And if you’d like to make this shift easily and with excellent support, become a Help-U-Sell broker.  That’s who we are and how we operate.

Armageddon Followup: How Help-U-Sell Works

I got the following comment on that last post when it was shared on LinkedIn (it is from a guy I don’t know):

“So Trulia and Zillow feel the days of the RE Agent are coming to an end? Let it be and soon sellers will find themselves perfect examples of what being penny wise and pound foolish is all about while leaving them wondering why their property has not sold! Ridiculous at best! “

First, let’s clarify something:  Trulia nd Zillow don’t want real estate agents to go away.  They LOVE real estate agents.  That’s where their revenue comes from!  They make money by selling ads to real estate agents.  Maybe in the future they’ll make money by also selling premium listing space directly to sellers, but for now it’s all about the agent.

At the same time, Zillow’s purchase of Trulia is not good news for agents.  Now the two companies don’t have to compete for agent business.  I think we’ll see a bump up in pricing as they both try to sell the same Zip Codes to the same agents.

My point was that, as technology has put tools Realtors once held as proprietary into consumers hands, the agent’s importance in the transaction has been diminished.  They don’t need us like they used to.  But, with ordinary brokers there has not been a corresponding decrease in commission rates.  Consumers still pay full fare for diminished service.  What will make Realtors irrelevant is this idiotic clinging to a pricing model that was stupid to begin with.  The moment consumers understand that they really CAN do it without paying 5% or 6% or 7% of the sales price, they will drop their friendly neighborhood Realtors like rotten tomatoes.

If you are a regular Realtor and understand that what I’m saying is true, there is something you can do now to ensure your future:  get into Help-U-Sell.  This is real estate that makes sense, that costs much less and delights consumers.  While Help-U-Sell brokers and agents do have magnificent personalities, this is a business model that is not personality driven (which, if you hadn’t noticed is what drives the ordinary real estate world).  It is driven by systems that work.

In an ordinary office the agent’s job is to build the broker’s business by listing real estate for sale.  The broker relies on the agent’s contacts and personality to establish the brand by getting for sale sings up in the local market.  The broker, therefore has to pay the agent who lists real estate huge (dare I say ridiculous?) commission splits, and that’s a cost that, without a thought, is passed on to consumers.

Help-U-Sell offices don’t rely on agents to go out and find listings.  Instead, they market for listings (what a concept!).  And because the offer to home sellers is so far superior to what ordinary agents offer, they tend to get way more than their share of listings.  And all listings – because they are generated by marketing, not agents – belong to the office . . . and that very expensive commission that had to be paid to the listing agent?  It goes away.  Now, in ordinary real estate offices, that saved commission would probably find its way into the broker’s pocket, but we do it a little different at Help-U-Sell:  we pass that savings on to the seller.  Imagine that!

But there’s more.

When a seller lists with an ordinary agent, agreeing to pay a % commission, that’s it.  Period.  When the house sells – no matter how it sells – that % is what the seller is going to pay.  There is enough commission there to compensate two offices and two agents (listing office/agent and selling office/agent), and most sales happen this way.  Fine.  But what if there is no outside broker and agent?  What if the listing office finds the buyer and we don’t have to pay the outside broker and agent?  It doesn’t matter.  The seller is still going to pay that silly % and the unused portion is going right into the listing office and agent’s pockets.  Even better, what happens if the seller, by some quirk, happens to find his or her own buyer? Believe it or not, that  happens all the time!  So how much does that seller pay?  The same silly %!  It’s so stupid!

At Help-U-Sell, the commissions agreed to at time of listing are designed to compensate 3 people, not 4 (remember, we eliminated that irrelevant listing agent because we get listings by marketing for them), so there’s an automatic savings there even if there is an outside broker and agent involved.  But if there’s NOT – the seller doesn’t pay for one.  We charge at closing based on how the home actually sells.  If we don’t have to pay an outside broker and agent, the seller doesn’t pay for one.  Are you starting to understand why home sellers love Help-U-Sell?

Look:  I don’t work for Help-U-Sell anymore.  But I believe in this model and I see it as the future of real estate.  If you’d like to talk about it with someone who has nothing to sell (that’d be me), Email me

Accessibility Toolbar