Category: The Industry

You’re Welcome, Realtor.com

NAR has a big ad campaign running right now touting REALTOR.com as the most accurate consumer website for housing information. They make the valid point that the big national listing aggregators (i.e. Zillow and Trulia) are, by comparison, less up-to-date and less accurate than their site. They are spending millions to get that message out. Here:

It’s a message we got, oh, more than a year ago.

Remember the big flap about listing syndication that flared up in January, 2012? There was a very vocal broker ripping his listings out of syndication to Zillow and Trulia because they did not aggressively steer consumers to the source of listing information (the listing agent). A few others followed.

We talked about it long and hard here in the SFB and decided that such a posture was self-destructive. Zillow and Trulia are where the buyers ARE. That’s just reality and it isn’t going to change any time soon. A smarter strategy is to find ways to exploit the power of these portals (by opting into their premium agent program and becoming active in garnering reviews and interacting with their network) and regard them for what they are: lead generating machines.

We also talked about how to take leads generated by the big listing aggregators and get them to drop those websites in favor of our own. In those posts we suggested the following verbiage (or something similar) when talking with consumers about this:

Agent: How long have you been looking?

Buyer: Oh, a few weeks, I guess.

Agent: You found me on Zillow, is that how you’ve doing your searches?

Buyer: Yes.

Agent: It is very easy to use, I know. . . but have you noticed how many homes on there are not really for sale?

Buyer: Well, now that you mention it . . .

Agent: They have a real challenge there; it’s because they’re trying to do a local job on a world-wide platform. They get housing information from so many sources it even confuses them! Listen, how about letting me give you access to the local MLS – without all the data from Boston and St. Louis and Puerto Rico gumming up the works! You’ll have the most accurate and best information on houses for sale today in this market.

Buyer: You can do that?

Agent: Sure. I just need an email address and phone number and I can set you up with a buyer’s account on my website. You can search to your heart’s content, save listings, even set up email alerts when new properties that meet your needs come on the market. Plus, any time you have a question or want to see something, I’m just a click away.

Buyer: Sounds pretty good.

REALTOR.com’s new multi-million dollar ad campaign makes the same point: that the aggregators’ data is flawed and that theirs is better.

I am not so arrogant that I believe our discussion here on the Set Fee Blog over a year ago had anything to do with REALTOR.com’s marketing company coming up with that strategy. Anybody who really looks at the aggregators, how they get their data, how they weigh each data source, and what the end result is, would see the flaw in their platforms, and recognize the superiority of a local broker’s IDX feed. But, just as in December, 2011, when we predicted a housing shortage a year before it arrived, we were also way ahead of the curve when it came to syndication strategies.

So what do we do with the REALTOR.com marketing campaign? Yawn. Nothing. It’s pretty irrelevant. My guess is it won’t impact consumers one iota. It ignores the one great underlying truth about consumers searching for houses online: they really don’t want to connect with a real estate salesperson. That’s why they go to Zillow: they perceive it to be one step removed from REALTOR self-promotion.

If there is something to DO, it is this: continue to remind the consumers who contact you, with whom you develop a personal rapport, that your data is THE MOST accurate and THE MOST local. Home search is, above all, a LOCAL activity. Everyone looking for a home is looking for a home somewhere. Your local MLS feed will always be better than any national aggregator, even REALTOR.com.

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.

Seller Strategy: Comps Lower Than Current Value

There has been a big shift in most markets across the country. Prices have halted their multi-year skid and have begun to rise, and in some locations, rise rapidly. Inventory has plunged as fence sitting buyers and anxious investors have snapped up what was available and an air of desperation colors conversations with buyers who probably should have gotten into the market a year ago and who now find selection limited, prices rising and interest rate fears on the horizon.

Congratulations! We’re in a Seller’s Market!

If you are with a real estate company with a competitive advantage in the listing arena (like, say, Help-U-Sell, where low set fee pricing draws sellers like a magnet), this is your moment! As your ordinary competitors scramble to find anything to show their backlog of buyers, you can put more and more properties on the market, properties that will sell and probably sell fast.

But here’s a problem: Recent history is littered with the debris of Short Sales and Foreclosures that sold well below current levels. The comps in your area really don’t reflect current values and your appraisers are, frankly, gun-shy about rising values. They are conservative and unwilling to risk overstating value.

So, your new listing really is worth, say, $325,000, and you have buyer who wants to pay $325,000 . . . but all the comps, some as recent as 4 months ago show much lower values. There’s a good chance the place will not appraise for the $325,000 sale price. What do you do?

Go ahead and list it. Use value-range pricing, like: $320,000 – $335,000 (this sets up a bidding mentality among potential buyers). State in the listing that all offers will be considered on a specific date in the future – say 2 weeks out. Collect offers and on the specified date, review them with the Seller. Counter any that seem promising, removing the appraisal contingency. What you’re essentially saying is: if the house doesn’t appraise for the value of the contract, the buyer agrees to make up the difference in cash. Of course, cash buyers will rise to the top of the stack, but they might not always represent the best option for the seller.

Consider this hypothetical example:

Seller A has a 3br, 2ba 1600 sq. ft. ranch that truly is worth $275,000. Unfortunately, the only comps close by are short sales and foreclosures with values between $240,000 and $260,000. You put the home on the market with value-range pricing of: $265,000 – $280,000, with all offers being reviewed 2 weeks hence.

Buyer B is one of several who submit offers. They have $75,000 cash from the sale of their previous home and want to put 20% down on the new home. They offer $277,000. One of the other bids looks pretty good and is for $279,000, so you counter all of the offers at $279,000 and remove the appraisal contingency.

Even if the appraisal comes in at, say, $270,000, Buyer B can get a loan based on that amount, putting 20% down ($54,000), make up the $9,000 deficit with cash and still have $12,000 left over from the $75,000 they had to start. They really want the house, so they agree to the terms and you have a sale.

NOW: it’s important to remember that different loan products behave differently and have different requirements. Also, local rules and custom vary. So this strategy may not be useful in all situations. Before you proceed, talk with your best lenders and real estate attorneys. Disclaimer, disclaimer, disclaimer. But do check it out. I can tell you that in my own inventory starved Southern California market, this strategy is being employed effectively 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.

Working with Friends vs Working with Strangers

With whom would you rather work?  I know, I know.  You probably just blurted out ‘Friends! Of course!’  That’s a natural response, one that is in line with conventional residential real estate thinking where your goal should be to build a 100% repeat and referral business within three years.  If you’ve ever been to a real estate sales training program or seminar (picture: Brian Buffini), what you probably learned were techniques for adding lots of people to your corral of friends and then extracting business from them.

But I just read an excellent (and short) blog post from our friend, Kirk Eisele (who I just invited to pop in here from time to time and contribute a post or two), that brings clarity to my own discomfort with that approach. (Stop now and read it HERE, then come back)

True Confession:  in my own real estate career I didn’t do a good job of converting my friends into customers.  I didn’t want my friendships to be about my business; or rather,  I was not good at keeping friendships about friendship while injecting my business into them.  The idea of constantly talking with everyone I know about real estate was not my style.  Allright:  I sucked at it.  And I always saw that as a failing.  Kirk’s post helped me see it not as failure but as honest recognition that I am a marketer at heart.  Of course, you already knew that.

I guess this explains in part why I fell in love with Help-U-Sell.  This is a marketing driven business system.  It is real and tangible and can be packaged and presented (marketed, sold) to consumers who quickly come to the logical conclusion that Help-U-Sell is a good idea.  It is NOT personality driven.  It’s not about who you know and whether they support your business (though we all need all the friends we can get), but relies on a solidly different and better apprpoach to the business for success.  Help-U-Sell is for Marketers . . . and for Connectors who can learn to market.

This is not to belittle the Connectors.  With quite a few notable exceptions, most of the successful real estate salespeople held up as models for us all are Connectors.  Some of our best Help-U-Sell brokers are Connectors.  But ALL of our Help-U-Sell Brokers are Marketers.  It goes with the territory.

The simple fact that you’re building a business based on sound business principals (as opposed to building one based on who you know) makes the business more valuable.  Richard Cricchio has built one heck of a Help-U-Sell business in Hawaii and though he is the voice of real estate in his weekly radio show, if he were to sell his company to a qualified candidate who follows the same plan, the company would probably not skip a beat.  If his business was built on family, friends, neighbors, past customers and clients, anyone buying the business would realize that once Richard went away, so would the business.

Back to that initial question I asked:  With whom would you rather work? Friends or Strangers?  Let me blur the lines a little:  how about Friends or Strangers and Former Clients?

I’ll take the latter every day.  Strangers and former clients make the decision to work with me based on the efficiency and effectiveness of my program.  Of course they have to be comfortable with me, but they don’t make the buying decision because of our long and rich history together.  On the other hand, my experience working with friends and family is, honestly:

they usually expect a deal,

one that usually impacts my income.

At the end of the transaction, though everyone is all smiles, somewhere in the back of the the Friend’s mind is the nagging question:  ‘Did he really give me a good deal?’  Meanwhile, that stranger I just converted into a client and a sale is delighted over the great service and low fee I charged.

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