Category: The Industry

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.

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.

How Long After You Cancel Your Listing Are You Obligated To Pay A Commission?

This title is a search string used to find The Set Fee Real Estate Blog yesterday.  It’s an interesting question and, though I’ve talked about cancellations before, I’ve never answered it.  So here goes:

It depends on two things

  • What the original Listing Agreement says and
  • What the Cancellation Agreement says

I know:  Duh, right?  But this is America in 2014!  Nobody reads anything anymore!  We unknowingly give Facebook permission to listen in on our lives via the microphones in our smartphones because we accept privacy agreements without reading!

I’m not an attorney, so my advice is worthless and anyone taking it would probably be foolish . . . however:

Generally speaking, without a formal Cancellation Agreement signed by the Broker, your listing would still be active even if you pull the house ‘off the market.’  The sign might come down and it might be out of the MLS, but in the absence of a written agreement cancelling the Listing – it will still be active for the original term of the listing . . . and you’d be obligated to the commission provisions should the house sell during that period.

In addition, most Listing Agreements have some kind of hold-over clause that requires you to pay a commission should anyone who was shown the home during the listing period return after cancellation/expiration and buy the house.  Often there is a requirement for the Broker to submit a list of these hold-overs to the Seller and usually there is a reasonable time period for the provision – like 90 days or something.

If you really DO cancel your listing – which means you get a written and signed Cancellation Agreement from the Broker – the terms of that agreement will override the terms of the original Listing Agreement.  So read it carefully.  It will spell out the circumstances under which you may be obligated to pay a commission.

People cancel for lots of reasons, some of them good:  job loss, family crisis, death, the house you were wanting to buy was sold before yours was and so on.  Most Brokers are pretty good about accommodating this kind of cancellation. Still: READ THE AGREEMENT!

People also cancel for really bad reasons:  a potential buyer shows up on the doorstep and says he or she will buy (at a reduced price) if the seller ditches the Realtor, another Realtor tells the seller he or she has a ready buyer but there will be no deal unless the listing Realtor is gone, the seller and the Broker (or Broker’s Agent) aren’t getting along (more on that here); you get the picture.

Most Brokers are pretty good about sniffing out this kind of nonsense.  They may succumb to pressure to release the seller BUT usually protect themselves with a good Cancellation Agreement that involves paying a commission if the house sells for any reason for a period of time.

Because my advice is ABSOLUTELY WORTHLESS and because real estate contracts and practice vary by State and location, if you are in a pickle with your Listing, I’d suggest you first try to work it out honestly with the Broker.  But if your needs are not being met and you really want OUT, contact a local attorney specializing in real estate and get their advice and assistance.

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

Surviving Armageddon: The End of Real Estate As We Know It

So, you think the real estate ‘downturn’ (ok:  ‘collapse‘ would be a better word) after the bursting of the bubble was bad?  You ain’t seen nothin’ yet.

Trulia and Zillow – two companies who brilliantly found a way to suck the wind out of the real estate industry’s sails by putting the consumer first (something the industry quit doing the moment recruiting was invented) – are joining forces.  While the goal, as always, is to maximize revenue, the marriage is one giant leap in the direction of eliminating Realtors as we know them, altogether.

I say it’s about time.  Let’s celebrate.

Advances in technology and the success of (non-real estate) companies that put tech in the hands of consumers are rapidly making real estate agents and brokers irrelevant.  Back when I was training agents, the factoid supplied by the industry was that 80% of the business would be done by 20% of the agents.  The National Association of Realtors is now telling us that 90% of the business is being done by 10% of the agents. So 9 out of 10 people ‘selling’ real estate ought to be asking if you’d prefer paper or plastic instead.  If that’s not a definition of irrelevance, I don’t know what is.

If you’ve paid any attention to this blog over the past 5 years (our anniversary is next month), you know I believe real estate brokers got off track way back in the early 70s.  That’s when the accent in their business shifted from selling real estate to recruiting.  It quit being about the consumer and started being about the agent.  Innovation focused on how to enable agents to make more money (Re/Max et.al.) rather than how to better serve the customer.  Per person productivity started to slide and has never stopped.  That’s what’s brought us to this 90/10 place.

The ultimate insanity happened over the past decade as Multi-Level Marketing invaded real estate.  Several companies incorporated the concept into their recruiting platforms and a number of new companies were built entirely around it.  Having done some contract work for a couple of these organizations, here is my somewhat jaded description of the real estate MLM operating system:

Since most real estate agents are worth just 4 or 5 deals a year . . . and since nobody can live on that . . . if we can get every agent we have to recruit every other agent they know to be on their ‘Team’ (so whenever anyone lucks up and sells anything everyone gets paid) . . . even bad real estate agents can make enough on the production of others to keep going . . . and so on.

Hear this:  if there is enough commission in the deal so that Suzie and her broker get paid when her cousin’s house sells, so that an outside selling broker and agent get paid, so that the six people in Suzie’s upline (some of whom don’t even know Suzie and most of whom had no idea a transaction was working) get paid . . . well, there’s way too much commission in the deal.  This is how the industry self-destructs in its final moments.

Also hear this:  if you think consumers don’t know or don’t care about this, you are not paying attention.  They are painfully aware.  No matter how much they love you, even if they think you did a good job, part of them Zillow-Trulia Merger: Godzillowlocks down in quiet rage when they see the commission line on the Closing Statement.  GodZillow and others are increasingly giving consumers a way to accomplish the task of buying and selling real estate without you.  (By the way, that is not a reference to the Lord, but rather to the Japanese monster who wrecked Tokyo in the 60s and San Francisco last year).

So Help-U-Sell:  what does this mean for you?

You’re different, remember?  Or did you forget?  Did the realization during the last downturn that buyers are very important cause you to emulate the antics of your competitors?  Did you put the accent (and the dollar) on generating buyer leads?  Are you spending more time showing property than listing it?  If so, you’re off track too – and headed for the junk heap.

Ours is a gorgeous operating system custom designed for the reality of irrelevant agents.  If implemented properly, it positions you to be the beloved alternative to the rabid dinosaur that is the dying industry.  It is real estate that makes sense, without the smoke, without the mirrors, without the crap.  But you have to do it right.  That means:

  • Focus on dominating listings in a specific target market.  (By the way:  I think it’s time we quit measuring market share by closed sides.  Count listings.  That’s all that matters for us.  Let everyone else do it the other way).
  • Market your services in a tangible, geographically targeted manner, emphasizing VISIBILITY.  Get your logo out everywhere in your target market.  Signs of all kinds, billboards, bus benches, car wraps, directionals, postcards, door hangers and so on.
  • Market to Sellers only. That’s where your superior consumer offer is aimed.  Save sellers tons of money and let them spread the word about you . . . and the buyers will line up to do business with you.
  • Stop recruiting!  What were you thinking anyway?  Build a team of support staff that helps you take care of the business you have created.  Sure, have buyers agents – you’re going to need them – but don’t ever forget that every person in the company is supporting your effort.  It’s your business.
  • Remember that not every listing needs the involvement of outside brokers to sell.  The best will sell without the MLS and those sellers will save huge amounts of money, which doesn’t affect your bottom line and makes you a hero.  Go for it.
  • Remind yourself that sometimes, with minimal effort, sellers can find their own buyers and thereby can achieve maximum savings.  Stop convincing yourself that nobody wants that.  Open your mind up to possibility.
  • Implement the 180° Theory of Help-U-Sell Success:  learn as much as you can about what your competitors are doing and then do the exact opposite!

We got here by being different.  We got here by putting consumers first, by focusing on doing great work for them and charging them less.  Quit chasing buyers, get back to basics, become the Anti-Realtor and you’ll do fine as the industry implodes.  I’ve never been surer of anything in my life.

(Thanks, Robbie)

 

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