‘Percentage Based Commissions Are Nuts’ Video

I worked with Robert Stevens and the Sarasota Help-U-Sell team to create a new video explaining why the old fashioned way to price real estate services is sooo off track, and why Help-U-Sell makes so much sense in today’s world.  I’m very pleased with it from a content and communication standpoint – I think it gets the message across pretty well.  And I’m delighted with the graphics packaging and presentation.  Design whiz, Theo did an excellent job of putting pictures and arithmetic to my words.

The real estate industry is so invested in the status quo, so utterly driven by structures and systems that have nothing to do with getting property sold, with helping people find their dream homes, that change is almost impossible for them.  For a big real estate company built on the idea that home sellers should pay 6% or 5% or 7% of the sales price as a commission to change over to a much more logical and fair flat fee system would be like trying to turn the Titanic on a dime (and miss that iceberg!).    Yet the iceberg is out there, looming, getting closer by the day and year.

When the percentage based ship goes down, consumers will win.  They’ll be charged for real estate services they same way they are charged for medical services or legal services or auto mechanic services:  Set Fee Pricing.  It will be fair and it will make sense . . . and they will save thousands.

If you are ready for tomorrow, if you’re tired of feeling taken even when your agent and broker do a good job, if you want to be delighted not only with the service but also with the fee, Call Help-U-Sell.  It is the modern way to sell your home.

Discrimination in Housing: A Personal History

I was just reading about the Arizona Bill, currently headed to the Governor’s office for signature, that would enable businesses to refuse service to anyone on religious grounds.  The bill is designed to allow business owners in the State to refuse service to gay and lesbian citizens, but I assume, could be broader.  I mean:  I’m sure it could be construed as an affront to one’s religion to be forced to  serve a woman in a burka or a man in a turban, or even an African American.

No.  I don’t like the bill.  I don’t like it because it is anti-capitalist.  Our society is constructed around the notion that we are all consumers, all vendors.  We are about offering goods and services for sale to anyone who has the cash and wants to buy.  Any legislation that stands in the way of that goes against the grain of our National DNA.  Besides, how are the business owners who invoke this Bill as a rationale going to tell who’s who?  Are they going to force suspected undesirables to show their secret gay membership cards?  Are rainbows going to be banned?

I think it would be so funny if Michael Sams, the first openly gay football player headed to the NFL, were drafted by the Arizona Cardinals.  Would these uber-religious business owners refuse service to that millionaire?

namaddox_t640I keep thinking about Lester Maddox, who in 1964 – after passage of the Civil Rights Act – held a group of  3 African American Georgia Tech students at bay outside his restaurant near in downtown Atlanta.  The ax handle he brandished became a symbol of sorts, that he later marketed and (gulp) autographed.  Maddox went on to  be the 75th Governor of Georgia after serving as Jimmy Carter’s Lieutenant Governor.

If the Arizona Bill had been law in Georgia in 1964, I’m sure Lester Maddox could have found some religion that would justify his actions.  But we didn’t think like that back then.  We just thought he was an ignorant racist.  His election proved that he was not alone, not by a long shot.

I started selling real estate around Atlanta in the late 70s.  Race was a hot topic then as increasing numbers of middle-class African Americans sought the better schools and safer surrounds of the suburbs over the blighted inner-city.  Us Realtors were cautioned against something called ‘Block-Busting,’ where a Broker would sell one house in an all-White neighborhood to an African American family and then canvas the area creating fear of falling values and rising crime to take many more listings and make many more sales.

I worked an area East of the city, around Decatur and Stone Mountain (home to a large carving of Confederate Generals riding across the side of the mountain and off into glory), where many brave African American Atlantans  from downtown chose to move.  Often these were my clients.  I remember being impressed.  These were the most American of my clients, working hard and taking risks to ensure a better life for their families and their children.

I remember one man – a UPS employee – I helped to sell a house, buy a better one, then a few years later, buy an even nicer one.  He and his family were special to me because the buyer of that first house he sold?  It was me.  In a 180 degree twist on the Exodus of the day, I did a little reverse Block-Busting, and became the only White resident of an African American neighborhood.  And we all got along just fine.  As Americans we were all interested in the same thing:  Our Property Values.  We all wanted neatly kept lawns,  freshly painted trim and a lower crime rate.

I got a couple of nasty calls from the neighborhood where my friend bought, and a couple of For Sale signs went up – not with me, because I didn’t play that ugly card – but by-and-large, people just went about their business and continued to work to make their neighborhood the best place it could be.  It seems strange to even mention that today, but remember:  this was the Deep South in the Late 70s.  Race was huge.

So huge that in the little town of Avondale Estates, smack-dab in the middle of my area, the local Realtors got together with the city leaders and agreed to ban For Sale signs.  The plan had two objectives.  First, it forced anyone wanting to find a home in Avondale to contact one of the local Realtors (ca-ching!).  Second, it gave the local Realtors the opportunity to screen who they would give the information to.  So, if you sounded African-American on the phone, suddenly there were no homes for sale in Avondale!   For Sale sign bans were quickly the subject of a few court battles and were eliminated.

I opened a real estate office in the distant suburbs:  Lilburn, in Gwinnett County.  It was a growth area with lots of new construction and today is considered close-in.  Back then, it was the sticks.  I remember the day, shortly after I opened, that I was Tested.

The Department of Housing and Urban Development (HUD) was said to occasionally send two sets of ‘buyers’ into the same real estate office, one White, one African American, to ensure that they received the same service.  My Test started with a walk in:  a well dressed White man who quickly told me about his income, his debts and his cash-on-hand and then asked to see 3 bedroom ranches in Lilburn.  I lined up three and off we went to tour.  He didn’t seem very interested in what I showed him and was vague about getting together over the weekend to look again.

A couple of days later, I got another walk-in.  This time it was not a so nicely dressed African American woman with a well-behaved child.  Her financial profile was very similar to the man I’d helped two days earlier and surprise, surprise:  she was also looking for 3 bedroom ranches in Lilburn!  That was easy for me: I’d already done the research for the other guy, so we hopped in the car and drove off to see the same three houses.

I never heard from either buyer again, but I didn’t expect to.  I knew I’d been tested and I knew I passed.  What they were looking for was evidence of ‘steering’:  showing two buyers with similar needs and capabilities different properties based on race.  In general, local Realtors did pretty well with this test, but some well-established members of our real estate community did not.  There were fines and a revoked license or two.

Today I live in Southern California and discrimination seems to have little impact on the real estate market or individual real estate decisions.  Our neighborhoods are diverse and it seems anybody can easily live anywhere.  Again, it’s that Capitalist thinking:  if your money is green, you can buy here, there, anywhere you want!  But I remember when I moved here in the late 80s,  I saw discrimination at times more glaring than what I’d seen in the South . . . only this time it wasn’t directed toward African Americans.  It was directed at Hispanics.  My impression was, if you looked Hispanic and were in Irvine or Mission Viejo . . . well, you’d better have a rake or mop in your hand and a ticket out after sunset.  That was my impression.  Things are very different today.

Discrimination is the decision we make about what is good, what is not so good, what is better and what is best.  Discrimination is a good thing when it comes to food, wine, issues of taste, fashion and culture.  When applied to people, though, discrimination is a terrible thing.  It requires that we look at people not as individuals but as members of a group or class, and to make individual decisions on them based on our impressions of their group or class.  I don’t think discrimination of the human type has any place in America.  Here we create stuff, sell and buy it, and anybody can have a piece of the pie.  Period.

I have one final memory of discrimination and housing I want to share.  It involves a fellow named Otis, who owned 5 acres out in the country a few miles from my Lilburn office.  One of my agents, Carol, had a buyer who was looking for a place to build a house and have horses.  Carol showed Otis’ property and the buyer loved it.  She wrote and offer and took it over to the Seller.  Before she could even begin presenting the details, Otis asked what must have been the most important question he had about the transaction:  ‘What color are they?’  Carol thought for a moment and then said, ‘I don’t know . . . I didn’t ask.’   And she gets a gold star for that one!

And, Governor Brewer?  I’ve got a gold star for you too if you refuse to sign that stupid bill!

 

Your 6% Partner

In my varied life as a business-person, I have had partners from time to time.  The form of business might vary –  sole proprietorship, limited partnership, even corporation – but in our guts we knew what we were:  partners.

As partners we had a division of labor:  I’d do things I was good at and my partner(s) would focus on areas in which they had expertise. And, as partners, we shared expenses and split profits.

My own partnerships were pretty simple and the split was usually equal among the parties.  Working with other businesses, however, I’ve often seen splits that were weighted one way or another 60/40 or 51/49 and so on.

Has it ever occurred to you that when you hire an ordinary real estate agent, you are taking them on as a partner in your property?  Really:  if you are agreeing to split with the agent on a 94/6 basis, you’re taking them on as a partner in your property.  Maybe you’ve been in it, improving it, investing in it for five years.  This agent is coming in during the final 3 or 4 months of your ownership,  and somehow is entitled to 6%* of what you’ve built!

And here’s the big kicker:  we’re not talking about splitting your profit 94/6 with the agent.  You’re going to pay them 6%* of the gross!  Of the Sale Price.

Let’s assume the house sells for $400,000 and that you have a $300,000 mortgage that must be paid off at closing.  The agent’s 6%* commission is $24,000.  Ouch!  That’s 6%* of the Sale Price.  But after you pay off your mortgage, you won’t have $400,000, you’ll only have $100,000 and it’s from that that you must pay the agent.  That $24,000 commission is almost 25% of your proceeds, your net!

Are you really going to give away 25% of your net to an agent who will put the property on the Internet, fill in the blanks of the contract, manage the inspections and keep things moving to closing?  Really??

I’m not.  No way.  There is not that much value in the relationship.  Don’t get me wrong:  Realtors are incredibly valuable in the equation, but 25% of your net valuable?  Hardly.  I”m going to pay a Set Fee to sell my house.  You know a Set Fee, like what my dentist charges to fill a tooth, like my doctor charges for an office visit, like my mechanic charges for an oil change. I’m going to pay a flat $5,550* to sell my $400,000 house – the same $5,550 my neighbor with the $350,000 house will pay.  And for that, I’m going to get full service, great marketing, agent representation and hand holding every step of the way.   I’ll be saving almost $20,000 over what that ordinary agent was going to charge me!

So how about you?  Do you want to save thousands?  Are you tired of having a new partner swoop in at the 11th hour of  your home ownership to claim a big chunk of your equity?  If so, here’s what you do:

Click the link up there in the top right of this page where it says ‘Find a Help-U-Sell Office.’  You’ll be glad you did!

*Real estate commissions, whether percentage based or set fee, are always negotiable between the consumer and the broker.  They are not set by law or Realtor rule and there is no ‘going rate.’  The $5,550 I used to illustrate a Help-U-Sell set fee is just an example.  Help-U-Sell fees vary by office because different marketplaces behave differently and require more or less effort and marketing expense.  Having said that, there is one great truth here:  you will almost always save big on real estate commissions when you work with Help-U-Sell.  Savings is what we are all about!

What To Pay Your Realtor And How

(Once again, THIS is the single most popular post on the Set Fee Blog. Every day, dozens of people find their way onto this site searching for guidance on what to pay their REALTOR. I’ve freshened this up a bit – added a little more detail – and want to post it again. I only hope this helps some people hang on to more of their hard earned equity.)

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.

Please don’t take this to mean that your percentage based real estate friend is a bad person.  The percentage model is so deeply ingrained in the ordinary real estate world that today’s practitioners don’t even question it.  It is all they know.  And the truth is, if they were to abandon it in favor of something that makes sense (i.e. Set Fee Pricing), their business model would collapse.  They operate in a world where so many people get a cut of the big commission you pay that changing direction in favor of something better would be impossible.

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.

Great News to Start The Year!

Once again, The Franchise Business Review  has included Help-U-Sell Real Estate in its annual list of Franchisee Satisfaction Award winners.  It is our third straight year to make the list.  The list is created after surveys and interviews with current franchisees  and looks at franchisors in a variety of industries.  Making it onto the list means, basically, that our member franchisees are happy with their decision to affiliate, with the guidance and support they get and with the results they achieve.

We aren’t the only real estate franchise to make the list, but there were a few conspicuous absences.  Century 21 didn’t make it.  Neither did ERA or Re/Max.  Keller Williams didn’t make it, nor did Real Estate One.  A dozen of lesser known franchises also missed the mark.

I worked for the other guys in the distant past, always in franchise support, training and business consulting.  The pressure to sell franchises was so great that at times it seemed the only bulls-eye that mattered.  The emphasis on franchise sales (and the absence of anything truly different in the operating system) pushed salespeople into selling fluff, not stuff.  Franchisee dissatisfaction began shortly after Orientation as new franchisees realized that they’d bought very little.

We don’t have that problem at Help-U-Sell.  First, while franchise sales is important, it’s just one bulls-eye and in fact, is not even the most important one.  Secondly, we don’t have a big Franchise Sales department with an unlimited budget.  Most of our franchise sales originate with our existing franchisee base; our members bring in most of our prospects.*  And finally, what we have to sell is stuff:  real, tangible, results producing stuff.  It is different from what they other guys have, works differently, and works better.

A couple of posts ago, I invited curious outside brokers to pick up the phone and call a Help-U-Sell broker – any Help-U-Sell broker – to find out about us.  I made the invitation honestly because I know every broker in our system would wax poetic about the power of the brand, the operating system and the support.  It’s nice to have that belief validated by The Franchise Business Review.

*By the way, Help-U-Sell brokers:  you do know that you are rewarded when the franchise sales prospect you bring in becomes a franchisee, don’t you?  Ask Ron McCoy for details . . . maybe on next week’s Power Hour.

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