Why the Current Percentage Based Commission Structure in Real Estate is Good for Consumers

Tomorrow, Help-U-Sell Broker, Dan Desmond, will be ‘debating’ the merits of the Set Fee Business Model vs. those of the traditional percentage based model with an industry veteren, Scott Einbinder. Dan will do just fine. He has dozens of comparative gems that illustrate the superiority of the Set Fee model over percentage commissions.

But I keep trying to think like the other guys. I wonder what they’ll say are the consumer benefits of a seller paying, say, 6% to sell their $300,000 home ($18,000) versus a set fee of, say, $4,950? Here’s all I could come up with:

The lofty percentage based commission is better for consumers because there is so much money in the transaction for real estate people that they will crawl all over one another to make the sale! AND it’s good for consumers because there is enough money in the transaction for the brokers to pay their salespeople ridiculously high commission splits and still have enough left over to pay the electric bill!

In fact, there is so much sales commission in real estate transactions that pay by percentage, that the industry has invented all kinds of new ways to ‘get the job done.’ How about this one:

I know of more than one company that has brought ‘Network Marketing’ (Read: MLM) to real estate. They pay bonuses to salespeople on the production of the people they bring into the company and the ones THEY bring into the company and the ones THEY bring into the company and so on. The models I’ve seen have agents earning bonuses SIX GENERATIONS down-line from the person who actually did the transaction. So the transaction agent gets paid . . . and so does the person who brought them in and, of course, the person who brought that person in, and so on and so forth until six people have shared that commission. It’s not only possible, it’s likely that the 4th, 5th and 6th generation winners won’t even know there is a transaction in the works! They may not even know the agent who actually did the deal! But they’ll still get paid because they did the one thing the traditional business holds as all important: they recruited!

What’s wrong with that? I mean, Donald Trump and Robert Kiyosaki have both endorsed Multi-Level Marketing (oops! I’m sorry, I mean: Network Marketing) as a great way to make a lot of money. What’s wrong with it is this:

If there is enough money in the transaction to pay six (or more) real estate people, most of whom had NOTHING to do with the transaction at all . . . . there’s too much money in the transaction for real estate people.

We have to remember why people get into the real estate business. Very few go to college to study real estate and prepare for a career in it. Most set out to do something else . . . that eventually goes wrong. Maybe, like me, they set out to teach but discovered several years later that teaching wouldn’t pay the bills. Maybe they were climbing someone’s corporate ladder and were suddenly laid off. Maybe they stayed home and raised the kids, who are now grown and independent. The point is this: most people come to real estate as a fall back (fall forward?) from a career shift. Why do they choose real estate? Anyone who’s bought or sold a house or two has a basic familiarity with the industry and how things work. Entry is relatively easy and cheap – you just have to pass a State test and pay a few fees. And there is potential to make big bucks. I mean, just look at the numbers! Sell a $400,000 house paying, say 5% commission . . . that’s $20,000 for just one deal! I know, I know, not all of that goes to the agent, but still, it’s a lot of money for selling one THING. You’d have to be selling industrial pumps or warehouse automation systems to make that much on a single sale anywhere else . . . and those jobs would probably require technical expertise that most don’t have!

So, when our chosen career shits and we need a plan B, we look to real estate because it’s easy to get in, it doesn’t cost a lot, and the money can be really good. In fact, it looks like ‘easy’ money. I assure you it’s not . . . but to a person looking for an income stream, real estate sales can appear relatively easy.

Unfortunately, most who get in quickly discover the truth: that it’s NOT easy, that they work more hours for less per hour than they what they left. It’s frustrating. And now here comes Help-U-Sell trying to charge sellers LESS for our service! Unthinkable!

I don’t want to give the impression that I am anti-real estate agent. I assure I am not. To me, the ones who are good are . . . heroes. I’ve worked with some who tirelessly wrangled angry dragon-like transactions into submission, day after day, deal after deal, and never stopped smiling. What I am ‘anti’ is: consumers bleeding equity to support a real estate business model that’s was out of date 20 years ago and that’s been on life-support ever since.

So, here’s to you, Dan Desmond! Put your armor on and speak the truth . . . it may just set them free.

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.

Set Fee Blog Stats: 2012 In Review

WordPress creates an annual report for bloggers who use their service. I just (finally) opened mine and go some eye opening information:

  • In 2012, there were 67 new posts on The Set Fee Real Estate Blog, bringing the total to 292.
  • There were about 5,400 total views in the year, with the busiest day being February 15, with 72 views.
  • The post that garnered the most views on that day was about Maurine Grisso’s REO Training.
  • Most viewed posts for the year were (in order):
    1. How To Do It, Step 6: Accountabiity
    2. The Buyer Questionaire
    3. Old Scripts/ New Scripts
    4. Full Service Broker vs Limited Service Broker vs Discount Broker
    5. Clarifying Terms: Full Service Broker, Limited Service Broker, Discounter, Help-U-Sell

It seems pretty clear that the public is confused about the difference between full service, limited service, discount service and Help-U-Sell. I’d probably do myself a favor by writing more about this murky topic.

  • Most people came to this site via Networked Blogs, HelpUSell.com, and Facebook
  • My most active commenters were:
    1. Kirk Eisele
    2. Dan Desmond
    3. Don Taylor
    4. Robin Rowland
    5. Jeanne Strayer

Wouldn’t you like to put those five people in a room and then sit back and listen to them talk!

You can view the full report HERE.

2011 NAR Expo: Day 1

Good Morning!  The 2011 National Association of REALTORS Annual Convention and Expo kicked off yesterday afternoon and I am happy to report that the first day was a success for Help-U-Sell.  Our booth is HUGE and, thanks to Ron McCoy, very well located.  We have a big corner, just one set of exhibitors back from the main entrance, right next to the Wells Fargo booth (which always draws a big crowd with games and give-aways).

It was a success for several reasons:

  • First and foremost – the quantity and quality of people who stopped by to chat.  Really, we’ve done this show before and others, and this time people were bright, energized, and sincerely interested in who we are and what we’re doing.  It was a fairly constant stream of significant conversations.
  • We looked GOOOOOD!  Mary, Robbie, Kendra, Ron and I were joined in the booth by Dan Desmond, Kim Zelena, Leigh Ann Losh and Elias Klaeb, so we didn’t look lonely and forelorn! (nothing worse than a great big booth with one or two people in it).  Plus, Ron had gotten each of us a high quality white button down collar shirt with big embroidered logo over the pocket.  We looked sharp and cohesive.
  • A couple of former franchisees, people who dropped by the wayside in the turmoil of 2006, stopped by and were more than a little interested in . . . well, in doing what Help-U-Sell people who leave often do:  coming back.  One said something I’ve heard many times before: ‘The happiest days of my real estate career were the ones I spent as a Help-U-Sell Broker.’
  • We had conversations with people from Canada, the Philippines, and India (yes, India) about the possibility of our brand making it into their parts of the world.  That’s probably down the road a month or two (or ten), but it’s great to know there is interest and anticipation there.

We are building momentum to carry us into a growth phase.  Growing is not something we’ve put much energy into over the past few years.  Instead, our laser-focus has been on helping our people survive and thrive in the most difficult market any of us has ever seen.  So we’re starting from a full stop.  But the momentum is building.  Our Informational Webinars are pulling in a steady stream of interested attendees, our presence here and at the recent CAR Expo and upcoming Tripple-Play meeting are putting us on the mental map of REALTORS everywhere, and our full-page ad in the latest REALTOR Magazine is propelling us forward.  I expect 2012 to be a year a significant growth for Help-U-Sell.

We expect many more Help-U-Sell family members to be in attendance over the weekend, all wearing those cool white shirts and helping us spread the word about our excellent industry and consumer offerings.  If you are in Anaheim, please stop by and say ‘Hello.’

Kendra in the booth

 

Short Sale Prospecting

I know, I know:  you hate Short Sales.  They are unpredictable and frustrating to say the least.  But, the reality is almost every REALTOR hates Short Sales . . . and that’s what makes them such a great opportunity. 

Mike Ferry, the great real estate trainer and motivator, used to talk about the 180 degree theory of real estate sales success:  find out what everyone else is doing and do the opposite.  He’d probably agree that in a world where agents hate Short Sales, the smart thing to do is to specialize in them. 

It’s a good fit for Help-U-Sell, too.  After all, our whole program is built around helping people solve their real estate problems in a way that saves them money.  Who better to help today than the homeowner who, through no fault of his or her own, is upside down and desperate for an answer? 

It’s that kind of thinking that’s led Dan Desmond, Robin Rowland, Marty Castro and so many other sharp Help-U-Sell Brokers to take courses, revise marketing materials and gear up to go after this growing niche in their local real estate market.  If market trends and history mean anything, that’s a smart strategy most of us should adopt.

A couple of weeks ago, on the Tuesday Broker Roundtable call, Ken Kopcho shared a flyer a competitor was using in his marketplace to solicit Short Sale listings.  This Broker created the flyer in English on one side, Spanish on the other, put them into plastic door knob hangers and had them delivered in target neighborhoods around town.  Ken reported a noticeable spike in the competitor’s listing inventory. 

Ken Faxed me the flyer and I wordsmithed it a little and have reproduced it below.  If Short Sales are a significant part of your market, why not use this bit of verbiage to begin a prospecting campaign for these special listings?  You could use this to create door hangers as originally done or convert it to postcards or even telephone dialogue.  Whatever you do, I’d love to hear how it works for you. 

Dear Neighbor,

Many homeowners in today’s market have little or no equity; that is, they owe more in mortgage debt than their property is worth.  In these situations, lenders may accept less than the full amount due when the property is sold – a practice that is commonly known as a Short Sale.   Today, more than ever before, you may be able to take advantage of this option.

My company has been negotiating between 10 and 20 Short Sales a month.  We will negotiate with your lender to accept less than the amount owed and forgive the difference.

I am convinced that, with our approach, we can help you sell your home.  With a Short Sale, you can basically list your home for FREE, since my fee is paid by the lender – all the while protecting your credit rating!

If you find yourself behind on your payments or owing more than your home is worth, complete the following questionnaire and call me TODAY at XXX-XXX-XXXX.  You may also email me at XXXX@XXXX.com or Fax the form to XXX-XXX-XXXX. 

****

(English)

Quick Short Sale Survey Form

Property Address _____________________________________

Are you behind or struggling to make your mortgage payments? Yes     No

Do you NEED to sell this home?     Yes     No

Do you owe more on your home than it is worth?     Yes     No

Are you living in the property now?     Yes     No

Additional Information  _____________________________________

Call XXX-XXX-XXXX or email this survey to XXXX@XXX.com or fax to XXX-XXX-XXXX

For more information, call me today.

Sincerely

J. Sellingman

Listing and Foreclosure Specialist

****

(Spanish)

Quieridos Duenos de Casa

Muchos propiedades in el mercado de hoy tienen poca o ninguna equidad; es decir el vendedor debe cerca de o más que la propiedad merece.  En estas situaciones, los bancos pueden aceptar menos que la cantidad llena debida, comúnmente conocido como “una Venta Corta.”  Ahora más que alguna vez, usted puede aprovechar esta opción.

Nuestra oficina hace ventas cortas con un promedio de 10-20 mensuales.  Negociaremos con su prestamista para aceptar menos que la cantidad debida y perdonar la diferencia.

Soy convencido que, con nuestro programa, podemos ayudarle a vender su casa.  Con una Venta Cort, usted puede poner básicamente su casa en la marketa gratis, ya los costos son pagados por el prstamista Y mentras co proteccion de su credito!

Si usted se encuentra detras en sus pagos o debido más que su casa merece llene el cuestionario abajo y me llman HOY al XXX-XXX-XXXX or correo electronico, XXX@XXX.comor numero de fax al XXX-XXX-XXXX.

****

Cuestionario de Venta Corta

Dirección de propiedad:______________________________

Esta Retrasado o batallando para complir con su pago de casa?    Si     No

NECESITA vender su casa?     Si     No

Se debe mas que el valor de su casa?     Si     No

Vive usted en esta propiedad?     Si      No

Informacion Adictional: _____________________________

Para mas informacion llame al XXX-XXX-XXXX

Sinceramente,

 

J.Negocios

Especialista de Venta Corta