Matt Kellam sent me a link to a post on BrokerAgentSocial.com from a traditional broker (a CRB) about the disappearance of ‘Discount’ Brokers. As I read the thing it was clear he was mostly talking about us.
I was struck by how off-target the piece was as well as most of the comments to it. If you’re curious, this would be a good time to jump off and read it — but come back when you’re through. Here’s the link:
Whatever Happened to Discount Brokers?
First off, they call us ‘Discounters.’ That’s not new. But it’s just as false today as it was 5 and 10 years ago. Calling us ‘Discounters’ assumes that we take their ‘Full Service’ model, strip out the more expensive aspects of it and offer the stripped down model at a lower price. The truth is: we strip nothing out. We do the same things they do (and really, this is no bull: we do more), but we price our services differently so the seller saves on the deal.
Ordinary brokers who know nothing but what they’ve always done take a look at our pricing and try to imagine what their operation would be like if they priced their services that way. They imagine it would be a disaster . . . and they would be right. If you put our pricing on their business model, it would fail. It has failed. It will always fail. And you don’t have to be Warren Buffett to figure it out: If you’re not making any money doing things the way you’re doing them, you’re certainly not going to make more by cutting your revenue.
But, they see us continuing to survive, even thrive and there is a disconnect. (‘How can those guys afford to stay in business?? There must be some secret!’ ) So they speculate on what that secret might be, and that’s where the spin doctoring in the BrokerAgentSocial.com post comes from. It’s stuff like:
- We rely on the Internet to make our model work and rely less on brick and mortar offices.
That’s not entirely false. We do exploit the power of the Internet as much as possible to generate leads into our offices. We’d be foolish not to, wouldn’t we? And, we’ve always been able to get by fine with smaller physical offices because our model allows a small number of people to do large numbers of transactions. Don Taylor decided 35 years ago that he was in the business of selling real estate, not in the business of providing a palace for agent-princes to use for coffee time. We have never needed 200 agents to generate a profit. We do it with 5 or 6 people; so the 10,000 square foot, Taj Majal office is unnecessary.
- We use loss-leader pricing on listings and use them to snare buyers to whom we sell full commission MLS listings.
Our seller offering is not a loss leader. We set our fees based on what it will take to market a property and make a reasonable profit. I know it was misguided, but 5 and 6 years ago, many Help-U-Sell Brokers made great piles of money just working listings with set fee pricing. They didn’t even think about the buyer side. Today we know very well the folly in ignoring the buyer and we aim for a 50/50 mix of buyer sides to seller sides. What’s different is that the profitable low set fee offer to the seller makes inventory building easier; and a large inventory generates a strong flow of buyer inquiries into the office. We teach our brokers to create buyer agent compensation on Help-U-Sell office listings that is equal to or greater than what the agent would be paid on an MLS listing so there is always an incentive for our agents to sell our listings first.
- We use our pricing to get us face to face with a seller and then tack on fee after fee with our menu-of-services.
I guess they think we rent the for sale sign to the seller for $50 a month and flyers are $.25 apiece and helpusell.com costs an additional $2,000. Really: the only thing we ‘tack on’ is the other agent. We make that outside agent an option. And several years back, may sellers passed that option by because they believed — rightly so — that we could get the job done without it thus saving them a lot of money. It still works today with a properly priced equity seller. And, even when they take the option of offering the property for sale through MLS (and then being prepared to pay the outside agent and broker), they will only pay a fee based on how the property actually sells. So the seller who takes the option at listing who then holds his own open house and thus finds his own buyer, will only pay the Help-U-Sell low set fee. It’s like: the breakfast buffet is $10.95, but if you just have fruit, cereal and yogurt and find you don’t need the eggs and bacon, it’s just $4.95. Makes sense, doesn’t it?*
When they call us ‘Discounters’ they miss the point. It’s not a discount. It’s a completely different way to price our services to sellers. By itself and plugged into the old, tired, agent-oriented business model that is the norm today, it is a disaster. But that’s not what we do. We back up the pricing model with a completely different operating system that makes it work beautifully.
When Charles Schwab revolutionized the securities business, he was chided as a discounter. The old boys couldn’t imagine how they could operate (and pay their brokers) on $15 a trades. Today the old boys are all pretty much gone, and compared to Schwab, ETrade looks like a discounter!
I keep wondering how long it takes a dinosaur to turn into an oil deposit.