Empowering Home Buyers Helps Everybody
by Glenn Freezman
I'm not sure if you've noticed or not, but during the past decade how consumers behave has changed dramatically.
The rise of the Internet has meant that consumers no longer play a passive role in acquiring information to help them make decisions but instead are on the front lines and fully active when it comes to finding better deals on everything from buying a bar of soap all the way up to a new car.
This particular genie isn't going back into its bottle. Now that consumers understand that they are the ones who are in charge of the market, they are willing to make more and more demands of anybody who wants to sell them something so that they can make sure that deals are fair and equitable (at least in their eyes).
This change of perspective is also deeply affecting how real estate in this country is being bought and sold.
Consider these two different current models for buying a new home:
* Traditional Commission Models - in which a home buyer hires an Agent for the Buyer to assist them in finding a home, research home amenities, researching community needs, scheduling home tours getting a purchase and sale agreement signed in dealing with absolutely every other little detail to get a home buyer from contract to close. Along the way, the agent takes on all the risk of the deal and in many cases is left holding the empty bag if for some reason the agreement never makes it to closing.
As a result, the agent for the buyer can receive a healthy commission check based on a percentage of the home’s selling price in exchange for their hard work.
The main challenge with this model is that it offers little flexibility to the home buyers. The commission being paid to the agent is based on the selling price of the house. Even though it is the Seller’s Agent who ends up paying that commission, the money starts in the buyer’s pocket first.
* Alternative Compensation Real Estate Agreements - turn more of the responsibilities of a home buy over to the home buyers themselves. Because of the rise in comprehensive and invaluable online tools, many homebuyers can do a lot of their own due diligence when it comes to finding properties. Today a prospective home buyer can not only virtually walk through thousands of homes without leaving the comfort of their computer, but can also effectively research communities, take virtual walk-throughs of neighborhoods, measure distances from new properties to other amenities like churches, schools, places of work, etc. They can even pull their own comps to get a better sense of whether the pricing for a home is on par with other properties in the area.
Because these models factor in that home buyers will do more of their own work (and take on more of the risk that comes with closing on a home) the agents who assist them are able to offer assistance on an à la carte basis - in essence, letting homebuyers choose specifically these services and assistance they need in order to get from contract to close. In these models the agents are often paid by the task they take or hourly for their support. Instead of being sales people, agents are able to more effectively serve as advocates and consultants to homebuyers. The result is that homebuyers are able to select the level of service and value that they need and that agents can be paid directly for their time without having to deal that is based upon a contingency such as a successful close at. In short, the agents get paid whether the agreement makes it all the way to the closing table or not.
Quite a wide spectrum, huh? But let's be realistic: offering homebuyers a one-size-fits-all agreement will not benefit every buyers’ needs. Certainly, there will be some homebuyers who don't necessarily feel confident to jump into the real estate planning process and will be willing to pay for every ounce of assistance they can get. Offering a commission model to those homebuyers makes plenty of sense and will benefit the home buyers and the agent equally.
But for those home buyers who don't mind taking on many of the home buying responsibilities themselves, who are demanding some sort of control of the process, who are willing to put in the time and sweat necessary to make some of the decisions, then why not have a model that offers them some sort of value in exchange for their participation? In these cases, an à la carte model works beautifully. Being able to choose the services that they want or need not only allows a home buyer the flexibility of creating a customized agreement with an agent but it means that the real value that a Realtor brings to the table can be readily recognized and that is the experience that comes with getting homebuyers confidently and safely from contract to close. The average home buyer lacks the experience to pull this off by themselves and in this area realtors offer an invaluable resource of experience and knowledge that is worth every penny paid for it.
Is your brokerage offering your buyers this spectrum of alternative buying models? If not, have you asked yourself how many opportunities are slipping by because savvy home buyers who are not willing to work with an all or nothing model are seeking out other opportunities and options?
Remember, at the end of the day, it is the consumer who is in control of the process. As long as you provide them with the value and options you will be a contender. If not, then you're going to have to settle for what's left over.