Nice topic and well said.......

My only "gripe" is what Buyer's Agents TRULY bring, or rather fail to bring, to the table to earn their commission.  As BB knows, I have no issue with a professional being paid professional fees.  What I *DO* mind is Buyer's Agents who do little and expect much; which has been my experience to date.

For the forseeable future, I'll represent myself.......

Stan,

 There are other options for the buyers, buyside realty, and redfin for example. Sure, the seller agent can try and not work with them, but in a slow market with buyers few and far between that'll not be very popular with the sellers just wanting to get out of the house. I have had terrible luck finding a good agent to represent me as a buyer (or even me as a potential buyer of one of their "future" listings, I can take care of myself), but there is a lot of chaff here in CA, so I continue to search for that realtor that fits my needs.

My holiday was great, hope yours was as well.

I'm definitely using the site for that purpose, but for my area in So Cal there is pretty much a dead zone as far as AR participants (people sign up, but dont blog), but I remain hopeful and am looking at all avenues. My earliest time frame is still another 8 months off because I put my downpayment into a CD (I can take it out early but the house would have to be very special), I'll keep watching the market, looking for a good realtor, and learning.

Bryant

Thanks so much for referencing my 75-page article.  I welcome all of the criticisms and suggestions regarding the alternative fee structures that I propose - composed of some combination of flat fees (for routine tasks or tasks for which the client wants the broker to assume the risks that they take longer than normal), hourly fees (for tasks that may require a lot or little time and effort and for which the client is willing to take the risk), and incentive bonuses, particular a substantial, e.g., 50% of the INCREMENTAL VALUE generated by the agent or broker.  Nevertheless, I have a few responses to some of the points that you and others make:

Before I discuss the incentives I want to address the issue of steering.

I. STEERING

I use the term steering in my article in its generic sense of directing someone in one direction rather than another.  I recognize that the term is used by realtors in a much narrower sense - to describe illegally steering buyers in a manner that FAILS to SHOW (or even inform) THEM about some homes they might want to buy, BASED on their RACE, RELIGION, etc.  The prohibition against that conduct clearly represents racial or ethnic discrimination that violates core values of our society.  My view, however, is that steering buyers in a manner that denies them access to homes they might want to see (without informing them) when it is due to the rate structure of the seller is also illegal for a similar, although different reason: it violates the fiduciary duties to buyers that many states impose on brokers and it violates the NAR Code of Ethics.

You state that it is not illegal or unethical for buyer brokers to avoid $500 co-broke listings, but note that "this should be discussed with the Buyer beforehand."  I would agree with you if you changed one word: "should" to "must."  I agree that if a buyer broker has informed a client that the broker will not be showing homes that might be ideal for the buyer if the homes do not offer the broker a sufficient fee, then it is legal and ethical to do so.  My guess is, however, that such a disclosure would scare away most buyers.  I think that most buyers want to see ALL of the properties that BEST meet their needs, not just some of them.  To the extent that the broker continued by explaining the economics of the market and that s/he was willing to show buyers ALL of the listings that BEST met their needs if the buyer signed a BBA that guaranteed some minimum fee, the buyer might stay and all would be legal and ethical.

If the buyer is not properly informed of the broker's strategy, however, then it is my contention that it is both ILLEGAL and UNETHICAL.  Moreover, it is my understanding that the failure to make this disclosure is quite common according to NAR surveys. (Kenneth R. Harney, Agents Falling Short on Disclosure, Wash. Post, Mar. 18, 2006, at F1).

It is my understanding that most state licensing laws require the broker to act in a fiduciary capacity to the buyer client, unless the buyer is warned otherwise.  My understanding is that this requirement obligates the broker to act in the best interests of the client, and thus prohibiting the broker from compromising the interests of the client to serve the broker's own interests.  Furthermore, Bruce Aydt's article Ethics: Q&A: In Whose Interest?, Realtor Magazine Online, Jun. 1, 2006, observes that the National Association of Realtor Code of Ethics and Standards of Practice requires its members to put their clients' interests ahead of their own interests. (http://www.realtor.org/rmomag.NSF/pages/ethicsjun06?OpenDocument).

Bryant, as you acknowledge "Buyers have the right to know the rules." And I think that the law and NAR Code both recognize this as an enforceable right.

II. NO NEED FOR ADDITIONAL INCENTIVES since you already work as hard as you can.

Bryant, you make this point at the beginning of your initial post and I have no reason to doubt that you give your sellers a strong, excellent effort, (ditto for Rick & Ines, re their 12/26 comment) but my assumption is that almost every professional could almost always do a little bit more.  You say that "a realtor cannot sell a property for more than its worth," and you are certainly correct that a property cannot sell for more than "the highest price that any buyer is willing to pay for it."  I contend, however, that a good broker can both

  A. invest time and effort to make the home "worth more" by your definition of "worth"   AND 

  B. help ensure that the seller collects an amount closer to the maximum the buyer will pay

First to A.  I think there is a simple analogy between the effort made by brokers/agents selling a home and the efforts they (and others) make writing a blog entry or any article, book, etc.  I don't know any writer who could not further improve their writing by spending more time to further edit their text if not do some additional research.  Yet everyone reaches a point where they conclude that the ADDITIONAL BENEFIT ("marginal benefit" to an economist) is less than the additional cost to them of the additional investment of time and effort (unless they run out of time before then).  That is when most stop.  I believe that most brokers are stopping too soon!

My article (pages 11-14) contends that substantial incentives would motivate listing brokers (possibly even you) to make valuable additional efforts on behalf of sellers with respect to increasing the seller's net proceeds with

     1. Staging the home - Not just a VERY GOOD job, but an EXCEPTIONALLY GOOD job.

     2. Disseminating a good description - Not just writing a VERY GOOD description and disseminating it over a LARGE NUMBER of websites and other media, but writing an EXCEPTIONALLY GOOD description, and posting it on ALL relevant websites.  Let me offer a little more detail about what I would expect in these two areas:

1. AFTER after producing a VERY GOOD staging job, what about investing an ADDITIONAL 20 hours of your time (or the time of an expert stager on your staff) and $500 in expenses, if that might, on average, increase the attractiveness of the home so as to increase the net sale value by an ADDITIONAL $6,000.  As the example on p13 of my article emphasizes, a 6 (or even 10%) commission would not seem to motivate brokers to use an expert in staging to this extent since the broker's 3% share of the $6,000 increase ($180) does not justify the $500 in expenses and 20 hours of time.  A incremental value bonus of, say 50%, (which I suggest go solely to the listing AGENT), however, would provide a $3,000 bonus, enough to cover the $500 in expenses and more than $100/hour.

Ah, but you may say that brokers and agents cannot predict how much additional value a particular effort will generate.  The whole thing is very speculative and imprecise.  And I agree.  But excellent brokers and agents are the best estimators of the value of such efforts and thus the best ones to judge what efforts are truly LIKELY to be worthwhile and which are not LIKELY to generate net gains.  Brokers currently do ONLY SO MUCH, based on their judgment and fees.  To paraphrase the point you make with respect to my point on steering, there is certainly no legal or ethical requirement that brokers/agents make investments that on average will cost more than they generate in revenues.  Still, brokers cannot claim that they cannot estimate how much value a particular aspect of staging is worth without implying that they may well be doing inadequate staging, because they really don't know how much is appropriate.

2. How about investing ADDITIONAL EFFORT to further improve the quality of most, if not all listing descriptions: both the text and accompanying photos, video tours, etc.  Many of the handouts that I have seen at open houses omit even an estimate of the square footage because the agent claims that they were unable to get an accurate figure.  In addition, descriptions could be expanded to note proximity to additional attractions and even (without giving names) the particular skills of wonderful neighbors.  A few lines about the history of the neighborhood (including any previous residents who later became famous) might create psychic value to some buyers.  More time and research by brokers and agents would be justified, if it translated into additional revenue.

B. Getting the buyer to make an offer closer to his/her maximum.  For example, suppose you have just listed a home that is next door to an identical home that recently closed for $500K.  Assume that the local market is approximately in equilibrium.  Suppose there are 2 buyers - X & Y - who like the home better than any other in the $500K range based on some unique features.  X offers $500K with an escalation clause that offers to top any other bona fide offer by $1K, up to a maximum offer of $510K.  (I think that you might say that the home is therefore "worth" $510K).  Now, I believe that a seller wants his/her broker to invest effort to lead the second buyer Y to offer at least $509K for the home.  The broker might invest time to learn what Y seeks, and stage the home better to meet those needs or explain more details about the home itself or its neighborhood that would make it more attractive to Y.  I believe that efforts like these are now significantly beyond the norm, but that sellers and their brokers/agents would benefit by a fee structure that encouraged them.

Jumping back into the fray.......

As a buyer, I have NO problem with a BBA since I am paying for everything....including commissions.  There's a wide spread fallicy that sellers pay the commissions.  Have everyone involved in the transaction sit at the closing table and see who is bringing the money.

That being said, I, as the buyer, should have the right to negotiate the commission I'm willing to pay and have it included in the BBA.  Sometimes it's as stated in the listing; sometimes it's going to be less.  If the Buyer's Agent doesn't like the terms, he/she can simply refuse to represent me and I'll move on to someone else.

More and more buyers are educating themselved about the mystery of real estate and the increase in knowledge will mean lower commissions.  Why should I pay $15k to a Buyer's Agent when all they are going to do is "pass paper"........

My favorite example is the "I will negotiate on your behalf".  Really!  Please give me three examples of your negotiating skills.  What is the most advantageous day to present offers?  What tactics will you employ to raise the value of my offer in the seller's mind?  Are you going to represent me to the exclusion of concern for future business? (afraid to offend the other agent/builder/seller).  You would be stunned at the responses, or lack thereof, I've received.

I'd take a hard look at a "I won't work for less than XXX" before communicating the policy with your potential clients......you might be feeding your ego and not your wallet.

JMHO

Bryant,

Thanks again for your focusing discussion on these issues.  I'm glad that my article provides useful background.  In response to your points:

1. I agree with you, that if you are only representing buyers as a transactional agent when they want to purchase one of your listings then you should not feel any obligation to inform them about other homes available.  My point about steering was solely directed to the brokers/agents that buyers rely upon to help them identify an ideal home.

2. I also appreciate that if you work in a market where there is little opportunity to substantially increase the sale price of homes, that incentives have little relevance.  I also recognize that if the lion's share of the homes you sell are priced around $211K then there is little practical difference to home sellers between your $6+K half of the commission and a flat $6,100.  Still, I would still like to see brokers like you compute a fair fee based on your estimated time commitment and the value of your time.  I intend my proposals for incentives to apply to substantially higher-priced homes, where there is significant opportunity for creating incremental value.

Finally, I agree with you that home sellers should choose brokers based not on their nominal rates, but rather on their ability to maximize the NET SALE PRICE, as well as minimize the stress created for the seller.  I would like to see some local Consumer Reports-like group compare brokers based on their net sale price for otherwise comparable properties.

Bryant, as for my background, I am just a lawyer with no experience in the real estate industry, but who tried to read up on this one area and then sought feedback as I attempted to correct errors in my thinking about the industry.  I continue to better understand this area and to gain from constructive criticism from bloggers among other commenters.

Keep up the good work,

Jim,

I read your blog on buyer representation and your comments.  Nobody who's been involved in negotiations for any length of time would call sumitting an offer and countering......negotiating.

Several points come into play, but I'll just comment on a couple.  You mention items which would motivate a seller but don't take advantage of any when submitting an offer "a little lower", as you put it.  If the seller has had his house on the market for more than average DOTM and has equity built up, why not submit an offer to take full advantage of the situation?  It's not personal.......it's business.  If I use my situation, cash w/2wk close, I would expect a buyer's agent to submit a much lower offer.  He's getting what he wants.....my money.....and I'm getting concession after concession after concession.

Pulling comps....within 6 months if possible?  I should hope so.  Anything older than a few months is "old news" and not a true market snapshot which would accurately reflect current market conditions.  According to all the slogans.......Good homes, priced right, sell fast.  Either it's true or just marketing hype.  That being said, if the houses in that area fit into that category and have NOT sold in six months, something is very, very wrong and great caution should be urged. 

Not being argumentative or doubting your professionalism......just an honest opinion and observation.

Brian

I am confused about what you wrote.  I don't know how to interpret your assertion that "The Realtor's service offering is so much more than trading hours for dollars."  I think that a realtor, like a lawyer, management consultant, doctor, or other professional is trading his/her time for dollars.  I don't see why you say that this "discounts the efficiency of expertise and experience."  I argue that agents, like lawyers, et al, should set their hourly (or flat) rates based on their level of expertise.  Thus, my article recognizes that a listing agent with a great rolodex may be worth a higher fee (p15, text preceding note 50) and I repeatedly state that a buyer's broker/agent with special talents or knowledge of the market may well be worth $500+/hour.  I believe that all large law firms charge clients a range of fees based on whether the work they request is handled by a senior partner (maybe $500+/hour) all the way down to a paralegal (maybe $50/hour).  I hope this clarifies my proposal for you.  If you still believe it is obsolete or flawed, please try again to explain why.  Thanks,

Mark

Rick & Ines

I think that flat fees are the most appropriate way to charge for routine tasks (tasks that require a relatively uniform amount of work and other expenses).  I think that professionals should base that flat fee on the amount of time required, their level of expertise, and other expenses.

I think that hourly rates are the most appropriate way to charge for tasks where the amount of time required is highly variable, particularly if it is highly dependent on the customer (a buyer who may be insist on finding a perfect home or may sabotage deals based on bad behavior).  Thus, I would suggest that brokers/agents charge an hourly rate for accompanying buyers to homes, although some reasonable minimum number of hours might be included as part of a basic flat fee.  (I believe that Redfin uses this form of business model.) 

I also think that service providers should charge hourly rates for providing general advisory sessions, since some individuals, like myself, ask many questions and require lots of time, and others are content to passively listen.  These sessions, moreover, are easy for the customer to monitor so there is no chance for the professional to overcharge.  Of course, if the client does not want to accept the risk that the fee may be higher than average, then the broker can certainly offer a more standard fee.  My proposal, however, is that consumers be given the choice of hourly fees, and those who know that they generally require less time and effort than average will be able to benefit from this situation.  By the way, I feel the same way about contingent fees for personal injury lawyers.  I think that those lawyers should be willing to handle a client's case for an hourly rate, but also offer them the contingency option if the client does not want to assume the risk of losing.

Bryant,

Good job.  I appreciate your willingness to stay with me and try to sharpen the issues.  Here are my responses to your comments:

1. I absolutely agree that a key element to the reforms I propose is divorcing the fee the buyer pays his/her broker from the fee the seller pays his/her broker.  Many experts agree on this approach.  But I even go so far as to believe that a good case can be made that permitting MLSs to post a co-op fee in their listing should be recognized as an attempt at price fixing, i.e., at fixing the prices that your competitors charge to their customers!  Certainly every broker should be free to set the level of his/her own fees based on how much they are believed to be worth - and leave it to the market to decide - but the antitrust laws generally frown upon efforts of entities that try to set the prices of their competitors.

2. Enabling the buyer to finance the cost of his/her broker/agent as part of the mortgage. - You make the relevant point that buyers generally need or want to finance any costs of their broker/agent as part of their mortgage.  Therefore, one issue that I think is key is that those fees be recognized by mortgage lenders as part of the sale price.  It is my understanding that buyers and their brokers can generally accomplish this if they instruct their broker to request that the seller agree to pay the buyer's broker the fee that the buyer had promised and the buyer agrees to a higher sale price that

3. Property values would go down.  Bryant, you state that "if commissions across the board went down, then in theory, property values would also go down. This is one of the reasons FSBO selling prices are lower than properties sold by Realtors."  I think that those statements miss a key point that I have tried to make on other blogs (Greg Swann's, I believe).  I agree that the "sale price" would go down if commissions went down, but the current sale price is a bit misleading in that it now includes 3 elements: 1) the price/value of the home itself, 2) the price/value of a seller's broker's services, and 3) the price/value of a buyer's broker's services.  If the prices for the 2^nd and 3^rd elements go down (though their value could actually go up!) then the combination of the 3 would go down à a lower "sale price," but the net price of the home would remain the same. 

Why do I believe that broker prices could go down and broker value to buyers and sellers could go up?  Because I believe that most agents spend most of their time prospecting for clients rather than serving clients.  At the risk of oversimplifying things, I believe that if the 75% of current agents offering the lowest quality of service were to disappear, then the remaining higher quality of agents could handle 4 times as many transactions and cut their prices in half while doubling their incomes.  Moreover, the consumers now served by the 75% less qualified agents see an often major improvement in the quality of service they received for half of current prices.

4. I don't know why you believe that "Real Estate is much more market driven than lawyer fees. The very nature of a Real Estate deal, having opposing parties, one wanting the lowest price and one wanting the highest, keeps our industry in check."  As you are undoubtedly aware, most legal issues also involve two parties with interests that differ on at least one key element: one wanting the highest figure and the other wanting the lowest - whether it is salary negotiations by athletes, the sale price of a business, etc.

5. Regarding my example, what I think is causing the confusion is that I failed add some additional background: a. Buyer X's offer was made to the seller by X's buyer's agent; b)  Y's agent informed the seller that s/he had a client very interested in the home but who was unwilling to offer more than $500K?; c) the listing agent asked Y's agent what Y found lacking in the home compared to other homes that Y had seen with the agent.   Thus, my previous description should have recognized that the parties were communicating through their agents.  Does that make this sound more realistic to you?

Ines,

Thanks for your response and don't worry about criticizing lawyers.  I have major problems with a lot of aspects of the legal profession.  On the other hand, I think that while I use the example of lawyers, I think the same usually applies to all professionals who charge by the hour, including accountants, management consultants, and even more blue collar professionals, like plumbers, electricians, etc.

I also understand that you cannot estimate precisely how long a particular client will require, but I would hope that you would be able to make a reasonable estimate that would be correct on average once you have assessed the condition of the market, the sale price the seller agrees to seek and your assessment of the reasonableness of the seller, in terms of accepting the need to adjust to changing market conditions or preferring to remain in denial to unpleasant facts.  Thus, for homes that appear to require an average effort, you would charge the flat rate you computed, and sometimes it would be somewhat too high and other times somewhat too low, but for a seller who wants you to assume the risk, that would seem to be fair to me.

The one issue that I want to pursue further with you, however, is your statement that your marketing costs are "astronomical."  That does not mesh with my understanding of things or my reading of the Inman 2006 Study of Commissions.  I understand that some sellers benefit from major expenditures on staging, but it is my understanding that brokers expect the seller to pay most of the cost of staging efforts that cost $1000 or more.  I also realize that sophisticated video tours for websites can be expensive, but I thought that those are not typical.  Could you be more specific with an example of the astronomical marketing costs you spend on a typical home?  Thanks in advance.

Mark

Bryant, (Rick & Ines) and Brian, I appreciate your comments and want to answer them carefully.  Unfortunately my 3-year-old has a very bad cough and so I will be slower in responding than I would like.  Still, below is my response to Rick & Ines.  I will respond to Bryant as soon as I can.  ALthough  I just saw Brian's point, I have a quick answer so I will include that below:

Rick & Ines -

I agree that your price estimates are subjective, but I think the appropriate analogy there is to the contractors a homeowner deals with to paint a house or add a bedroom, etc.  The service provider considers the specific set of tasks that needs to be done and makes a snap judgment assessment of the personality of the customer and then makes a subjective estimate of the flat rate cost of the project.  The homeowner generally seeks multiple estimates and chooses one based on a combination of the price offered and the reputation for quality of the provider.

Regarding marketing costs:  Now it is my turn to ask you not to take offense to my opinions, but rather to correct me if you think I am wrong.  On pages 18-20 of my article I discuss why I would expect marketing costs for higher-priced homes - like those Bryant says you are more apt to handle - to be LESS than those for homes priced at the community's average.  I recognize that expensive staging may well be worthwhile, but I implicitly question the cost-effectiveness of much, if not most of the expensive other marketing costs you list, including: 1) "just listed postcards" ($500 to $2000 per listing) and 2) monthly print ads in local Chambers of Commerce ($900 to $3000 per booklet).

It is my thesis that a buyer looking to purchase a home priced significantly above the average price in a community is probably willing, able, and in fact eager, to consider, if not visit every home that appears to meet his/her search criteria before making a purchase.  Thus, as long as a seller 1) lists his/her home in the local MLS (or whatever Google, Craigs List, or Zillow calls their database that displaces the MLS) in a format that enables buyers and brokers to easily retrieve the homes that fit the buyer's search profile; and 2) stages it attractively and makes it accessible offline (if not also online) then there is no particular value to an individual seller to do more.

I think that the primary value of expensive ads in magazines, and mailings is to the broker, not the seller.  The audience for expensive marketing materials that brokers purchase may well catch the eyes of consumers interested in buying now or available to be primed or tempted now for a purchase sometime in the future.  I do not doubt that consumers who are looking to buy now AND DO NOT HAVE A BROKER may well call the listing broker and ask about the home, but I think that if the consumer ends up hiring the broker to show them the home AND OTHERS LIKE IT, that a good buyer's broker will end up showing them all the available comparable homes, not just those with expensive pictures in the magazine.  Also, if the buyer already has a good buyer's broker then I also question the value of the expensive ads.  If the home fits the search profile of the buyer, then his/her broker should already have identified the home as one the buyer should see and the expensive ad was irrelevant.  Thus, it seems to me that the main value of this expensive marketing is really its value to the listing broker in getting his/her name in front of potential buyer clients in the near term or for the future.

Feel free to correct anything that I have said that you believe is unfair, but I would appreciate it if you could be specific so that I can understand precisely where and why you think I am wrong.    Also, I realize that while I casually use the phrase "buyer's search profile" as the tool that should be used to identify the homes that buyers want to see that it is not easy to identify.  As I recognize on pages 56-57 of my piece that buyers often mislead themselves (and their agents) about what they really want in a home and that creating an accurate search profile for a buyer is comparable to the task of a doctor attempting to identify a patient's illness/condition.  It requires the professional to ask questions and listen to answers, but also to observe and recognize when a buyer/patient may be in denial or otherwise giving misleading answers.

I also recognize that sellers benefit from anything that brokers can do to encourage more potential buyers to become active buyers.  Thus, marketing that increases the overall demand by buyers in a particular price range is useful to all sellers in that price range, given the law of supply and demand, although I wonder if such adds may offset their value by also increasing the supply of homes for sale, since the individuals who become buyers will also then sell their current homes.  Well, I know hope that this provocative posting stimulates some constructive, informative discussion.

Brian - I think that I already mentioned that I believe that it is reasonable and helpful for lawyers to offer to take cases on a contingency fee basis, although I think that some contingency fee levels are too high for the small risk that the attorney is actually assuming.  I think that it is critical, however, that such attorneys also offer the client the option of an hourly rate.  This enables the client to decide whether he/she wants to assume the risk or wants to pay the attorney to do so.  With respect to the fees charged by investment bankers, etc., pages 9-20 of my article discuss when I think service providers are justified in demanding and receiving a percentage-of-sale-price or other equity-based fees, rather than straight hourly rates.

 Mark

Bryant:

Thanks again for stimulating this discussion.  My responses to your comments are as follows:

1. Regarding commissions and HUD forms, we agree on the reality, but I'm not sure why you state that "in reality the commission is being paid out of the Seller's equity from money, in most cases, being borrowed on the value of the house."  I think it is simpler and more accurate to observe that the buyer's broker's commission is being paid out of the funds that the buyer's mortgage lender is providing.  I am not sure why you mention Seller's equity, since this is the case whether or not the seller has positive or negative equity in the home.

I am also confused when you say that "the commission is always on the Seller side of the HUD and is treated as a Seller expense for IRS purposes."  In the HUD-1 form that I have in front of me now, it appears to me that the commission is listed on lines 700-702 in a neutral column and then line 703 asks one to indicate whether the funds are provided by the buyer or the seller.  Since I have no experience with the HUD-1, I may be misinterpreting it, but please explain this further.

3. When I made my comment about transferring 75% of current agents to other professions and redistributing their work to increase the income of the remaining agents and reducing fees, I noted that this was an oversimplification.  On further thought, I want to retract that statement.  I now realize that if the general 80-20 "rule" I have heard mentioned (and which may or may not be accurate) is true for real estate then the top 20% of agents already account for 80% of the business, so eliminating the bottom 75% of agents would only lead the remaining agents to increase their number of transactions by 25%. 

I would also like to take this opportunity to point out to anyone who reads my posts that my style is not to be afraid to follow my thoughts where they lead me, even realizing that I will make errors - large and small.  I encourage you to point out my errors and I will try not to be defensive, but will try to quickly correct such errors.  I was fortunate enough to get many to read earlier drafts of my article so that I think it is free of at least major errors, but I realize that my blog entries will lack such vetting.  I hope that anyone reading those entries, then, will refrain from holding my errors against me when I am willing and quick to correct or retract them.  (As an example, for those of you who read Glenn Roberts's Oct. 11^th Inman News article about my article, Glenn accurately quoted me as saying something about an individual who earns an annual income of $30K paying a $15K commission, although what I said makes no sense.  I said it, but was confusing 2 different issues, but I asked Glenn to remove it for sake of clarity).  I do not ask or expect anyone to "clean up" the errors I make on these blog entries, but just don't hold me to a position that I mistaken take until I recognize my error.  Thanks.

Back to the substance of my post.  With regard to increased workloads, I just wanted to clarify that I would like to see the most expert agents spend their time serving customers in their areas of expertise rather than on more mundane matters.  I would like to see more junior agents or administrative workers handle all of the tasks that require less expertise.  Then again, maybe this is already occurring, at least where agents for teams of more and less experienced agents.  I plead ignorance on this and apologize for the earlier unfortunate statement.

4. I agree that there are many, many legal cases that are not 2 parties opposing each other for a monetary "victory."  What I probably should have said is that real estate brokers/agents are in a situation similar to that of "personal injury" attorneys.  I think that those attorneys are in adversarial relationships as often as real estate agents/brokers.  Certainly the analogy is not perfect, but I think that it is helpful to show that the hourly fees I propose for some tasks are practical.  Also, as I have noted elsewhere, I have significant problems with the current system of contingent fees charged by personal injury attorneys.

Mark

Ines,

You make some good points.  The two issues I want to address though are 1. one size does not fit all, and 2. how to distinguish your home from 50 other similar ones

1. I absolutely agree with you and Bryant that no rigid rate structure would fit all markets or price points within a market.  Therefore, my proposal leaves a lot of flexibility to handle all the variations that I can think of.  To the extent that a particular task is relatively routine (takes a set amount of time and other expenses) it makes sense to me that it should be priced at a flat fee and that consumers will want that.  Yet I would expect the level of that flat fee to vary based on market conditions (which may affect the average time involved) and the current prices for other expenses.  As I also noted, since the personality of the seller (how flexible they are) affects the likely number of hours involved and how much or little one will enjoy working with them (and thus the rate one wants to charge them), I would expect brokers to have all the freedom they would need to offer quotes of different flat rates for different homes.

I also mentioned many times that the hourly rates would depend on one's level of expertise and the level of competition in the market.  Ideally from consumers' perspective, all realtors would face significant competition, and be forced to charge relatively low rates.  On the other hand, those brokers and agents that have invested significant time in training and familiarity with the market will be able to charge premium rates, because they will be worth it, and sellers consulting friends and others will point out that they are worth it.  I appreciate your point that some sellers just pick the listing broker who's CMA can justify the highest asking price, but that is as stupid as choosing the painter or plumber offering the lowest price, without checking their references to confirm that they will deliver the quality of service desired.  I think that  agents should be able to easily point out to consumers that they should be willing to pay more for higher quality service, particularly when the best price is someone who will deliver unsatisfactory service.  The success of so many retailers who offer better quality goods at prices that are not rock bottom, suggests to me that good brokers, like good lawyers, will not have difficulty convincing consumers that better quality MAY cost more.  I capitalize MAY, because I also think that there are some brokers who both offer better service than others AND charge lower rates.  I feel it is terribly unfair of traditional brokers to argue that anyone broker who charges less than the standard fee, e.g. 6% in a market, MUST be offering inferior service.  That is just not true.  It would be like saying that just because Costco or Walmart offer lower prices, the goods and services they offer are inferior to those of their competitors.  That is just not so.

Finally, I recommend that sellers, if not also buyers, include an incentive clause in the fee formula to motivate brokers - in situations where that is relevant - to make extra efforts to obtain higher prices.  The appropriate (or fair) percentage used, 20-50+%, however,  depend on market conditions and other factors.

Given the flexibility of all three of these rate elements, it is my claim that some combination of them would provide a good fit for any market and price point.  If you think I am wrong, I would appreciate it if you could describe a situation that would not be covered.

2. On distinguishing your seller's home from 50 other competitors.  In situations where there are truly as many as 50 similar homes competing for the same type of buyer, I would like to believe that this increases the value of buyer brokers and that buyers are willing to pay more for a broker who can accurately assess their search profile relatively quickly, despite self-deceptive answers they give to specific questions about what they are looking for.  I think the best buyer brokers need to develop the same skills as a perceptive doctor (like Fox network's Gregory "House") who takes his patients' answers with a grain of salt.  As my article recognizes, brokers (quasi-psychologists) who do this well should charge premium prices that reflect this and they should quickly accumulate glowing testimonials to that can help them justify those rates.  I would like to believe that even less perceptive buyer agents with a client seeking a home of a certain type will feel obligated to investigate every home displayed in the MLS (and other non-MLS sources) that might meet their clients' interests.  Even if they can't visit each home themselves, they should at least be able to get sufficient information from all such homes from their colleagues so that they can effectively serve the buyer.  In fact, if they are too overwhelmed to help the buyer consider all relevant homes, I would argue that they have too many clients and should resign from some to handle the rest satisfactorily.  Assuming that the buyer agent is doing what I consider is a minimum job on checking out all homes that meet the buyers' interests, then I don't see how additional marketing like postcards helps much.  In summary, it sounds to me that your expensive marketing efforts appears to compensate for buyer agents who are not doing their job or for serving buyers without agents.  In both cases, I would argue that those services really should be paid by the buyers - those with inferior agents should give you a portion of their half of the co-op fee and for those without agents, you will have earned the right to keep the coop fee.

Sorry for writing yet another long post, but I look forward to your response.

Ines,

A Happy 2007 to you too, and a few more comments.

1. Incentives.  I don't think there is any ethical problem with giving incentives to real estate agents to increase the sale price of a home above what a reasonable CMA indicates.  Special rewards based on above-and-beyond-the-norm are common and ethical throughout society, including for police officers, soldiers, teachers, etc.

2. Selling the system.  I think that a system that charges less where there is less work to do should be attractive to individuals who want to do some of the work themselves and/or are willing to shoulder some of the risk of how much work will be required to sell their home to save money.  You may not want to deal with the "penny pinchers" who are apt to complain a lot and demand more than they want to pay for, customers who appear to be reasonable and merely retain a little more equity in this weaker market would likely prefer such a structure.

3. Charging for superior service.  Ines, as you point out, years of experience is not the sole indicator of the quality of service an agent or broker will provide.  In fact, many long-time agents may be well beyond their prime.  I think that the key for all agents who believe they deserve premium rates for providing superior service - new or experienced - is to clearly and succinctly communicate to consumers evidence of their superior service.  Ines, maybe you and/or your husband have the ability to connect with customers instantly and make them feel at ease from beginning to the end of the process.  You might state that "we minimize your stress" or words to that effect and offer references to past customers.  Maybe your homes sell significantly quicker than those of the average agent or your customers consistently rave about you.  Maybe you had more successful sales in the last 6 months than most other agents.  I could go on, but the point is that if you are providing superior service and can clearly document that, then I believe that a substantial segment of consumers in the market will recognize that and be willing to pay premium prices for premium service.

Thanks again and a Happy 2007 to everyone participating in this blog.

Mark

Bonnie,

Thanks for your comments and I tip my hat. I propose you represent me and BB can pick his client and we'll do battle......Clash of the Titans! (Broker B is TOAST)

You did what I wish agents I've experienced would do.

1 Do your homework

2) See obstacles as opportunities

3) Client's interests are paramount

4) Read the "play"

My experience has been atrocious; not just once, but in several markets. Agents who are more concerned with making a deal than making MY deal......agents who are working on "the next deal" with the other agents and sellers to the exclusion of my best interests....... and down right unethical behavior.

One of my "favorites" is an exclusive buyer's agent who I contacted after getting his business card at the Chamber of Commerce. I had such bad experiences prior to that I figured working with someone who's sole compensation comes from buyers would be different. In fact, it was the WORST. Long story short, he returned my call and apologized for the background noise as he was at his "full time job" as a bus driver. After his route, he's a buyer's agent. He promised to search the MLS and represent me. When I asked about FSBO's and knowledge of the market he said he wouldn't drive around but if I saw something advertised, he would have no problem knocking on their door. In addition, if *I* proved worthy, he would help me sell should I ever need to. What a freakin' joke. Needless to say I thanked him and hung up.......

In another market I signed an exclusive buyer's ageement with and began to work with him. Along the way I located a house, a new, non listed new construction, so I told the agent and had him work out his commission with the builder. After we decided we were serious about the house, I emailed him with some basic follow-up questions. After he ignored me for over a week, I decided to find out what was going on......several days later he wrote me and said he was getting the listing but could still represent me as well. I fired him on the spot.......

So, I'm pretty skittish about working with agents and figure I can do 95% of the work myself. If an agent is interested, we'll negotiate a per hour rate for their time and write a list of items they will be responsible for......other than that.....why should I pay $12k-$15k for next to, or less than, nothing?

On a closing note, something you said sticks out in my mind......the listing agent was really the hurdle to get past. My experience has been the same. As bad as my agents have been....the listing side has been worse. They are counting the commission on a FULL list offer and nothing less will do.....to the exclusion of making a sale. With the market as it is now, a 98% of list is better than 100% of NOTHING.

If I were you I would DEMAND a higher split as YOU are the one who's providing the rarest commodity.....a qualified buyer. JMHO