The flat fee to list a home with Inman Park Realty will be $995.00. This fee is independent of the sales price or the type of home. This service is available only to the residents of Inman Park. Why $995.00? As with any new venture, it’s critical to create a business model that is appealing to consumers while at the same time providing competitive barriers for others. The $995.00 price point is meant to be a wake-up call.
The onset goal of IPR, is not money, but rather the changing of the real estate industry narrative and the consumer experience within it. This is something very different. We are questioning the status quo of the real estate industry with technology and a sales approach more in line with other industries. And in doing so, we hope to accomplish the beginning of a fundamental shift in the way people perceive and interact with real estate.
Our hope is to change and update the role of a realtor--it’s time. We are very serious about changing the financial modeling of real estate--its way past time. And, we believe in the localism inherit in real estate and want to invest in the communities we serve--it’s about time.
Why Things Must Change
Every marketer since ancient Greece has promoted the idea of buying in volume equating to cost savings. But unfortunately, in real estate, too few realize these same principals also work in reverse. Meaning, if it costs X to sell something, it will be X-less if the costs of sales, marketing and distribution are shared with other sellers. From neighborhood garage sales to city Merchandise Marts, it’s a fact, smart selling often means being a part of a much larger collective.
In 2016, Inman Park had 92 real estate transactions. For those 92 transactions, 72 different listing agents were used. In 2015, 90 transactions 66 listing agents. In 2014, 116 transactions, 75 listing agents used. The inefficiencies of this business model are staggering. There is not another industry on earth, other than the real estate industry, that would justify this business model. There is not another sales professional, other than a Realtor, who would promote such a business model. There is simply no other way to put this; but, the real estate industry is dependent on a business model that inherently hurts homeowners. Crazy right?
You can run the math anyway you want; with Inman Park’s annual turnover rate of roughly 100 properties, all saddled with a 6% commission rate, it means ex-homeowners collectively pay out over $2 million dollars every year in agent real estate commissions. Year in and year out; $2M + in agent commissions to sell properties in a high-demand area to people who have been waiting for the listings to appear. What is it about the average DOM (Days on Market) of 22, that is telling Inman Park homeowners they need to spend a $2M+ in real estate commissions every year? This financial model is designed to favor the agents, and their Brokerages, at the expense of the homeowner’s equity.
Every sales manager, outside of the real estate industry, will cite chapter and verse, the goals of creating cost of sale efficiencies and having territorial consistency. Yet, neither of these traditional business objectives have any value in the real estate industry. It’s almost as if the real estate industry wakes up every day wanting to start anew. But, as the industry continues to churn through its “Groundhog Day”, we know right now, in 2017, 2018 and 2019, there will be anywhere from 80-100 properties sold annually in Inman Park. We also know, right now, those people selling in, 2017, 2018 and 2019 will lose over $2 million dollars annually from their home equity if we do nothing to change their real estate experience. Still crazy right?
How does an industry, who for decades promoted itself as the champion to the homeowner, square the fact homeowners are losing hundreds of millions of dollars every year because of the industry’s self-interested business modeling? If you ask a Realtor, they will tell you it is money well spent to have, “code of ethics” trained Realtors, who adhere to strict industry standards for professionalism, around to guide buyers and sellers through the scary and complicated world that is real estate sales. But if you ask a homeowner, most will call BS, and tell you the unnecessarily verbose language of standards and ethics pretty much boils down to common sense and human courtesies. And, as far the real estate process being complicated and scary—most consumers in 2017 don’t think it is.
In the traditional real estate model, the listing agent dictates the price. A 6% listing fee has been the industry gold standard for as long as anyone can remember. Seriously, it hasn’t changed in decades. In simple terms, the 6% listing fee is, more or less, equally distributed between the two sales agents involved. From their commissions, the agents pay the local MLS fee and whatever arrangement they have with their sponsoring Broker.
If you are wondering why a home seller would want to pay for the sales agent who is negotiating against them, you wouldn’t be alone. It’s an unusual situation for sure. The reasons for this practice pre-date the computer, and we don’t mean the personal computer, we mean the actual first computer. “Protecting the buyer’s agent” was meant to be a lure or incentive for agents representing buyers. And, at face value, this “bonus” makes perfect sense. But, how this lure or incentive morphed into permanently becoming a percentage of a home’s value demonstrates just how wildly self-interested the real estate industry is. Protecting the buyer’s agent is so baked into the industry, it has become the 3rd rail, never to be touched, in large part, because it helps ensure the industry’s long-term viability.
In the Inman Park Realty model, the homeowner has control over the terms of their engagement. The brokerage and the Listing agent work off a flat fee. Because there is no traditional commission, the homeowner is responsible for the MLS fee. The MLS fee, from the local provider, is based on the value of the home. Additionally, if the homeowner is NOT protecting the buyer’s agent, they may need to cover an additional MLS fee. Not surprisingly, the MLS fee is due from both sides of the sales equation. If the Seller is paying considerably less than 3% to the buyer’s agent, they really can’t expect them to pay the MLS Fee as well.
All properties sold under IPR will include a homeowner community donation. For detached properties, the $1,000 donation will be given to the Inman Park Homeowner Association. For attached properties, $500 dollars will be donated to the appropriate Condominium HOA.
There are two reason why IPR has instituted its community donation program. On a practical level, the great work the IPHA has accomplished over the decades has added such value to the community, it must be recognized. Arguably one of the main reasons Inman Park is as desirable as it is today is because of its homeowner association. Given that, think of the IPR donation as nothing more than ex-homeowners tipping out to their former community for the value they gave their old home.
The other reason for the program is to create an ongoing revenue stream that gives back to the community. Real estate by its definition is local. Unfortunately, national chain store realty agents are generally not dedicated to any specific community. For example; of the 296 Inman Park real estate transactions, over the last three years, potentially creating over $7M millions dollars in agent commissions, was any of that money earmarked back to Inman Park?
Certainly the agents who have been “working” Inman Park are regular contributors to the community. But, should it be up to the agent to be so generous? Our idea was to simply formalize a process that creates a consistent, ongoing revenue stream for the community. Over the last 3 years, a program like the IPR proposal could have yielded over $120,000 for the community.
In 2016, of the 92 Inman Park transactions, only THREE of the 72 agents used didn’t give the buyer’s agent the FULL 3%. (One conscientious agent a multiple of times) For perspective: on Inman Park’s $40M in home sales, the difference between homeowners paying the buyer’s agent 3% or paying them 2% is a whopping $400,000. With Inman Park having a “days on market” average of 22 days, it is impossible to understand how or why so many agents allowed the 3% commission to stand. Every home sold in 2016 would have sold just as easily if the homeowners had paid the buyer’s agent 2% of even less. The 2016 listing agents for Inman Park just let $400K dollars of your neighbor’s money slip away. Why? Because that’s the way it is. That is not a good answer, but that’s the only answer the real estate industry has.
Going Forward
If you have ever bought a home and a used car, you know, the car probably came with more historical documentation. With a car, you are given a leather bound folio detailing every oil change and tire rotation. With a house, you hope the garage door opener has batteries. Again, the industry’s institutionalized Groundhog Day Syndrome prevents it from thinking beyond an individual closing. In traditional realty modeling, there is nothing to be gained by tying one closing to another.
Under an IPR business model, each listing is allocated its own virtual space identified by address. This account is transferred to the new homeowner to function as their virtual folio for all things home related. Upload receipts, pictures, home-improvements, etc. Tell the story of the home. This will benefit the day, whenever in the future, the house hits the market. Again, creating cost efficiency and expanding consumer value requires forethought beyond a single sale.
IPR will undoubtedly feel its way throughout its first year. Change is never quick. Many homeowners have long time relationships and commitments to stay the traditional course. And, that is great. But, ultimately, facts will prevail. How effective is one methodology over another in saving homeowner equity? We will compare it. How effective is one over the other in terms of incorporating technology? The consumer will judge it.
Inman Park Realty, version 2.0, will be available as of: 1-22-17
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