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Preview: Transforming Real Estate

Transforming Real Estate



Observations, commentary and a few rants about consumer and real estate practitioner trends that are transforming the business of real estate brokerage.



Updated: 2006-11-22T05:57:15-07:00

 



Lax in Posting Due to New Site

2007-08-17T23:50:46-06:00

I'm sorry that this blog, as well as my others, has been neglected for a while. I have been busy writing content for a new site. I've been fortunate to have been selected as the new Real Estate Business Guide...

I'm sorry that this blog, as well as my others, has been neglected for a while.  I have been busy writing content for a new site.  I've been fortunate to have been selected as the new Real Estate Business Guide at About.com.

Please pay a visit to http://realestate.about.com and help me to grow the site with suggestions for content you'd like to see.  There is a blog there, and I'd love your comments on my posts.  There's also a group of real estate discussion forums that are new and in need of participants.  They're getting visited but no discussion threads yet, so I'd like to encourage the more vocal of you out there to get some discussions going.




Raking it In!

2007-08-17T23:50:47-06:00

I just had an internet prospect request more information on a land listing. This parcel has been listed more than a year at almost a quarter million dollars. Yet the listing broker never took a photo, attached no documents (plat,...

(image) I just had an internet prospect request more information on a land listing.  This parcel has been listed more than a year at almost a quarter million dollars.  Yet the listing broker never took a photo, attached no documents (plat, disclosure, etc.), or anything else but type the listing up. 

Since the co-broke is 5%, I assume that this poor seller will be paying a hefty $20k+ in commissions IF it ever sells.  It's no wonder many out there think that real estate agents and brokers are over-paid for the effort expended and services rendered.




Just Got The Scoop-The Walk-Through is Dead

2007-08-17T23:50:50-06:00

It seems that the New York Times is discontinuing their real estate blog. I had posted the question recently about why there have been no posts since August 7th. I just received a Google Alert on my Treo that the...



The New York Times and RECAP

2007-08-17T23:50:50-06:00

I've coined a new acronym (RECAP) which stands for the Real Estate Criticism Accuracy Police. It's not always that criticism, particularly that which is put forth in high profile magazines and newspapers is not accurate. But I do notice a... I've coined a new acronym (RECAP) which stands for the Real Estate Criticism Accuracy Police.  It's not always that criticism, particularly that which is put forth in high profile magazines and newspapers is not accurate.  But I do notice a great deal of selective factual disclosure which serves the critical thrust of the article.  This weekend, on Sunday the 3d of September, I was handed the Business section of the New York Times.  There on the first page was the Damon Darlin article "The Last Stand of the 6-Percenters?"  The fact that I happened to be sitting in Coach #2 of the Durango to Silverton Narrow Guage Railroad all-day trip isn't really material, but does indicate that my friends know how interested I am in this type of material....even if it interrupts a nice vacation. I've long since gotten over any reactions to the artwork that usually isn't very flattering to REALTORS®.  And I will say that I didn't really find any non-factual material in the rather lengthy commentary.  But (or maybe BUT), there's more than a minor possibility of mis-interpretation by readers.  The article begins, and frequently returns to, stating that there are real estate seller agents out there that are refusing to show their listings to Redfin clients.  The intimation seems to be that it's some kind of retribution for the fact that Redfin rebates up to 2% of the 3% buyer side commission to the buyer client.  I'll let you read it at the link above to get the full story, but I think that a less biased article might have gone into the way the system is set up and how this might happen without any thought of retribution or other onerous intent.  Whether you agree with the gross commission amounts, or if any given real estate agent is worth what is being charged, it is important that the current system be understood in order to decide the motives of these agents.  And I'll say it right at the start.....I'm not defending any given commission percentage or method of charging for real estate listing or buying services.  So let's look at the system as it exists today: Using Damon's number, a listing agent/broker contracts with a home seller for a gross commission of 6% to market their home and help them with  the process through preparation, presentation, negotiation and closing.  This agent/broker places the listing into the MLS (Multiple Listing Service) with an "offer of compensation" to other licensed members of that MLS.  This offer is to pay an agent/broker 3% of the purchase price for presenting the property to a buyer they represent, executing a purchase agreement (contract) and representing their buyer client through negotiation, inspections, disclosure interpretation and closing. Whatever you decide these services may be worth, note that the listing agent does not show the home to potential buyers.  That is done by the agent/broker working with the buyer(s).  In fact, most of my buyers don't want the listing agent around when they view the home, as they want to feel free to ask me questions and get answers that aren't weighted toward selling that home.  That's not a criticism, as it's the job of the listing agent to put the best face forward. Whether you like the amounts or not, the system is set up to compensate two different entities for doing a myriad of tasks in representing their respective clients and working with their client(s)' best interests in mind.  The contention that the listng agent should be pleased to show an "eager buyer" the home when they come with no agent is just not going to function in the way presented.  Let's say that I'm a listing agent and ha[...]



Too Many at the Party!

2007-08-17T23:50:54-06:00

The Freakonomics Blog finally did another real estate post. I've been waiting, as I like to comment on their posts. Here's one about the per capita number of REALTORS® in given areas. Pretty soon, if you're not in real estate,...

(image) The Freakonomics Blog finally did another real estate post.  I've been waiting, as I like to comment on their posts. 

Here's one about the per capita number of REALTORS® in given areas.  Pretty soon, if you're not in real estate, you could possibly get some minority status bills enacted.

I know that it takes me longer to get to the buffet every luncheon.




The Walk-Through - Where are You??

2007-08-17T23:50:55-06:00

Link: The Walk-Through - New York Times Real Estate Blog doesn't have a new post since August 7th! I reloaded the page, cleared my cache and still nothing. Are you all on vacation? It makes it harder for me to...

Link: The Walk-Through - New York Times Real Estate Blog doesn't have a new post since August 7th!

I reloaded the page, cleared my cache and still nothing.  Are you all on vacation?  It makes it harder for me to come up with material for this blog if you NYT guys aren't doing REALTOR® bashing posts.

Damon, Joyce....where are you?




Take a Picture Already!!!

2007-08-17T23:50:55-06:00

I've posted on this topic before, but it's a pet peeve and a situation that reflects extremely poorly on all of us. I just did a search of an MLS system and came up with these numbers: 1. 1285 total...

(image) I've posted on this topic before, but it's a pet peeve and a situation that reflects extremely poorly on all of us.  I just did a search of an MLS system and came up with these numbers:

1.  1285 total listings of all types

2.  10% had no photos at all

3.  Another 10% had only one photo

4.  Average listing price of $284,000

5.  Days on Market was high enough on average to rule out much in the way of short delays

6.  A WHOPPING 92% had no virtual tour link posted with the listing!!!

Now, with the average commission (using 6% as an example), means that each of these listing clients are paying an average of $17,000 to a real estate company to list and sell their property.

There are probably a few properties that would suffer if photos were published, and maybe even a seller or two that didn't want them.   But there's simply no excuse for this glaring lack of quality practices.  Quite simply, a bunch of listing clients just aren't getting their money's worth.




Why Not $4000+/hour For Our Services?

2007-08-17T23:50:56-06:00

If you go to this link, you'll find a discussion thread among REALTORS® about the practice of referring business for a percentage of the commission. At the time of this post, there are about 33 posts on this thread. It... If you go to this link, you'll find a discussion thread among REALTORS® about the practice of referring business for a percentage of the commission. At the time of this post, there are about 33 posts on this thread.  It begins with a statement by one broker that they think referrals should be outlawed and that they are unethical.  During the discussion a couple of others put forth the ethics question.  A great many discuss whether the referral will result in better service for the client.  There is a great deal of discussion about what should be considered a fair percentage and what is too much.  A lot more discussion centers around the fact that referrals are each agent's choice, so don't do them if you don't like them. Since I'm reading the book FREAKONOMICS-A Rogue Economist Explores the Hidden Side of Everything, I find myself examining some underlying economic factors in this referral scenario.  In these 33 posts, there is really no discussion of the VALUE of the referrals to the client, which in my opinion, is the real question.  Or perhaps a better way to ask the question is to ask what is actually done for the referral compensation. Let's do an actual example, and assume it's a broker-to-broker referral (no splits between agent and broker).  Using a $300,000 home with an example 6% commission, we would have the listing broker and the buyer broker each getting one half of $18,000, or $9000 each.  I'm a broker in City A, referring a buyer to the buyer broker in City B across the country.  I'm reasonable, so I am only wanting a 25% referral fee, which is lower than many.  That means that after closing, the buyer broker will send me a check for 25% of $9000, or $2250.  My experience over the years with referrals shows a range of activity by the referring broker somewhere in these examples:1.  I grab the XXXXX Franchise referral directory and look up the destination city and choose a broker to receive the referral.  I may or may not shop based on what they're willing to pay.  [Time required to refer and write it up - 20 minutes for cost of $6750/hour]2.  I actually do more research to check on experience and/or professional designations before deciding on the receiving broker.  [Time required to refer and write it up - 30 minutes for cost of $4500/hour]3.  I really go all out and actually call several brokers/agents and interview them to try and find a good fit for my client.  [Time required to refer and write it up - maybe an hour for a cost of $2250/hour] In a capitalist society that prizes ingenuity and entrepreneurial spirit, this looks like a really great business plan.  But this same society also is supposed to reward efficiency and value.....which I cannot find in this practice.  It doesn't matter if the receiving broker feels it's gifted business and the referral fee is worth it to him.  The cost is being paid by the clients, and thus I need to see adequate value for them.......and I don't.  [...]



Commission Give-Backs for Repairs

2007-08-17T23:50:57-06:00

With increasing pressure on real estate commissions and the growing presence of Fee-For-Service and other lower commission business models, a post by Ardell in the Seattle Rain City Guide was of interest. It's a good article and an accurate presentation...

(image) With increasing pressure on real estate commissions and the growing presence of Fee-For-Service and other lower commission business models, a post by Ardell in the Seattle Rain City Guide was of interest.

It's a good article and an accurate presentation of a practice that has evolved over time with regards to home inspections, negotiations over the repairs, and the cutting of commissions to keep deals together.  And Ardell's last statement,  "When I negotiate with a buyer or seller, I make sure based on the type of property and price range, that I am not leaving the client so short, that the objective cannot ever be attained." is right on the mark.

I find it unfortunate though, that this problem is this prevalent.  Again, with a huge influx of business-inexperienced people into real estate, we seem to be plagued with improper client education and preparation.  When a listing is taken, the agent should be pricing with repair issues in mind and instructing the seller to keep a base figure for repairs in their final number during negotiations.  Too many, living from deal-to-deal, are just trying to get a contract accepted and then dealing with the fallout later.  They've created their commission give-back issue by not handling these things on the front end.

I am also very careful to tell my buyer clients the facts about the inspection and repair negotiations.  Those facts include letting them know that they usually cannot beat the seller into the ground on the selling price negotiation and then get further concessions for repairs later.

As in so many real estate representation problems, it's the agents and their lack of knowledge and/or professionalism that can create the issue.  Perhaps the loss of commission is a proper training penalty for them, but it's still not good for the clients or for our image.




What's More Difficult About Selling Land??

2007-08-17T23:50:58-06:00

Here are some excerpts from a discussion forum I monitor. It is open to all, so sometimes consumers ask questions that are answered by REALTORS®. [Question] " My wife and I are looking for land to buy and build our... Here are some excerpts from a discussion forum I monitor.  It is open to all, so sometimes consumers ask questions that are answered by REALTORS®.[Question] " My wife and I are looking for land to buy and build our dream home. We contacted a realtor who seems to know a lot about land. He told us that because it is usually a lot more difficult of a process, and because the price is usually lower, that we would need to sign a Buyers Agency Agreement and the Buyers Commission would need to be at 5%. Anything not covered by the seller we would need to pay out of pocket.Is this typical for land purchases, or should I be trying to find another agent?"[Two of the answers] "We typically charge a 10% commission to market a piece of unimproved land so 50% of that fee does not sound unreasonable.  The important thing is that you feel comfortable with the agent you hire. I hope your prospective agent is a Realtor, not all real estate licensees are you know.""Yes the typical rate on land is 10% although nothing is set in stone but it is the industry standard just like 6% is the average for homes.Sometimes the listing land person is a discounter only paying out 3 so you would have to pay out the other 2 percent to your buyers agent,or ask the seller to pay it,or offer a lower price and roll it into the deal."In my area, there also seems to have been a predominance of the 10% figure for a very long time.  I'm seeing some erosion in that, but even then, it's still at least 8% in all cases. My problem here is the statement that it is a "lot more difficult of a process".  I keep coming up with:1.  No structural inspection2.  No electrical, plumbing, well or septic inspections3.  No property condition disclosure issues for a structure4.  No negotiations for repairs for those inspections and disclosures5.  From the listing side, fewer and less difficult photography and virtual tour requirements6.  No lockbox or appointments for showings7.  No clutter issues from occupantsThere are probably more, but that's enough for illustration.  Where's the extra difficulty as justification for a higher commission??As far as price goes, that's probably where the higher commission structures originated, and it's a valid argument to a point.  When land was cheap everywhere, the same amount of work went into marketing and the transaction as higher priced homes, etc.  I do the same amount of work for a $25,000 land transaction as I do for a $250,000 one.  However, in our area, land transactions are in the six and seven figure range more than they are below.  I don't see how a 10% commission is in order on a $300,000 land purchase with less work from both agent sides than a $300,000 home purchase at say 6%.  I've even asked for 15% on a very low dollar amount land listing.  But, when I'm looking at a $200,000 land deal, I don't know why I would need any more than on a $200,000 home deal, as the work is less, not more difficult.  Basically, I have a minimum amount that I'm willing to go below for the risks and work involved, so I'll make sure I cover that.  Of course, real estate is local, and it actually might be more work in some places. [...]