I made the following comments to a post in the Tacoma News Tribune regarding a new discount brokerage service.
Suggesting “the listing agent is useless in real estate” sheds a lot of light on the value of the services Mr. Pepper feels he provides.
As far as competition, the more the merrier – of all business models. If you can’t provide services more valuable than what you charge, you’re gone – regardless of price.
By the way, is FREE a better price than $500? You are aware you can list your home in the multiple for free, aren’t you?
3 responses so far ↓
1 Ray Pepper // Aug 25, 2007 at 8:26 am
Devona has indeed misquoted my statement out of context. 500 Realty has an option for home sellers if they are able to do many things r/t a sale of their property then we will charge 500. If they need full support we charge 1500. To charge a customer 3% or 2% is just far too much for the services provided to a client. These fees are “useless” and are better paid to the buyers agent. The buyers agent has the REAL value in real estate. There will always be exceptions to the rule which are much more labor intensive that will require higher fees. In time the market will see it my way. Its all about education. With CNBC and MSNBC on our backs we will get the message out in time.
2 Lee Mason, The Masters Realty Group LLC // Aug 26, 2007 at 10:35 am
Ray, your argument seems to be that charging 2-3% for the services provided a typical client is “just too much”… that the client is being overcharged, and that those “excessive fees” would be better spent if they went to the buyer’s agent.
Interesting.
My premise is that the value of services provided must exceed their cost… regardless of cost, if a provider is to stay in business.
You’re making several implicit assumptions in your argument. First, you’re assuming all real estate agents are the same with fungible services. In other words, they’re interchangeable. Same expertise, same experience level, same degree of motivation, same values, etc..
Second you’re assuming all agents provide the same set of services, probably very much like the same services you’re providing (although you did acknowledge there may be exceptions to the “rule”).
A corollary implicit assumption is that your two set(s) of services is sufficient to meet all clients needs, that anything other than your set(s) is superfluous.
Let’s take a look at the services you’re providing (feel free to correct me if I’m wrong) and consider their value.
Your $500 listing plan includes installation of a sign and placing the listing in the multiple listing service (MLS). That’s it. The seller is responsible for everything else including marketing (pricing, presentation, and promotion), negotiation, and getting the transaction closed.
You have no risk, no skin in the game because you’re paid up front.
The sign installation will cost you around $40 (up and down), the sign itself maybe $50-60 (that assumes you use it only once). A secretary/assistant costing $10-12/hr won’t spend more than half an hour inputting the listing (or you could just fax it to the multiple so they can input it). So maybe you’ve incurred a direct cost of $100 per listing.
That’s a pretty slick deal… for you.
You’ve convinced a seller to pay you $400 to provide you with an advertisement (your sign) to attract buyers for you. And you’ve been paid up front! Doesn’t matter whether the property sells or not. By the way, these are the same buyers on who’s behalf you’ll be negotiating against the seller, right?
So what’s the value of the services you’ve provided? It doesn’t look like a very attractive value proposition even for a do-it-yourself seller, especially when there are other providers who will place a home in the MLS for free (presumably using the same business model to generate exposure for themselves and attract buyers).
You may object to the above analysis and suggest your $1500 “full support” listing plan provides a better value.
As far as I can tell, your “full support” plan adds a comparable market analysis (CMA), negotiating a transaction (if there is one), answering agent phone calls (if there are any), providing a net seller’s proceeds, and advising as to the strength and quality of an offer (if there are any).
CMA’s are available on-line for free (Zillow being one of the more popular), so there’s really no value here. (For the life of me, I don’t know how anyone can generate an accurate CMA without first seeing the home.)
Negotiating time might average 2-4 hours per offer. Of course you’ve already been paid, so there’s no benefit to you whether the transaction goes together or not. And, if you think about it, you’re financially better off if there are no offers to negotiate – you’re paid without having to spend time negotiating.
Answering the phone is just part of doing business. A net seller’s proceeds sheet takes less than 5 minutes to generate using the MLS program.
Finally we come to where you’re providing something potentially of real value – advice. Advice as to the strength and quality of an offer. Of course, one of the implicit assumptions of your argument is that agents are a commodity providing the same level of expertise, experience, all the while holding clients interests first to the same degree.
It may surprise you to learn that I too think expertise is a commodity. An expert for hire is a commodity, the price of which will continually decrease with supply and automation. So what’s the value/price of 30 minutes of an expert’s time who’s divorced from the customer and is paid regardless of performance? You know, you can hire a lawyer fluent in English in India for not much more than the equivalent of the minimum wage here. Again, it appears to me you intend to represent the buyer’s interests when negotiating to purchase the seller’s home – not the sellers. (Certainly you’re not going to suggest dual agency which is almost invariably a disservice to both buyer and seller?)
Fifteen percent of the market will always select the lowest cost option (regardless of value). Five percent will alway select the highest cost option (because they equate price with value). The remaining 80% of the market will select the best value. That’s what I strive for… the best value.
It looks to me that you’re shooting for the 15% who will always choose the lowest cost. But since you’re providing a commodity service, choice will be made on cost alone. There are other providers who will always be cheaper… to the point of being free. (I guess someone could eventually take it a step further and pay sellers for the right to put their sign in front of a home.)
I’ve not outlined the services I provide herein nor talked about my fee structure(s). Some are the same services common to other agents. Others are unique to me. Once size doesn’t fit all.
What I am really providing is performance based upon wisdom, insight, and collaboration with the client – without an agenda. Expertise is a given – necessary but not sufficient.
If I can’t provide real value helping a client meet their goals, I don’t take on the client. Otherwise it won’t be long until I’m out of business.
3 Ray Pepper // Aug 26, 2007 at 9:57 pm
Lee – thanks for taking the time to respond to my comments. You make some valid points. Please know, we do add value for our clients. We will provide a CMA at no additional cost, if requested. Many homeowners already have an idea of what they want to price their home. We will always offer advice and suggestions but in the end – we value our client’s opinion and will honor their request to price their home at what they want it priced at.
Dual agency? We prefer not to enter into that arena. Our goal is to help get our client’s home sold. We have an Internet Marketing Program to get maximum exposure for our client’s home. That’s for BOTH the $500 listing and the $1500 listing. We provide a weekly service to our customers updating them on what’s going on with the market and the activity on their home. We care about our clients and will always act in their best interest.
Regarding buyers, we do offer 75% of our commission back to them. Most of our buyer clients want to look for a home on their own. If they want or need advice, we always offer it. I have over 20 years of real estate experience as an investor, agent, and broker. My agents are top notch with years of experience. Our goal is to always deliver a great experience. These current market conditions are tough for EVERYONE! Buyers, Sellers, agents, appraisers, and many others. Our goal by offering a great service at a reduced rate will undoubtedly help sellers. Buyers will have more options as we bring more homes into the market. Agents will have more opportunities to make more money because we encourage all our clients to pay the SOC at 3%. We believe we are able to help not just buyers and sellers, but our fellow agent s.
It’s a tough market out there. We understand it. Change is hard (for everyone). There’s room for you, us, and all other discount and full-service full-fee brokerages. We at $500 Realty believe we offer a great service for a great value.
Best of luck to you Lee and if you’d ever like to talk about real estate and how we can help your customers or if you have ideas to help mine – please feel free to call me. It’s always a free call – toll free (888) 500-RLTY or you can email me at ray@500realty.net. Take care!
-Ray
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