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Silverfall, I've read a lot of your posts, and if I lived in your location (or vice versa), I'd be calling you in a heartbeat.
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Originally Posted by Silverfall
In your 34 years as a self-employed person how often to you agree to carry the costs for a client with the agreement that you won't get compensated for your time if they don't like the end result?
While I've never agreed to that, I (and every other person in my profession) have had to deal with nonpayment. Collections are a hassle and sometimes impossible.
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...I am a fee-for-service brokerage that offers hourly rates, flat rates, and commissions. Hourly and flat rates are guaranteed regardless of outcome. Flat rate is 1/2 up front and 1/2 at closing just like other professionals charge for their services.
Now, see, that's what I'm talking about. I'd love to find an experienced, ethical agent I could partner with to sell my house. I'd be more than happy to pay for his/her expertise and knowledge that I don't have: market knowledge, pricing, negotiating, the nuts and bolts of the transaction. On the other hand, I can create the marketing materials and a website myself. I have the time, and a fully stocked office with all the necessary hardware and software and the skills to use them. However, I haven't (yet) found a local agent who offers what you do.
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Oh and in your sample, the reason the compensation is more for a $315k house vs. a $190k house is that it carries greater risk of not selling. The higher the price the home is the greater the risk is as most people don't make 6 figures.
Wouldn't that depend on the area? $250-$300K is the median price in this development.
It is not commiserate with the quantity or quality of work done.
I can see how the time can add up, but honestly 90% of the work is so simple anyone could do it...There is only that small 10% that that actually needs intelligence....furthermore so much of the work is repeat work (common for ALL transactions) that you could do it in your sleep. Recommending inspectors, survey companies, lenders, etc is all repeat. You got good folks one time and you re-use them over and over again. That may have been work at one time, but it is no longer work...its part of your package. It takes seconds to convey that information and a good agent should have a package pre-prepared that details everyone they recommend.
Mark, you're making assumptions that there is nothing to it based on your relative having you represent them in buying an easy property. You've done one transaction for a client, or at least got started on one, so you don't have sufficient real world experience in the business to arrive at those conclusions.
That's like a new trial lawyer being handed a medical mal-practice case that, under the circumstances, is a slam dunk. He didn't have to invest much money and he got 50% of the proceeds. But although attorneys don't typically take a case on contingency unless they see a strong risk reward ratio in their favor, when they take one, they are risking their time and their money for the higher reward.
Realtors do the same thing in the commission based fee; except that most clients, as Silverfall just stated, won't opt for "pay as you go". They prefer the contingency over the pay as they go because they know the agent will be paying for all the marketing expenses, and providing the labor; and if the house does not sell, it will not have cost them any out of pocket money.
You're not operating a business with overhead that will eat up a third of your gross income. And if you work for free by giving back all of your earnings as you did in this one, you'll have no shortage of clients.
You have not encountered the buyer or seller from hell. You have not been accused of not getting a home sold when the seller was extremely uncooperative in preparing the house for showing, and allowing to be shown without inconveniencing the buyer. You haven't spent 40 hours with buyers who decide that they want to buy in another state, or don't want to buy at all.
I mentioned earlier that I spent 6 hours just working on repair negotiation, and this morning I spent another 1.5 hours on the same transaction meeting a plumber there at 7am to show him required work and get a quote on the repairs, then negotiating these with my seller and the buyers agent to arrive at a mutually acceptable agreement. And I'll have to go back when the plumber starts the work and finishes it.
Did I really have to spend all that time? I could say no, it's my clients job to meet contractors.
But I'm a full service broker that works hard for my clients. My client is a business person who is very busy, and I do what is necessary to help my client have a successful transaction and minimize their expense. Most successful agents who value customer service will do the same. The agent on the other side of this transaction is also highly professional and working hard for her client. Negotiating with her is a pleasure because she understands and has negotiation skills.
This is my preferred plumber who is reasonably priced, dependable, and does excellent work. Because he does a lot of work through me, he will give a good price. With my knowledge of rehabbing I was able to determine that some of the things the home inspector wrote up were not correct and didn't need repair; the plumber verified this, and saved my seller several hundred dollars. The buyers agent understood and she and her buyer agreed.
Now, this was an above list price contract, and it's possible that the appraisal won't meet that. If not, then there is more negotiating to do, and the possibility that the sale will fall through. I already have about 30 hours invested so far, and will have to start over.
That is the real world; it is not all peaches and cream with million dollar sales with only 5 hours of work. And for me, and almost every other agent who markets a home properly with professional photographs, virtual tours, staging, blog posts, home web site, descriptions, additional marketing, and all the other work involved I have over 10-15 hours invested by the time a listing is on the mls.
So don't get your hopes up that all transactions will be like your first one. If they are, then I'll say that you're the luckiest agent ever.
Just having a list of vendors and giving it to a client is not what working with clients is all about. On just the subject of vendors, it's about having good vendors and working and coordinating with that vendor and the client to make sure that the clients get what they need.
There is a tremendous amount of knowledge and experience necessary to do a proper job for clients, that most people do not understand. If it were as easy as preparing a vendor list, then there wouldn't be a first year 90% attrition rate for new agents.
Mark, you're making assumptions that there is nothing to it based on your relative having you represent them in buying an easy property. You've done one transaction for a client, or at least got started on one, so you don't have sufficient real world experience in the business to arrive at those conclusions.
Ive done lots of transactions as an attorney, this is the first one as an agent. Your attempt to belittle my experience is noted and rejected. Real estate is something I understand very well.
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Originally Posted by Captain Bill
That's like a new trial lawyer being handed a medical mal-practice case that, under the circumstances, is a slam dunk. He didn't have to invest much money and he got 50% of the proceeds. But although attorneys don't typically take a case on contingency unless they see a strong risk reward ratio in their favor, when they take one, they are risking their time and their money for the higher reward.
They are nothing like. Trial law is very complex and a new attorney would create more mistakes that would not preserve an issue for appeal, could get appealed, or could get reversed than I could count. Every court is different and every judge has his own rules...a trial lawyer doing even the most simple lawsuit is significantly, not marginally, significantly more complex than the most complex residential sale.
Trial law can really only be learned by doing, or working under someone who is doing it. I don't practice trial law and I can tell you with confidence that I would fail if I tried to do so at this point.
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Originally Posted by Captain Bill
Realtors do the same thing in the commission based fee; except that most clients, as Silverfall just stated, won't opt for "pay as you go". They prefer the contingency over the pay as they go because they know the agent will be paying for all the marketing expenses, and providing the labor; and if the house does not sell, it will not have cost them any out of pocket money.
I understand this - but I still contend that the percent based commission is why there is a great deal of animosity towards agents. For the good clients, the ones who do the work for you and make your job easy - there is no discount...you just make more money for less work.
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Originally Posted by Captain Bill
You're not operating a business with overhead that will eat up a third of your gross income. And if you work for free by giving back all of your earnings as you did in this one, you'll have no shortage of clients.
I can't see how your overhead reaches 1/3 of your gross income, but if it does then I would suggest some cost cutting measures...your fixed costs to be a broker (insurance, MLS, etc) are relatively low...My total licensing cost with the 50 hours of classes, the application fee, the test, fingerprinting, background check, Insurance, and MLS access was less than $2000. I obviously have no brick/mortar storefront, but I cant imagine you expend much on something like that...You are a broker so you have no commission split to contend with. 1/3 seems way too high.
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Originally Posted by Captain Bill
You have not encountered the buyer or seller from hell. You have not been accused of not getting a home sold when the seller was extremely uncooperative in preparing the house for showing, and allowing to be shown without inconveniencing the buyer. You haven't spent 40 hours with buyers who decide that they want to buy in another state, or don't want to buy at all.
This is mentioned above and I understand it is a cost, but its not like you are working for one person at a time...you can be showing the buyers from hell one property while another agent from another office shows your listings...realtors have the wonderful ability to be simultaneously working more than one person at a time with the internet and cell phones.
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Originally Posted by Captain Bill
I mentioned earlier that I spent 6 hours just working on repair negotiation, and this morning I spent another 1.5 hours on the same transaction meeting a plumber there at 7am to show him required work and get a quote on the repairs, then negotiating these with my seller and the buyers agent to arrive at a mutually acceptable agreement. And I'll have to go back when the plumber starts the work and finishes it.
Did I really have to spend all that time? I could say no, it's my clients job to meet contractors.
I commend you for this, but if you were my agent and I was paying you on a $200-$300/hr wage to let a plumber in and point to some things that showed up on an inspection report, I think I can do that for way less....Lawyers use secretaries or hot shot to file law suits these days...no client will pay an attorney $200-$1000/hr to go drive to the courthouse and file the lawsuit, even though it is critically important. They pay someone $10/hr to do it.
My point being that if you value your time at $200/$300 hour and you are spending your time with a plumber then you are being very inefficient. In reality you probably dont mind meeting the plumber there because you had nothing else to do and you can work from your phone or Ipad on something else while you babysit the plumber. You want the client to believe that you were working for them the whole time, when in reality you were multitasking and working for someone else...In the legal world that would be considered double billing and is illegal. You can not bill two clients for the same time.
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Originally Posted by Captain Bill
But I'm a full service broker that works hard for my clients. My client is a business person who is very busy, and I do what is necessary to help my client have a successful transaction and minimize their expense. Most successful agents who value customer service will do the same. The agent on the other side of this transaction is also highly professional and working hard for her client. Negotiating with her is a pleasure because she understands and has negotiation skills.
This is my preferred plumber who is reasonably priced, dependable, and does excellent work. Because he does a lot of work through me, he will give a good price. With my knowledge of rehabbing I was able to determine that some of the things the home inspector wrote up were not correct and didn't need repair; the plumber verified this, and saved my seller several hundred dollars. The buyers agent understood and she and her buyer agreed.
I dont question your expertise at all...I merely question your cost and your exaggeration of the complexity of the process. I have negotiated oil/gas leases, pipeline condemnations, highway condemnations, bought farm/ranch property, bought inner city empty lots, participated in more than 20 residential purchases, 4 of which were my own properties, and I am a landlord who leases 3 different houses...there is nothing you can do to convince me that selling/buying real estate is difficult. Its just a process you have to know how to do in order to be successful. I have done just about everything, but all of my deals are solid...I have the privilege of not having to work for random unknown clients b/c I don't need the money...I recognize I am special in this regard but that does not in any way mitigate my experience in working with agents/attorneys on the other side of these transactions.
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Originally Posted by Captain Bill
Now, this was an above list price contract, and it's possible that the appraisal won't meet that. If not, then there is more negotiating to do, and the possibility that the sale will fall through. I already have about 30 hours invested so far, and will have to start over.
In the multitude of "negotiations" I have done none lasted for more than 20 minutes, and even then the work involved in relaying the negotiations to my client were equally short. You do have phone/internet dont you? The days of meeting somewhere to talk things through died a long long time ago.
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Originally Posted by Captain Bill
That is the real world; it is not all peaches and cream with million dollar sales with only 5 hours of work. And for me, and almost every other agent who markets a home properly with professional photographs, virtual tours, staging, blog posts, home web site, descriptions, additional marketing, and all the other work involved I have over 10-15 hours invested by the time a listing is on the mls.
So don't get your hopes up that all transactions will be like your first one. If they are, then I'll say that you're the luckiest agent ever.
10-15 hours at $200/hr is $3000...if it actually costs you $3000 to market a house on the MLS you are doing it wrong...The best investment you might ever make would be to learn to take professional photos. The only thing that makes most photographers professional is that they get paid to do it....get a high quality camera and learn it...you can consider it self improvement. I am an excellent photographer...I only use a photographer when I want photos that I am in as well, otherwise there is nothing I can not shoot...Heck I even have a RC helicopter that has 6megapixel camera on it...I bought that years ago for fun, but it turns out it takes great "elevated shots" of houses...I have seen realtors pay hundreds for that photo...my helicopter with camera cost $300...
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Originally Posted by Captain Bill
Just having a list of vendors and giving it to a client is not what working with clients is all about. On just the subject of vendors, it's about having good vendors and working and coordinating with that vendor and the client to make sure that the clients get what they need.
There is a tremendous amount of knowledge and experience necessary to do a proper job for clients, that most people do not understand. If it were as easy as preparing a vendor list, then there wouldn't be a first year 90% attrition rate for new agents.
If you have rental properties, you have good vendors. I have the best and cheapest AC guy in Houston...how did I get him? I use him at the office....We have 139 units at the office...I call he jumps and he jumps for cheap...I funnel him a huge sum of money every year. Same with plumbers...40% of the equipment at our facility needs chill water - I run a lot of water lines to new equipment...I have a great plumber....Electricians are my only real void b/c I don't like any of them. They are all overpaid for what they do, especially residential. I have a recommended vendor for electric, but even more importantly I have a do not use at any cost list as well.
Bottom line - I have no doubt you are a great agent who works hard for your clients and knows the market/areas but you are consistently embellishing the work it takes and the complexity of it all. Regardless of all the work you did, it really did not take you much energy to find a good plumber through trial and error. It also probably was minimal work to come to an agreement where you funnel him work for a reduced price....those are the things that are great, but just are not that hard to do.
The commission has nothing to do with fees. It has to do with risk. In your 34 years as a self-employed person how often to you agree to carry the costs for a client with the agreement that you won't get compensated for your time if they don't like the end result? Really it is simple. Real estate is a high risk business, financially, and as such the rewards are high. It's like gambling.
Now before you go off on why it shouldn't be like that, you need to know I am a fee-for-service brokerage that offers hourly rates, flat rates, and commissions. Hourly and flat rates are guaranteed regardless of outcome. Flat rate is 1/2 up front and 1/2 at closing just like other professionals charge for their services. Consumers reject this model very consistently. They want to have the privilege of not paying so they choose the higher cost commission model overwhelmingly. I've been doing this model for 9 years, so I have some experience with it. I do 2-3 hourly rate contracts per year.
What won't happen is for agents to drop their fees and then not have guaranteed payment. That is business suicide and you wouldn't do that as a self-employed person either. Oh and in your sample, the reason the compensation is more for a $315k house vs. a $190k house is that it carries greater risk of not selling. The higher the price the home is the greater the risk is as most people don't make 6 figures.
As a consumer, my #1 reason for having an unfavorable opinion about real estate agents:
The commission-based remuneration is seriously flawed.
I think this is really the crux of the issue. People who work on commission are often suspect, whether they be used car salesmen or real estate agents. On top of that, I think there's more than a little bit of resentment when a real estate agent makes more off the sale of a house than the owner does (if the owner is making any money at all nowadays).
I don't think the public cares whether there are too many agents. I do, however, think that other agents care about that--primarily because they view it as extra competition, diminishing what they otherwise might be able to make. Of course, there are valid concerns that inexperienced agents may reflect poorly upon the real estate business, but I do think that the "bad reputation" issue is much larger than that. (And there are ways to provide increased oversight and to institute "tiered" licenses based upon experience.)
Commissions create incentives for *some* real estate agents to look out for themselves more than their clients. Granted, I believe those instances are rare, but most of us know of stories where a property owner was wronged in a transaction. We remember those instances. The public does, too...and those stories make the rounds.
For those who believe it is the number of real estate people that is the problem, do you also believe that the reputation of politicians would improve simply by reducing their numbers? I think not. The same goes for the amount of compensation. One poster inferred that if agents made more money, they would be less inclined to cheat a client. Again, I don't think so. There are bad apples in all professions and any amount is usually not enough for some.
Well, feel free to disagree, but I do believe that the commission-based system is the root of the reputation problem--and the fact that we occasionally make a lot of money (out of "their" pocket) for relatively little work.
I commiserate with those agents who aren't making enough money, but having the public perceive the commission as not being commensurate to our work is a basic, and perhaps insurmountable, problem.
Anyway...Happy Thanksgiving, all.
Last edited by jackmichigan; 11-21-2012 at 02:19 PM..
I think it would be important to note that the average gross commission income for the entire National Association of Realtors is less than $50,000 per year. At $50,000 or below in order to keep the brokerage open, the broker fixed costs will be about $15,000 per year (of course depending on the services provided).
A Realtor who nets 40% of their gross commission income after automobile and other personal business expenses is a very good manager. So, let's look at the brand with the highest average number of transactions per year (2011= 13 sides per agent and there are two sides per transaction) if the average home in America sells for $250,000 and there is a 3% per side commission that means $7,500.00 per transaction. 13 * 7,500 = $97,500 x 75% = $73,125. With that deal, the agent still most likely must pay all the transactional advertising and any non-office expenses. (a non-office expense would be any expense the agent would likely benefit personally to the exclusion of the the other agents)
So, for all who think Realtors are making fantastic incomes, the truth is that typical Realtors make a taxable income of less than $50,000.
Ive done lots of transactions as an attorney, this is the first one as an agent. Your attempt to belittle my experience is noted and rejected. Real estate is something I understand very well.
Mark, I do not intend to belittle your experience as an attorney or in buying your own properties.
What I am saying is that you have no experience as an agent representing buyers and sellers and operating a real estate brokerage. Buying a property for yourself is a completely different story. You certainly have the education, knowledge and skills to become a good agent if you were to choose that route, but as an agent, working with buyers and sellers and running a real estate business, you are new and inexperienced.
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I understand this - but I still contend that the percent based commission is why there is a great deal of animosity towards agents. For the good clients, the ones who do the work for you and make your job easy - there is no discount...you just make more money for less work.
I think you also understand that the vast majority of people do not want to pay by the hour or by the service. They want the agent to take the risk, and that risk must be compensated by a higher pay.
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I can't see how your overhead reaches 1/3 of your gross income, but if it does then I would suggest some cost cutting measures...your fixed costs to be a broker (insurance, MLS, etc) are relatively low...My total licensing cost with the 50 hours of classes, the application fee, the test, fingerprinting, background check, Insurance, and MLS access was less than $2000. I obviously have no brick/mortar storefront, but I cant imagine you expend much on something like that...You are a broker so you have no commission split to contend with. 1/3 seems way too high.
Your expenses were the initial expenses of getting the license and mls access. "And There's More". I can understand why you can't understand; and you'll never understand unless you attempt to build a real estate business.
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My point being that if you value your time at $200/$300 hour and you are spending your time with a plumber then you are being very inefficient. In reality you probably dont mind meeting the plumber there because you had nothing else to do and you can work from your phone or Ipad on something else while you babysit the plumber.
Mark, your speculation is not correct. I don't mind meeting the vendors because I'm using my knowledge to provide extra value to my clients. That extra value pays off in happy clients and referrals. Part of my marketing is based on my rehabbing experience and knowledge, so why would I not use that knowledge to provide my clients with extra value to save them time and money?
Remember the public perceives that the average listing agent puts a sign in the ground, the home on the mls and does nothing else. I'm not that average agent. I bring a lot of value to the table with my knowledge and willingness to go the extra mile; and with my use of professionals for the marketing materials.
When I'm there with a vendor to determine the scope of work and get a quote, I am 100% involved-there is no multi-tasking. And if I were multi-tasking it would not be double billing because it is extra work that I'm providing at no extra charge. No one is getting double billed.
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I dont question your expertise at all...I merely question your cost and your exaggeration of the complexity of the process.
I'm not exaggerating. I'm telling it like it is.
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In the multitude of "negotiations" I have done none lasted for more than 20 minutes, and even then the work involved in relaying the negotiations to my client were equally short. You do have phone/internet dont you? The days of meeting somewhere to talk things through died a long long time ago.
Mark, I'm as up to date tech wise as many Gen Y'rs. However, do realize that real estate clients are not all Gen Y'rs. They are mostly from the Silent generation, Baby Boomers and Gen X. There are also multi cultural clients. They all have different communication preferences, and we have to communicate with them in their preferred manner. I would love to be able to stay in my office and never have to go out but that won't happen. Some clients must have a paper contract to read, and don't know how to use a computer well enough to esign.
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10-15 hours at $200/hr is $3000...if it actually costs you $3000 to market a house on the MLS you are doing it wrong...The best investment you might ever make would be to learn to take professional photos. The only thing that makes most photographers professional is that they get paid to do it....get a high quality camera and learn it...you can consider it self improvement. I am an excellent photographer...I only use a photographer when I want photos that I am in as well, otherwise there is nothing I can not shoot...
You may very well be on a professional level and that's good, and your statement that I'm doing it wrong is your opinion but it's not correct because you don't know my market plan and strategy.
I consider myself an advanced amateur with a lot of formal photography training and experience; have good equipment and do all of my community type photos and videos. I used to take my own house photos, and while my photos are sufficient and better than most mls photos, the professionals are head over heels better. I feel that providing complete professional service for my clients is best, and is another service that sets me apart from the average agent.
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Bottom line - I have no doubt you are a great agent who works hard for your clients and knows the market/areas but you are consistently embellishing the work it takes and the complexity of it all
You don't know what you don't know about running a real estate business; I understand that. But I can't understand why you would make statements about running a business that you have never experienced. You have real estate experience, but not running a real estate independent contract or brokerage business so you can only speculate about the cost and complexity.
As an appraiser, I have the opportunity to work with Realtors on an almost daily basis. I have to say that it's really a mixed bag. I'd say 10% or less are really top notch. The next 40% are able to muddle along and the last 50% are absolutely dreadful. My biggest complaint is that most realtors do not know anything about the house they're selling. Is the family room addition permitted? "I don't know". When was the roof replaced? "I don't know". The termite report came in last week, any problems? "I don't know". On the other hand, the top brokers will know all the answers and more.
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