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And as you can probably tell from my reference to behavioral research, I agree. My point is that we do not view greed like the general public does. Most people think the way to address greed is to change people. Economists think that you will never be able to get rid of greed, because it has useful evolutionary biological purposes. It makes sense and is rational to maximize your income. The way to address "greed" is to make it work for you by aligning incentives.
Quite simply, this is an argument in favor of flat fee and an argument against x% * sales price. You also ignored the second question.
1) What purpose does x% * sales price achieve for the buyer?
2) What purpose does an industry pricing standard achieve for the buyer?
There is no need for a pricing standard in order for individual agents to price in costs.
I would think a flat fee might work as well. Actually the best would be an hourly fee and fee certainty. But that does not really appeal to the consumer.
Note though that the flat fee would of course make the small house relatively much more expensive than the large. And that may well be bad public policy. You could also go to a flat fee plus a percentage - purportedly to truly represent the cost of the task. That would however stick it to the small house. It is more expensive to represent buyers of large homes than small. Note though the listing has a very strong relationship between costs and size.
There is no industry pricing standard for buyers pricing. There is simply convergent to the minimum needed to run a profitable operation. Those who do it for less fail and leave.
And note that these are all zero sum games as far as the clients are concerned. RE brokerage simply fail if they charge less. So the consumer gets charged the same in aggregate if the service is to be delivered.
I thought the much better argument was that the internet greatly simplified the job. But That has mostly proven untrue. It has cut cost in the brokerage I think. But that has been absorbed and then some by the ability of the agent to negotiate the split.
And note agents are not getting rich. The average pay is pretty well fixed. What has developed is that some of the agents have gotten quite good at it and make a lot of money. But that is some agents. And I don't know any way you can prevent that or that you should.
Flat rate is an honest old plan. 248 posts in and nobody here has even tried to argue that x% * sales price has any advantage to the buyer compared to flat rate.
We work in a service industry.
We serve consumer needs and wants. Buyers want contingent fees, not flat rate.
We would starve selling something for which there is no demand.
The delivery of excellent service to consumers would decline once agents starved out of the business for pushing something buyers don't want.
In a flat fee world, the subsidy provided to lower than average price buyers and sellers who need subsidy, via progressive fees currently most common, could be sorely missed by the lower income buyers and sellers who depend on agents who survive on higher fees to service them at a low margin of profit, or even a loss, from their transaction.
I would think a flat fee might work as well. Actually the best would be an hourly fee and fee certainty. But that does not really appeal to the consumer.
Note though that the flat fee would of course make the small house relatively much more expensive than the large.
You can offer different flat fees to different classes of consumers (negotiate it case by case, even). Locking in that fee before the home search and the negotiations is the important part, not the uniformity.
Quote:
Originally Posted by lvoc
There is no industry pricing standard for buyers pricing. There is simply convergent to the minimum needed to run a profitable operation.
As you yourself have noted, that minimum is based on cost, and that cost is not very well correlated to house price at all. You would expect such convergence to be to hourly rate or to a flat rate set at the average cost -- but definitely not to 3% * sales price. That comes from somewhere else. If not because it is standard, from where?
Quote:
Originally Posted by lvoc
And note that these are all zero sum games as far as the clients are concerned. RE brokerage simply fail if they charge less. So the consumer gets charged the same in aggregate if the service is to be delivered.
Thus the presence of min price in my proposal of x% * (max price + min price - sales price). Refer back to the list of numbers in my first post and you will see that the consumer gets charged the same in aggregate. The difference is that this formula rewards agents for lowering the sales price instead of increasing the sales price, thus is in line with the "as low a price as possible" part of good agent performance.
So do restaurants, delivery services, hair salons, architects, doctors, and lawyers, none of whom use such a pricing structure. As I said above, the flat fee does not have to be flat across all clients, it just needs to be set per client before the house search and negotiations. All service industries charge different fees for different services. Women's haircuts often cost more than men's, and thus are priced higher.
And both flat fee and my proposal can and should be done on a contingency basis as well.
I do appreciate that you are both attempting to answer the question now, but it still seeks an answer. What advantage does x% * sales price have for the buyer?
So do restaurants and delivery services and hair salons and architects. As I said above, the flat fee does not have to be flat across all clients, it just needs to be set per client before the house search and negotiations. All service industries charge different fees for different services. Women's haircuts often cost more than men's, and thus are priced higher.
And both flat fee and my proposal can and should be done on a contingency basis as well.
I do appreciate that you are both attempting to answer the question now, but it still seeks an answer. What advantage does x% * sales price have for the buyer?
You haven't asked a valid question.
I will be around if you can finally formulate one.
Back to dodging again, I see. Interesting that nobody is explaining why it's invalid for me to ask what was the reason why x% * sales price was chosen. Recall that most of the criticisms made of my proposal here also applied to this standard plan but not to flat rate. By flat rate, I mean and have always meant a flat rate contingent upon closing -- nobody is arguing that this contingency is bad. Along with referrals, this contingency the part of the compensation structure that ensures the "the correct house for the client" part of performance.
By the way x% * (max price + min price - sales price) is mathematically equivalent to:
But there's no reason you couldn't just set the flat fee part to some other number based on your actual costs. I merely chose it to keep overall costs the same.
Last edited by perfectlyGoodInk; 09-24-2012 at 01:18 PM..
Back to dodging again, I see. Interesting that nobody is explaining why it's invalid for me to ask what was the reason why x% * sales price was chosen. Recall that most of the criticisms made of my proposal here also applied to this standard plan but not to flat rate.
By the way x% * (max price + min price - sales price) is mathematically equivalent to:
But there's no reason you couldn't just set the flat fee part to some other number based on your actual costs. I merely chose it to keep overall costs the same.
Why would someone repeatedly dodge a request for a valid question?
Let's cut to the chase, because I don't get it. Will you ask a valid question before we get another 250 posts racked up? Or no?
Why would someone repeatedly dodge a request for a valid question?
Let's cut to the chase, because I don't get it. Will you ask a valid question before we get another 250 posts racked up? Or no?
Why on earth is it better for the buyer to pay x% * sales price rather than flat rate (contingent upon closing)?
It has nothing to do with service industry, because no other service industry does this. It has nothing to do with cost of staying in business, because a flat rate can be chosen to be high enough to cover costs. If it was chosen for a reason, what is that reason? Dodging this question indicates that there isn't a good reason.
From here (with some typos corrected), the reason that "why" is the most important question to ask and to answer:
There was a young woman who moved out into her own house. While living at home, she never cooked. Upon the move, she returned home to learn how to cook a few dishes. One of her favorite recipes was Pot Roast. So she asks her mother to show her how to cook one.
The mother begins to share her expertise with the daughter. She tells her to salt and pepper the meat well. To make sure the vegetables are all cut the same size. Just before the mom places the roast in the pan, she picks up a knife and cuts about a ¼ of an inch of roast from each end. Then she places the meat in the pan.
The daughter stops her mom. “Mom, I understand why we cut the vegetables the same size -- that way they’ll cook uniformly. And I know the reason we salt and pepper the meat all over -- and rather heavily, is so the whole roast will absorb the flavor of the seasonings. But why did you cut a little bit off each end of the roast before you placed it in the pan?”
“Because that’s what you do,” said the mom.
“But why?” questioned the girl. “Does it help it cook better?”
“Well, I do it this way, because that’s the way my Mom taught me,” said the mother. “But I’m not really sure why we cut the ends off. Next time we go to visit we’ll ask her.”
Several months later the family gathers at Grandma’s house for dinner. As grandma prepares the meal the mother and daughter are in the kitchen with her. The daughter asks her grandmother, “Grandma, you’re such a good cook, and I know you passed all your methods on to Mom, but I can’t figure out why we cut the ends off of the pot roast before we cook it.”
The grandmother turned to her granddaughter and said, “What are you talking about? I don’t cut the ends off before I cook it.”
At this point the mother jumps into the conversation and says, “Yes, you do! The time you showed me how to make pot roast, you started to put it in the pan, and then you put the roast back on the cutting board and cut about a 1/4 inch off each end of the roast. I’ve been doing it that way ever since!" she declared.
The grandmother stared at her daughter in amazement. “Every time you cook a pot roast you cut a ¼ inch off the ends? Every single time?”
“Yes!” She answered her mother. “Every -- single -- time, just like you showed me.”
“Honey, all I can say is you’ve been wasting a lot of good meat over the years. The only time I ever cut the ends off the roast is if it’s too big for the pan!”
Quote:
Originally Posted by MikeJaquish
It is better to pay 5% of a $100,000 purchase price than to pay $7500 flat fee, I would predict.
Do I have to explain why?
Yes, please do explain why.
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