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My pay is never docked. I optimize my future revenues. It is also nice to help people. I guess three or four times a year we talk somebody out of a revenue opportunity. I have a meeting coming up next week to list a house for rent were we could easily have talked the owner into selling. That is what she intended. But it was not the right thing for her...actually suicidal. So we convinced her to rent and wait. Which is the right thing...left a potential $7,000 commission on the table....for a $400 rental listing.
Now in truth I expect that one day I will list that house...and maybe three or four of her neighbors and friends. Someday it will come back...
Ivoc, I see the problem as being that many people simply don't understand that most of us operate this way.
We understand that there is the potential of conflict with the percentage of sale method; which is the method that the consumer chooses, because they don't have to pay if a transaction doesn't close. However, the potential for gain is so small that it doesn't make sense to anyone in the business to try and "sell up" in order to make a couple hundred dollars more, when we could alienate our client using the "sell up" strategy.
These same people who don't understand this, are not in the business. They don't work with buyers every day so they don't really understand how the average buyer thinks.
Buyers will have a picture in mind of their dream home, and they'll have a price in mind which will buy them less than their dream home. As they begin looking, and learning what is available, they begin to modify their criteria requirements to get more in line with reality. However, since they still have that dream home (however modified) in their mind, they will, most of the time, gravitate to the higher end of their budget.
The agents job is not to "sell" them a home, as the myth is perpetuated; it is to help the client find the right home for them and help them purchase it at the right price, within their budget.
We understand that there is the potential of conflict with the percentage of sale method; which is the method that the consumer chooses, because they don't have to pay if a transaction doesn't close.
The buyer only pays if the transaction closes under all of the discussed compensation schemes (except hourly). Under both flat rate and my proposal of x% * ($YYY,YYY - sales price), the agent only gets paid after the buyer purchases the house.
My impression both from this discussion and from my interviewing potential agents is that most buyers agents claim that their services are free. If the buyer believes this, then the agent has a relatively free hand choosing the x% * sales price compensation scheme. Also, as this is an "industry standard" (which to me strongly resembles price-fixing, a form of collusion), any buyer will be hard-pressed to find a buyer's agent offering a different compensation scheme (unless the buyer takes unusual measures, like I have).
It's good service to let buyers pick a price. Capitalism and free market capitalism works well because the price mechanism gathers and transmits information and incentives much more quickly than a centrally-planned bureaucracy is able to. So transparency and choice in pricing is a good thing. I see no reason (other than price fixing) not to present clients with the following choices in your buyer's rep:
Quote:
Originally Posted by perfectlyGoodInk
[] flat fee of $XX,XXX
[] x% of sales price
[] x% of ($YYY,YYY - sales price)
Where the agent puts in $YYY,YYY, either after negotiating with the buyer or just unilaterally picking it.
My suggestion of $YYY,YYY = max price + min price is merely that: a suggestion, one calculated to keep commission levels the same as per the numbers in the first post. It's the agent who puts together the paperwork, so they get to decide what choices to list (meaning that it's the buyer who is at a disadvantage in negotiating this term).
Last edited by perfectlyGoodInk; 09-23-2012 at 05:40 PM..
The buyer only pays if the transaction closes under all of the discussed compensation schemes (except hourly). Under both flat rate and my proposal of x% * ($YYY,YYY - sales price), the agent only gets paid after the buyer purchases the house.
My impression both from this discussion and from my interviewing potential agents is that most buyers agents claim that their services are free. If the buyer believes this, then the agent has a relatively free hand choosing the x% * sales price compensation scheme. Also, as this is an "industry standard" (which to me strongly resembles price-fixing, a form of collusion), any buyer will be hard-pressed to find a buyer's agent offering a different compensation scheme (unless the buyer takes unusual measures, like I have).
It's good service to let buyers pick a price. Capitalism and free market capitalism works well because the price mechanism gathers and transmits information and incentives much more quickly than a centrally-planned bureaucracy is able to. So transparency and choice in pricing is a good thing. There is no reason not to present buyer's with the following choices in your buyer's rep:
My suggestion of $YYY,YYY = max price + min price is merely that: a suggestion, one chosen to keep commission levels the same. It's the agent who puts together the paperwork, so they get to decide what to put in there, after all.
Actually I pay little attention to what the commission is. If the client wants to look at FSBOs I will work out an arrangement with him. It will be above 3% as I expect to have to carry the burden of the transaction. If I run into a 2.5% short and it fits that is the breaks of the game. It is annoying when you put a large number of hours into a hard short and then the lender cuts the commission at the end but I just treat that as a risk of the game.
As I said I would negotiate to your protocol but I doubt we would do business. My bottom would likely be at or above your top. And no you don't plan on renegotiating terms and conditions in the middle of a process when the buyer finally determines what he or she actually wants. That is pretty silly even for you.
The buyer only pays if the transaction closes under all of the discussed compensation schemes (except hourly). Under both flat rate and my proposal of x% * ($YYY,YYY - sales price), the agent only gets paid after the buyer purchases the house.
My impression both from this discussion and from my interviewing potential agents is that most buyers agents claim that their services are free. If the buyer believes this, then the agent has a relatively free hand choosing the x% * sales price compensation scheme. Also, as this is an "industry standard" (which to me strongly resembles price-fixing, a form of collusion), any buyer will be hard-pressed to find a buyer's agent offering a different compensation scheme (unless the buyer takes unusual measures, like I have).
Ask the buyers who worked with a Realtor for many hours, and then didn't buy anything, how much it cost them. Most will tell you it cost them nothing. If a Service Costs Nothing, then its Free.
If a buyer wants to get a rebate of some of the buyer agents commission, then they can remove the " contingency of being paid only on a closed transaction" and pay the agent as they go. One half of the anticipated commission up front, then more payments each two weeks until the agreed on amount is paid in full. Then on the successful close of escrow the agreed on amount is rebated to the buyer. That Service is Not Free.
Buyers and sellers are not naive. They understand that the seller pays the commission from the proceeds of the sale, and that it is the buyers money that pays for the house.
You can call it what you like, but there is absolutely NO price fixing. Price fixing is against the law:
"In the United States, price fixing can be prosecuted as a criminal federal offense under section 1 of the Sherman Antitrust Act."
All real estate commissions are negotiable. There are many alternatives to a commission, one of which I discussed above.
Your model does not make good sense to the Realtors here, so you would not be able to negotiate that with many agents. However, you are certainly welcome to try, because real estate commissions are negotiable.
You've been told, but apparently don't want to believe it, that the public prefers the commission arrangement because it is contingent on a closed transaction. It costs them nothing if a transaction does not close.
Accusing the real estate industry of price fixing is not helping your argument. In fact it shows desperation on your part because no one is agreeing with your.
Collusion is the best explanation of the reception my proposal has received, actually. Yes, price-fixing is illegal, but recall that said "strongly resembles." Many agents try to avoid competing on price simply by not making it clear what exactly their price is. However, once you ask them, that price quickly becomes negotiable. However, there is absolutely no good reason for an industry standard price or pricing structure. Variety and creativity in prices and pricing structures ought to be encouraged to foster free competition.
Quote:
Originally Posted by Captain Bill
Ask the buyers who worked with a Realtor for many hours, and then didn't buy anything, how much it cost them. Most will tell you it cost them nothing. If a Service Costs Nothing, then its Free.
This was covered previously here:
Quote:
Originally Posted by perfectlyGoodInk
In terms of those who don't buy, one of the costs of selling almost any good is going through all the nos to get that yes, whether it be cold-calling or letting people browse in your air-conditioned store, or driving clients around. Nobody is forcing you to do any of this. You could charge your clients by the hour instead. The reason you do not is because you expect a certain percentage of these people to pay you, and for this to pay off more in the long run. The people who do buy are subsidizing the cost of those who don't buy. This is really just the cost of doing business, because both you and the listing agent are in the service of matching buyers and sellers. Just like with the job market or the dating market, this involves a lot of dates/interviews between non-matches.'
etc. etc.
Of course, just as it's the buyer's job to screen agents, it's the agent's job to screen buyers. They also could choose to be paid hourly, after all.
Quote:
Originally Posted by Captain Bill
Buyers and sellers are not naive. They understand that the seller pays the commission from the proceeds of the sale, and that it is the buyers money that pays for the house.
This is a far cry from what you were arguing before:
Quote:
Originally Posted by Captain Bill
And if RE Skeptic buys a home and is successful in getting the buyer agent to pay him a percentage of his earned commission, did Skeptic the buyer pay the buyers agent. Of course not.
The buyer paid for the house
The seller paid the commission
The buyer did not pay the Realtor commission
The buyers agent actually gave the buyer some money.
You can keep arguing this with all the silly analogies you want, but the fact is, the seller negotiates the commission during the listing agreement. The buyer has nothing to do with this. Then, out of the sale proceeds, the seller pays the negotiated commission.
Now unless you can show me where a commission is added on to the price of the home, and the HUD-1 reflects that the buyer is paying that commission, then you will not convince anyone, especially sellers, that the buyer pays the commission.
And I had addressed that with this:
Quote:
Originally Posted by perfectlyGoodInk
When a farmer sells beef, the price he or she charges takes into account the food he bought to feed the cow. The farmer charges this to the store, the store charges this to the consumer. The consumer doesn't even pay the farmer directly, and you would not be able to convince any consumer that they are paying the farmer, but the directness of the payment isn't the issue. The consumer still bears the cost of feeding the cow. When you buy a car, you are not paying the tire manufacturer directly, but the price includes the cost of the tires.
Are you arguing that consumers of beef do not pay the cost of cow feed paid for by the farmer, or that the buyers of a sandwich do not pay the cost of the advertising paid for by the sandwich shop? Or are you arguing that buyers are too sophisticated to fall for the misleading claim that "buyers agency is free"? Or are you arguing anything anymore?
Quote:
Originally Posted by Captain Bill
I'm outta here too. Have fun y'all
Transparency in the Internet Age is only a matter of time. Mutual funds used to try and make their pricing obscure by hiding it as "loads" and "12b-1 fees" buried in the middle of the prospectus, but it is hard to keep information hidden forever. Once one person figures it out, there was nothing to stop them from posting it publicly on the Internet. Due to this information rapidly propagating around, there is now a rapidly growing investor class that knows that the price of a mutual fund is its expense ratio. Claiming that A paying B paying C means that C's costs are free to A is akin to burying your fees in the prospectus.
Last edited by perfectlyGoodInk; 09-23-2012 at 06:50 PM..
And no you don't plan on renegotiating terms and conditions in the middle of a process when the buyer finally determines what he or she actually wants.
Putting a variable into the sales commission formula already makes it a moving target. Also, contracts are negotiated with a certain amount of information. If that information proves to be inaccurate, and both parties are fair and realize that the agreement was based upon faulty information, they should be willing (albeit under no obligation) to update the contract with the new information.
I fail to see how it would be much different from the home sales contract between the buyer and the seller being amended due to information brought out by the inspection or appraisal. The buyer's rep could very easily formalize this as a contingency for agents who feel it necessary, but I doubt many would think so. Many buyers want agents for the same reason that I do: agents are more likely to be better negotiators. Furthermore, a buyer who misrepresents their range is likely to end up with an agent who isn't knowledgeable about the houses they really want.
Collusion is the best explanation of the reception my proposal has received, actually. Yes, price-fixing is illegal, but I did say "resembles." Many agents attempt not to compete on price simply by not making it clear what exactly their price is, but once you ask them and make it clear that you know what they are charging, that price quickly becomes negotiable. And there is absolutely no good reason for an industry standard price or pricing structure.
Regarding buyer agency not being free, this has been discussed at length in this thread already:
Of course, just as it's the buyer's job to screen agents, it's the agent's job to screen buyers. They also could choose to be paid hourly, after all. And there's also this:
Are you arguing that consumers of beef do not pay the cost of cow feed paid for by the farmer, or that the buyers of a sandwich do not pay the cost of the advertising paid for by the sandwich shop?
Transparency in the Internet Age is only a matter of time. Mutual funds used to try and make their pricing obscure by hiding it as "loads" and "12b-1 fees" buried in the middle of the prospectus, but it is hard to keep information hidden forever. Once one person figures it out, there was nothing to stop them from posting it publicly on the Internet. Due to this information rapidly propagating around, there is now a rapidly growing investor class that knows that the price of a mutual fund is its expense ratio. Claiming that A paying B paying C means that C's costs are free to A is akin to burying your fees in the prospectus.
Your price model is naive. You don't simply add up all the costs and add a profit. Does not work that way. You have all sorts of market dynamics which are involved in the pricing decisions. Real Estate is actually reasonably simple compared to most of the world.
And your internet view is naive. 25 years ago when I was heavily in the computer business I would have agreed with you that the day of the agent was numbered. Hell I thought we would eat the car salesman.
It clearly does not work that way. There are transaction that are sufficiently unique that the internet does not get the job done. You need individual service.
I don't really think the "free" argument makes any sense. Actually the buyer pays for everything. Note my view is actually more expansive than yours. I think the buyer has an interest in all RE fees not simply that paid to the buyers agent.
But that is how we run the railroad.
And the reception of your proposal here is actually better than you deserve. This is actually a pretty polite group. We don't start out pointing out how dumb and one sided your proposal is. We give you the benefit of the doubt and try to get you in sync with reality.
My actual compensation varies over a vastly wider range than you understand. And if you get it to a per hour basis that range double.
And your internet view is naive. 25 years ago when I was heavily in the computer business I would have agreed with you that the day of the agent was numbered. Hell I thought we would eat the car salesman.
I've never said the day of the agent was numbered. Why on earth would I be using an agent if I believed that? I'm an economist, so I believe in comparative advantage and specialization and trade. No, I said business models based on hiding information are numbered. There will definitely be agents who figure that out and offer better models, as well as better service than the Internet can.
Quote:
Originally Posted by lvoc
I don't really think the "free" argument makes any sense. Actually the buyer pays for everything.
They pay for everything, but the buyer and seller actually split the cost. I try to explain that here, but it's not worth rehashing. Just note that the seller does not have free reign to raise the price by the entire cost of the fee because a higher price reduces the number of buyers willing and/or able to pay it (note that even monopolies cannot charge a price of $infinity because they still face a downward-sloping demand curve).
Quote:
Originally Posted by lvoc
And the reception of your proposal here is actually better than you deserve. This is actually a pretty polite group. We don't start out pointing out how dumb and one sided your proposal is. We give you the benefit of the doubt and try to get you in sync with reality.
Go back through the thread and pay attention to the adjectives used to describe me and my proposal (e.g. "dumb" and "naive") versus the adjectives I've used to describe agents. You'll notice that my criticisms are aimed almost entirely at the compensation structure, not at agents, and that I attack arguments, not the person behind the argument. Even my "strongly resembles price-fixing" and collusion comment was aimed at the practice of having an industry standard pricing model (a practice which you have not defended as having a good reason).
The ad hominem attacks on this thread are pretty much entirely made by the agents.
Last edited by perfectlyGoodInk; 09-23-2012 at 07:10 PM..
perfectlyGoodInk....Go back through the thread and pay attention to the adjectives used to describe me and my proposal (e.g. "dumb" and "naive") versus the adjectives I've used to describe agents. You'll notice that my criticisms are aimed almost entirely at the compensation structure, not at agents, and that I attack arguments, not the person behind the argument
Ivoc did not attack you. He gave his opinion on your price model, and your proposal. He did not describe you as "dumb".
Quote:
by Ivoc....Your price model is naive...
...We don't start out pointing out how dumb and one sided your proposal is. We give you the benefit of the doubt and try to get you in sync with reality.
He didn't attack you, yet you are accusing the real estate industry of collusion and price-fixing. Sure you said "strongly resembles price-fixing", and that is an accusation, no matter how you try to gloss it over:
Quote:
perfectlyGoodInk...."My impression both from this discussion and from my interviewing potential agents is that most buyers agents claim that their services are free. If the buyer believes this, then the agent has a relatively free hand choosing the x% * sales price compensation scheme. Also, as this is an "industry standard" (which to me strongly resembles price-fixing, a form of collusion),
When working with a buyer, the agents are tied to the rate of pay that the seller and seller's agents offer them. And as has been explained ad nauseum, the buyers do not want to accept another model. They don't want to pay by the hour, or by the service. Many agents offer several alternatives to the percentage model, both for buyers and for sellers.
You don't seem willing to work on a pay as you go model either. Instead, you want a different percentage model that is geared to where the buyer can mislead the agent. Everyone here saw through that scheme when you first proposed it.
Yes, I'm still here, but I'm not discussing your model, because it isn't a workable model, as you've been told many times, and I won't waste my time discussing it.
The ad hominem attacks on this thread are pretty much entirely made by the agents.
You posted this thread as a proposal for real estates, and you're upset that your proposal fell flat, so now you're falsely accusing us of attacking you personally, and claiming that our arguments are "fallacies".
An Ad Hominem is a general category of fallacies in which a claim or argument is rejected on the basis of some irrelevant fact about the author of or the person presenting the claim or argument.
This type of "argument" has the following form:
Person A makes claim X.
Person B makes an attack on person A.
Therefore A's claim is false.
You're really reaching now. What's happening is this:
Person A makes claim X
Person B rejects claim as not workable
Person A makes attack on Person B's industry (collusion, price-fixing)
Person A falsely claims he has been personally attacked
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