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They don't do it anymore, but here was Redfin's rack rate when they started:
"A Redfin assistant agent will show you around for three hours, and you can see as many homes as you like. Your first tour is free. After that, we charge $250 per three-hour block, or $125 for a single property."
Consumers balked, and it had to be a money loser anyway. I cannot imagine profitably showing houses for $50 or $75 if they were more than a mile away, or scattered or more than a 15-20 minute visit.
I was thinking the same thing. No way to be profitable at that low hourly rate. Overhead and taxes have to come out of that hourly rate.
I was thinking the same thing. No way to be profitable at that low hourly rate. Overhead and taxes have to come out of that hourly rate.
Rates and Fees are so difficult for many people to grasp if they are accustomed to hourly wages and salaries, overtime, and employer-paid fringe benefits.
Additionally, with salaried overtime threshold being raised to $47,500, the W2 brokerages may be sweating bullets, methinks.
Maybe the magic number is $125 a showing, it depends on how large the commission rebate is.
I can still see why the industry has a resistance to this - the 'Group A' customers who on average are well educated, buying high value homes, and have cash on hand, would be the ones that would tend towards the flat fee services. Unfortunately these are also the cash cows for the industry, and the very high margins on these transactions off set the low margins on the 'Group B' customers. Again this sets up a disincentive for the industry (which is dominated and controlled by commission based agents) to play on a level playing field.
Quote:
Originally Posted by MikeJaquish
They don't do it anymore, but here was Redfin's rack rate when they started:
"A Redfin assistant agent will show you around for three hours, and you can see as many homes as you like. Your first tour is free. After that, we charge $250 per three-hour block, or $125 for a single property."
Consumers balked, and it had to be a money loser anyway. I cannot imagine profitably showing houses for $50 or $75 if they were more than a mile away, or scattered or more than a 15-20 minute visit.
Maybe the magic number is $125 a showing, it depends on how large the commission rebate is.
I can still see why the industry has a resistance to this - the 'Group A' customers who on average are well educated, buying high value homes, and have cash on hand, would be the ones that would tend towards the flat fee services. Unfortunately these are also the cash cows for the industry, and the very high margins on these transactions off set the low margins on the 'Group B' customers. Again this sets up a disincentive for the industry (which is dominated and controlled by commission based agents) to play on a level playing field.
If you are saying that higher-priced home buyers and sellers subsidize lower-priced home buyers and sellers, yes, that has been obvious for many years.
I don't "resist." I really just don't much care what other people do in their business model, and worry much more about shenanigans rooted in ineptitude and predation that relate more to integrity and taking advantage of people.
Wanna work for a buck? I don't care. Want to take a 99% commission? I don't care. Just don't lie, cheat, and steal.
I work on commission because it is the simplest thing going. Nothing else compares to it in terms of ease of business. I assess the work involved and set my fees so I am comfortable, and prefer to use my time to serve my clients, rather than to keep a timesheet. Yes, the $700,000 client very much helps the $100,000 client be worthwhile. But, throughout our socio-political fabric, "progressive" values support that approach.
One wrinkle in my area...
30 years or so ago, price fixers established a 60/40 commission split when buyers' agents came into the area. Considering the legendary 6% fee, that meant a 3.6% listing split and a 2.4% selling agent split.
Today, 70%+ of listings in my county show 2.4% split to a buyers' agent.
The price fixers chopped a hole in the bottom of their own boat, and now have intense pressure on their fee structure.
With the strong sellers' market over the last 3-4 years, no motivated and organized average price or higher seller needs to pay more than 4.8% to sell their house. That is the top sensible fee, without even wallowing in $295 paperwork fees.
Paying 6% or more is a personal choice. That $100,000 seller likely is stuck with a 5% or 6% rate, to generate enough to make it worthwhile.
Maybe the magic number is $125 a showing, it depends on how large the commission rebate is.
I can still see why the industry has a resistance to this - the 'Group A' customers who on average are well educated, buying high value homes, and have cash on hand, would be the ones that would tend towards the flat fee services. Unfortunately, these are also the cash cows for the industry, and the very high margins on these transactions off set the low margins on the 'Group B' customers. Again this sets up a disincentive for the industry (which is dominated and controlled by commission based agents) to play on a level playing field.
The magic number depends on area, cost of living, and time. Showing a rural property three hours from your office wouldn't work for $125 an hour, but you could potentially show three condos in one building easily for that. I think one of the issues that always comes up in this debate is the fact that people focus on models that might work in an urban area and completely forget about the thousands of small towns that would need to work differently.
So I can tell you from my personal experience that you are wrong about who uses flat fees. There is a tipping point where it doesn't make sense to use a flat fee over a commission, but people that use flat fees are a personality type. It isn't how expensive their home is.
For argument's sake, let's say like I know a couple who is going to sell their home for $700k and buy a house with cash for half that amount ($350k).
They already know that their $700k property will be easy to sell...let's say they already have a couple of potential buyers lined up.
They already know which area of town they want to buy in and are capable of finding the house themselves. They already have a very firm idea of what they do and don't want.
Explain to me how it's justifiable for them to pay over $20k to sell property A, and $10k to buy property B. (3% of each property's purchase price.)
I agree entirely - the $125 is just an example, the actual number would depend on the locality, just like a plumber in Boston is a very different price than a plumber in rural Alabama. But this also highlights one of the issue with the commission model - while I know there is no "standard commission" - the standard commission with traditional RE is between 5 and 6% regardless of whether we are talking about a $900K house in Boston or a $150K house in Alabama.
Quote:
Originally Posted by Silverfall
The magic number depends on area, cost of living, and time. Showing a rural property three hours from your office wouldn't work for $125 an hour, but you could potentially show three condos in one building easily for that. I think one of the issues that always comes up in this debate is the fact that people focus on models that might work in an urban area and completely forget about the thousands of small towns that would need to work differently.
So I can tell you from my personal experience that you are wrong about who uses flat fees. There is a tipping point where it doesn't make sense to use a flat fee over a commission, but people that use flat fees are a personality type. It isn't how expensive their home is.
For argument's sake, let's say like I know a couple who is going to sell their home for $700k and buy a house with cash for half that amount ($350k).
They already know that their $700k property will be easy to sell...let's say they already have a couple of potential buyers lined up.
They already know which area of town they want to buy in and are capable of finding the house themselves. They already have a very firm idea of what they do and don't want.
Explain to me how it's justifiable for them to pay over $20k to sell property A, and $10k to buy property B. (3% of each property's purchase price.)
Well if they already have buyers lined up for the sale of their home why are they paying a buyer agent anything? Why wouldn't they just hire an hourly rate agent or a flat fee agent, pay as the transaction goes along and call it good?
Same goes for buying a home. In states that allow rebates, they could have a separate contract with a buyer agent to pay them directly then take a full rebate on the buyer agent compensation.
If they want to pay a higher commission that's fine, but they don't have to. So I guess the justification would be that they aren't interested in taking the time to find an agent that has a model that meets their needs so they would rather take the easier route and pay more.
I agree entirely - the $125 is just an example, the actual number would depend on the locality, just like a plumber in Boston is a very different price than a plumber in rural Alabama. But this also highlights one of the issue with the commission model - while I know there is no "standard commission" - the standard commission with traditional RE is between 5 and 6% regardless of whether we are talking about a $900K house in Boston or a $150K house in Alabama.
Commissions go down in my area as prices go up, but the cost of living is lower here. People that live in Boston need to make a higher dollar value because home prices and cost of living are so much higher.
Since the average commission in the nation is around 5.2%, the buyer agent of a home in Boston, with your numbers would make 2.6% assuming a 50% split, which isn't true everywhere. That is $23,400 on that one transaction. The average agent in my area does about 6 transactions a year. So assuming they were a sole broker so there were no brokerage splits, that would be $140,400 before taxes, social security, and business expenses. Let's say 25% for taxes and 25% for business costs. Now, I don't live in Boston, but I can't imagine that $70,200 goes very far there even though it would be a lot of money in parts of Alabama.
What do you feel is an appropriate adjustment for cost of living?
I would say $70K after tax is a spectacularly good salary for working part time in a semi-professional job in Boston!
Quote:
Originally Posted by Silverfall
Commissions go down in my area as prices go up, but the cost of living is lower here. People that live in Boston need to make a higher dollar value because home prices and cost of living are so much higher.
Since the average commission in the nation is around 5.2%, the buyer agent of a home in Boston, with your numbers would make 2.6% assuming a 50% split, which isn't true everywhere. That is $23,400 on that one transaction. The average agent in my area does about 6 transactions a year. So assuming they were a sole broker so there were no brokerage splits, that would be $140,400 before taxes, social security, and business expenses. Let's say 25% for taxes and 25% for business costs. Now, I don't live in Boston, but I can't imagine that $70,200 goes very far there even though it would be a lot of money in parts of Alabama.
What do you feel is an appropriate adjustment for cost of living?
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