Home Brokers & Agents Discounting, Brand, and Real Estate

Discounting, Brand, and Real Estate

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At the recent RISMedia Leadership conference, I walked around listening to the conversation, attending the sessions, and talking to people.  Not suprisingly, the market was very much on people’s minds, and a number of people were talking about pressure on commissions.

That pressure is nothing new, of course.  Discount brokerages have come and gone and stayed and come again.  Rebate models are everywhere on the Web.

In that context, however, I thought it relevant to at least think about this article from MarketingProfs.com:

If your business has experienced a drop in traffic or sales, you may be considering offering discounts to your customers. Sales. Discounts. Markdowns. Perhaps even “Markdown Madness”…?

Offering items at a sale price is a very tempting tactic. In the short term, it drives traffic and sales. What you lose in margin is made up in volume. Problem solved, right?!

Bigger problem, created. What you’re really doing is eroding your long-term margins and your long-term sales. (This is especially true if you run a business based on quality and value versus being a low-price provider.)

The problem with discounts is that customers don’t see the price drop the same way you do.

As a business person, you clearly understand you are temporarily cutting into your own profit to give a little more to the customer and keep their business.

As customers we see it different. The moment you discount, it re-calibrates the perceived value of your products/services. Selling something for $200 today, and discounting for $150 tells us you are making more money on the $200 version… And you’re still making money on the $150 version… so the $200 version was over-priced. The new perceived value, $150.

As a consumer buying something, we get this. As a marketer selling something, we tend to ignore this fact.

I urge everyone to read the whole thing.  It’s really valuable food for thought.

The question at the heart of the post is whether real estate brokerage today is a ‘business based on quality and value’ or a ‘business based on being a low-price provider’.

My sense is that most of the professionals and leaders in the industry think of real estate as a profession based on quality and value.  At the same time, there is this undertow often unspoken (and sometimes spoken) that the brokerage business model is fundamentally broken.

A highly-respected industry executive with a large brokerage flat out told me at the Conference something along the following (paraphrasing bigtime here from memory): “If I sell your house, worth $500K, and collect 3% commission, then I get paid $15,000.  If your house is worth $200K, I only get $6,000.  Do you really think I did $9,000 worth of additional work to sell your $500K house versus your $200K house?  Nobody believes that anymore.  Consumers are getting wise to it.”

Because of this, the recommendations from Marketing Profs do not appear to be on point:

First, if customers are complaining about your prices, make sure you actually aren’t charging too much. Compare yourself with your competition. Recession or not, if you were already dramatically out-pricing the competition without a dramatic difference in quality or service, perhaps you should consider lowering your prices. (I’m not recommending getting yourself into the low-price game, just make sure your higher prices offer higher value.)

Second, instead of giving away money, strategically provide add-on services or products. Instead of discounting the price of a hair cut at the salon, give away a bottle of that great shampoo you used that made my head tingle and hair smell so great. Instead of cutting the price of your website building services, offer a complimentary, 6-month, search engine optimization (SEO) service.

Well, in real estate, the “competition” has the same issues you do.  So it isn’t at all clear that any one broker is “charging too much”.  Furthermore, since the fundamental problem is in explaining percentage-based pricing to consumers, it isn’t clear that the price is “too high” in and of itself.

Furthermore, in a full-service brokerage, it isn’t immediately clear what “add-on” services a broker can provide in lieu of discounts.  Home inspections?  Lawnmowing services?  What?

At the same time, the consumer perception of the value of services is that all realtors are overpaid for the services they provide.

How to get out of this pickle?

-rsh

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Rob Hahn
Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

27 COMMENTS

  1. I think the fundamental issue is not just one of perceived value, but relative value versus genuine value. The 15K commission may, indeed, be justified, if you’re in a market of $200K homes and $500K homes only sell once a quarter but you did it in 2 months. It’s higher relative value, because that Realtor likely had to provide a level of service higher than the commonplace $6K deal.

    After considering the brass tacks of relative value, the question is to genuine value, and this is what the consumer (and many Realtors) are trying to rationalize. Considering the $200K scenario, the Realtor is possibly making 3-4 months’ worth of that sellers own net monthly income (assuming the house had reasonably appreciated, etc). If the Realtor isn’t providing a level of service that is equivalent to the pay, you have a problem. If the Realtor is working 20+ deals a year, then it gets really hard to justify the income.

    -Matt

  2. I think the fundamental issue is not just one of perceived value, but relative value versus genuine value. The 15K commission may, indeed, be justified, if you’re in a market of $200K homes and $500K homes only sell once a quarter but you did it in 2 months. It’s higher relative value, because that Realtor likely had to provide a level of service higher than the commonplace $6K deal.

    After considering the brass tacks of relative value, the question is to genuine value, and this is what the consumer (and many Realtors) are trying to rationalize. Considering the $200K scenario, the Realtor is possibly making 3-4 months’ worth of that sellers own net monthly income (assuming the house had reasonably appreciated, etc). If the Realtor isn’t providing a level of service that is equivalent to the pay, you have a problem. If the Realtor is working 20+ deals a year, then it gets really hard to justify the income.

    -Matt

  3. @Matt –

    Why don’t more realtors go with either a flat rate or a time & materials basis?

    Given that even before discounting comes into play, there’s a real issue with genuine value, why wouldn’t more people simply offer options:

    1. 3% of sale price.
    2. $6000 for selling your house (with list of services this $6k covers)
    3. $75/hr + materials.

    -rsh

  4. @Matt –

    Why don’t more realtors go with either a flat rate or a time & materials basis?

    Given that even before discounting comes into play, there’s a real issue with genuine value, why wouldn’t more people simply offer options:

    1. 3% of sale price.
    2. $6000 for selling your house (with list of services this $6k covers)
    3. $75/hr + materials.

    -rsh

  5. The problem with commissions is that there is a percieved negotiable “going rate” among consumers so they try to get that rate lowered.

    Realtors in some instances are smart to lower their commission rates on a case by case basis given that most of their customers will probably transact just one time and therefor the discount will not be perceived to be a permanant offer.

    In other businesses with more repeat customers, the proprietor has to be careful when lowering prices, because as Rob points out, the perceived value of the product or service may be permanently demeaned.

    The real key for professionals is to have pricing power based on quality service and reputation. At Rob’s favorite law firm, cravath, if a customer argued over the bill at the end of his/her representation, the Cravath partner would inevitably reply “ok pay what you think its worth and don’t come back again”

    In effect Cravath is comfortable “firing” a customer as they know the value of their services is high and they know that enough customers think so as well.

    If, however, your service is perceived as a commidity, it will have to be priced accordingly unless you can demonstrate a reason for a premium (or at least for your rate not to be negociable).

    I’ve never seen tiered real estate commissions, like I’ve seen in banking
    ie. if you sell the home for $500K you get X, but if you sell the home for $550K you get X +

  6. The problem with commissions is that there is a percieved negotiable “going rate” among consumers so they try to get that rate lowered.

    Realtors in some instances are smart to lower their commission rates on a case by case basis given that most of their customers will probably transact just one time and therefor the discount will not be perceived to be a permanant offer.

    In other businesses with more repeat customers, the proprietor has to be careful when lowering prices, because as Rob points out, the perceived value of the product or service may be permanently demeaned.

    The real key for professionals is to have pricing power based on quality service and reputation. At Rob’s favorite law firm, cravath, if a customer argued over the bill at the end of his/her representation, the Cravath partner would inevitably reply “ok pay what you think its worth and don’t come back again”

    In effect Cravath is comfortable “firing” a customer as they know the value of their services is high and they know that enough customers think so as well.

    If, however, your service is perceived as a commidity, it will have to be priced accordingly unless you can demonstrate a reason for a premium (or at least for your rate not to be negociable).

    I’ve never seen tiered real estate commissions, like I’ve seen in banking
    ie. if you sell the home for $500K you get X, but if you sell the home for $550K you get X +

  7. The question is whether the seller will pay up front on a fee for service basis. Sellers are used to having the realtor fees come out of the commission. However, if a seller only picks and choses certain service items, and leaves out important ones that sell and keep a transaction togehter (like who will negotiate the inspection items?) and doesn’t pay for these services upfront, the agent is not likely to get paid at all.
    I’ve found that the seller doesn’t know what the seller needs in terms of service. They think it’s all about marketing and in reality, it’s all about pricing, condition and negotiation shkill

  8. The question is whether the seller will pay up front on a fee for service basis. Sellers are used to having the realtor fees come out of the commission. However, if a seller only picks and choses certain service items, and leaves out important ones that sell and keep a transaction togehter (like who will negotiate the inspection items?) and doesn’t pay for these services upfront, the agent is not likely to get paid at all.
    I’ve found that the seller doesn’t know what the seller needs in terms of service. They think it’s all about marketing and in reality, it’s all about pricing, condition and negotiation shkill

  9. Eileen brings up the key point, in my estimation. The reason that the percentage compensation model is able to persist is because the broker has to hedge the risk of not getting paid. Not every listing or buyer is going to result in a paycheck. The percentage-based model allows the broker to make more here, less there, and hopefully, it all comes out in the wash.

    If brokers knew they were going to get paid, regardless of outcome, if they were getting paid for the work performed, and not for the result of the transaction, then I think you would see a lot more brokers move to a different compensation model.

  10. Eileen brings up the key point, in my estimation. The reason that the percentage compensation model is able to persist is because the broker has to hedge the risk of not getting paid. Not every listing or buyer is going to result in a paycheck. The percentage-based model allows the broker to make more here, less there, and hopefully, it all comes out in the wash.

    If brokers knew they were going to get paid, regardless of outcome, if they were getting paid for the work performed, and not for the result of the transaction, then I think you would see a lot more brokers move to a different compensation model.

  11. @Dan & Eileen,

    Good points on the risk of not getting paid.

    Why not offer the consumer the choice? It’s what contingency fee lawyers do. You can pay me by the hour, up-front (or at least invoiced), and have fixed costs, or you can just pay me 35% of whatever I recover for you.

    The rich lawyers are those who tend to take on contingency fee cases and win them. The client might be like, “You didn’t do enough to deserve that $2m payday” but the answer to that is, “Yes I did, because I took the financial risk of getting nothing.”

    Why wouldn’t think work in real estate — at least with sellers?

    In other words, why not offer multiple models, including up-front payment-for-service as well as back-loaded percentage of transaction? Why only limit to one or the other?

    -rsh

  12. @Dan & Eileen,

    Good points on the risk of not getting paid.

    Why not offer the consumer the choice? It’s what contingency fee lawyers do. You can pay me by the hour, up-front (or at least invoiced), and have fixed costs, or you can just pay me 35% of whatever I recover for you.

    The rich lawyers are those who tend to take on contingency fee cases and win them. The client might be like, “You didn’t do enough to deserve that $2m payday” but the answer to that is, “Yes I did, because I took the financial risk of getting nothing.”

    Why wouldn’t think work in real estate — at least with sellers?

    In other words, why not offer multiple models, including up-front payment-for-service as well as back-loaded percentage of transaction? Why only limit to one or the other?

    -rsh

  13. The commission structure is a risk vs. reward system. If sellers, and buyers for that matter, pay upfront, then what motivation would the agent have to consummate a real estate transaction. If a pay-upfront-model was implemented, consumers would soon start complaining about the lack performance.

  14. The commission structure is a risk vs. reward system. If sellers, and buyers for that matter, pay upfront, then what motivation would the agent have to consummate a real estate transaction. If a pay-upfront-model was implemented, consumers would soon start complaining about the lack performance.

  15. It’s fun listening to you all work on this age-old problem for us realtors like it’s a Rubic’s cube. In my real estate practice, I do offer multiple listing options, including commission options, that range from 4% to 6%, and also a flat, up-front rate so that my clients do have a choice. As a quality agent, I express the plus-and-minus of each program offered, and allow them to then make the most educated decision for them and their specific circumstances.

    Rarely do they choose the flat-fee, up-front option. Why? Because so many houses (especially in the current market) do not sell by the time the listing has expired. This is why so many “For Sale By Owner” or “Flat Fee” brokerages don’t become top sellers (if they even make it) in their respective markets. If you need to sell your home… sure, I’ll let you pay me $1000 to slap it on the internet and see what happens. I’ll even let you choose your own price and how many months it will be listed. Doing listing paperwork, snapping a few photos and uploading it all to the internet will take me a few hours at best, so why not? Owners who know anything at all would not accept this fee structure because the agent has no incentive to get the job done… they’re already paid. That, and they’re paid such a small amount (which is why the seller chose this to begin with) that they have no money to actually market the property with. In the end, the home seller pays $1000 and the home often doesn’t sell… so in this scenario, the agent wins and the sellers lose.

    Your agent is supposed to be your advertising agency. I live in an area of Washington State where about 3000 agents are licensed to sell real estate currently. There are over 9000 houses for sale. How many of those do you think were in our newspaper last weekend? How many are represented in the realty magazines this month? A rediculously low percentage, that’s how many. Why? Because the color advertisement that I place on the back page of our real estate section most weeks costs me a little over $1000, and that ad only has room for six of my listings. Each real estate magazine that I’m in runs me about $1500 per month on top of that. Then there is the cost to direct-market to other agents who may have buyers for my properties. Then I pay my brokerage somewhere around $20k per year (franchise fees) plus desk fees of a few hundred dollars per month. Oh, and I market to get listings, too, at a cost of around $1k per month… then pay my nearly $800 per month for my family’s medical insurance… then my accountant… and then and then and then. Get it? We’re all self employed and pay our brokers a franchise fee for hanging our licenses with them.

    It’s true tha the average home sellers look at us as though we are over paid. If real estate agents are over paid, tell me why, even in the good times, the failure rate for agents is about 95%. Find me another job where 95 out of a hundred people who try it can’t make it and are gone within a year. Most people think that this is an easy job… but it’s not. It’s not even a job. It’s a profession, and a real business that requires real capital, and our expenses are there whether your house sells or not. Now consider that most people think their house is worth $20-75k more than it really is, and you’ll start to see just a small portion of what it is to be a real estate agent. My business has a true cost of around $70k per year, maybe a little more. The average agent sells around 8 homes per year and earns $40-50k gross before paying taxes, medical and other insurances, advertising expenses, gas & auto depreciation, brokerage fees, you name it. What we do may look “easy” to the layman, but that’s not the reality. Ask one of the thousands and thousands (millions?) of people who “used to be a realtor”.

    My practice is built around providing solid advice, an excellent marketing machine and the knowledge to get the job done. I, for one, know how to do it and am not going to “cheap sell it”. I turn down more listing than I accept because I know my market well enough to have a good, educated idea of what I can get someone for their property and am not afraid to say “no” to those with unrealistic ideas (about half of you). My rates are going up right now, not down, because as homes take longer to move my advertising cost per unit increases. Yes, there are plenty of other agents out there willing to reduce commissions and yes, they often tell the home seller that they can get tens of thousands more than the number I offered them and yes, finally, they often get the listing instead of me. A couple more “yes’s”… yes, they often call me in six months when their listing has expired, now ready to accept that I know what I’m talking about. And yes, I list it for the right price, make it look better online, market and advertise it considerably better than the last agent did and yes, I usually sell it (over 95% in my career, which few agents can claim).

    Four or five percent of nothing is still nothing. You need to get an offer from a qualified buyer, and get that offer closed to owe any commission at all! Am I worth my six or seven percent commission? Yup. If you’re an agent… are you?

  16. It’s fun listening to you all work on this age-old problem for us realtors like it’s a Rubic’s cube. In my real estate practice, I do offer multiple listing options, including commission options, that range from 4% to 6%, and also a flat, up-front rate so that my clients do have a choice. As a quality agent, I express the plus-and-minus of each program offered, and allow them to then make the most educated decision for them and their specific circumstances.

    Rarely do they choose the flat-fee, up-front option. Why? Because so many houses (especially in the current market) do not sell by the time the listing has expired. This is why so many “For Sale By Owner” or “Flat Fee” brokerages don’t become top sellers (if they even make it) in their respective markets. If you need to sell your home… sure, I’ll let you pay me $1000 to slap it on the internet and see what happens. I’ll even let you choose your own price and how many months it will be listed. Doing listing paperwork, snapping a few photos and uploading it all to the internet will take me a few hours at best, so why not? Owners who know anything at all would not accept this fee structure because the agent has no incentive to get the job done… they’re already paid. That, and they’re paid such a small amount (which is why the seller chose this to begin with) that they have no money to actually market the property with. In the end, the home seller pays $1000 and the home often doesn’t sell… so in this scenario, the agent wins and the sellers lose.

    Your agent is supposed to be your advertising agency. I live in an area of Washington State where about 3000 agents are licensed to sell real estate currently. There are over 9000 houses for sale. How many of those do you think were in our newspaper last weekend? How many are represented in the realty magazines this month? A rediculously low percentage, that’s how many. Why? Because the color advertisement that I place on the back page of our real estate section most weeks costs me a little over $1000, and that ad only has room for six of my listings. Each real estate magazine that I’m in runs me about $1500 per month on top of that. Then there is the cost to direct-market to other agents who may have buyers for my properties. Then I pay my brokerage somewhere around $20k per year (franchise fees) plus desk fees of a few hundred dollars per month. Oh, and I market to get listings, too, at a cost of around $1k per month… then pay my nearly $800 per month for my family’s medical insurance… then my accountant… and then and then and then. Get it? We’re all self employed and pay our brokers a franchise fee for hanging our licenses with them.

    It’s true tha the average home sellers look at us as though we are over paid. If real estate agents are over paid, tell me why, even in the good times, the failure rate for agents is about 95%. Find me another job where 95 out of a hundred people who try it can’t make it and are gone within a year. Most people think that this is an easy job… but it’s not. It’s not even a job. It’s a profession, and a real business that requires real capital, and our expenses are there whether your house sells or not. Now consider that most people think their house is worth $20-75k more than it really is, and you’ll start to see just a small portion of what it is to be a real estate agent. My business has a true cost of around $70k per year, maybe a little more. The average agent sells around 8 homes per year and earns $40-50k gross before paying taxes, medical and other insurances, advertising expenses, gas & auto depreciation, brokerage fees, you name it. What we do may look “easy” to the layman, but that’s not the reality. Ask one of the thousands and thousands (millions?) of people who “used to be a realtor”.

    My practice is built around providing solid advice, an excellent marketing machine and the knowledge to get the job done. I, for one, know how to do it and am not going to “cheap sell it”. I turn down more listing than I accept because I know my market well enough to have a good, educated idea of what I can get someone for their property and am not afraid to say “no” to those with unrealistic ideas (about half of you). My rates are going up right now, not down, because as homes take longer to move my advertising cost per unit increases. Yes, there are plenty of other agents out there willing to reduce commissions and yes, they often tell the home seller that they can get tens of thousands more than the number I offered them and yes, finally, they often get the listing instead of me. A couple more “yes’s”… yes, they often call me in six months when their listing has expired, now ready to accept that I know what I’m talking about. And yes, I list it for the right price, make it look better online, market and advertise it considerably better than the last agent did and yes, I usually sell it (over 95% in my career, which few agents can claim).

    Four or five percent of nothing is still nothing. You need to get an offer from a qualified buyer, and get that offer closed to owe any commission at all! Am I worth my six or seven percent commission? Yup. If you’re an agent… are you?

  17. @Chad –

    Wow, thanks for a great and detailed comment. I’m not sure where to begin… but let’s start here.

    Seems to me that your practice is a solid one, that offers consumers the choice. That 95% of them choose the back-end loaded commission deal is good to hear, in part because they had a choice.

    But let’s zone in on this piece (because it’s repeated by other commenters):

    Owners who know anything at all would not accept this fee structure because the agent has no incentive to get the job done… they’re already paid. That, and they’re paid such a small amount (which is why the seller chose this to begin with) that they have no money to actually market the property with. In the end, the home seller pays $1000 and the home often doesn’t sell… so in this scenario, the agent wins and the sellers lose.

    The main issue appears to be that compensation for sales (as New Homes, Communities) mentions is that commissions motivate the salesperson, while flat payment does not.

    Two points about this.

    1. While this works for the seller, it simply does not apply to the buyer rep. If anything, the fact that you are on commission makes me wonder if you as my agent on the buy-side are in fact free from bias and are representing my interests properly.

    I know there are agents and brokers out there who offer paid buyer representation, but for the most part, buy-side agency is a dual-agency or in-reality-seller-rep. So my question is, why don’t more brokers/agents offer flat-rate buyer agency to remove the apparent conflict of interest altogether?

    2. While it may be true that commissions motivate salespeople, that actually works slightly differently than one might think. It is not always the case that just because a salesperson is on commission that she will be focused on maximizing value for the seller; in many cases, the salesperson is maximizing value for herself by under-selling the property.

    At the full 6% commission, an additional $10K in sale price translates to $600. How many agents are going to put in the extra work, hold out for higher offers, market a little harder, etc. to get $600? As the saying goes, a bird in hand is worth two in the bush. This applies to commission salespeople as well. I have personally witnessed far too many salespeople in and out of real estate take the first offer on the table because it means saving two weeks of work for not a lot of gain. Is this really in the seller’s best self-interest? As you write yourself, 4 or 5% of nothing is still nothing. There is an incentive built in to straight commission sales to get a deal done, any deal, rather than waiting for the best deal.

    Furthermore, the commission based sales does mean that lower-priced properties simply aren’t as attractive to sell as higher-priced properties, even if the work required is the same. This is at the heart of the problem, right? You can perform excellent, superlative work, whether my house is worth $100k or $1M. But you get paid 10x the commission for selling a $1M home as you would a $100K home — how does that payday translate to work performed? Is an agent posting 10 times as many flyers for a $1M house as he is for a $100K house?

    I don’t think anyone with even the slightest bit of knowledge believes that being a real estate agent is “easy”. Becoming one is easy, to be sure, but staying one is extraordinarily difficult.

    That does not, however, explain the oddities of real estate service pricing, and why more brokers and agents do not offer multiple payment options for the customer to design the package that makes the most sense for him.

    -rsh

    PS: BTW, it should be pointed out that in a per-hour time & materials basis, the agent can simply charge the client for the cost of marketing the property, and let the customer choose how much he wants to spend on what sort of marketing. So it isn’t necessarily clear to me why a flat-rate customer would always be working with an agent who has no money to conduct marketing.

    PPS: Somehow, other professional services seem to survive just fine on flat pricing. What makes real estate so different?

  18. @Chad –

    Wow, thanks for a great and detailed comment. I’m not sure where to begin… but let’s start here.

    Seems to me that your practice is a solid one, that offers consumers the choice. That 95% of them choose the back-end loaded commission deal is good to hear, in part because they had a choice.

    But let’s zone in on this piece (because it’s repeated by other commenters):

    Owners who know anything at all would not accept this fee structure because the agent has no incentive to get the job done… they’re already paid. That, and they’re paid such a small amount (which is why the seller chose this to begin with) that they have no money to actually market the property with. In the end, the home seller pays $1000 and the home often doesn’t sell… so in this scenario, the agent wins and the sellers lose.

    The main issue appears to be that compensation for sales (as New Homes, Communities) mentions is that commissions motivate the salesperson, while flat payment does not.

    Two points about this.

    1. While this works for the seller, it simply does not apply to the buyer rep. If anything, the fact that you are on commission makes me wonder if you as my agent on the buy-side are in fact free from bias and are representing my interests properly.

    I know there are agents and brokers out there who offer paid buyer representation, but for the most part, buy-side agency is a dual-agency or in-reality-seller-rep. So my question is, why don’t more brokers/agents offer flat-rate buyer agency to remove the apparent conflict of interest altogether?

    2. While it may be true that commissions motivate salespeople, that actually works slightly differently than one might think. It is not always the case that just because a salesperson is on commission that she will be focused on maximizing value for the seller; in many cases, the salesperson is maximizing value for herself by under-selling the property.

    At the full 6% commission, an additional $10K in sale price translates to $600. How many agents are going to put in the extra work, hold out for higher offers, market a little harder, etc. to get $600? As the saying goes, a bird in hand is worth two in the bush. This applies to commission salespeople as well. I have personally witnessed far too many salespeople in and out of real estate take the first offer on the table because it means saving two weeks of work for not a lot of gain. Is this really in the seller’s best self-interest? As you write yourself, 4 or 5% of nothing is still nothing. There is an incentive built in to straight commission sales to get a deal done, any deal, rather than waiting for the best deal.

    Furthermore, the commission based sales does mean that lower-priced properties simply aren’t as attractive to sell as higher-priced properties, even if the work required is the same. This is at the heart of the problem, right? You can perform excellent, superlative work, whether my house is worth $100k or $1M. But you get paid 10x the commission for selling a $1M home as you would a $100K home — how does that payday translate to work performed? Is an agent posting 10 times as many flyers for a $1M house as he is for a $100K house?

    I don’t think anyone with even the slightest bit of knowledge believes that being a real estate agent is “easy”. Becoming one is easy, to be sure, but staying one is extraordinarily difficult.

    That does not, however, explain the oddities of real estate service pricing, and why more brokers and agents do not offer multiple payment options for the customer to design the package that makes the most sense for him.

    -rsh

    PS: BTW, it should be pointed out that in a per-hour time & materials basis, the agent can simply charge the client for the cost of marketing the property, and let the customer choose how much he wants to spend on what sort of marketing. So it isn’t necessarily clear to me why a flat-rate customer would always be working with an agent who has no money to conduct marketing.

    PPS: Somehow, other professional services seem to survive just fine on flat pricing. What makes real estate so different?

  19. I agree. Wonderful debate. So here is the true million dollar question: are we going to sit around in this downturn housing market while people’s equity shrink or can we get creative – sellers and brokers together – on a new model for marketing homes? My perspective: my husband and I bought a house, are fixing it up with our own blood, sweat and tears (and his skills). We will live in this place for a few years, having survived construction hell, mud, no heat etc. If we are lucky, we will have a margin of 10% over our real expenses, BEFORE he gets paid for his skills/labor. We aren’t going to be able to pay a broker commission of 5-6% and why should we? Isn’t our labor/equity/agita of several years worth more than the efforts of a broker? Why can’t sellers and brokers work together to front-end and back-end the transaction to keep everyone motivated and keep the values in perspective?

  20. I agree. Wonderful debate. So here is the true million dollar question: are we going to sit around in this downturn housing market while people’s equity shrink or can we get creative – sellers and brokers together – on a new model for marketing homes? My perspective: my husband and I bought a house, are fixing it up with our own blood, sweat and tears (and his skills). We will live in this place for a few years, having survived construction hell, mud, no heat etc. If we are lucky, we will have a margin of 10% over our real expenses, BEFORE he gets paid for his skills/labor. We aren’t going to be able to pay a broker commission of 5-6% and why should we? Isn’t our labor/equity/agita of several years worth more than the efforts of a broker? Why can’t sellers and brokers work together to front-end and back-end the transaction to keep everyone motivated and keep the values in perspective?

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