Zillow, Redfin and "Us"

[photopress:gorilla.jpg,thumb,alignright]Take a really close look at that Gorilla protecting the baby in his hand. 

The Gorilla could be NAR, with the baby representative of every Realtor in the Country.  The Gorilla could be the MLS system, with the baby representative of each and every one of its members.  The Gorilla could be a MEGA Broker, with the baby representative of the agents who work there.

But when is the baby representative of the Average Joe Consumer?  Where is the consumer “group” working as hard for the consumer, as each of those mentioned above, works hard for the real estate practitioner? 

Theoretically it is each state, and the licensing and agency laws of each state..  Clearly State Laws and Regulatory Boards are as big as that Gorilla, but how much do they really keep up with the changes in the industry enough, to propel the consumer to new heights?  Does the State really fight hard for the consumer in these changeing times?  Obviously not.  Which is why the “Consumer’s 100 lb. Gorilla” of the moment, is the Department of Justice and their suit against the National Association of Realtors. 

Redfin, Zillow, Zip Realty, For Sale by Owner in the MLS companies, these all represent the newer “alternative” business models who represent the Balance of Power for the Consumer.  They represent the Checks and Balances needed, to offer TRUE competition in the market place, from the consumer’s standpoint.  As an industry, we should not be playing “my gorilla can beat your gorilla”.  We should not be hoping the consumer gorilla’s fail, nor should we be doing anything to assist in their failure.  We should actually be HELPING the consumer gorilla get bigger and bigger, by meeting them in the middle.  Clearly there is room for at least 20% of the marketplace to be pulling toward the consumer’s side of this equation, isn’t there?

Why?  Why should “Traditional Brokers” HELP the Alternative Business Models to succeed?  Because WE NEED them, now more than ever, all of us.  The consumer needs them.  The industry needs them.  We need a whole lot more flavors of Kool-Aid out there.  Those of us who support alternative business models, are not “Realtor-Enemies”, as some call us.  We simply are acknowledging, what the DOJ is acknowledging.  We can NO LONGER PRETEND that “price-fixing” and “boycotting” doesn’t exist in this industry, by refusing to discuss the topic and sticking our heads in the proverbial sand.

I don’t know the total answer.  But I think that maybe every MEGA Broker should have a “Nordstrom’s and Nordstrom’s Rack” equivalent.  To some extent they do, by having the Premier Homes sub-section of the company, for Elite Homes.  Maybe it’s time to take that a step further, with the “Elite Homes” being the full commission, full service division of the company, and each should also have a “Discount Division” that offers break out plans and fees.  Maybe the Elite Division only has agents with at least three years of experience, and the Discount Division has the newbies…I like that.  More transparency there…isn’t there?

Brand new agent equals 1/2 the cost…something like that.  The same way some choose to go to a Dental School at a discount, or Hairdresser School at a discount.  Traditional companies can separate the newbies into a discounted service for the consumer who doesn’t want or need so much experience and cost.  Or better yet…let’s not use number of YEARS in the business, but number of closed transactions.  First ever transaction for agent equals lowest price.  Elite division equals 100 transactions or more at top dollar.  I like that better.

Someone with 10 years could have 15 sales…someone with two years could have 80 sales…so number of sales is my vote. Give the consumer a discount for using a newer agent, the same way you get a discount for using the hairdresser who has only touched a few heads with a scissor.

Instead of fighting the alternative models, every Traditional Company could EMULATE some of the great things about these companies, so that we all meet somewhere in the middle.

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About ARDELL

ARDELL is a Managing Broker with Better Properties METRO King County. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and has 33+ years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. email: ardelld@gmail.com cell: 206-910-1000

78 thoughts on “Zillow, Redfin and "Us"

  1. great post Ardell! You have a great marketing mind. There is definitely a need that is not being met in the current marketplace & the major players seem to be camping out at the extremes. I think we’ll slowly get there, but the agents/brokerages that get there first (you it seems like) will continue to gain customer share and exceed in this “competitive” environment

  2. Thanks Darren. It’s my first ever Carnival Submission post…I want to send a Trifecta of posts…as is my style. Am I allowed to send three to the Carnival? Anyone know?

  3. Ardell

    While your consumer altruism is well-placed, it does not reflect business reality. If I was a Director or influential Shareholder of a traditional brokerage and my CEO came to the table with your idea, I would want to fire them. To Larry’s point, advancing the interest of alternative business models will cripple existing brokerage companies.

    Nordstrom was not in any way altruistic when it developed the Rack concept. It was trying to reach a segment of the market that it could not with its flagship stores. While there might be some leakage of existing full retail customers to the Rack, their strategy was to pick up many more customers who were not currently shopping at the traditional stores. Make no mistake, though, they were CREATING competition between the segments. At the same time, they were also creating more opportunities for employees to work in this new concept. In the end, the desire (being a public company) was to increase earnings per share which would drive the stock price up. That is the general high level objective of all public companies and most well run larger private companies. The same principle is applied in many other industries (e.g. United and Ted, Marriott and Courtyard just to name a couple).

    In a traditional brokerage, you would not drive earnings by segmenting. First, margins per transaction based on brokerage fees are razor thin and cannot take a substantial decrease without a major cost restructure. A significant part of the cost structure in traditional brokerage companies is fixed (e.g. rent and admin expenses). Second, and most importantly, the agents would leave.

    Imagine if one of the well-known Megas in our area decided to open up a discount brokerage, fund it well and tried to capture market share. I think you would see a mass exodus of agents (especially top producers) who did not want to have their business tainted by the “new” brand and who did not want the internal competition that it would naturally create. Then again, this is just conjecture. Maybe some of the traditional big firm agents might chime in and let us know what they would do if their broker created a “discount” business model.

    -Russ

  4. I really appreciate this exchange between Ardell and Russ. Aside from cost structure and occasionally anti-consumer MLS rules, which Ardell and Russ address, the main problems with the traditional industry seem to be first that compensation is unrelated to the performance of the agent (which is not always the same as his or her experience level) and second that some consumers no longer trust that agents have their best interests at heart.

    We underestimate the impact that a lack of consumer confidence has had on the real estate industry. I bet a traditional brokerage could earn an average commission of 5% of 6% quite easily if it publicized an ethics code and performance-driven rates.

    And no, I am not saying that most traditional agents are slimy under-performers; only suggesting that most customers are more ethics-sensitive and performance-sensitive than they are price-sensitive.

    It’s one reason Redfin doesn’t like being called a discount broker. We like to think we stand for something different entirely. And yes, we know, we’re not the only ones…

    Regards,
    Glenn

  5. Hey Lar,

    State the obvious for me…I’ve got lots of balls in the air…give me the “whole story” in condensed version. The light bulb’s not going on.

  6. Russ,

    That’s all very “Who Moved My Cheese” though isn’t it? As in “What would I do if I were NOT afraid” (that everyone would leave). As to the Broker’s margin…not buying it. Most agents worth having are on a CAP, so the broker doesn’t make more or less no matter what the agent negotiates with the clients. That tune’s been played one too many times.

  7. Ardell,

    Same fixed costs, less revenue based on “discounted” or a la carte services. In that situation, the only way you increase earnings is with volume. Agents leave, less volume. You may not buy it but the beautiful thing about math is there is always one answer.

    To Glenn’s point, the reason he is able to do what he does is because he does not have the shackles of a profitable business (although I am sure he is hoping he one day has those shackles). Counter intuitive but true.

    Still waiting for a courageous ‘producing’ agent to pipe up what they would do if their Mega broker did what you suggest.

    Russ

  8. Russ,

    Your “math” is off. If the broker’s cap is $30,000, he makes that same $30,000 per agent, whether the agent charges $80,000 in gross commissions this year or $150,000 in gross commissions this year. So why is the Company fixing the price that an agent is permitted to charge? If some negotiate high and some low…what’s it to the Broker? He makes the same $30,000 per agent regardless of whether or not they “discount”. So some go to the discount side (different company name) and some stay in the “Elite” group.

    I worked for Coldwell Banker for many years. Every agent charged whatever, as long as the broker got his “piece” he didn’t care, nor did we care what the guy next to us was negotiating with his seller.

    You know as well as I do that every agent has “discounted” at one time or another…it’s TALKING about it that’s against the unwritten rule…not DOING it.

  9. Excellent posting Ardell, and a great attempt at creating a ‘fair’ balance that might sit well with the traditional brokers. Like Redfin, our company is a next generation real estate firm.

    I think the key issue in my personal opinion is the overall structure of the current (mainstream) real estate industy. The entire industry is entirely agent centric, and it is the individual independent contractor agent that really owns the business and the customer connections. Let’s face it, the traditional broker is nothing but a landlord for the agent to hang his/her license.

    The paradigm shift that is taking place in our industry is one away from an agent centric industry, towards a consumer centric industry – finally. The only logical conclusion is that the current agent centric business model cannot and will not survive.

    Today, what consumers receive in terms of value (and I frankly don’t care how ‘experienced’ an agent is) is simply in no relation to what the consumer is being charged.

    While the agents defend their pricing structure because they realistically only do 6-8 deals on average, and after expenses do not really make that much, this still is not a valid defense from the consumers perspective.

    Imagine going to a restaurant and every waiter only has one table that is seated only once every few days, and uses that as an excuse for charging a 90% tip. It just makes no sense.

    The new business models that will prevail in 5 years will be consumer centric ones where the agent serves a function but not ownes the customer connection. There is no reason why an agent cannot do 4-5 deals a week (or more) within the right structure where the agent has nothing to do with marketing, contract – closing, post sales customer service, etc.

    The consumer has never been looked after by the state regulators that should be. Currently the industry oversight is akin to the fox guarding the hen house. The DOJ is truly the only gorilla looking after the consumer baby. The NAR is of course looking after its members.

    The best thing that can happen for the consumer is that more alternative “real estate 2.0) business models find their way into the market place, and consumers will in the end vote with their dollars as to which model makes more sense.

    Keep up the great work!!!

  10. Thomas,

    Loved your comment, but come here with me please. Let’s go to your waiter analogy. It’s not about percentage in the end…if you would be kind enough to follow along with me.

    “Imagine going to a restaurant and every waiter only has one table that is seated only once every few days, and uses that as an excuse for charging a 90% tip. It just makes no sense. ”

    To me it’s more like a waitress has a guy at the counter getting a cup of coffee and a piece of pie with a .50 tip that takes minimal “waitress focus and time”. Then there’s the “party of 16” at the other end of the room having dinner and drinks for four hours, that takes constant attention and focus and a $100 tip. She can’t do as many “parties of 16” as she can turn the coffee and pie people. But it takes TWO HUNDRED coffe and pie people, to make the same as the party of 16.

    So the guy with 8-9 sales, may have ones that each take 4-8 weeks of work and a higher level of focus and time, at a higher commission. We make the “big bucks” as they say, because often we need to be spending a whole lot more time and focus (focus being more key than time) than agents are, and than consumer’s realize we do.

    As I explained to Redfin’s Marie the other day, you only take out your calculator and start figuring out the “cost per hour” when you are unhappy with “the service”.

    For everyone to go for volume and short shrift, time effective, cost effective service, would leave out the essence of the business. Those that take extreme amounts of care and focus. There has to be many answers when we are done…a “cafeteria plan” of services and costs for those services.

    Neither works…more options not less…no right or wrong…no replace this with that…just more and more options.

  11. Great topic. I see the changes all around me. Interesting to watch it all unfold. I’ve been a traditional agent for 22 years now and do a lot of training. Some of the agents I train are just plain scary! How they got their license is beyond me.

  12. I always tell people that traditional real estate agents that are providing value have no reason to fear discount brokerage models. However, those full service agents that do little more than develop a CMA, run some open houses (to get buyer leads), throw the listing up on the MLS and pray for offers should be thinking hard about how they can do a better job for their clients.

  13. Question for you, Scott.

    First, I hear ya…sad part is many were trained that THAT is why they DO an Open House.

    Now the question. since you played the recording of traditional and discount…I have to ask.

    If you have two $400,000 listings. One sells in two hours and the other takes 6 weeks. If you charge more for the second one than the first one, is that what you call “discounting”. Isn’t that just fair? Shouldn’t the commission be different for one over the other?

  14. I think Russ has got it wrong. There are many examples in business where companies hesitated to canibalize existing sales channels in order to pursue new, innovative sales channels. And in most cases, companies waited until it was clear that a critical mass of consumer demand or behavior would guarantee the success of new channels.

    The only reason I don’t see why the major brokerages wouldn’t pursue such a strategy is due to their franchised organization. Individual franchise owners are fragmented; they’re free agents and wouldn’t readily toe the company line should corporate decide to create a distinct, free-standing discount brand. Heck, fast food franchise owners often make their dissatisfaction known when they don’t like a cutting edge advertising campaign (e.g. Burger King). They sure as hell wouldn’t sit back while discount houses opened up in their backyard.

    That said, if the Redfins and Zillows and whomever else grab a respectable percentage of transactions, there’s no way the big guys will ignore this, notwithstanding Russ’ view to the contrary.

    Right now, they simply aren’t feeling enough heat. I think that this means one of couple of things. Either they are in denial, or their number crunchers and forecasts don’t show that discounters are yet a strategic risk. Just because bloggers and bubble believers alike sing the praises of the new crop of innovators, doesn’t mean that consumers are moving en masse. Until they do, the big boys will be loathe to shift. But, shift they will once their market share is in jeopardy.

    To sum up, and in my opinion, these big brokerage companies aren’t managed by idiots. Especially if they are public companies, and have to answer to shareholders on a quarterly basis, they will make whatever moves necessary to ensure that they continue to grow their market share.

  15. ***If you have two $400,000 listings. One sells in two hours and the other takes 6 weeks.***

    I would charge more for the FIRST one. Obviously the agent who sells in two hours is doing a much better job than the one who sells in six weeks.

    Also, what’s all this BS about “…all he did was put it on MLS”? Are you people forgetting that the whole point of the MLS was so that listings could sell much quicker and more efficiently. Why are we punishing agents who can sell easily, calling them lazy/do-nothing, while the incompetent agent who does a lot of useless legwork and takes longer to sell the house is considered hard working?

    There really is no need these days for any advertising besides MLS, craigslist and maybe a few assorted things like zillow/open houses. I’ve seen listings sell in 1 day for over listing price without so much as a sign in the yard.

    With the MLS, buyers have so much more to choose from and can figure out proper pricing very accurately. It takes great skill to present the property and price it right so that there will be a swarm of buyer’s agents and an offer as quickly as possible. Why is everyone vilifying Realtors who accomplish this? If all my listings sell in 1 day, I should be making more money, not less. Our performance isn’t measured in hours spent at the open house.

    Also, I really don’t see how to separate the services that I provide. Should I withhold proper pricing advice if I’m not paid for it specifically, and only write up the contract? Should I not answer phone calls about the property if it’s not specifically part of the bundle of services the seller paid for? The way I see it, it’s either everything or nothing for me. I would not sleep well at night if I knew I was not giving advice I should be giving because someone chose to pay me less.

    What the state commission should be doing is keeping track of each Realtor’s actual output…have it on public site where everyone can see, and reporting should be mandatory. That way people won’t be impressed by some fancily dressed lady in a Mercedes who brags about being a Realtor but only does 1 deal a year. The public simply has no idea how many fakes there are in real estate and that’s something we need to fix. That’ll change their perception of us.

  16. Jack,

    I have to agree to some extent. I wanted to know how Scott would answer the question asked in that “brief” manner. So I’ll ask you the same question differently.

    Is there NEVER a time when 6% is TOO MUCH in your mind? Make your own scenario that suggests a time when it is. If your answer is NO!! Then I’m not “with you” on that.

    The answer can’t ALWAYS be 6% regardless of price, effort, time, whatever…the answer simply cannot always equal 6%. That has absolutely nothing to do with “lazy agents” or whatever else you are talking about. Every sale is not the same, every client is not the same and every commission can’t be the same. It’s as simple as that.

    “Never say never or always.”

  17. ***Imagine going to a restaurant and every waiter only has one table that is seated only once every few days, and uses that as an excuse for charging a 90% tip. It just makes no sense.***

    Yes it does, if EVERY restaurant was like that, and if that was the nature of their business. Imagine if people suddenly cut back on going out to the point where your scenario was true. Restaurants would have to charge more, or go out of business.

    You ever tried by specialty books? My friend was in medical school and spent $300-$400 per book sometimes. Yeah, people bitch and moan, but what’s a publisher to do if they only sell a very small number of them?

    Every business has built in costs: advertising, expenses, etc.. and they have the projected number of sales. They also have a target profit. Business charge what they feel they need to to make their goals.

    That’s why, again, I’m pointing out that people should be made aware of how little some agents do. That way they can decide if the cost they are paying is for someone’s inefficiency or because they are really good.

  18. So Jack…is the answer ALWAYS 6% for the BEST agent? Sounds like that’s your answer so far. I’m not saying it never is…don’t get me wrong…I’m just asking if in YOUR opinion, it ALWAYS is.

  19. Hi Eric,

    You said:

    “There are many examples in business where companies hesitated to canibalize existing sales channels in order to pursue new, innovative sales channels. And in most cases, companies waited until it was clear that a critical mass of consumer demand or behavior would guarantee the success of new channels.”

    I agree and actually gave examples of this in my reply.

    “The only reason I don’t see why the major brokerages wouldn’t pursue such a strategy is due to their franchised organization. Individual franchise owners are fragmented; they’re free agents and wouldn’t readily toe the company line should corporate decide to create a distinct, free-standing discount brand. Heck, fast food franchise owners often make their dissatisfaction known when they don’t like a cutting edge advertising campaign (e.g. Burger King). They sure as hell wouldn’t sit back while discount houses opened up in their backyard.”

    Franchising has nothing to do with this. Look at the hospitality industry. Most major chains franchise and they are one of the most segmented industries. Did not start out that way though. Full service Marriotts pre-dated Courtyards which pre-dated Residence Inns, etc. Also, there are plenty of Mega brokers that do not franchise or at least have a large number of company owned offices (e.g. Windermere and JLS).

    “That said, if the Redfins and Zillows and whomever else grab a respectable percentage of transactions, there’s no way the big guys will ignore this, notwithstanding Russ’ view to the contrary.”

    That was not the point of Ardell’s post nor my reply. She proclaimed that Megas should willingly change their business models to provide more consumer-oriented offerings. I did not say that Megas would never change, it just won’t be “willingly”. I agree with you that if that is the only way for a company to stay in business, change is better than banko. Survival is, however, NOT strategic.

    -Russ

  20. The part that I can’t get, Russ, is that I have been taught for 16 years that “real estate commissions are ‘negotiable'” by law. Yet when someone negotiates with their client, and makes it known that commissions are indeed negotiable, the industry wants to say We ARE WORTH IT!! Whatever IT may be, like some LOREAL Commercial and they all Heather Locklear 🙂

    It really is every listing agent’s duty to advise the seller what offering they need, to accomplish their objective…and that is NOT always 3% or better. There was a house with 20 offers this Sunday, so maybe…MAYBE they would only have had 10 offers if they didn’t offer 3%.

    It’s rare that a lower offering will be equally effective, but I’m just asking the industry to admit that sometimes, at least SOMETIMES, the 6% model doesn’t fit the issue at hand. For the sake of the consumer, the big mahoffs should not be holding on to one fee fits all.

    I for one was taught by Coldwell Banker (East Coast) many years ago, that the fee needs to be the “LEAST” the seller needs to offer, to achieve that seller’s objective. But that was then…and this is now. What happened?

  21. Wow this discussion moves fast. Getting back to Ardell’s question…I have had 18 years of sales experience in a myriad of industries and it is always the case in any type of sales that you will be overpaid for some jobs and under paid for others. Many times a “sale” will fall in your lap and other times you have to work ten times harder for a small sale. You cannot predict it and many consider it just part of the job. One can be said to be delivering more value when a home sells quicker (assuming the pricing is not just way low) and at the same time one could argue that a sale that takes too long that agent is not doing his job. It is all subjective and difficult to measure. If you look at a plumber who comes in and fixes a problem in a few minutes and charges you his minumum $60 you might say that he is ripping you off. However it took years of experience to know how to fix that problem in a few minutes and you may have spent 2 days on it. So at some point you are paying that person for the value that they provide and it is difficult to measure in terms of strictly hours spent on the job.

  22. Russ:

    We’re in agreement after all! My bad for not reading closely enough. Ardell would like to see a perfect world, one in which brokerages align their business models with what is ‘fair pricing’. However, as you point out, unless the market dictates that they take such a stance (they see consumers moving en masse to discounters). Additionally, Ardell asks that ‘the industry admit that sometimes…the 6% model doesn’t fit the issue at hand’. I think the industry does recognize this. That’s why Redfin, Zillow and the like are moving in strongly. The industry isn’t the big brokerages who want to keep the status quo. If that were the case, the industry would be a monopoly that would be swatted down like a fly. The appearance of the discounters is the industry recognizing the need for smaller commissions.

  23. Ardell

    “The part that I can’t get, Russ, is that I have been taught for 16 years that “real estate commissions are ‘negotiable’

  24. Eric,

    The word “discounter”, in and of itself, suggests there is a “fixed rate” which is “price fixing” and against anti-trust laws. So I ask ALL Brokerages to “negotiate” and stop using that word “discounter” PERIOD!

    One company can negotiate to 5% or 6% or 8% or 1%…it is still a negotiation with the client, regardless of the net result. “Traditional Broker” cannot and should not equal a gvien percentage vs. a “discounter”. And someone who charges a total of 3% is NOT a “discounter”.

    It’s the D word, the negative connotation is intentional by the T guys, and is equaivalent to the N word…so don’t use it.

  25. I agree Russ, now tell me how for 100 years the non fixed price, stayed at a basically fixed place across the board. So much so that if people don’t charge “IT”, they are called “discounters”?

  26. Scott,

    I have spent the better part of this year getting to that answer. It will be the subject of my blog entries beginning on my anniversary date of blogging on 1/1/07. I’ve been experimenting and gathering the data and will try to spearhead the transparency of all that. IF NOT this price, than what price and when. I’ve tried lots of different methods using real sales as the “guinea pigs” with some amazing results.

  27. Ardell,

    No, it’s not always 6%, and I do give rebates very often. I know you’ve been dying to hear me say that 🙂

    If I listed a million dollar home, I’d probably drop down to 2% or 1.5%, whatever made business sense (I’m not experienced with such listings so can’t say for sure). Or if someone wanted me to make an offer one this one particular condo they really love, I’d probably give back a good chunk of my 3%, since it wouldn’t take much work.

    All I was saying, it’s not always brute force work that makes a good agent. If I managed to sell a home in one week in a market where others take 3 months though, I think i would be worth more than 6% for pulling that kind of stunt.

    Btw, I had an idea. Realtors should go through an apprentice stage to weed out the idiots. Kind of like inspectors and appraisers do. That way new agents would get to do some basic work right away, make some money, learn in the process, and it would immediately weed out the 1-deal-a-year soccer moms who don’t know what they are doing.

  28. ***
    It is all subjective and difficult to measure. If you look at a plumber who comes in and fixes a problem in a few minutes and charges you his minumum $60 you might say that he is ripping you off. However it took years of experience to know how to fix that problem in a few minutes and you may have spent 2 days on it. So at some point you are paying that person for the value that they provide and it is difficult to measure in terms of strictly hours spent on the job.****

    Good point. The behind the scenes learning is worth money as well. Or all that prospecting work that takes so much time but nobody sees.

    The plumber charged $1 for tightening the bolt, but he charged $59 for knowing WHERE to tighten.

  29. Jack!!! YES!!! YES!!! and did I say, YESSSS!!!!! THANK YOU1

    Now take off your mask 🙂

    I totally agree with everything you said. Now stop calling it a “rebate” or a “discount” and call it what it is. A commission negotiation with YOUR CLENT!! and then we say BINGO!!!!

  30. Seattleeric: re – “The only reason I don’t see why the major brokerages wouldn’t pursue such a strategy is due to their franchised organization. Individual franchise owners are fragmented; they’re free agents and wouldn’t readily toe the company line should corporate decide to create a distinct, free-standing discount brand. Heck, fast food franchise owners often make their dissatisfaction known when they don’t like a cutting edge advertising campaign (e.g. Burger King). They sure as hell wouldn’t sit back while discount houses opened up in their backyard.”

    I disagree. I think the key issue to understand is that the traditional BROKERAGE firms are in the landlording business. Their customer is the agent (as Keller Williams puts it so eloquently in their recruiting ads: “It’s all about you!”) and they compete with each other in attracting and retaining agents, who in turn own the customer connection. The customer doesn’t really care which firm the agent hangs his/her license.

    So.. the traditional brokerage firms are truly in a bind. a) they cannot lower their commissions as a matter of policy, since every agent would jump ship (well not every, but most) and join another company where they can still charge their 5, 6 or 7%. b) they can hardly fire 90% of their independent contractor agents and shift their business focus to lead generation and transaction processing and support and tell their remaining 10% agents to now work on salary plus some bonus. It’s just not their business model.

    In my opinion it will be a bloody mess for the traditional firms as this paradigm shift takes place. Most people don’t understand how rapidly entire industries can be wiped out. But a word of caution: It only took 2 years for the CD to displace vinyl records and it didn’t take much longer for Vonage & Co. to literally put every residential long distance company out of business. We’re talking a multi billion dollar industry that has shifted.

    I completely agree with Ardell that in the final analysis the answer is to offer more option to the consumer and let the consumer make their choice. Surely what works for a $400K home is not necessarily appropriate for a $4MM home, and without a doubt, niches will develop. But let’s not kid ourselves, the writing is ‘on the wall’ so to speak. Everyone should read “tipping point”, now.

  31. Clayton Christensen’s books The Innovator’s Dilemma and The Innovator’s Solution have some insight into what we’re discussing here. Companies like Nordstrom’s are often loathe to “cannibalize” their existing sales by offering customers more choice, especially if that choice is at a lower price. That’s why innovation in a lot of industries starts at the lower end and, if successful, moves upmarket.

    Charles Schwab is the prototypical example: the company saw a huge unexploited niche in offering stock trades for $29.95 instead of, say, the $100 charged by the Morgan Stanleys of the world. Morgan Stanley’s execs weren’t dumb by any means; they obviously saw that there were a lot of people who wanted $29.95 trades, but were afraid that a lot of their $100 customers would defect.

    After Charles Schwab developed a profitable business at the $29.95 level — and had developed millions of client relationships — some of their clients wanted more than the minimal service Schwab could offer at that price. What did Schwab do? They moved up-market as their $29.95 clients got wealthier and wanted more traditional, personal Morgan Stanley-ish service. Now Schwab has a range of offerings from their lowest level of service (which is now at $9.95 per trade or thereabouts) ranging to fuller service high-touch brokerage.

    The point is that offering a differently-priced product is much easier if you’re starting at the lower end and moving upwards than vice versa. If Glenn Kelman were to divulge Redfin’s 20-year business plan, I suspect it would include eventually offering traditional high-touch spend-Sunday-afternoon-in-a-car-with-your-clients real estate brokerage services…at the traditional fee. The ideal client for this service? Simple — that would be satisfied previous Redfin clients who are now at a different stage in life and income and just don’t want the hassle of finding their own home.

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  34. What none of these threads discusses is the fact that not only is there a negotiation of the fee but there is also a negotiation of the sale price for a home. Every agent that is doing good business volume knows that there is no “set” price for a house. There is typically a range – I usually start the conversation with my clients along the lines of considering selling to be like a time versus money discussion. Do you have a specific timeline that you need to sell in? That will frequently dictate which side of the spectrum the pricing will land. Another client may want to maximize dollars and they’ve got a month or more to spend getting it so they go for the high end even though it automatically drops out a lot of buyers from the pool of available folks out there who would buy it within the range projected.

    Typically you can expect the client that is going to wait it out to be a bigger cost drain on the agent because more advertising must be done – and advertising isn’t cheap. Even if you use primarily online advertising there is still the hourly rates of assistants and/or website staff that must be paid to continue posting in all the places you’d expect a house to be shown besides just the MLS. Also, there might be extra services an agent provides which takes their time and/or money. When we put together our business plan for my team there is always a discussion of the expected profitability that we intend to achieve and we certainly target that by what a full listing fee is to our clients because we don’t do dual agency – so already off the bat we base our business on only a portion of any sale commission. There are also the occasional referral fees that can range from 10-35% depending on the source. Occasionally there is pressure to pay for things for the client if we get into a sticky situation in closing and we usually look at these situations as business decisions that if they still allow us to hit our profitability targets they’re worth considering or negotiating with our client or others involved in the transaction.

    The difficult thing for me in reading all of these threads is that all the folks involved in the discussion act as though these fees are static and there is very little that impacts them besides the possible split with a broker. Running a solid real estate business (as an agent) is much more than that – although unfortunately more of my colleagues don’t see it that way – particularly the part timers and the ones that got the license “just in case” someone they knew needed to buy or sell a home. And don’t get me started on the novices that say they can help with investment property than can barely do math. The level of professionalism in our industry needs to be brought up to a higher standard.

  35. Reba,

    Glad to have you on board leaving comments! Believe it or not, I used you in a presentation the other day as an example of an agent who was using very effectively using some of the web2.0 sites for cost-effective brand-building and marketing. If I was going to start marketing an agent today, I’d probably latch onto one of the existing platforms like flickr, MySpace, or Judy’s Book just as you have done!

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