Business Marketing
My Epiphany is That Flat Rate is the Only Way to Fly
An Epiphany
It hit me like a thunderbolt today while I was at lunch. An epiphany about the silliness of paying a professed professional a percentage of the sales price when there were other far more logical alternatives – flat rates, for instance. Or even better, since the professional represents the seller on my purchase and they are being paid by that seller, the possibility of asking the professional for a rebate of what they earn to help offset the costs that I incurred.
Why hadn’t I thought of this before? Usually I simply added the tip to my restaurant bill without giving it a second thought. But does this methodology make sense? Should my server really earn more simply because I ordered the $19 steak and not the $9 hamburger? Was there that much extra service really involved? Is the bottle of steak sauce that much heavier than a bottle of ketchup?
What have I been thinking all of this time?
Give Me a Menu of Services
What should have happened is I ought to have been provided a detailed guide to the service this particular server was going to provide me. Then I ought to have had the opportunity to pick and choose what service I really wanted so that I was paying only for what I truly wanted and needed. Refills of my iced tea? At that price?
(Quick aside … I will not mention a particular percentage because even the hint that there’s a standard 20% tip rate might cause the Department of Justice to look carefully at the restaurant industry.)
(Second quick aside … if all of the restaurants in my area charge an automatic 18% gratuity on parties of 8 or more, doesn’t than in itself constitute price fixing and an anti-trust violation?)
Nay, I say. I will not pay you to pour my iced tea, Mr. Server. Simply point me toward the pitchers of iced tea and I’ll take care of that myself.
Bring on the National MLS
And now that I think of it, why am I relying on you to hand me a menu of what you have available? There ought to be a public, online depository of all of the meals available in all of the restaurants in the land so that I can decide for myself whether I want the steak tartar or the gnocchi.
It will be a national MLS – Menu Listing Service – and all restaurants will be required to participate even if they’re not offering their food for sale to those across the country. Logic isn’t important. It’s the principal involved! I’m not a neophyte when it comes to food! Have you not seen the picture of me blogging?
Just a Middle Man
Let’s just face the facts. The server only is a middle man. She doesn’t make the food. All she does is write down what the buyer wants and relay it back to the kitchen where the supply exists. Then she delivers the finished product back to the buyer. Where’s the value to justify that tip? What have they done that I couldn’t have done myself?
Sure, a good server may recommend a certain menu item. Just as in several restaurants around Glendale, my order is known before I say a word because the servers in these establishments have taken the time to listen to my needs, to my wants, to pierce through my debate between a Caesar salad and a quesadilla and realize what I really am looking for is a nice juicy breast of chicken.
Paying for Service
And now that I think about it, I have no qualms about paying the people in those restaurants the full rate that they are asking (percentage based or not) because they have saved me time by knowing what I want without me having to explain it over and over again. They have made it clear that I am special, and isn’t that the point of service in the first place?
In those instances it doesn’t much matter to me that I’m paying a little more at the end of my meal than I would have had I not ordered the full plate of garlic toast to go with my wings and pizza. That what I’m paying comes as a percentage as a flat rate doesn’t really matter. I receive the service I expected and I paid accordingly.
It’s just a good thing I didn’t enter the restaurant as a party of six. Things could have gotten ugly had I told the manager what he could do with his “mandatory” 18% commission and instead told him I’ll pay $4 tip per person, no more, regardless of what we order.
Hell, he might even make it apparent to me that I get what I pay for. Better watch the cooks closely.
AG Editor’s note: this article was originally published on September 2, 2008.
In comments, please feel free to discuss but please avoid mentioning specific rates you charge so as not to violate any anti-trust laws.
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Austin Aaron
September 2, 2008 at 6:51 pm
I whole-heartedly agree, Jonathan. I charge a flat rate for my realty services. I charge a flat-fee of $X on a $100k home, a flat-fee of $(X times 2) on a $200k home, a flat-fee of $(X times 3) on a $300k home, and so on. No hidden charges, either! It’s always exactly the flat-fee I quoted. My clients really seem to appreciate my flat-fee system! 😛
Bob Schenkenberger
September 2, 2008 at 6:59 pm
Fabulous analogy! I particularly like the anti-trust reference!
John Sembrot
September 2, 2008 at 7:13 pm
I had not made the connection before myself regarding restaurant tipping and Realtor compensation. This being my first comment I would like to say. My commenting had nothing to do with the harangue received on your RSS feed to do so. Your creative posts such as this one, the top 10 lists (labor intensive), and the ubiquity nod ( you have to be a geek), were more a motivation to take the time to communicate. Second business would be the gender specific reference to a server as a female. I spent many years as a food service professional and feel quite strongly that this particular occupational field is equally serviced by both genders.
The real problem here is that as a Realtor there is little control on the delivery of service. Just by signing up a listing you are obligating yourself to the best possible representation of your seller/buyer client. So you either take the business and do your best job or walk away from it. The restaurant paradigm is much more fluid. You walk into the restaurant with a wrinkled shirt and holes in your keds and if your not in a Fairfield County country club the maitre de finds you a nice table in the back near the kitchen. The server comes to the table and you order an appetizer as an entree, with two plates for your companion to split with, and you may never see the server again. The junior waiter will take over from there. Talking from experience the server will spend the time at the table ordering bottles of wine and champagne by the front window.
Which circles back to the real estate service model and compensation. Going in there and telling everyone what you are going to do, and then having the negotiation of the service fee is crazy. Its like giving the diner a filet mignon when they order a hamburg and then charge him for it. I have heard of agents who turn it around and interview the seller. “Mr Seller, I have a high standard of marketing and feedback and a successful business that requires a certain technical understanding. In so much that many of my clients need to understand what I am doing for them, and assist me in delivering an exceptional product to as many people as necessary. Mr Seller are you able to receive and respond to text messages so I can deliver timely updates, and send feedback responses most efficiently? How many times a day will you be checking the email you have given me to contact you by? Are you able to download attachments over 1 MB in size? Are you familiar with the different sources of buyers on the internet through social networking and syndication?”
Kind of like a snooty Maitre de. Feel threatened by the questions? Go to the McDonalds. Stay and play and your less likely to share an appetizer for dinner.
There are folks/agents that I have heard of using this interviewing process, I am sure they have polished it better than above. Anyone seen a more elaborate script for this type of presentation?
John Sembrot
September 2, 2008 at 7:16 pm
@austin aaron Are those ranges? 3K for 0 to 150k,and 6K for 150 to 250 and soon? What are the break points?
Jonathan Dalton
September 2, 2008 at 7:17 pm
Hi, John … just a quick note that I covered both genders. There’s a reference to “she” and then there’s also “Mr. Server.” I at least want to be filleted for the right issues. 🙂
ines
September 2, 2008 at 7:38 pm
Jonathan – but here’s the thing, just like I don’t like to go to buffet bars and serve myself…….the consumer also has a choice. It’s always about choice. When I want to go fancy and spend $300 for a meal for 2, I make that conscious choice and the same happens when I go through a BK drive-through and eat in my car.
What I don’t like is people criticizing me for spending the $300 bucks when it is my choice. Or for those to want to eat at a fast food joint and expect the same service as when they eat at the $300 joint. 😉
Cheryl Johnson
September 2, 2008 at 7:42 pm
Jonathan,
This is brilliant! This is freakin’ inspired! Next time I’m in a nice restaurant, I’m marching straight on over to the kitchen to tell the cook what I what. If the manager gives me a bad time, I’ll remind him or her that I am saving the restaurant the expense of a server, and therefore, they can charge me less for the food… 🙂
Rudy from Trulia.com
September 2, 2008 at 7:52 pm
Thanks JD!
Now I’m getting hungry….
If you have the iPhone, download the “Check please” app – it’s free. Great for figuring out how much to tip – choose the amount of people splitting the bill, pick the tip percentage and it will show how much each person owes for the bill and for the tip.
See my screen – https://twitpic.com/a1pp
Rudy
Social Media Guru at Trulia
Matthew Rathbun
September 2, 2008 at 8:00 pm
Jonathan,
I’ve pondered this before in regards to the level of service being a flat fee and not based on sales price. It’s especially difficult when you are trying to convince agents to always marketing their listings to the same high quality and then try to answer the question as to why the fee for service is the same percentage on a $150,000 listing and a 3 million listing.
It’s a hard call and I think the future will favor flat fee services. However, Help-U-Sell, Foxtons and others aren’t doing so well in this market.
Jonathan Dalton
September 2, 2008 at 8:15 pm
Rudy – I’m on a cheap Samsung. No downloads there, unfortunately.
To Ines’ point, this has nothing to do with the viability of one fee structure over another. What I would really like to see is for people to mind their own damn business and not worry so much about my 1099. If you’re not inclined to pay what I believe I earn, that’s fine. No hard feelings. There are other agents you can use whose service and fees may better meet your expectations. I’m cool with that.
But don’t keep firing shots at me for conducting business at a certain level and asking for a certain level of compensation in return. There are clients who are aligned with my model just as there are for yours.
Matthew – Maybe that percentage is the same. Maybe it’s not. That’s up to each agent and their client to decide among themselves. It’s not a public debate and not a Meet the Press topic. It’s a business agent between seller and agent. The idea that the commission is the same is a fanciful assumption that may or may not have any basis in fact.
But I will say it does cost more to market a more expensive home than a less expensive one, not because the viable marketing techniques change but because the expectations change. 4-color fancy brochures are expected when you get close to seven figures (if not over.) Do they help sell the house? Probably not. But that’s what is expected on such a listing.
These are costs that are fixed against compensation that is not. Too bad, some will say. Okay. If that’s your view, that’s cool. But I also think you’ll have a hell of a time finding a seller willing to foot the bill up front and be paid back if/when the home sells. That’s one component of the business I think has scarcely been addressed.
Daniel Rothamel, The Real Estate Zebra
September 2, 2008 at 9:10 pm
It seems to me that the reason that the percentage compensation model remains king is because their is no guarantee of compensation. This is a principal reason why many flat-fee companies are struggling right now. One thing that the percentage compensation model does is spread the broker’s risk out over many clients. So, when the broker works with 4 clients and gets NOTHING, that cost is recouped through the 6 clients that did yield compensation. Most of the time, everything comes out in the wash.
When you run a flat-fee compensation model, your production has to go up tremendously to cover those times when you are going to get no compensation at all for your work.
Example: Two brokers have 3 clients (listings, for argument’s sake). One at $400K, one at $300K, one at $200K.
Broker A uses a 2% commission. Broker B lists each house for a flat fee of $3000.
Well, if both of them have the same success rate, let’s say the $400k transaction doesn’t work out for either of them, Broker A will receive $10K, whereas broker B will receive only $6K. If both brokers have similar costs, that means that that the flat-fee broker has to be much more efficient and successful, or they have to do a lot more transactions.
In a business where compensation isn’t guaranteed, it’s a pretty good idea to spread the risk out as much as possible. The percentage compensation model does this.
Now, if people were willing (or able) to pay the professional fees regardless of whether or not the transaction were successful, THAT would change the game.
Will
September 2, 2008 at 10:10 pm
To take the whole analogy a little further I’d like you to consider what it is the waiter and the restaurant are. The Restaurant appears to be the brokerage. The Waiter is the agent. Now there are good waiters and bad waiters. The best ones recognize the client’s value, listens to their needs, and ensures that their needs are met and then some, exceeding expectations and leaving the clients raving (even if the meal was only okay). The worst ones eventually show up and take the order and do the bare minimum of service so they can just get back to whatever they were doing. Most waiters will range somewhere in between. The absolute best ones will get the biggest tips. They may even get requested by the client on the next visit to the restaurant. Eventually they will move up in the world of restaurants till they are serving heads of state and making mucho dineros. The very worst will garner enough complaints and eventually be fired. They may slink back to a fast food restaurant behind a counter pushing buttons and serving up orders. Likely they will face up to the fact that waiting tables is not for them and look for an entirely new industry.
And all of them are okay as there are needs for all of them. There are those who want and need a first class dining experience from the ambiance of the restaurant, the polished silverware, live soft music, exquisite cuisine, and specialized service. There are also those who just want the order taken quick and the food served not cold. Getting down to the true meat of it all, though, the customer really just needs to satisfy their hunger. The fact that all levels of service exist demonstrates that it’s not just about satisfying hunger but something else entirely. How do you tap in to that something else? Aha! That’s the trick! But the real question is if you even want to…
Now to look at whether a tip should be a flat rate, a commission on service, or a fee for service I think you have to consider what service it is that has been performed. An order made is an order made. The waiter will earn something (hourly, likely) whether you eat the food or not. You will pay for it whether you eat the food or not. The tip is an extra bonus. It appears as a commission and you argue well enough for the flat fee but just going on a % basis or a flat fee really neglects what service was actually performed. A $300 meal for two people is certainly easier to serve than a $300 meal for eight people. Shouldn’t the former get less of a tip than the latter given that the quality of service is equal?
What you take from all of this is up to you… what I do know is that all most customers want is the best meal, with the best service, at the lowest price and no heartburn or food poisoning (please wash your hands). 😀
Dave Blockhus
September 2, 2008 at 10:13 pm
What happens if the server provides additional services and/or has additional knowledge and experience that the “average” or “new” server doesn’t have? Shouldn’t he/she be compensated better?
For example, shouldn’t the restaurant charge more for providing ancillary services like retaining a sommelier? A sommelier can make the dining experience much more pleasurable by matching the client’s menu options to a bottle of fine wine. Most restaurants include the cost of a sommelier in their service and only charge extra if the customer brings their own wine (I guess that would be a restaurant wine-FSBO). In this case, the client is actually being charged more for less service.
Whether you market entry level homes or higher end properties, your fee should reflect the level of knowledge, the sophistication of your marketing efforts, and lastly, the results of your efforts.
Charge more for good service, whether it’s a flat fee or percentage. But you better be able to justify your fee or you might end up working at Mickey D’s. Would you like want fries with that order!
Russell Shaw
September 2, 2008 at 10:38 pm
Brilliant. And laugh out loud funny.
Jonathan Dalton
September 2, 2008 at 10:46 pm
Will and Dave, I love where you took this. And it loops back to the basic idea that many people will pay for service.
Daniel … ahhhhh, the up-front concept! Now here’s where the fun begins. Would a seller (or a buyer for that matter) be willing to pay up front for the services agreed upon? I already can hear the biggest objection: if the agent is paid up front, does he or she have anything invested in the process? Does it really matter to them if the house ever sells?
Now let’s say there’s only a partial payment, or a payment of part of the commission with the rest to come if and when the house sells. (In other words, require a retained.) I’ve done this on short sales because with the added variables I can’t justify the business decision to come completely out of pocket on a long shot.
But take it to regular listings … as an agent would I consider asking for less overall if I were to receive a portion of the payment up front and non-refundable? I know my answer. But the DOJ probably wouldn’t want me to share that.
Would buyers and sellers go for it? Not an answer I intend to discover. But I bet there’s someone out there willing to try (if it’s not already being done.) And if it works for them, more power to them.
Jonathan Dalton
September 2, 2008 at 10:46 pm
And if Russell laughs, it must have been good. 🙂
Bill Lublin
September 3, 2008 at 2:13 am
Jonathan I was going to give a dissertation on the consumers paradigm , the traditional compensation model, and the issue with some alternative business models in varying markets. However after reading the darn thing I am too hungry to type 🙂
Wicked funny Dude!
Missy Caulk
September 3, 2008 at 5:01 am
One year after attending NAR, I put together a list and a price by all my services. Only had it come up once, to an executive at Domino’s, head quartered in A2. They asked if they could help in the selling of their home and pay less commission.
I said, “absolutely” and pulled out my list. “Which one’s do you want to do and which one’s do you want me to do?”
They said they would look it over and let me know.The next morning the phone rang and they wanted the % I charge. I asked the wife why, they changed their mind.
1) They had no clue what was involved
2) They said it all added up to more than the % I was charging.
Jon, like others have said this is brilliant.
Bob
September 3, 2008 at 8:08 am
“Now, if people were willing (or able) to pay the professional fees regardless of whether or not the transaction were successful, THAT would change the game.”
I would still like to see it billed like a law firm.
Mack in Atlanta
September 3, 2008 at 8:14 am
@Missy That is a great example. The biggest problem that some REALTORS have is that they fail to communicate the services that they perform. Once a seller realizes all the tasks that we do to become successful in selling their home our fees don’t seem so high. I provide each seller with a written marketing plan with each item detailed.
Daniel Rothamel, The Real Estate Zebra
September 3, 2008 at 8:15 am
Bob,
I completely agree with you, but even law has a similar issue. There are many trial lawyers who take cases on a “contingency fee” basis. Meaning that they bill all of their hours and expenses (and an additional professional fee), but the payment comes out of a successful resolution to the case. No settlement or no win, and the lawyer gets nothing. If lawyers didn’t do this, there are a lot of people who wouldn’t be able to afford legal representation at all.
The same is true of real estate representation. The reason that most people are able to afford a real estate broker is because the fee is paid at the end of the successful transaction, out of the equity (hopefully) that has been built up in the home. Most people don’t have cash on hand to pay for a broker.
Now, that doesn’t necessarily preclude brokers from billing their hours and being paid after the transaction, but that disconnect between work and compensation will persist.
Kris Berg
September 3, 2008 at 8:20 am
And this post is a glowing reminder of why I remain an enormous fan of Tobey’s dad.
For Sale by Owner Center
September 3, 2008 at 11:06 am
This is interesting regarding the menu of services and the value of each of the services. Obiviously, we are a fsbo website but we developed a tool to help sellers really figure out if they are ready to try to sell their home themselves and take the necesary steps that are involved. This calculator ( https://www.forsalebyownercenter.com/tools/agentshourlyratecalculator.aspx ) breaks down the individual task by estimated hours and calculates the fee’s based on selected commission rate. This tool also translates well for agents to understand what your time is worth for doing each of the task and could translate to setting up a menu of services.
A. Longo
September 3, 2008 at 3:07 pm
We have not figured out the sell side yet because there is differences in marketing homes to different demographics…
but…
For buy side – All day long. Flat rate will supersede as the new ‘traditional’ method of working with buyers.
For example why should a buyers agent be compensated 10X more to help a $3,000,000 buyer compared to a $300,000 buyer?
Just a thought…but a 9k commission vs. a 90k commission is quite a big difference AND just from my recent experience my $3M sale was a much simpler transaction than my $300k transaction.
Every market that we are in we work with buyers for different set flat fee’s. Here in Boston we operate our business at $5,000 per transaction.
A la carte….is also a good option. I think we will see much more of this from full service brokers who opt to work on both sides of the transaction.
Phillip Jones
September 3, 2008 at 3:12 pm
Jonathan,
We charge upfront and it works. We provide excellent service and give customers a great value so our referral business is very strong. We implemented a “menu of services” 3 years ago and the public just loves it. For buyers, we charge a professional services fee and then give it back doubled at closing so the customer is rewarded for their loyalty.
These concepts are going to take a long time to penetrate the culture, but as older “traditional” agents and consumers exit the industry it will catch on. Just my humble (biased) opinion!
Thanks for writing to post – keep up the great work!
Regards,
Phillip Jones, Broker/Owner
Your Choice Real Estate, Inc.
(*contact information removed-Ag)
Rich Rector
September 3, 2008 at 3:26 pm
Below is one of my blog posts from several years ago that addresses this issue. I also want to point out that the “server” in the restaurant analogy has no liability…where a real estate agent does. That liability is in direct proportion to the price of the property represented.
“Why do we charge a percentage of the sales price?”
Over the long weekend I was traveling. By amazing coincidence, I was seated in the airplane next to one of my executives (we call our real estate agents “executives”). He has been in the business a short period of time, and we had a great dialogue.
He posed the question to me: “Why do we charge a percentage of the sales price as our commission?” I really don’t know how this form of compensation began in the real estate industry, but it made me think.
I believe that real estate professionals should get compensated for the skills they bring to their customers and to the marketplace: skills like marketing expertise, negotiation skills, market and product knowledge, transactional expertise, to name a few.
Few people realize that real estate people pay for many items for their customers (advertising, inspections, meals, gasoline, etc) with the real possibility that they may never get paid for their time, effort and expertise. This risk is one reason for getting compensated on a percentage of the sales price.
Another reason is that the risk of litigation, the costs of malpractice insurance (called “errors and omissions” insurance), and the cost of any possible settlements if something goes wrong is in direct proportion to the sales price of the home. Therefore, getting compensated in proportion to the same basis makes sense.
Consider if a real estate professional gave a seller a choice: “You can pay me for results only, in the form of a percentage of the sales price. I take the risk that I may never get paid if I don’t perform, but I have an incentive to sell your home for you quicker and more efficiently, OR you can pay me by the hour for my time, reimburse me for all my expenses and you will pay me whether your home sells or not. I have an incentive to work less efficiently because I will be charging you by the hour, not for the ultimate result.”
Which do you think the client would prefer?
Rich Rector
President
Realty Executives International
RK Ruthman
September 3, 2008 at 3:36 pm
What you charge is your own business…bottom line is “do you deliver”?
60% of restaurants fail within the first five years. (Sound familiar?)
I believe if your services are equal or better than your price, word of mouth will make sure there is a line at your door.
Jonathan Dalton
September 3, 2008 at 3:40 pm
I have no issue with flat rate on the buyers’ side, Tony, but I want my payment up front in that case. Or at least a substantial portion. I’m willing to float the risk for the possibility of larger earnings but I also need to be compensated for my time, gas, wear and tear on the car, time spent previewing, etc.
And it’s not always a given that the work needed will be less (or more) on a higher priced listing than a lower one.
Belinda Agosto
September 3, 2008 at 5:42 pm
I agree with Johnathon but only to an extent. I offer my buyer client up to half of my commission (or more) when the buyer is willing to do most of the “legwork” him/herself. I’ve done my part of wasting a weekend on a client, showing him 20+ homes, wasting my gas, time away from my children, etc. So when the client is willing to do all the driving and researching and pinpoint the search to one or two areas and to about 10 houses, I will cheerfully share my commission. This is a win-win situation for The People Realty at CharlotteHomeConnect.com.
I still get paid like I used to and actually am starting to exceed what I’ve made financially last year because I get more and more referrals. I don’t have to advertise as much because of the referrals. Besides in this market, it’s nice if agents can “lend a hand” and help a client out financially. I give at least .75% of the sales price no matter what. I have a tiered-program in which the more the client does the more he/she earns up to 1.25% of the sales price!
I rarely take listings since I only represent buyers. However, I do offer a flat-fee limited listing service when FSBO wants his/her house listed on MLS.
Regards,
Belinda Agosto
The People Realtor…where People Really Matter!
CharlotteHomeConnect.com
Bob
September 3, 2008 at 6:20 pm
Yes, but they tend to only take cases that have very high odds of winning, or paydays big enough to take the risk.
In California, you can’t bill upfront. Services have to be rendered (ex: mls listing) to get paid.
Demetri Koutsokostas
September 3, 2008 at 6:39 pm
I respect your view on the matter of commissions. Personally, I would be more than happy to accept an upfront “retainer” for my services rather than hoping to get paid after working my butt off to make a transaction happen. Having been in the restaurant business for 15 years, I feel obligated to call you on a flaw in your analogy. Restaurant owners base their food prices on costs (including labor) as a percentage of the final price. I know of some restaurants who opted for a “no gratuity” policy and paying their servers a higher hourly wage. Unfortunately, guests were turned off by the higher prices, prices couldn’t go high enough to completely offset the increased labor, and customer satisfaction was lower. The restaurants either changed or closed. As I look at the constant financial issues faced by flat-fee providers like help-u-sell, I wonder if we can charge high enough fees to make this model feasible.
Vicki Moore
September 3, 2008 at 10:27 pm
One of your better posts, Jonathan. Great analogy and thoughtful too!
Michael Thomas
September 4, 2008 at 7:11 am
Just as the travel agent found themselves “out of a job,” many Realtors will be out of a job if they do Not realize that competition drives every market. Let’s be realistic, if you can continue what you do, make plenty of money then “Why Change?” As more and more consumers begin to understand how commissions are split and paid they will demand much more from those Realtors and maybe you will actually earn the commissions your charge.
Sellers and Buyers have different needs. Some need the full service Realtor who does everything including holding their hand from beginning to the closing table and sometimes after the closing table. Some need limited service and an a la carte menu may suffice. Some just need to pay to be on Realtor.com for their marketing needs. Of course, there are degrees of each of the above buyers and sellers.
Only by truly Listening to your Buyers and Sellers are you going to know what is Fair to all parties.
Commissions are going to change: be a Leader in this exciting New Time.
Jonathan Dalton
September 4, 2008 at 9:27 am
I was waiting for the travel agent analogy. Never gets old, that one.
Commissions likely will change. For instance, I’ve seen more agents earning a higher rate on their listings that in the past because the ability so sell a house is viewed as a premium. Imagine that … it’s more difficult to do so and sellers are willing to pay accordingly.
Demetri – I knew I was missing something there, though some will argue back (and I’m not one) that the cost of the commission already is factored into the sales price. Usually see this math being done by unrepresented sellers.
Teresa Boardman
September 4, 2008 at 10:04 am
Hi Jonathan. Nice post, I just stopped by to say that I do know you and am proud to know you. 🙂
Vicki Moore
September 4, 2008 at 12:24 pm
It’s interesting that people still have the belief/make the assumption that as a group we don’t already earn what we’re paid. The time, expense, knowledge, etc that I expend and maintain to remain a reliable professional is quite expensive. As a professional I believe that I provide a tremendous value – I’m worth every bit of that commission.
I’ve seen many, many times that the consumer thinks they understand the process and believes they need limited services. Were I to be paid under that circumstance, I would reserve the right to change the payment structure. It’s been my experience that they have no idea. Again, my experience has shown me this. It’s not a statement about all consumers.
Brad Nix
September 5, 2008 at 6:08 am
Rockin’ Post JD!
To complicate things even further in our local restaurants of Metro Atlanta, we have a landlord who gets a % of every sales receipt. (Our local MLS charges brokers a percentage of each transaction.) This makes it hard for our servers to work for fixed fees when their expenses elevate based on the total sales receipt.
Demetri Koutsokostas
September 5, 2008 at 7:06 am
That is ridiculous, Brad. I have a real problem with the way MLS systems operate in general. That arena needs to open up to some healthy competition. They run things with an iron fist and seem to be taking more out of our pockets every year and no additional services to show for it. Wow, that sounds like some real estate agents I know 🙂
Thomas Johnson
September 5, 2008 at 9:40 am
JD: Great post.
Demetri: I know at least one mega agent and probably all of NRT is just hoping for the collapse of the MLS system so that they can implement a “Buy direct from the listing broker and save!” program.
Nate Brazier
September 6, 2008 at 10:24 pm
Jonathan:
I must say this post was funny, but I don’t agree with the analogy. Plus look at where all the Flat-Fee companies are today, where are they? I don’t see much of them at all. And didn’t one just file for bankruptcy…hmmmm makes you think.
Even though I don’t agree with this post, I have read your other posts and like the viewpoints you offer, so thank you!
Steve Simon
September 7, 2008 at 6:53 am
The amount of the tip is really not as close a match as a discussion of the amount of the cost of the meal, meaning I believe the post would have been more on target as a talk about buying a “Dinner” or ordering A La Carte.
One of the comments talked about this very thing. Let me tell you what I have done for twenty years plus:
A two column Benjamin Franklin “T Square” close, on one side what I do (the agent) on the other side the seller responsilbility.
“create a price list for each individual service, flesh out everything that an agent must, and might do, and then attach a price to it (i.e. $59.99 per showing,including home staging, $129 for 3 showings including staging-our value package-), Then offer variations of the services alone and in packages; of course including the I do it all package.
Then sit down and fill out the “Order” asking what does the seller wish to do for themselves, and what would they like the broker to do for them?
In this fashion a full service broker can compete with any format and satisfy almost anypotential client.
Just my thoughts 🙂
Craig Davidenko
September 8, 2008 at 12:50 pm
Ok, lets all calm or should I say “com” down?! Denial, some people think that certain things last forever.however those people eventually learn the plain and simple truth.many many years ago the dinosaurs roamed the earth alongside real estate brokers and agents who held the “holy grail”..”the mls book” but then came along came the world wide web.dinosaurs extinct and brokers and agents wondering when people would notice that they in fact did not hold the “mls” anymore.
THE FUTURE OF REAL ESTATE IS HERE AND COMING TO A TOWN NEAR YOU!
WHY would a seller pay a commission to a real estate company when it was the seller who brought the buyer to the table…….and as long as Johnathan and Toby are talking about food….How about having your cake and eating it too!
Craig Davidenko
Jonathan Dalton
September 8, 2008 at 2:15 pm
I thought you’d have been here much sooner, Craig. And thank you for proving my point from my other post – the complete failure to accept that there might be more than one viable business model in real estate.
There’s far more involved with selling a property than having access to the MLS book, but I wouldn’t expect to see that in a comment coming from a company that only offers that access and nothing more.
My question is what will you do when someone offers than same access for $550? And if you go below them, what will you do when they undercut you? How quickly will you race to zero in offering what is little more than a basic commodity?
Craig Davidenko
September 8, 2008 at 3:32 pm
My company and others alike sell homes just as you do and sorry but yes, there is more than one model for real estate and I’m glad to see you are spending so much time trying to throw the flat rate model under the bus……although as you can see your not succeeding. If though you are however interested in becoming an affiliate my door is always open….. 🙂 ohh and no I won’t list for free…..how many listing to you have and how much $$$ do you spend on each per month???
Jonathan Dalton
September 8, 2008 at 3:56 pm
> I’m glad to see you are spending so much time trying to throw the flat rate model under the bus
No more time than you devote with the “dinosaur” speech, Craig, or link-spamming sites such as, well, mine.
Phillip Jones
September 8, 2008 at 4:11 pm
Listen people, it’s all about choices! Why pick sides?? What good does this do? Clearly there is a market need for Full Service activity and clearly there is a market for Flat Fee Services, and guess what, a lot of opportunity in between the two extremes.
To the Die Hard Full Service Agents – If you ignore the market shift you will be missing out on a ever growing segment of the market place (Gen X, Y & beyond). So why limit your opportunities to closings only?
to the Die Hard Flat Fee Agents – If you ignore the opportunity to provide more value and service to the public then you will be a commodity and have no more value to a seller than the newspaper. Additionally, you limit your revenue generating options.
It’s about choice, give the customers choices and let them select the services they want, you win either way.
Other industries that have adopted “choice” models:
Travel Agents – Expedia, Hotwire, Travelocity, etc.
Legal Services – Legalzoom.com vs. expensive attorney
Stock Brokerages – The best of both worlds, Full & Self Service still available
Music – Buy a full CD vs. one song at a time on iTunes. Grocery Stores – Originally full service, now self service
This is a good debate, but lets keep the emotions down and keep an open mind.
Regards,
Phillip E. Jones, Broker/Owner
Your Choice Real Estate, Inc.
(contact information removed-ag*)
Jonathan Dalton
September 8, 2008 at 4:20 pm
Hi, Phillip … thanks for jumping in and bringing some sanity to it. I’ve said over and over that I’d entertain taking a flat rate listing if the circumstances dictated such a move.
I’m not against the model. I’m against the argument that we … that I … must change to survive. That’s simply not true. Again, promote your value proposition (as you’ve done) so you become the consumer’s choice, not simply the less expensive lesser of two evils.
Craig Davidenko
September 8, 2008 at 5:01 pm
Johnathan, no need to get so testy……you post blogs to open dialogs…..I am not spamming…..and I am not a hateful person so please do not take anything to personal….
Jonathan Dalton
September 8, 2008 at 9:02 pm
Past experience, Craig … that’s all. We’ve danced to this song before. Yet you’re right … I shouldn’t have become so testy so quickly.
Craig Davidenko
September 9, 2008 at 11:35 am
All is well…. we all believe that the “real estate” industry has forever changed and that to do business in the future “one” will have to think “out of the box” to gain attention of the buyer……..Have a great healthy and prosperous day!
CRay
September 10, 2008 at 6:56 am
— Home sellers can haggle over commissions
— Consumer Reports study showed 71 percent who bargained got lower rates
NEW YORK – Don’t be shy about haggling over what you pay your real estate agent.
A study released Monday by Consumer Reports found 71 percent of sellers who negotiated for lower commissions with their brokers were successful. But only 46 percent of sellers surveyed tried.
Those who paid commissions of 3 percent were just as satisfied with their broker’s performance as those who paid 6 percent, the study found.
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The lesson? Haggling won’t hurt.
In fact, those who paid higher commissions were more likely to have regrets about the selling experience. Nearly one-third of them said they should have been more aggressive in negotiating a fee.
Sellers were most likely to get lower fees from independent and RE/MAX brokers, said Mark Kotkin, director of survey research at Consumer Reports.
“But they will all negotiate. Just ask for it,” he said. “It’s like buying a car. A lot of people think (the price) is set, but it’s not.”
Independent brokers may be more likely to negotiate fees since they keep their entire commission, while those who work for other brokers typically split commissions with the broker in exchange for marketing and office support.
About half the home sellers surveyed paid less than 6 percent in commission. The study is being published in Consumer Reports’ September issue. The issue also includes tips on which home improvements provide the biggest pay off.
Talk it out
Consumer Reports found few differences among the major real-estate companies in overall performance. There were slight differences in companies’ willingness to negotiate on commissions when asked, however.
Here’s a look at the percentage of sellers who got lower commissions from certain companies:
77 percent — RE/MAX Realty
76 percent — Independent agents
70 percent — Other companies
67 percent — Century 21 Real Estate
67 percent — Keller Williams Realty
67 percent — Prudential
64 percent — Coldwell Banker
Source: Consumer Reports
The study found no significant gap in services for those who paid lower commissions. For example, 81 percent who paid 3 percent or less said the agent gave a competitive market analysis of their home, compared with 87 percent of people who paid 6 percent or more.
Mike Wright, managing broker at Prudential Georgia Realty, said a seller has a much better chance of negotiating a lower commission when the house is in good condition and priced aggressively.
Such houses sell faster, meaning the agent has to spend less money on marketing the home.
“If I could sell a house in two weeks rather than six months, I’d be more willing to negotiate,” Wright said.
When looking for an agent, Consumer Reports suggests asking around for recommendations and interviewing multiple candidates.
Agents should clearly explain how they plan to market your home and handle open houses and newspaper and Internet advertising.
Among five major real-estate companies, RE/MAX agents agreed to lower commissions most often when asked, at 77 percent. That was compared to 64 percent for Coldwell Banker agents.
“Real estate commissions are determined between the sellers and their agents, but the best advice I can give home sellers is that it is far more important to focus on an agent’s performance, especially in today’s housing market,” said Alex Perriello, president & CEO, Realogy Franchise Group, the parent company of Coldwell Banker and Century 21 Real Estate.
Most respondents to the Consumer Reports study said they found service from the larger real estate chains and independent brokers to be “very satisfying.”
The survey was based on 9,141 responses to the Consumer Reports National Research Center’s Annual Questionnaire about selling or trying to sell homes from 2004 to 2007. Despite the shift in the housing market in that time span, Kotkin said there was no significant difference in the outcomes by year.
Of those surveyed, 86 percent of people who put their homes on the market made a sale.
Sherri Loomer
November 22, 2009 at 7:32 am
Cheryl’s comment was the funniest – I’m going to try that – first stop is the Mexican restaraunt down the street – let’s see if they actually DO speak English when I go straight to the kitchen and the cook.
Terry @Charlotte NC
November 22, 2009 at 8:30 pm
What a great thought provoking conversation. Thanks for the data CRay.. One of the most successful guys in my office in 2009 goes flat fee, low flat fee limited service, and has nearly a 100 Listings all the time- he is only really interested in the buyer traffic he gets from all the signs, and he gets 8-10 calls per week.
It seems intuitively obvious when so many people are struggling to get back to even on their house, and the economy so tough, flat fee and limited service will continue to be popular model. Ines comment that if she wants to go the $300 restaurant it is her choice is 100% correct. As fewer consumers make that choice many of those restaurants are struggling in this economy, not unlike some of our high end Realtors.
Another model popular here in Charlotte on the high end, is to only charge 1.5-2% on the list side, but have the Seller pay certain print and video costs a la carte and pay the vendor directly. This too makes sense. .
Has anyone tried a sliding commission, for example 6% the first 2 months, 5% the next 2 month and 4% from there on out? Keeping the buy side at 3%. It seems this would pay Agents to make their price cases more forcefully, to get it priced right the first time, and recognize and pay for the skill and hard work of a quick sale in this market.
Any Takers?