Value is more a feeling of satisfaction for the exchange of goods and services in relation to the $$ exchanged. Value is hard to quantify, but the consumer knows when they receive good value and when they don’t. Some full service agents provide good value, others do not. I appreciate your thoughts.

The big problem with the current model is the con artist agent costs the same as the ethical agent, and there is no way for the new client to tell the two apart until after he’s screwed.

Since we are never going to see companies disclose value reports about their agents, the best we can hope for in the near term is a) people who need full service realty will eventually find an agent who will work in their best interest, or b) people who have grown tired of the lack of enforcement of ethical standards in the real estate industry can become informed and do most of the work of trading their house themselves.

A Realtor once told me shortly before he attempted to screw me, “People that have been around this for a while told me the temptation to be dishonest is very great in this industry. But they warned me that if you want to be around a long time, you better work 100% ethically and 100% in your customers’ best interests. Do not be tempted into taking shortcuts.”

You and I know the shortcuts exist. And we know the agents who take them eventually burn their own arse. IMO, there are many fundamental flaws in the current 6% model, and allowing conditions to exist that tempt agents into taking these shortcuts is one of the major flaws. Another one is to charge a flat 6% commission when each transaction involves a great variation in the agent’s time and level of commitment. Yet another flaw revolves around the illusion that using an agent to buy a home is free to the buyer. Nothing could be further from the truth. IMO, the companies of the future that are brave enough to admit these flaws and restructure their business models to account for them, are going to gain the greatest market share.

The reason why so many clients of the 6% model are fuming mad at the fees they have paid is because they do not feel the agencies have earned the fee. Sure the guy who needs to be shown 50 houses before he buys probably feels he paid a fair fee. But the person who sees a house while driving by, contacts the owner, and then buys the house makes the seller a little wary of ever wanting to hire a Realtor again. In the future, the companies making the biggest money in real estate will be those that embrace paying Realtors hourly wages.

I think the big myth in the Industry right now is that a war exists between full-service real estate and discount firms and that one or the other will eventually win out. But the truth is, the large companies of the future will offer a range of services and allow customers to choose based on their needs. This will be brought about through building consistency into the business model. Once clients of these companies realize they are assured high value because they only pay for the level of services rendered, it will restore faith in the real estate industry. In this model, customers who need full service realty will gladly pay for it, and those that don’t need it will choose a lessor service and gladly pay for that. High market share ultimately means offering a full range of services that are tailored to meet the full range of customers’ needs.

All of this has left a very sour taste in my mouth, and I have no qualms about hiring a discount agent whose fee is based on the amount of work actually spent brokering my transactions.

Hamptonwest.com is one to consider. They charge a flat fee (about $1K I think) and rebate the 3% buyer’s agent fee at closing.

Jimmythev // Jul 21, 2008 at 10:24 am

Ok… just came across this listing on redfin… am I seeing things here, or did this guy buy the house in May of 2008 for $302k and is now listing it for $439k? They must have put $137k worth of “stainless steel” in the place ;)

You might have missed the note at the top of the page:

This home is also listed as a bank-listed foreclosure.

That place isn’t even worth $200K. they want $400 a sq. ft. Incredible.

Check out the price per sq. ft. for this place in SLU:
http://www.redfin.com/WA/Seattle/401-9th-Ave-N-98109/unit-415/home/12526684

Astounding. But, nice place if you want to live downtown.

Speaking of downtown, the Seattle Times had an article over the weekend about how even real estate agents are predicting a slow down in jobs and economic activity. They predict a lot of empty space for lease next year and are telling clients to wait.

http://www.redfin.com/WA/Bellevue/16859-NE-14th-Pl-98008/home/431647

I’ve seen something I have never personally seen before, but maybe it isn’t all that uncommon elsewhere. I picked up a flyer of a new house that is still under construction and it featured interior spaces that are as yet unfinished! There is a nice picture of the unfinished living room, unfinished kitchen, unfinished entryway, etc. I guess Pullman realtors are not real big on “staging”.

mukoh // Jul 20, 2008 at 3:24 pm

Deejayoh,
LOL. Good luck agents out there who are on the listing side will definitely be jumping for joy happy when you ask them to give 50% of the commission to you.

Re-read my comment. I was talking about they buyer’s agent fee only, which is 3%, maybe less. If you know of any buyer’s agents getting 6%, I’m sure they’re jumping for joy anyway!

Reply – Quote

Faster: ……….”Greg Perry – if you ever invent a time machine, go back in time and remove your comments from this article. They don’t make you look good.

Of course, I don’t look good to you, and I’m OK with it.

Joneses: I agree. Anecdotal stories like yours exist. The industry swells with unqualified agents when the pickin’s are good. It drives me as nuts as it does you. Each year I lose clients to precious granddaughter who just got a license. The hardest thing of all is to overcome family love.

When the market tightens the agents flock away just as fast, leaving the better agents. I said it above. If the consumer would do diligence, by and large they would have a better experience. Statistics show that on average less than two agents are interviewed by a Seller and fewer by a Buyer.

If a discount agent is for you, I say fine.

Herman,………”So you work in the upper tier of the market. It sounds like your clients are in the market at $1.5M and higher. At those prices, the clients should demand and get the types of services that I expect.”

Yes I work that market, and I also work with first time buyers —– who get the same experience as the $1.5 million or higher client.
My business primarily works by referral. My 1.5 mil client’s first referral was his sister who purchased a <$200.00 condo. The sister referred me to her boss who sold a $700.00 home. Because my clients are referred, I get people in all price ranges.

When I get a referred client, I have 2 people to please. The person who I’m working with to earn future referrals AND the person who referred me so I continue to receive referrals.

When I work with a client I NEVER look at the price of the house. AND because I have a predictable amount of new referred clients, I’m never in the position that I need a sale to close to pay my bills. I can focus on the client, serve them at their highest need, keeping their best interest at heart at all times.

I am not arguing against other models at all. The thinking that discount models will take over traditional models is NOT NEW THINKING! Frankly I think having options in the marketplace is healthy. We have the option of buying clothes at Wal Mart, Macy’s and Nordstrom, don’t we? OPTIONS ARE GOOD!

Here’s a POP quiz for all you real estate hobbyists:
What is the most difficult thing (and yet the most important thing) that a real estate agent does?

I call it the “doncha know” mentality:

Doncha know we all make $100K a year
Doncha know payments on a $500K loan are very affordable
Doncha know the local economy is in high gear
Doncha know Boeing and Microsoft are hiring massive groves of locals
Doncha know your home will go up in price this year

No RAL, I don’t know.

Read today’s CBS news on your rosy Bush economy [all of June's indicator's are tanking badly, doncha know?]:

http://www.marketwatch.com/news/story/us-economy-bumps-along-leading/story.aspx?guid=%7BEBC2C9DF%2D62AE%2D4B91%2D9280%2DFB76C78D6292%7D&siteid=bnbh#comments

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The seller, and the reason is simple.

RE always sells for the highest price offered by a buyer. The buyers doesn’t care whether or not there is an RE agent or what the commission is, any more than they care whether the house has joint owners, there’s a mortgage that has to be paid off, etc. They don’t care about who’s getting the money. They just care about how much they pay for the house.

So if the most willing buyer offers (say) 500K, the seller gets 500K minus x% commission. Again, the buyer doesn’t care how much of that 500K goes to the seller or to the agent. All he cares about is how much he pays.

I met the broker I had chosen to work with, and we looked at 2 of the homes. On the 3rd home, he stated, “you need to start looking at these homes by yourself.” I stated that I did not have a way of getting inside the homes, and that was why I contacted him. I was a little put off that he was going to make $15K and didn’t want to even take the time to show me the insides of the houses.

When we discussed listing my current home, he suggested I list it for a price that I knew was at least $100K less than it was worth. At that point, I realized he was entirely unethical and out to make a quick buck. I mean, this guy was literally looking to make $30k from my moving to a new house, and he didn’t want to spend more than 2 days of his time to do it. In the meantime, I would have paid $30k in commissions and lost $100k for listing my home way under the market value.

I thought back to a home I had sold in Spokane a few years earlier. I had contacted an agent to list it and then left town to return home to Puget Sound. One night he called me up and said he was deer hunting and met a guy whom was interested in the house. When I told him the guy’s offer was WAY too low, he responded that there was a leak in the roof that had caused water damage inside one of the bedrooms. Well, to make a long story short, I drove all the way to Spokane and discovered there wasn’t a leak in the roof after all. The agent simply wanted to frighten me into selling the home thinking that I would not call his bluff and drive all the way over there to check it out. About 2 weeks later, I received a full price cash offer on the home.

All of this has left a very sour taste in my mouth, and I have no qualms about hiring a discount agent whose fee is based on the amount of work actually spent brokering my transactions.

Brian you are very wrong on your analysis. The more sellers get squeezed the more they seek out our model. Most of our listings come from larger Brokerages when people realize the benefits of listing with us…lower their price 3% and be the BEST DEAL ON THE BLOCK.. Instead of 290k they can list the same home for 280k and net the same…

Again 500 Realty makes its money off Lead Generation. The 25% commission to us goes almost entirely to the Agent. They avg about 10 hours per client and still make 100 an hour or more.

Trust me when I say this. Time is on our side. Now give me those 2 MLS #’s.

Ray Pepper
Broker
http://www.500Realty.net

I know where you’re coming from. 10 years ago I refused even to pay for parking, instead choosing to walk as far as it took to park for free. Now I’m too busy for that attitude and I will pay for services and expertise.

In 2006 I went with an agent from Windermere (two actually). My expectations were that he would get an imprint of my tastes and scout homes for me, then call me when he found a perfect fit. Remember, I’m busy, I don’t have time to look at 50 houses.

But he was lazy. From what I could tell, this was his idea of his job: create an electonic search. Run the search every weekend, and email the results to me. Ask what I wanted to see. He refused to look at them without me, saying things like ‘you never know what someone will like’ and ‘it’s too time consuming’ and ‘I need you with me to learn’. I fired him.

Then the second. I remember standing on the back porch of a house on Queen Anne, yelling over the noise from the Aurora bridge that I thought their counter-counter-offer was too high ($890k). She yelled back that the neighborhood would support the price. I declined. Months later, that house sold for $795k. Her advice would have cost me almost $100k in value. I fired her, too.

The trouble is, Greg, these are not exceptions, this is standard quality. Realtors are unqualified and lazy – and they got more lazy in the 2000’s when marketing a home was as easy as listing it on the MLS and collecting a check three days later.

So you work in the upper tier of the market. It sounds like your clients are in the market at $1.5M and higher. At those prices, the clients should demand and get the types of services that I expect.

But the vast majority of homes and clientele does not fit that profile, and for us, the 6% commission is not justifiable though the prices are still quite high. The commission structure is a legacy of the print-and-paper days when finding the homes was hard, and relative prices were lower. It’s an unstable system, ready to collapse.

And further, the objectives of the agent are not aligned with the objectives of the buyer/seller. It’s a broken system. The agent wants to get a transaction as quickly as possible, because creating a marginal price advantage for a client works out to just a rounding error on the commission. That’s what I felt was going on at the Queen Anne house — that the agent thought her job was to help make the transaction happen, not put me in the house at the right price.

I always thought the seller commission should be 1% on the first 80% of the home’s price, and 10% on the top. (That nets out to about the standard 3%) That puts the agent’s negotiating incentive on the marginal price. Point being, any cretin could sell a home for 80% of its value, and the agent’s value is really delivered on the margins.

It’s a broken system. You may be the last agent to see his niche erode. You’re going to claim that you are really in it for the long haul, to deliver a great experience so you can build a relationship that you’ll cash in again on their 2nd and 3rd homes too. But you can’t deny that the erosion has started, and that most agents just want to flip transactions.

We aren’t in the ‘just scraping by’ bracket – we’re have 15% down on places in the budget we are looking at. This will be our first house purchase so we’re being reasonably conservative. We’re looking at places costing roughly 85% of what we’re preapproved at, are staying small/closer in to reduce other costs (heating, gasoline, etc) as well as (hopefully!) minimize the loss in value as the market decays.

We found a pair of good places assuming we’d get a few thousand back through Redfin (ie maximize our downpayment by putting the refunded money towards closing). It turns out both places on selling with 1% commissions so there won’t be any money back after all; – there would have been no difference going with Redfin or a more traditional sellers agent on our end. Maybe that means there is a little more negotiation wiggle room, but that seems unlikely given the sellers call to opt for the lower commission.

Perhaps as sellers are squeezed and get more thrifty, it seems like the Redfin/500 model loses its appeal. Aside from being more able to absorb hit, how can Redfin/500 position themselves under this model?

Now I pray to the heavens for any and all Brokers to start companies such as 500 Realty. The general public has no clue what we do and our message is constantly distorted by fellow Realtors.

I wish Red Fin advertised more on TV and newspapers. Furthermore I wish they went to trade shows like us and HAD giant signs up and down I5. When the public finally gets educated the Buyers will seek us out and the masses will know what YOU Bubble heads already do.

I encourage you all to assist us in educating Washington!

Ray Pepper
http://www.500Realty.net

Greg –

“” when I see another 50 companies doing what we do here in Washington.”

Ray, be careful what you wish for!

Pretty soon someone will come along with http://www.425Realty.com —-wait a minute! That’s my web address! (I picked the Eastside area code)

Ok then 400Realty, then 375Realty, then 350Realty. The eventual winner will be 000Realty.com

On the discount side of things, the area of competition is focused on the amount of the discount.

Those competing in value have a different set of rules”

It seems to me Ray isn’t too worried about this why should you be?

Then friends are calling telling me his gf realtor sold four houses in the $800s in a month, and the offers actually closed. Next month this realtor lists a house for $1.1m and sells it in a week. Of course that is all seattle areas.

Nobody can really make sense of where it is at.

Where in my comments do you read that I think that real estate, or anything else, is in some kind of doomsday scenario?

I was merely pointing out that when pressed to give an example of when it’s not a good time to buy, all you can do is spew some trite nonesense that any idiot can offer (and you can’t figure out – is meaningless).

You have a disturbing way of reading things that don’t exist into posts, and then being stupid enough to criticize them based on what you only imagine.

Perhaps the tin-foil would be put to better use if it could be surgically implanted in your brain, so it can help to conduct your thought impulses, and you could make a “connection” for once.

EconE, FWIW, I’m with you on this one 100%

I love you man…….. but you’re not getting my Bud Lite.

After today at the Bite I think I will sign up for one. ”

Ray, Ray, Ray. I begged you to stay away from the food.

After today at the Bite I think I will sign up for one.

I feel too ill and weak to talk real estate but I will say this and most will disagree with me……………………..

I like Jack Nicholson as the original Joker far better then I did Ledger.

My anger is not directed at any person in particular…rather the system that it became. Especially with condos. Houses weren’t flipped like condo’s with absolutely NO value added and people have been burned. Most of the people on the board are looking for houses. I’m not. Been there done that as an owner. I don’t work, so I prefer the lock and leave lifestyle that a condo affords but as far as I am concerned, with the Realtors, Developers, Lenders all in bed together on the condo projects I feel that a real mess was made with the flipping game combined with poor financing.

I have the same feeling towards banks. So…I’ll be paying cash when I ultimately buy a place. Will it be here? Who knows? Maybe, maybe not. I’m fortunate to have that freedom. You’ve been making me reconsider sunnier climates however. ;o)

WRT teaching. I was a substitute teacher for a couple years. Worked with Special Ed kids. Kind of a volunteer thing. Did the business/marketing classes also on occasion but preferred Special Ed as they actually wanted to learn and the business classes were a joke for high school. Our educational system is in shambles. It’s not the the teachers faults either…it’s the bureaucracy.

And no…I didn’t “curse” in front of the kiddies and I always expect that there will be people out there that are offended by a simple four letter word.

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It might be some people’s opinion that certain words I chose to use make me inferior. But I could easily adopt the attitude that a person who doesn’t swear was brainwashed at an early age to not use words that mommy believed were bad. IOW, she was taught that some white dude in the sky with a gray beard would reward her for being good by not using these words. If I were from a different country and believed in a different god, I would say she wanted the best for her child and handed down the same ridiculous BS that was handed down to her. Then that poor kid went the rest of his/her life thinking and acting in a certain manner without ever questioning the ridiculous belief system that was the root of each and every thought.

If this were the case, I would have to ask myself whether the child was given a gift from her mother or had been cursed with a liability for life. Is it better to conform for the validation of one’s peers, or is it better to know the truth? I can’t answer that for each and every person, nor should I, but I can answer it for myself.

I might or might not believe the above culturally-based beliefs. It’s just an example of how people think and act differently, and if one assumes he is superior to another simply due to his choice of words, perhaps he is selling that other person short. In truth, most of us judge each other by the cover of our books because it takes too much time and effort to really get to know the other person. And if we take that time and effort, we have a lot less time to convince everyone of how great we are. And if everyone else doesn’t know how great we are, then perhaps we have wasted our entire lives doing the wrong things.

Unfortunately, no matter how hard we try to convince everyone else of our greatness, in the end, we die and rot into the ground. We are remembered for about the same amount of time that the inheritance we leave behind remains unspent. After that, nobody gives a darned what words we chose to use. So why should it matter to us now?

I still have respect for the majority of RE professionals that comment here so Greg, Ira, Pepper, Losh and others…you guys actually provide some insightful information and I hope you don’t think I’m hating on you guys.

Hell…Greg was the first one to even point out that the high end was looking ugly.

I’m the fringe. Yes, we are part of society. Some of us don’t really care if “language” offends. If you have problems with it, take it up with the thought police and climb back in your protective bubble that insulates you against all that is “ugly” in this world.

No it doesn’t. If I buy and prices fall 30% then I lose a decade of savings.
If I rent and prices rise then I can move somewhere less expensive.

I plan to buy now, which should be 5 – 7% lower than last year, ask for 10 – 15% lower than that, and find the have the place I want, at a possibly 5 – 10% higher premium than maybe I’d get if I wait … but I don’t want to risk waiting and renting any longer. I hate renting.

Waiting has risk as much as buying has risk.

Ekim, thank you for suggesting decorum.

Ira, you are not grasping the point, market prices are what they are with commissions in them whether it is 1% or any other charge by a realtor. And the seller pays them. Just because the buyer is paying the market price for a house, he is not ultimately paying the commission the seller is, weather it is an arms reach transaction for a friend 0% or 6% regular or more.
There is no technically who pays it as a hud it is showing a debit to seller.

EconE
You are obviously not really a buyer or have bought. Agent commissions are paid by seller.

——————————————–

Huh? Not really a buyer or have bought?

I’ve already been an owner. Now I’m a renter. I’m sure I’ll be a buyer again sooner or later and I don’t care who pays the commission…I’m just anti “condo-flippers”. Even more so when a Broker or Agent is the “flipper” who then pays themselves the commission. (or sucks it out of my pocket)

As I said…I have no beef with commissions.