Monthly Archives: November 2019

Is Your Fee Negotiable? The answer to the next question is decisive.

Real estate broker commissions are not all the same. Rates vary even among agents in the same firm. Even if the agent makes a convincing defense against a commission concession you can still negotiate a lower fee. Agents are confident in their answer to questions like “Is your fee negotiable?” It’s such a common question Google will give you about 127,000,000 connections about answering. It’s the next question that Google has no answer for. The truth is in the pause.

The topic of a recent company meeting at a local firm was the book Never Split the Difference. Negotiating is the skill the book aims at improving. Nothing of the strategy the author proposed came close to misrepresentation. Honesty. Trust. A sincere commitment to see the other person as deserving of your consideration are clearly part of the strategy presented. Here’s how well the book impressed this firm.

A dozen or so agents around the table, including the owners and leaders, were confident to the point of enthusiastic as they shared their prepared responses to the question, Is your fee negotiable? The quick quips were right out of 1970 sales training. “NO. Nope. Can’t do it. Company policy.” To a person, everyone knows there is no such company policy. Based on every agent’s past history any version of NO is not the truth. And yet the seasoned agents were proud of their answer and the unseasoned agents were impressed. I was not.

I asked this next question and their silence told me the answer I just heard was bullshit. The decisive question was simply, “Have you or your firm ever charged less?”

This conversation turned out to be a defining moment in my career. When deception is encouraged by the owners the culture is poisoned and the future is determined. Building something better is easier when the status quo can’t honestly answer a simple question about their fees. So I did.

There is no question, broker commission fees have not been reduced by the presence of the internet even though the buying habits and methods of consumers has changed substantially. Apparently the broker fee is immune to market pressures or the market pressures are to not pressures at all.

It’s not collusion that keeps fees as they are. I believe inflexible fees are the norm because real estate business owners are committed to doing today what worked in the past. Few leaders get to the top when most members want to be followers of leaders who are taking them right where they are and no where near their discomfort zone. The obvious choice in this environment is to be the change. As I see the world, it’s not important to be a leader. It is essential to see wrong and try to right it. Leadership is overrated. Look around. There are effective leaders behind every crime against humanity. The bigger challenge is to be a wise follower and a committed instrument of change.

I started looking at the broker fee problem from the point of view of the home owner. This is what I saw: The conversation about commission tends to be related to a percentage of the purchase price. It occurred to me that this focus on purchase price minimizes the problem and distracts attention from the real problem, which is, real estate fees are paid by the seller from their home equity, not from the purchase price. As a percentage of purchase price the cost is a single digit. As a percentage of the only real money in the transaction, the equity, this cost becomes a double digit problem. A typical American with $70,000 in home equity is probably going to pay 20, 30, 40, and even 50% of their equity in real estate commissions.

Go ahead, ask Essential Real Estate the questions you want to ask. “What’s your fee.” Answer. $499.00 at the time we sign the contract, plus one percent of the purchase price as our Success Fee at the time of closing. We suggest you offer at least another one percent to cooperating broker who procures the buyer. More than that is up to you. ”

Be sure to ask us the second question. Have you or your firm ever charged less? The answer is, Of course. Our clients set the fee they’re prepared to pay within the range of fees we’re offering.

When starting a business relationship on honesty and keeping more of your home equity in your hands is your thing call me. 608-332-8331.

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The incredible shrink proof commission.

Texas Instruments calculators. If you had one in 1988 you were on the cutting edge of real estate technology. If you could operate it for anything more than multiplying a number by 7.0% you were likely trying to pre-qualify people. Eventually, you turned them over to a mortgage lender who knew how to use the machine.

Thirty years ago we booked air travel, rental cars, and hotels through a travel agent. We got our messages on pink paper notes, folded lengthwise and inserted into a lazy Susan-type message holder with slots for everyone. There they would remain until we returned to the office…which we did most every day.

The travel agents are real estate agents now, and they get their messages in an instant without needing to set foot in an office. Do we book our trips ourselves because the agents left, or did the agents leave because we book ourselves? Either way, when we miss our connection we have no one to blame but ourselves.

The end of this first decade of the 21st Century is near. This black electronic apple on my desk is a calculator, computer, cordless phone, radio, and television. Oh, yes. It’s also a movie production studio. I pay $100 a month for this gadget. And with it, I can spend more money and every store in the world is open 24/7.

Real estate commissions are no bargain. Despite the fact that the typical buyer spends three to six months researching and discovering the market without intentionally contacting a realtor, according to Zillow, the typical broker commission is 6.0% of the purchase price. How is it that a travel agent, who’s service was required far more often, is out of business while real estate agents are everywhere and their fee has gone down 14% while the average house price grew 108%. If you have the TI-68 please tell me if 6% of $383,000 is more money today than 7% of $135,000 adjusted for inflation.

Real estate companies are fueled by real estate commissions. Those commissions are paid from other people’s money, specifically their home-equity. I haven’t seen an ad for a house for sale in any media forever. Online sure. I’m a REALTOR and when I search for real estate outside of the home I use Zillow.com. I like the Zestimate. Last time I looked, the cost of placing a property on Zillow and a thousand other websites is between zero and zero.

Where does the money go? Billions and billions of home equity dollars are paid as real estate commissions. Some of it is absolutely earned. Maybe someone could analyze the cash flow to see what is spent on essential service and what is misspent on the lifestyle enhancements of other people?

Essential real estate services are listed in Chapter 452 of the Wisconsin Statutes. Nothing in the law obligates the licensee to spend money on more than annual fees. Extravagant expenses are not required to be a highly-skilled, effective real estate agent.

Do you think a real estate company can be profitable and sustained by investing in delivering essential services and charging unselfish fees?

Fees, Costs, Expenses and Concessions are Paid 100% From Equity, Not from Sales Price

Your equity is the bank account used to pay fees and costs to sell. As a percentage of your sale price the fee looks relatively small. The sales price is not where your expenses are paid from. That’s just a number used to calculate certain fees. The only real number is your GROSS EQUITY.

If your only fee was commission and the commission paid to a broker is 6.0% as Zillow suggests, and your Gross Equity is $150,000, your 6% is a nearly triple 16.0%. Here’s the thing, the commission is only one of the fees, expenses, and costs. The greatest threat to you equity is errors made in representation, flaws made in contracts, deficiencies in negotiations.

Instead of focusing on the asking price, or the sales price, keep your eye on your equity. Guard it. Make everyone who wants it earn it, like you did.

Pink or Green. Innovation or Valuable.

An NPR interview this summer caught my attention. The guests asserted we call just about anything innovative. As an example they contrasted the launch of the iPod with the launch of iPhone 11. One changed the world of music, the other comes in pink and green.

Real estate is an industry boasting of cutting edge innovations, revolutionizing the way real estate is done in the world. And then a truck pulls up and guy pounds a stake in the ground, then attaches a post, and hangs a sign. The innovation in marketing? Our post is purple, your post is orange, your sign is vertical, their’s is a circle. Slow down all this advancement is making my head spin. Show me innovation.

The real estate license is a license to be involved in the legal process of exchanging ownership of real estate. The critical work we do depends on who you talk to. But everyone will agree, our role is to help people find property they want to own, and owners find buyers who want what they have and are willing to pay money for it. Matching ready, willing, and able people with ready, willing, able people who have what each other wants.

What innovation have you seen that does this matching? It’s not search programs. Those are filters. A house like this in this city, with this many bedrooms, for this price. That’s been done for at least ever. If there is a buyer for every property, real innovation will match the buyer to the house and the house to the buyer without having to wait for either of them to find the other. This could be done. If Bill Gate and Warren Buffet wanted this, Mark Zuckerberg would do it. If the real estate industry wanted this, it would not be done, but there would be some conversations.

Instead the innovation going on since at least 2004 is, get this, “lead generation”. Fifteen years ago Yahoo was the innovative company figuring out how to get name, phone numbers, and email addresses from people who clicked on house ads. The click was attached to a living breathing person at first. Then the lead generator turned that person into a lead, captured in, and sold it to the first person who wanted it. Then it was sold again. And again.

What happened to the person who clicked on that photo of the mid century modern home backing to a park-like setting? Somebody knows because somebody is keeping track. This person-lead was likely captured in multiple lead generating nets before someone “converted” them. Once converted, they became another statistic as one more tally in the conversion rate statistic. Put another notch in your lipstick belt Pat.

If turning people into leads and leads into statistics is innovation in the people business, well fine. If that’s as high as we want to aim go ahead. But I’m not participating.

The guests on the NPR show had another perspective. Because everything an anything is labeled innovation (and organic) the term is a cliche. Striving for this kind of innovation is a choice. Just the same, improving something existing to let it work better for more people in more places, for less cost, and less danger might not be innovation, but it’s valuable. In real estate, turning ideas into reality that produces outcomes to better suit the buyer and sellers, while improving the experience and reducing risk is valuable. And possible. If we only knew what home buyer and home sellers want. Hmmm. What is it they want. We ask and they tell us. But we don’t listen. What they want is not what we want so we turn back to the lead generator, throw out larger nets and try harder to convert you into a number. It’s a big world. Someone is listening and thinking and hearing the people…they want something green. And crisp. They will get it little by little, but the rest of the industry will paint your number pink. Or purple. Innovation.