Procuring cause is a simple concept complicated by replacing facts with expectations—those who wish for outcomes unsupported by reality twist, blend, and blur the rules of order. Is gaining a favorable decision worth the price of integrity the storyteller pays? It depends on the values and fears of wishful thinkers.
Tag Archives: commission
Service Fees Adjust to Competition. $499 plus 1.0% is our competitive fee.
Costs to be in business, prices set by competitors, and subjectivity are three factors a writer at Business.com suggests when establishing a service fee. According to this New York Times article of May 1984 said the real estate industry lacked “…vigorous price competition among brokers…” According to the writer, the consequences were that the consumer paid a higher price than necessary because they were unaware that there are alternative(s), or discount, brokers who charge less than the standard industry commission of 6 or 7 percent.
That was then. What about now?
According to a spokesperson for the National Association of Realtors quoted in the article, commission rates arrived at equilibrium due to a very competitive market. Rates were consistently 6-7% in 1984. If that competitive market was the reason, then what’s the reason now? I don’t contend that the real estate commission rate is immune to market changes because of cooperation among brokers. I believe the quoted rate you are most likely to hear from brokers is still six percent of the sale price. The outcome may be similar if firms set their costs before calculating revenue, and project revenue based on a need to cover expenses. By comparing their desired fee to the fees other firms charge, a going rate gets set. Equilibrium is a choice.
Another Approach Puts the Consumer First
At Essential Real Estate, we took another approach to price our service and arrived at an alternative rate for Madison, WI area home sellers.
First, we identified why people sell their homes and where the money comes from to pay broker fees. They sell to free the home equity to use for their next life plan. The equity they desire to use gets reduced by the amount of money paid to the broker. To be a service worth offering, we set out to create an alternative that doesn’t deplete home equity at such an aggressive rate.
Second, we built our company to operate on a budget that leaves room for profit. Real estate businesses can load their debit column with the costs of a host of legitimate but not essential expenses. For example, if a broker wants her company to pay for vacations, cars, gifts, personal promotion, charitable contributions, a soiree or three, and still desire a profit to satisfy a lifestyle, more transactions or more money per transaction will be a crucial factor.
Third, we excel in the essential real estate services. Our fee is only for those services. Real estate agency law sets out the purpose and expectations of a broker. None of those license law requirements have anything to do with spending money on social media, personal promotion, lead generation, brand management, or attendance at motivational seminars in vacation destinations. When a client isn’t paying inflated operation costs, they keep more of their hard-earned equity.
Pricing Is A Choice
A lot of money changes hands in a real estate sale. The amount of money that goes from clients to brokers is a choice. By choosing to leave more money in our home selling clients’ hands, we created a complete real estate service option for people in the Madison, WI area. Our fee is $499 at the time of signing the contract plus 1.0% of the purchase price at closing. We give our clients insight into how the cooperating broker compensation process works, and our clients make informed decisions to pay the buyer agent a fee of their choice. The typical broker fee might be quoted at 6.0% of the sale price in Any City, USA. Essential Real Estate clients are paying, on average less than 3.5% total commission.
We exist to provide skilled real estate representation with our eye on your security and a goal to leave more of your home equity with you. Our fee isn’t the lowest. We don’t intend to be inexpensive. We are exceptional where it counts, and we charge only for what matters.
Essential Real Estate. A Free Market Choice by the Numbers.
For a market to be free there must be a choice on both sides of the transaction. Do we have a free market real estate service economy?
Maybe.
Real estate representation is a licensed service. The standard of performance is the same for every real estate licensee. There is no choice as to which legal obligations a licensee will perform. There is a minimum standard though, and we expect some licensees to rise above the minimum to be a choice of higher-skilled service for the consumer.
What about the price? As long as the consumer is willing to pay *6.0% broker fees the market will be dominated by firms that choose to offer the same real estate licensed service for the same 6.0% price. Eventually either the consumer will demand a range of prices for the legally obligated services or licensees will choose to structure their business model to be profitable and sustainable at an alternative fee.
Essential Real Estate, LLC was created in 2019 in Madison to be a free market choice for home sellers who want to keep more of their home equity by spending less on broker fees. These are the numbers.
When the fee of choice tends to be 6.0% of the sale price the regressive nature of the “tax on value” hits those who can least afford the fee the hardest.
$400,000 Value. $300,000 mortgage. $100,000 equity
$400,000 x 6.0% = $24,000.
$24,000 is 24% of the equity.
OR
$400,000 x 4% = $16,000
$16,000 is 16% of equity.
To pay a 6.0% commission the home seller will pay 50% more money compared to a 4.0% commission.
50% more, in this scenario, is $8,000. By moving that $8,000 back into the hands of the seller the difference is impressive:
The $8,000 is a 33.3% reduction in the price of the commission.
The $8,000 is a 10.5% increase in retained equity.
The $8,000 applied to the next down payment will reduce a monthly payment on a 30-year mortgage at 4.1% by $39.
$39 per month is $468 per year
$468 per year for 30 years is $14,040.00
Finally, home owners have a choice to pay less in selling commission and keep more of their home equity. Essential Real Estate has set the market free.
Listing fee: $499 at signing. Commission of 4.0% or less due at closing. We will show you how to make that 4.0% less.
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.
.
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?
Closing Statements Match Terms of Offer Contracts
If the buyer and seller agree in their contract that the purchase price shall be $300,000 the closing statement must show a sales price of $300,000. We all agree on that. If the contract states the Seller will credit the Buyer $1,500 for closing costs the closing statement will show a credit of $1,500 from Seller to Buyer. What if the Seller’s agent and Buyer’s agent correspond (by phone, text, email, in person) and agree that the credit will be $1,000 instead of the $1,500 the buyer and seller agreed to in writing? The closing statement must reflect the terms of the Offer and the terms of the Offer must be in writing using approved forms as long as Wisconsin Real Estate Licensees are involved. $1,500 is the only agreement the buyer and seller have. That’s the amount that has to be on the closing statement.
What about the situation where the buyer’s broker and listing broker agree to contribute money to the transaction by lowering the broker’s commission? Assuming the Offer to Purchase includes a statement where buyer has directed buyer broker to reject listing broker’s offer of compensation, and have the Seller pay the buyer’s broker at closing (assume 3.0% of the purchase price), the Offer to purchase must be amended to change the 3.0% to an amount less than 3.0%. If the Offer is not accepted a counter offer is the proper form. If the Offer is accepted then the buyer and seller must amend the Offer. An appropriate statement for the counter offer or amendment where the buyer’s broker is accepting $1,000 less to improve the Seller’s bottom line could be:
Addendum A, page 1. Buyer Broker Commission: Change 3.0% to 3.0% minus $1,000.
Nothing else in the Buyer Broker compensation contingency of the Offer is changed. Buyer is still directing the buyer broker to reject the listing broker’s offer of compensation. The only change is that the seller is not paying buyer broker 3.0%, they are paying 3.0% less $1,000.
The listing broker, selling broker, title company, lender, closing agent want to be careful to make sure all of the agreements the parties have with respect to money are documented and signed by the buyer and seller.
Obviously, a listing broker who reduces the commission the seller is to pay at closing will use an amendment to the listing contract to document the commission change. The title company receives the listing contract and amendments to that contract as well.
Essential Real Estate, LLC /Tom Meyer, Broker- Owner 608.332.8331 and 757-621-9393 