The diminishing value of real estate advertising.

In 1989 a prospective homeowner started their home search by scanning their local newspaper’s real estate section. A large real estate firm with multiple hundreds of listings presented maybe 20% of all listings in their newspaper ad. Achieving name awareness and making the phone ring was the purpose of the Sunday ad. Firms monitored the results by keeping track of incoming calls generated by the advertisement, appointments made from those calls, homes showed, offers written, and listings procured.  

Advertise to Sell Any House

The Sunday real estate page had a ready audience of home sellers looking to find their home in the limited ad space. New listings had priority. After week one, a home fell into the rotation schedule. Selling a particular house was not the objective of the firm. Making the phone ring was. Real estate advertising was more likely to attract buyers who might buy any house or a seller who might have a similar home to sell. The homebuyer had a slim chance of finding the home they would own in the newspaper. Connecting with a real estate agent with access to the secret Multiple Listing Service inventory of homes was necessary to get into the actual pool of homes for sale. And then you still might be force-fed the firm’s listings before you got to look at properties listed by other firms. 

Zillow.com – Realtor.com. – Homes.com – etc.com

As the World Wide Web grew, REALTORS had the opportunity to solidify their place as the first or early point of contact in the home buying and selling process. Associations and committees don’t move as quickly or deliberately as private businesses. If changing long-held beliefs is required to take advantage of an opportunity, the opportunity will go to someone else. The dot-coms were someone else. Hellow Zillow

Online Is The Go-to Place To Find a House

The National Association of REALTORS released its 2019 study of home buying trends. Fortyfour percent of homebuyers told the association that they started their search online. (Some other statistics put the number at 88-90%.)  Zillow has a study that might contradict or support the NAR results. 

The Cost Of Advertising/Marketing and Real Estate Commissions

Associations, slow to change, are likely to apply old ideas to new methods. Mass marketing was and is the type of marketing real estate firms are most familiar with. Marketing to make the phone ring is now purchased to find leads. Revenue minus expenses = profit. When a firm spend money on internet marketing or newspaper advertising they have an expense. To make a profit revenue has to exceed expenses by a considerable margin. The cost or real estate service is in the commission charged by the firm. A more efficient way to connect buyers and sellers could result in lower selling fees for home sellers and lower acquisition costs for the buyer.

It’s possible to match specific homes to people who are the best candidates to be the next owner. Consider this: a dozen REALTORS will know a dozen people who might like a home new to the market. Those 12 will be alerted to see the house. Maybe 4 of those folks will arrange a showing. The technology exists for a computer to identify those 12 and more, and then cut the pool of prospects down to the one or two people most motivated to buy that house right now. Analytics uncovering the buyer before the person knows they are the buyer is creepy. But it’s possible. Now.

If it’s true that home owners want to sell homes in the least amount of time, for the most amount of money, and least inconvenience, analytics are the means to the end. I believe Zillow has all the information they need to identify from their pool of registered home buyers, the next owner of your home. Is that worth paying for?

Real Estate is a Compliance-Based, Standardized Business…The Agent is Easily Replaced.

The more we work to standardize the real estate purchase agreement, the closer we get to eliminating the real estate licensee from the transaction. 

Programmed computers are better than humans at compliance-based work. We prove we believe this by suppressing innovation and forcing licensees to check the same boxes and write the same words in the blank spaces, with little regard for their customers’ and clients’ circumstances. To see this in action, attend a real estate training session, or sit in on a forms committee meeting. Talk to REALTORS. Ask them WHY they check this or that box, include this or that contingency, and fill in this blank but not that one. The answer is likely to be a version of “That’s the way we always do…we were taught to do that.” It doesn’t matter if they are relatively new or seasoned licensees; repetition and standardization eliminate the opportunity for customization.  

Ask the leaders of the committees assigned to revising the existing real estate forms why they choose to include standardized contingencies where there had not been one before? Is simple and the same better for the consumer? How do we know?

The Price of Simplicity

 Without thinking and customizing purchase agreements to the situation, and the parties’ personal preferences, the differentiating factor between offers is the price. And when the price is the only way to differentiate, the consumer will pay higher and higher costs. When the consumer can find something less expensive and more effective than the common real estate licensee, they will turn away from REALTORS and run to the innovative, robotic alternative surely to become available sooner than later. 

Think. Customize. Learn. Resist Becoming Trained.

When the real estate industry looks at their business from the perspective of delivering a better product to the consumer, standardization and repetition will be seen for what they are; detrimental to the consumer and the broker. Tech giants see the future of real estate is in robotics and AI. The non-thinking, box-checking licensees, will be out of work. The computers can pick the boxes to check and the words to write in the blanks, and they can do it more accurately than humans. Those who have a future as a real estate licensee will be the people who think, learn, customize, and contribute to the consumer’s better experience.    

Will Your Home Equity Buy a Tesla For a REALTOR and a Fiat For Their Kids?

Home equity is the buried treasure of most homeowners. Other than borrowing, we uncover the gold coins by selling the home it’s buried beneath. Regardless of what we will do after we exchange the deed for cash, you and I, and all of our friends, sell for the same reason- free the equity to do the next thing.    Other people get their hands on our home equity treasure by selling our houses.

At the time of sale, our opportunities to increase our equity are over. What’s there is there, and the money owed reduces the balance we have to do whatever we have planned for our investment. The way to increase our net equity is to decrease our costs to sell. Your most expensive selling cost might be the real estate broker fee. Like a regressive sales tax, a broker fee (commission) based on a percentage of the sale price consumes an unfair share of home equity for people who can least afford it. 

 How 6.0% becomes 24.0%

You and I sell our homes for $400,000. We sell with the same real estate broker; she charges you 6.0% of the sale price, and she collects the same 6.0% from me. On our closing statements, you and I see the same real estate commission of $24,000.00. Everything is equal. Or is it? Probably not. You have a mortgage of ZERO. Your gross home equity is $400,000. I, on the other hand, have a mortgage with a balance due of $300,000. My home equity is $100,000. Your $24,000 broker fee is only 6.0% of your home equity. For me, I will need 24% of my capital to pay the broker.

You pay for lifestyles that are not your own.

BMW. Volvo. Audi. Range Rover. Tesla. You may not own one of these luxury automobiles, but if a REALTOR is driving one, someone’s paying for it. In a driveway sits a Suburban, a Jeep Wrangler, a Tesla, a Fiat. Upon parking the Fiat and exiting the car, the REALTOR-owner announced, “The last person out of the house in the morning gets stuck with the Fiat. It’s the kid’s car.” To people who want you to believe the car they drive are an indicator of their success, getting stuck with a $30,000 Fiat is as bad as it gets. I can point to a few incidents that opened my eyes to why the public needs alternative real estate solutions, and this was one. There is something wrong with taking large chunks of equity homeowners could use for the well being of their families and spending it on luxuries for our families. The real estate market runs at a pace where the least capable licensee can collect expensive cars to appear successful, and take 24% of your earned savings, doing nothing more than signing a listing contract. 

Know where your money goes

Cars, trips, real estate, luxury goods, self-promotion, lead generation, client appreciation parties, pre-game tailgates, fundraising for clean water for wealthy lake property owners become business expense write offs for some brokers. Your home equity is the revenue they use to pay the bills. Fortunately, as more brokers create alternative real estate business models, the homeowners and buyers will have a choice to keep more of their money for themselves and pay less for the lifestyles of other people. It’s essential to know the fee the broker charges and where he/she will spend your money. When your dollars are spent on luxury cars that you don’t drive and vacations you don’t take, you have the right to know where the money will go. 

Essential Real Estate’s $499 and 1.0% broker fee means more equity for you.

Buying things you don’t use is never a good idea. Buying those things for other people is charity you can choose to be part of of or not. Essential Real Estate was created to give home sellers a choice to keep more of their home equity and pay less in real estate broker fees. It’s not just the listing side of the commission where our clients save. We busted the myth of the 3.0% buyer broker commission. Our home selling clients are paying an average of 2.4% commission to buyer agents. For the person selling a $400,000 house, that little .6% is a big $2,400. Financial security is achieved by saving and paying fair prices for quality service. As long as real estate broker fees are negotiable, expect to negotiate. And if negotiating isn’t your thing, call us. We negotiated a lower broker fee and better selling terms for all of our clients. $499 plus 1.0% of the sales price is our fee. You decide how much you want to offer to a buyer broker. More of our clients offer no more than 2.0%.

Your opinion is relevant… when it matches mine

When presented with evidence how likely are we to defend our belief before considering the evidence? Evidence challenging our beliefs based on hopes and wishes  may trigger fearful reactions; rejections of the messenger, defense building, rallying our friends to come to console our ego for example.  Where does that get us? Can you think of a time when you went into a discussion as a trusted person of integrity, a valuable resource and left  feeling rejected with your intent questioned?

As  Realtors®, especially when we’re the first one on the job, our expert status is directly related to the degree our opinions match the opinions of the person we serve. For example: (Q) What’s my house worth? (A) Based on these three recent sales in the neighborhood, this, that, and the other thing, my opinion $275,000. (Response) What? There’s a house for sale for $350,000 and it’s not as nice as mine.   Example Two: (Q) What should we do to get our house ready to sell? (A) Based on research homes which are up to date in colors, hardware, fixtures, paint, flooring, kitchens, baths, are more attractive to more buyers. (Response) What? I think it’s better to let people pick what they want. 

What do smart Realtors® know that the rest of us should know about these conversations? They know that they avoid them by not falling into the trap of being the “expert”. The client is intelligent. The client is reasonable and logical. Given the opportunity to discuss the alternatives and the process, and uncover the evidence, all of us are  more likely to reach the same conclusion unless prohibited by an overwhelming factor which can’t be overcome…and those rarely exist.

How do we move to alignment and away from debate? One easy change we can all make, leave our pride, ego, and expert hat at home. Go to the meeting more eager to learn than to instruct. Be more willing to be enlightened than to enlighten. And then when you’re there, sit on their side of the conversation…physically and mentally.

  1. For discussing value, establish an agreement on a method. I believe the method that will matter in the end is the appraisal method. But if the owner does not, my Excel spreadsheet is useless. I also  believe my Excel method will be more trusted when I am open to including methods the owner embraces. There’s room for more ways than my way.
  2. Where we sit matters.  The person sitting at the head of a table is NOT the person in charge. Even if that seat is offered, it’s not the right seat to be in-partnership. Sit in the middle.
  3. Ask for their thoughts on criteria. My subjective opinions are as defenseless as anybody’s.  Value adjustments are objectively subjective. Use their numbers so you all can see if there’s any real difference in the end.
  4. Listen. Let people talk. I know this, my opinion is more welcome when I’ve been given permission to share it. I am more likely to be welcome to comment when the other person has been heard….(that’s my challenge in any conversation and awareness is the beginning of change. :))
  5. Remember, the decision to do business is a bilateral agreement. It’s OK if I’m not a match. As long as I gave the owner the opportunity to express their opinion and weigh those opinions against the facts I am able to make a reasonable decision about offering my commitment to a plan of action. “No, we are not a match.” is an option for all of us.

It’s a kind gesture to say, “You’re the expert. We trust you.” It’s flattering to be considered an expert and to be trusted. And to be a trusted expert,  open the door to cooperation, dialogue, ideas, perspective, and opinions.

That’s my opinion. I’d like to hear what you think.