Counter Intelligence: The Real Estate Cafe Weblog

WBUR/NPR debate: Do buyer agents really help consumers save money?

Having already posted one comment to WBUR's heated discussion about "what caused the housing crisis and how to fix it," I was content to watch the debate unfold yesterday until several posts began spreading misinformation about the role of buyer agents and whether they help clients save money.

First, there is some truth that the current two-sided real estate commission does not align buyer agent compensation with performance. That's why some in the industry offer rebates and others are calling for commissions to be divorced. If that single reform comes out of this crisis, conflicts of interest would be reduced, competitive options would increase, and consumers would save billions of dollars as argued in these blog posts written two to three years ago:

$60 Billion question: How do consumers uncouple real estate commissions?

10 Mega-tends push real estate commissions to a tipping point

Contrary to assertions on WBUR's blog, some REAL buyer agents, not counterfeit buyer agents or "designated agents," actually do save their clients money by (1) rebating some or all of the buyer agency fee built into sales prices, and (2) by helping their clients shop wisely, time the market, and negotiating aggressively on their behalf. For tangible evidence, see Wall Street Journal article on the 100% commission rebate offered by The Real Estate Cafe, our menu of fees & rebates, and map of client savings totaling over $1 million during a twelve month period.

At least one other buyer agent in Chicago has helped clients save more than $1 million during a twelve month period and there are probably others. More importantly, new referral sites like http://www.ProOffer.com and conversations like this could bring performance based compensation into the real estate industry.  My guess is that millions of real estate consumers, both home buyers and sellers, would agree that reform is long overdue! 

What's your opinion?  Do buyer agents really help consumers save money?

Fee-for-service real estate: professional advice without cartel pricing

Comment posted to debate on USNews & World Report's real estate blog, Home Front, asking: "Do you need a real estate agent to sell your home?"

More than a decade after the former chief economist of the National Association of Real Estate said...

"The next major revolution in real estate will be fee-based services replacing the blanket commission pricing that has dominated the industry for so long."

...it's discouraging to see this debate reduced to two options:

"There are two general ways to sell a piece of real estate. You can do it yourself (usually known as doing a for sale by owner, or FSBO), or you can utilize the services of a real estate agent."

There are dozens of tasks in both the home buying and selling process that web-savvy real estate consumers can purchase "a la carte" to meet their specific needs, without incurring a five to six percent real estate commission.

IMHO, presidential debates should not ignore credible third party candidates, and this residential debate should not exclude alternative fee-for-service business models either.  Those business models -- together with long overdue industry reforms -- will enable buyers and sellers to save billions of dollars annually without sacrificing the benefits of professional advice.

$60 Billion question: How do consumers uncouple real estate commissions?

If you live in New England and would like to join our experimental "FSBO Support Group," please contact us by phone (617-661-4046) or email.

Organizing real estate rebels, educating home buyers & sellers

Richard Howe's blog post, "Urban Rebels," provided a timely opportunity to use the 4th of July to update our rallying cry for a consumer revolution in real estate.  Howe is Register of Deeds for the Middlesex North District in Massachusetts, and has written extensively about foreclosures and their impact on neighborhoods and communities. 

Excellent, timely post. With three million households behind on their mortgage payments, and a projected two million headed towards foreclosure, could the time finally be ripe for a consumer revolution in real estate?

Some of use have been talking about that for more than a decade, but as Glaeser writes, industry insiders have had "strong incentives to fight for their regime.”  (See WSJ editorial originally entitled "The Realtor Racket" and download study on "Bringing More Competition to Real Estate Brokerage.")

Collaborating with fellow real estate change agents, we hope to invite home buyers and sellers in Greater Boston to restart conversations begun 15 years ago at the “Consumer Revolution in Real Estate” at our experimental new location: One Broadway, Arlington, MA.

We’ll experiment with seminars, real estate round tables, and web site demos. I’m particularly excited about reviving our Bubble Hours and hosting support groups for FSBOs & households facing foreclosure. Perhaps you can join us at an upcoming real estate unconference, or even present a topic / lead a discussion.

Alternative fees for home buyers: Still the "Unfinished [r]Evolution"?

Four years ago, June 7, 2004, Banker & Tradesman quoted The Real Estate Cafe in a page one story entitled, "MLS Policy Statement Fuels Commission War."  The skip page read:

Unfinished Evolution

During the last decade or so, alternative services -- such as flat-fee, listing-only or fee-for-service models -- have been offered to home sellers, but there haven't been a tremendous amount of choice for buyers, according to Wendel. 

This is one of the untold and unfinished pieces of this [real estate r]evolution," he said.  Wendel, who charges $100 an hour rather than charging a commission, has been offering a full menu of services to both buyers and sellers for the last 10 years.

Do you think the residential brokerage community now offers enough alternatives to the traditional real estate commission?  What kind of money-saving options would you like The Real Estate Cafe to add to it's Menu of Fees & Rebates?  Should we bring back our $3,000 and $5,000 flat fees, first offered when we opened in 1995, or continue to focus on hourly fees?

Would you like to see the traditional, two-sided real estate brokerage commission uncoupled so home buyers and sellers can BOTH maximize savings in an open, competitive market place?  If you are not familiar with the issue, watch this 90 second video.  Why hasn't this happened already, and what will it take to get there?  Your ideas are welcome on the "divorcing" commissions section of our wiki, or in the comments section below. 

See what we mean about the "Unfinished [r]Evolution" in real estate brokerage fees?

How can we improve our money-saving Menu of Fees & Rebates?

It's been more than a year since we updated our Menu of Fees & Rebates, so we'd like to invite home buyers to meet in person to discuss possible improvements.  Our current options are shown above (click on arrowheads in outline for more detail) and on our wiki.

• We offer three basic options:  traditional commissions with limited rebates, hourly fees with full rebates, and flat fees with performance bonuses
• Our most popular options include a 100% rebate of the buyer agency commission included in the sales price. 
• Our hourly fees range from $75 to $125 per hour depending on the size of retainer prepaid (or $150 per hour with no retainer or minimum fee).
• Limited availability:  Flat fees start at $3,000 plus performance bonus.  Each performance bonus is negotiated individually to motivate us to help you maximize saving (see map of savings totaling over $1 million).
  
• We're also willing to work with a few buyers on a 1% fee option, some restrictions apply.
• Finally, you can propose your own fee / rebate, particularly if you are selling "for sale by owner" and would like us to represent you as a buyer.  That way you can maximize savings both buying and selling.

Our ideal is a mix of fees -- hourly, flat fees, and traditional.  If you select option 3.3 and prepaid $3,000 in the next few days, we'll cut our hourly rate by 50% for the first 40 hours.  We're pushing this special offer so we can attend the National Association of Realtors mid-year convention next week to identify the best new money-saving tools and trends for home buyers and sellers. 

Should we host a series of webinars or meetings off-line to discuss the benefits of each fee / rebate, and to help new clients decide which money-saving option best meets their needs?  We can meet on short notice at a local cafe or in the privacy of your home.  We're also eager to begin meeting at  TogetherInMotion in Arlington, MA so working parents can talk over food while their kids play.  Please contact us for additional information.

Billion dollar break-up: Protecting rebates vs divorcing two-sided real estate commissions

Redfin's corporate blog is cheering because an "Anti-Rebate Bill" introduced in Illinois that would have banned real estate rebates has apparently died in committee, or in Redfin's words, been "crushed."  Other sources report that the bill has changed focus, and as The Black Knight in Monte Python's Holy Grail famously said, may not be dead yet.  According to sources, there may still be an attempt to morph the anti-rebate bill into a procuring cause bill before Friday's deadline, which could be extended.  What's at stake is the definition of procuring cause, a legal concept which Realtors use to decide who procured the buyer, and therefore who is entitled to collect the buyer agency fee under their guidelines.  Although the exact language has not been shared, Redfin and other sources allege that the reworded bill would require a buyer agent to accompany their client to property showings to collect the buyer agency fee offered through the multiple listing service (MLS).

Buyer agency compensation is an old family fight in the residential real estate industry, one the consumer has been dragged into because a growing generation of discount business model use rebates to hook home buyers.  What most home buyers don't realize is the two-sided real estate commission is obsolete, and some critics have likened it to a real estate transfer tax (hence our photo above).  So, IMHO, firms discount business models like Redfin are actually propping up an artificial pricing structure and reinforcing a barrier to competition and consumer savings.  While a recent Redfin blog post called the 3% buyer agency fee "boring," it did not challenge it or call it unnecessary or anti-competitive.  In fact, the blog post says "Redfin has always been careful when listing a home to encourage our clients to offer the buyer’s agent 3%..."

I agree with Redfin, the proposed IL bill is not the answer, neither in it's original form, which sought to ban rebates; nor it's amended form, which may seek to define procuring cause.  However, there is a long overdue reform that would reduce real estate commissions by billions of dollars annually:  separate fees for listing agents and buyer agents.  Think of it as a real estate version of BYOB: Bring your own broker.  That's the only way to create an open, competitive market place in residential brokerage, where as one attorney wrote:   "the ability to freely price one’s service is a pretty basic, bread and butter tenet of competition." The Consumer Federation of America first proposed that reform 16 years ago, and there is growing interest in "divorcing" the commission even within the Realtor community.  You can learn more by viewing this 90 second slide show:

Uncoupling the traditional two-sided real estate commission:  10 Mega-trends leading towards a tipping point (click to see video)

As the real estate industry transitions to a more competitive marketplace, The Real Estate Cafe's will continue to offer a menu of hourly and flat fees plus rebates, including a 100% rebate option.  However, we'd prefer to work with other change agents to unlock billions of dollars of consumer savings annually by compensating buyer and seller agents independently.  If you are interested, please use this wiki to brainstorm about building a coalition and action plan to divorce real estate commissions.  If you'd like to meet in person in Boston, no need to BYOB -- we'll buy the beer.

Unlisted properties represent opportunity for proactive home buyers

This graph of active listings versus unlisted properties during the 4th quarter of 2007 reveals two significant trends behind today's lead story in The Boston Globe: 

"Thousands in Mass. foreclosed on in '07:
7,563 homes were seized, nearly 3 times the '06 rate

TREND 1: The Globe reported that "...lenders initiated foreclosure proceedings against 7,467 Massachusetts homeowners" between July and September.  That means that foreclosure petitions during the 3rd quarter of 2007 were nearly equal to the total number of actual foreclosures year round.  Add that trend to the fact that foreclosure petitions topped 3,000 listings during October 2007, and you can see that the problem is growing.  In fact, the number of foreclosure petitions in October approached the number of MLS sales in December 2007 as graphed in a previous blog post.

TREND 2:  The inventory of unlisted properties or homes for "potentially for sale" across Massachusetts is also growing.  It's difficult to identify how many expired and canceled listings have been already been relisted in the MLS, and we can only guess at how many homeowners facing foreclosure would be willing to sell.  Still, the inventory of homes "potentially for sale" may be approaching the number of active listings during this slow time of the year, as shown in the graph above. 

Should you wait for more homes to come onto the market or be more proactive?  The Real Estate Cafe is exploring ways to help home buyers search expired and canceled listings, and to approach homeowners with "unlisted" properties - particularly those who have received foreclosure petitions - with unsolicited offers.  If you're a homeowner willing to consider an unsolicited offer, or rent your unlisted property until you put it back on the market later this year, please contact us.  Our qualified buyers are looking for ways to negotiate sales outside the MLS, and recognize that savings can be shared by doing so.  (PS.  Our menu of hourly and flat fees are modest by industry standards; and depending on negotiations, may be paid by our buyer clients so sellers retain more of their home equity.)

Billions in savings: Will real estate consumers extend a helping hand?

It's Christmas 2007, and I am visiting extended family in St. Louis, my beloved boyhood home. Missouri is the "Show Me" state, so it's a fitting setting to ask how much money have real estate consumers really saved since McKinsey & Company predicted that industry restructuring could deliver $30 billion in annual savings ten years ago?

Last week, BusinessWeek's real estate blog, Hot Property, reported that home buyers and sellers paid $55 billion in commissions in 2007, down $13 billion from the peak in 2005. They attributed the decline to falling sales and noted that consumers paid $19 Billion more than 2000 "largely because of the surge in home prices during the boom."

What caught my attention was an estimate that "‘for sale by owner’ sellers saved almost $9 billion in home value that they otherwise would have paid to real estate agents." That figure is just shy of the $10 billion in savings from real estate brokerage commissions predicted by McKinsey & Company in January 1998.

How much more money did home owners save by using a flat-fee MLS listings services in 2007, AND how much more money home buyers receive via real estate rebates?

My guess is that those savings also exceeded $1 billion in 2007, and will grow in the future. As a "Change Agent," my question is whether home buyers and sellers are willing to share some of those savings with charitable causes? (Think "pay-it-forward" meets real estate savings.)

ChangeAgents's goal is to create a voluntary coalition of money-saving real estate business models and to invite their clients to share fraction of their e-commerce savings with local, national, and international causes of their own choice. Here's one example of a "community commission."

If you're part of the new generation of real estate companies delivering billions in savings, or if you're hoping to sell "for sale by owner" or receive a real estate rebate check in 2008, would you like to join our conversation about ePhilanthropy & Cause Marketing in real estate?

Please let us know what about your own dreams for 2008 and a better world.

If airlines have fare sales, should real estate agents?

If airlines have fare sales, should real estate agents?  We think so.  We understand buyers are waiting for prices to fall, but candidly, that's translated into a cash flow crisis for The Real Estate Cafe.  Still, as one of the nation's first fee-for-service real estate concepts we've had the experience to develop a menu of fees and rebates to get through slow times.  The key is offering compelling saving opportunities for clients -- so compelling, we hope at least one new or existing client decides to select one of our "flat fee" options the next three days.  So, if you think you'll be buying a home in the next six months and want to "buy down" your hourly consulting fee, we'd be glad to explain how you to save up to $75 per hour.  (Current client case study available upon request or just read what the Wall Street Journal said about our 100% rebate options.).  If our $3,000 to $5,000 flat fee options are beyond your budget, consider these SPECIAL OFFERS:

• Prepay for 5 hours of consulting service ($500), get one hour FREE ($100 savings). 
• Prepay for 10 hours of consulting service ($1,000), get three hours FREE ($300 savings).

Limited to the first three existing or new clients to respond. 

Time for a "Real Estate unConference"? Let's start planning

Nearly a year and a half after participating in my first "unConference," I remain interested in (1) meeting monthly with other real estate innovators in Boston, and (2) developing a "Real Estate unConference" model that can be replicated by fellow change agents around the country.  If you are not familiar with the unconferences, visit our earlier blog post entitled, "Brainstorming with real estate innovators in Boston & beyond" or join us this weekend at PodCamp Boston2:

Would like to brainstorm with real estate innovators (or any podcasters, bloggers, and social networking gurus) about the possibility of hosting a "Real Estate unConference" for home buyers, sellers, and "alternative" money-saving business models (for sale by owner, fee-for-service, etc). Some idea starters are online at: http://realestatecafe.pbwiki.com/Unconference