Counter Intelligence: The Real Estate Cafe Weblog

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.

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.

Call for Real Estate Consumer Bill of Rights expanding?

Glad to read that fellow real estate innovators are blogging about a real estate consumer bill of rights and that a CNN reporter may be working on a story.  Given that, maybe it would be worthwhile for readers to collaborate on a short history of efforts to create a Real Estate Consumer Bill of Rights.  Since everyone in Boston is talking about the "Rolling Rally" today for the World Champion Red Sox, hope you don't mind if I use a baseball metaphor to categorize time:

1st Inning:  To my knowledge, Erle Rawlins, a buyer agent / consumer advocate in Dallas, Texas wrote the first draft of a real estate consumer bill of rights in 1999.  A working draft is currently online on The Real Estate Cafe's wiki.  Our goal is to invite the public to comment and coauthor on the wiki.

2nd Inning:  Two years later, in May 2001, a coalition of leading real estate consumer advocates nationwide -- including buyer agents, fee-for-service consultants, and for sale by owner publishers -- cosigned a petition calling for a Real Estate Consumer Bill of Rights which Consumer Union, publishers of Consumer Reports, echoed in their testimony in Congressional hearings on banks as brokers:

"We also call on Congress to hold hearings on the real estate marketplace. ...Are consumers being treated fairly by real estate brokers? Are commissions priced fairly?" asked Consumers Union legislative counsel Frank Torres during testimony May 2nd before the U.S. House of Representative's Committee on Financial Services Subcommittee on Financial Institutions and Consumer Credit.

"Perhaps what we should be talking about is a Real estate Consumer Bill of Rights."

3rd Inning:  Note sure of the dates, by my recollection is that some government agencies began discussing a borrower's bill of rights.  Here's a link to one version by the Mortgage Bankers Association published on their website, StopMortgageFraud.com, copyright 2002.  (Your comments and links to other borrower's bill of rights are most welcome.) 

4th Inning:  In May 2006, The Real Estate Cafe reminded fellow real estate consumer advocates that it had been five years since the call for Real Estate Consumer Bill of Rights had been heard in Congressional testimony.  That was six months after we initially blogged about the topic.

5th Inning:  To my knowledge, Redfin released their version of a real estate consumer bill of rights about seven months ago, on or around April 2, 2007.  Personally, I was pleased to see Redfin expand talk about creating a real estate consumer bill of rights and encourage others to separate the need for consumer protection from their critique of Redfin. 

6th inning:  The call for a real estate consumer was greeted enthusiastically in informal conversations at a workshop on mortgages and lending hosted by the Congressman Barney Frank (D-MA), Chairman of the House Committee on Financial Services at the Federal Reserve Bank in Boston on Friday, October 26, 2007.

Where will those private conversations with legal and consumer advocacy groups lead?  I hope there will be a growing recognition that a Real Estate Consumer Bill of Rights is long overdue and more timely than ever.  Whether you are a homebuyer, seller, or professional, we'd love to know what you would like to see included in a Real Estate Consumer Bill of Rights.  As written in the past, I'd love to see real estate commissions separated.  This short video / slide show, created nearly two years ago, bullet points 10 mega-trends leading towards that tipping point.

Real Estate Rift or Rebate Envy?

Wish the Boston Globe had mentioned The Real Estate Cafe's industry leading menu of fees & rebates in their recent article, Rebates:  A Real Estate Rift. The Wall Street Journal featured our 100% commission rebate more than three years ago in an article entitled, "Cutting the Commission."  Our current menu of fees & rebates is online and we'd be glad to discuss side-by-side comparisons of competing rebates and fee-for-service business models privately over coffee, real estate round tables, or internet chats (see calendar wiki for coming events).

If time permits, we'll do a more in-depth critique of the Globe's article and commission reform; and MAYBE invite clients and readers to brainstorm about our newest domain, RebateEnvy.com, in the "Idea Bar" on The Real Estate Cafe's wiki or private chat on our intranet.  In the meantime, here's a map of client savings -- over $1 million during one twelve month period, 2006-2007!  (Makes some of the savings and rebates in the Globe article look rather modest, doesn't it?  Feeling envious?  Let's talk about it over coffee.)

Cross-posted in the discussion forum section of our new, experimental social networking site.

Will real estate consumers begin comparing hourly fees to savings?

What's a familiar story about agents vs "for sale by owner" properties doing "above the fold" on page one of the New York Times?  Because:

"The findings [-- that "One City'€™s Home Sellers Do Better on Their Own --] fly in the face of studies by the National Association of Realtors. The group has said that houses sold via its members' local multiple listing services get a 16 percent premium over homes sold by their owners."

The timing of the story is also important because it echoes a Wall Street Journal headline this week cautioning "What You Don't Know About Real Estate May Cost You."

One of the stunning findings in research conducted by the AARP and Consumer Federation of America is that "Only about one-quarter of respondents knew that they can negotiate broker commissions." Apparently another WSJ story three years ago which advised consumers that "It Pays to Negotiate Your Agent's Commission," has had little impact (despite a reference to The Real Estate Cafe's 100% rebate model ;-)

So how can an enlightened homebuyer or seller compare the value added by real estate agents versus their level of effort and cost of doing business?  One of the researchers in the NYTimes article concludes that real estate consumers will begin asking for time sheets:

"...sellers [and homebuyers?] will begin to examine more closely the cost of all the small tasks handled by agents. To justify a $12,000 fee on a $200,000 house, he said, "you'd have to have a very high hourly rate" for an agent's work."

Another industry critic, Mark Nadel, says that kind of disclosure could help deliver an estimated $30 billion annually in consumer savings.  Yes, existing fee-for-service business models like The Real Estate Cafe would benefit greatly from such a regulation, but if "unit pricing" is now commonplace in supermarkets why not require similar transparency in real estate so homebuyers and sellers can compare effective hourly rates? 

Want to see time sheets for our past clients and compare their total hourly fees to savings last year?  Ask our competitors -- traditional full commissions or competing rebate business models like Redfin -- for the same information so you can compare hourly fees and savings side-by-side.  (Our goal is to help you save so much money, you're GLAD to help save a life as well.)

Talking about a (Real Estate) Revolution: Then & Now

Welcome Boston Globe readers, existing clients, and others: Some real estate consumer advocates, like The Real Estate Cafe, have been "Talking about a Revolution" in real estate -- CONSUMER revolution to be specific -- since the early 1990's. Why do you think that alternative, money-saving real estate business models have been slow to capture market share?

The Real Estate Cafe has just launched an experimental new, social networking site to discuss that question and MANY others in coming months.  Please visit the site, add your perspective or questions, and even set-up your own page within the new site to share your thoughts, photos, videos, etc.  We can't wait to grow this community of web-savvy, do-it-yourself real estate consumers and real estate "change agents" to share moneysaving strategies and opportunities! 

Your creativity and friends are needed to join and expand the revolution.  Some photos from past efforts are shown in this mini-slideshow as well as a photo of the original Real Estate Cafe, founded in 1995, as the nation's first, internet-based, walk-in housing information center.  Last year, our clients saved over $1 million not even counting our commission rebates (see article in Wall Street Journal).  If you're buying a home, we'd be glad to chat online or in-person about our NEW menu of fee options, to help you choose the one that's best for you.

Wanted: New generation of "fee-for-service" real estate consultants to help "An Army of Davids" save $30 billion annually

Raving about the book, An Army of Davids, Web 2.0 real estate blogger Mike Price, founder of MLPodcast, quotes author and Instapundit guru Glenn Reynolds as saying:

"It's not just that fewer people can do the same work, it's that they don't need a big company to provide the infrastructure to do the work, in fact, they may be far more efficient without the big company and all the inefficiencies and stumbling blocks that its bureaucracy and techno-structure seem to produce."

Price concludes with this warning to traditional real estate agents "who don't get it:"

"This new paradigm of singularity powered by technology and changes in social structures can not be denied, so you'll have to ask yourself if you're prepared to sell to a client that is all too familiar with the concepts."

At The Real Estate Cafe, there is no such thing as a client who is "all too familiar with" Web 2.0 or the real estate market ;-)  In fact, we assume our clients know more than us about the local housing markets some of them have been monitoring for more than a decade using the internet and good old-fashioned word of mouth.  That was the case this morning with our latest buyer client. 

Unfortunately, what some of tech-savvy house hunters don't realize is that the rules of the current real estate industry sometimes penalize self-reliant, do-it-yourself'ers who wait too long to ask a buyer agency willing to rebate 2/3rds of the buyers agency fee, like Redfin; or rebate 3/4rds of the buyer agency fee, like BuyerSideRealty; or rebate 100% of the buyer agency fee, like The Real Estate Cafe to represent them.

Until real estate commissions are uncoupled, and buyer and sellers agents negotiate separate fees independently with their respective clients, web-savvy homebuyers need to be equally savvy about inadvertently forfeiting thousands of dollars in rebates by communicating directly with listing agents, online or off, who are always eager to collect both sides of the obsolete, two-sided real estate commission.  That's part of what is keeping the bloated real estate dinosaurs, Reynolds pokes fun at in his statement above, profitable.  As they fall under the weight over their own inefficiency, a new generation of "micro-brokers," with modest or minuscule overhead costs and reasonable consulting fees, will gladly help "An Army of Davids" save an estimated $30 billion dollars annually.