Recently “Alberta Venture” magazine published an article onthe state of Real Estate and examined the differences between selling on yourown and using a REALTOR who markets their property through the Multiple ListingService.
Since I was interviewed for the article I have a couple ofthoughts that I’d like to share. Myinitial reaction is that this article was written with the perspective that realestate transacted through a Realtor is passé. As far as the article is concerned it does tryto peer into many aspects of the industry and asks some tough questions.
The great thing about free enterprise is it finds itsequilibrium. If the Real Estate industrydidn’t have value it wouldn’t exist. Thereality is that it has significant value for many people and for some itdoesn’t matter they just don’t want to pay the fee. Fair enough. Not everyone shops at Sears, Wal-Mart or Holt Renfrew and all of thesebusinesses offer different levels of service at different price points as doesthe real estate industry. The problem I have is that people tend to lump everyoneinto one pot, saying that we all do the same thing for the same price and getthe same results.
Regarding Fees
For some the main issue is real estate commissions. This week alone I went on several listingpresentations and was confronted by sellers who had received a range of offerson commissions from different brokerages.
There seems to be a perception that Realtors are overpaidand the money is easy. The failure rateof people entering the industry lured by dollar signs and easy commissions isincredibly high. I’ve heard as many as 50% of new associates are out of theindustry within a year of being licensed due in part to intense competition andexorbitant costs to maintain mandated thresholds.
If it was such an easy business then the free enterprisemodel would tell us that the fees would have come down by now. The fact is in many cases they have and inother cases they have risen as true professionals who know their value chargeaccordingly. However, the marketingcompanies who pitch to people that they will sell your home don’t care in theend if it sells or not since they get their fee up front.
A Changing Industry
One of the conversations I had with Scott (the author) was abouthow the Internet had changed the travel industry and would it could do the sameto real estate. This is an argument I love. Yes, the Internet has changed real estate and will continue to do so. Idon’t know how often people make travel plans in the hundreds of thousands ofdollars, but I’m certain those who do still use a travel agent.
The internet has augmented my business. This blog is a perfect example, as is theonline marketing we do for our listings. Not everyone in this industry hasembraced the Internet but it will not be long before these people are relegatedare completely marginalized by consumers’ demands for better marketing. When you look at the amount of viewings,impressions and my bet is showings I think hands down our marketing blows themout of the water. We’re the best of bothworlds. Fantastic, innovative onlinemarketing with the strength of the MLS.
Business Models
One thing I have to admit is that these marketing companies havea great business model for the business owner. You get people to pay you – up front – to advertise your business. It’s likepaying your electrician in advance. Here’s the money now do the work.
The reality is that these companies talk about offeringgreat support but this is support is extremely limited (by law) and so is theadvice they are able to give (none).
I’ve stated before that I believe the actual transactioncosts are increasing due people trying these companies out and realizing thatthey are not for everyone. Thesecompanies in a sense pray on the “save a buck mentality” and if it doesn’t workthen you have to go out and get a REALTOR which just increases the overalltransaction cost. Not to mention theseller has probably put themselves in a more motivated position by wastingmarketing time.
Service Levels
One common misconception the article does not address isthat there are different tiers in the industry in terms of fees, abilities andservices provided; the article actually brushes the whole industry with a broadstroke feeding the perception that all Realtors are the same. Many people incorrectly assume – as does the author- that everybody provides the same level of service, advertising, and resultsat the same fee. To be fair, I’m sure the article had to be limited somewhat inlength (lucky for you I can go on as long as I want).
Myfavorite quote in the article was from one of the DIY owners who said “I don’twant to work after 5, if a Realtor does that’s up to them.” Of course he doesn’t want to work after 5,who really does? The majority ofproperties sell after 5 so most Realtors spend a lot of time working after 5.
Competition
The author tried very hard to get me to look at Comfree asmy competition; unfortunately that is just not the case. The have actually helped my businesses. By the time people have exhausted themselvestrying to do it on their own and contact us they are much more appreciative ofthe work that our little company does.
The points I made to the writer about marketing companieswere this:
- Their stats don’t add up. At least I can’t get them to add up. I’m required to be factual and support myclaims. He alluded to this in hisarticle as well.
- Their claims about commissions saved areFALSE. If I said there was a standardcommission in the industry I would be investigated by the competition bureauand fined. (The last fine they handed out in Calgary that I am aware of was $100,000).
- There is room for numerous types of companiesand business models in real estate. That’swhat makes free enterprise fantastic. Weall have to keep evolving. I amconstantly told by potential clients that so and so will do it for this and someoneelse will do it for that – all of which are different from what I charge. Sowhen Comfree states there is a set fee this is BS and actually probably helpslower tier industry members get higher commission. (Just a belief)
- I did say that I believe some of these companieshave forced some people in the real estate industry to improve their level ofmarketing. I could also say we’ve beenlifting the bar as well. People in industrycontact us regularly about some of the things were doing.
Reality
Theother thing that the DIY’s said which shows a complete disconnect from realityis that – “the buyer and seller will sit down and work out the best price, it’sthat easy.” Some people clearly havebetter negotiating skills than others . Thenthere’s always those who find out the hard way that things should have beendiscussed earlier and weren’t only to have it come up and bite them in the assbig time. Be it a lawsuit or some obligationthat causes the deal to crater costing the seller time, money and lostopportunity.
Oneseller who contacted us had six deals come apart in the heat of the market. Sayingit’s that simple is not being even close to realistic. In this case we sold her property and nettedher $12,000 more after paying us then her highest offer would have netted her.
Ireceived an email from someone who was really upset with the person and companythey had used in the sale of their home. They actually took them to court and won a substantial settlement. So he told me my argument of the value of aRealtor was mute. My comment back tohim was, based on their situation that they would more than likely have madethe same mistake on their own, possibly even compounding it causing the buyerto be entitled to even more damages then they were. More importantly though he recognized thatbecause the Realtor had errors and omission insurance (mandatory in Alberta) hereceived compensation, whereas if he had done it himself it would have been avery costly mistake to sell on his own.
Results
Inthe end it’s results that matter. After all the fees paid up front, the lack ofexpertise in such an important area, the lack of a support network to getthings resolved and the potential loss in value while sitting on the market, Ibelieve that it’s easy to justify the industry’s existence. But lets face it,no one wants to pay anymore than they have to. At the same time there’s areason the saying “you get what you pay for” exists.
Onething I think article proves is that people should be aware of the choices. The most important thing they can do with oneof their most important assets is to do their research thoroughly and make thedecision that’s best for their family.
Asthe world changes the relative value of the real estate industry may fluctuate,but more likely the consumer will get what they have paid for. Professionals who have extensive knowledgethat can benefit their clients in real time have value for such importantinvestments.
