Tripping Over Dollars to Save Pennies?

A few weeks ago I mentioned (and promised to write more in the weeks to come) that Zip Realty recently closed eleven markets (not 11 offices, eleven MARKETS – each containing a number of offices).

I also mentioned that this didn’t surprise me in the least and that I had been anticipating this. Why? Because as is so often the case, the discount brokers came into the market a day late and a dollar short. Back when homes were selling more like commodities, the traditional 6-7% commission began to look ridiculous and the idea that something needed to change made sense.

A lot of agents were making a lot of money; some with very little effort. Everyone and their brother was getting their Real Estate License and the coming of the second California Gold Rush had arrived. Under those circumstances, the concept of discount brokerage had legs. Escrows were quick and easy, and 6-7% commissions equated to tens of thousands of dollars with our average sales price.

So the discount brokers grew like weeds – Zip Realty, Redfin, Help-u-Sell and others. Unfortunately, by the time they got their business plans written, funding in place and ready to really push the idea of discount brokerage – the market changed. Tantamount to the dot.bomb era of  silicon valley, there was no real solid foundation on which to build that business model.

Their pay as you go plans with little if any live communication just didn’t work when the housing market slowed. Buyers have confusing choices, inventory is down and heaven knows you don’t want to over-pay for a house! Seller’s need skilled and market savvy representation to get their home sold – and lost time means lower sales prices.

Discount brokers like Zip Realty do not offer full service; MLS? Oh, that’s extra. Open House? Oh, that’s extra. Sign and flyers? Oh, you do that yourself, or we can do it, but it will be extra. What?!?

Both buyers and (especially) sellers need all the professional, experienced, hard working help they can get these days – and our sophisticated, smart clients understand that. What I do for my 2.5% has changed a lot.

Information used to be a key element to what agents had access to in a Real Estate transaction. The internet has changed that forever (a good thing if you ask me) – and most of my clients do 90% of their homework on their own.

With the changes in real estate and lending rules, regulations and legislation, and with litigation skyrocketing (thank goodness that in my 21 years in the business, I’ve NEVER been involved in litigation. Knock on wood!), the need for experienced agents with up-to-date training and education is critical.

Early on in my transition from Corporate Real Estate with Taco Bell to Residential Real Estate, my first managing broker told me when I opened my first residential escrow “now is when the hard work starts”. I remember thinking I’d already worked awfully hard to 1) get the listing 2) get it marketed 3) get it exposure and 4) find the right buyer – all before opening escrow. But she was right.

Not only do full service agents tend to sell homes at their highest and best value (CAR data shows that homes sold through full service agencies will seller faster and for an average of 1-3% more (net!) to the seller). Accurate contracts and addendums will not only avoid litigation, but they are a valuable part of the negotiation process – all which helps buyers and sellers get their best outcome.

Also, an experienced full service agent tends to have developed a good network of support professionals that facilitates the home selling/buying process. Most discount brokers have not been able offer this type of proven resource. They may have a list of names – but that doesn’t mean much if they haven’t used these vendors and experienced their services. And oh what a difference the right support services can make – from financing, to title and escrow to inspections and repairs.

Finding and using a full service real estate agent could mean a lifetime of savings for you. My services to you can span decades and generations (I’ve already started helping some of my first clients find homes for their kids, who are working hard to move back to the area they grew up in).

Whether upsizing, downsizing, buying investment properties or helping with a first time buy – I like to think I can be one of your shrewd business partners – right up there with your CPA, investment broker or estate lawyer.

Which leads me to my final point. Next week I’ll be writing “These are a few of my favorite things” – my annual list of favorites and referrals. From favorite spots to favorite vendors and services. I’ve lived in this community and done Real Estate here for twenty years – let me share with you some of my great finds!

  1. Dan Scher’s avatar

    Respectfully, the reason that the discount brokers were unsuccessful was that they missed one of the points you correctly made. The leaders of these companies were high tech folks who did not know anything about the interface between the agent and the customer. They thought they could run their businesses on technology alone.

    The public wants a lower commission realtor but they also want one who is unequivocally on their side and can add to the process of buying/selling. Foxtons, in NJ, NY and Connecticut proved this. (They went out of business with 4,600 listings after having spent over $1 Million+)

    I believe that a discount Realtor will emerge and be successful, but they will have to figure out how the technology can help the agents as well as the buyers/sellers. That really isn’t hard when you consider that the most time consuming part of the agent process is finding the clients. I am not talking abouts agents such as your self who have been in the business for a long time and have plenty of referral and a strong reputation. I;M SPEAKING OF THE 80+% OF THE AGENTS THAT ACCOMPLISH 6 – 8 DEALS ANNUALLY, AND THEREFORE CANNOT MAKE A LIVING SELLING RE. They “web capture, model allows a GOOD agent do complete 25 – 50 transactions annually.

    When, and if, a company of high tech, well capitalized folks create a company like Zip, but recruit an operating sales and marking manager who knows the real estate business (because he/she has successfully performed these chores, cares about the agents as well as the clients and uses the technology to make the process for both the client and the agents more efficient, the model will work. There can be a discount company that delivers lower commissions, substantial higher volume per agent and everyone will be happy.

    The hubris of the high tech, elite educated folks who have the connections to obtain sufficient capital will have to become more open minded. They will have
    to combine with a well educated (formally or informally) real estate experience person and then the model will work.

    For the sake of the public we can only hope!

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