A tale of four home sellers
And how the traditional real estate model treated them.
Once upon a time four home sellers put their property on the market. Apart from going it alone and trying to sell privately, they had no real choice other than to list with traditional real estate agents on a ‘no sale – no fee’ commission-only basis. The going rate in town was $500 plus 3% of their sale price plus GST.
Ken and Barb took responsibility for their sale. They had a definite plan and knew that they were in control of it selling or not. They understood their actions and decisions ultimately dictate the outcome. They worked hard to present their property at it’s best and had realistic price expectations. They got quality advice, put a smart strategy in place and targeted getting a sale in the first two weeks (which is when you will get the most buyer interest). It worked a treat. They received multiple offers and sold for a premium of $400,000. They were dream clients. Their agent only outlaid $800 in marketing expenses and did 6 hours of direct work on their behalf. Although Ken and Barb were happy with the quick sale, they were left with a sour taste in their mouths. They felt the $14,375 in commission they had to pay was a lot, considering the work involved for the agent.
Mike and Clare on the other hand, wanted to move but accepted no responsibility for the sale of their property. They put little effort into presenting it well and were unrealistic in their asking price. After turning down a good early offer and 3 months of advertising, their property had become stale. They finally accepted a sale at $400,000. The agent outlaid $2,400 in marketing expenses and did 18 hours of direct work. Mike and Claire also paid $14,375 in commission.
Bob was much like Ken & Barb but lived on the other side of town. His property was perfectly presented and realistically priced. In under two weeks he had multiple offers driving the price up to more than expected. He was thrilled to sell for $200,000. The agent outlaid $800 in marketing expenses and did 6 hours of direct work. Bob paid $7,475 in commission.
Then there was Larry. He didn’t really need to sell but thought he’d throw it on the market for a silly price. Thinking it would make them work harder, he listed it with two agents. It wallowed on the market for 6 months. In that time Larry turned down 3 good offers before finally taking it off the market. He told all his friends the agents were “hopeless” as “they couldn’t sell his house”. Between the two of them, the agents spent $5,000 on advertising and 30 hours of direct work. Larry paid nothing.
What’s wrong with this story?
Ken and Barb did everything right. They made their agents job a lot easier and less expensive – yet they still paid the same fee as Mike & Claire who needed over 3 times as much work. And, just because their property was worth more, they had to pay twice as much as Bob, across town, who took the same amount of work for the agent. It just doesn’t seem right. But that’s the way the system works.
Of course all of them (Ken & Barb, Mike & Clare, and Bob) were subsidising Larry.
Folks, the commission-only ‘No Sale – No Fee’ system is broken. It rewards the people who take up time and resources but ultimately choose not to sell and it punishes the genuine clients who do everything in their power to make the selling process easier.
Imagine for a moment how different this picture would look if the real estate industry dropped the commission driven sales culture and worked on a consultancy based model. More like how any other professional service provider would operate. Where the fees are based on the actual work and outgoing costs involved for serving each individual client, rather than a large % of your equity.
In fact at Restate, we’ve developed such an approach. You’re given the choice of a more efficient fee structure called ‘Smart Fees’. They are a combination of consulting fees, outgoing costs, hours worked and a bonus (kind of like a profit share) – based on how much extra you bank compared to the less efficient commission-only model.
So lets apply it to the four sellers:
Ken & Barb’s fee would have been $8,251. Rewarding them for their smart decisions and helping them bank $6,124 more than they did under the traditional model.
Mike & Clare’s fee would have been around $13,000. Even though they took more work they still would have banked $1,375 more than they did under the traditional model.
Bob’s fee would have been around $6,500. Helping him bank around $1,000 more than he did under the traditional model.
Now Larry. Well he would’ve paid around $17,000. Although in reality he probably wouldn’t have engaged us to act for him. Maybe if the entire industry worked on a consultancy basis Larry would have thought long and hard about wasting everybody else’s time and resources in the first place. In which case, the agents wouldn’t need to recoup the losses they incurred for Larry, from the other sellers.
So far, the extra profits banked by our clients (compared to what they would have under the traditional commission model) has ranged from $350 to $14,000 with an average per client at over $4,500.
Of course, like everything in life it’s your decision which way you want to go. Traditional commission or ‘Smart Fees’? The main thing is that you now at least have a choice, that gives you more control over how much you bank from your sale.
“When Carl explained his new real estate model to us it was a no brainer, it made perfect sense. Carl & his friendly team were great to deal with, they made the whole process so simple & accommodated all our needs. The result speaks for itself with our home selling for $11,000 over asking price & saving $4,800 on our fees. The Restate team kept in contact with every step of the way. We couldn’t be happier with the restate team & would recommend them to anyone considering selling their property.” – Jess & Dan O’Neil