If you’ve ever sold a property, you have more than likely pondered how traditional real estate fees work. From your point of view, it seems like the agent gets a large chunk of your hard earned equity … and for what exactly? You present your property well and price it realistically. Sure, the agent does some good marketing, holds a couple of open homes, keeps you informed of progress and within a couple of weeks brings you one or more good offers. But here’s the thing, even if the agent has helped you achieve a fantastic price, even if you are thrilled with the final result, you are still left thinking… “$12,500 for two weeks work??? How can that be justified?”
You are not alone. Many consumers feel the same way and struggle to get their head around how the real estate industry really works.
For what it’s worth, we believe that you as consumers pay a large price for the inefficiencies of the traditional real estate industry business model (way of doing business).
However, don’t take our word for it.
Following are a few insights to consider, then you can make up your own mind.
Agents spend only 25% of their time actually working for you.
Several years ago in this article, Alistair Helm showed that…
Just to be clear, “Prospecting for business” does not mean looking for buyers to buy your property, it means looking for and persuading sellers (like you), to sell your property.
Alistair continued …
“The productive time spent on behalf of their clients in facilitating the sale of a house represents less than 25% of their working week. Yet their income from sellers supports their full working week”
In this article “The ‘Sales Job’ in real estate is not what you think” … we put it this way…
“With the traditional real estate model you (as a seller) are effectively paying to support the industry, to spend the majority of it’s time and resources – convincing you to sell.”
Imagine you receive a knock at your door from a local plumber looking for work. It just so happens you have a blocked drain so engage him to fix it. He spends approximately 1 hour on the job. A week later you are perplexed to receive an invoice for plumbing services totalling 5 hours work. In confusion you call the plumber and ask what the extra 4 hours were for? To which he replies…
“Well I had to knock on doors for 3 hours before I found you. Plus I did 1 hours work for your neighbour last month who didn’t pay me – so I had to add that to your bill also”
‘Sellers’ subsidise the work done for ‘non sellers’.
Traditional real estate fees are contingency based. This means that sellers only pay a commission if they choose to actually sell. However, it also means that when you do sell, you have to pay considerably more than the true cost involved in selling just your property. The commission on your sale needs to be high enough to offset the time, effort and money the industry spends working for other people, who then choose not to sell, and therefore pay nothing.
We spoke more in depth about this in these two articles:
In a nutshell, if you are a genuine seller that presents your property well, prices it realistically and sell relatively easily… that full commission you pay is effectively subsidising the clients who take a long time to accept the market or choose not to sell at all.
The industry supports far more salespeople than is needed.
Alistair Helm stated in his article…
“There are just too many agents tripping over each other, fighting one another, stabbing each other in the back to get a listing and from there to conclude a sale and ultimately earn a commission.”
Have a look just at our local market here in Timaru. There are currently around 59 active salespeople chasing an average of approximately 55 sales per month. That’s less than one sale per salesperson per month on average. How can that be? Surely it doesn’t take 59 real estate agents to facilitate 55 transactions? No it doesn’t. However, because the traditional commissions are so high, 59 agents can survive on only 55 sales.
Also, the real estate industry perpetuates this problem by continuing to recruit and build large teams of commission only agents. Why? Because the path to market share under the traditional industry business model, is what many in the industry call “bums on seats”… Take on as many commission only salespeople as possible… in theory the more salespeople you have running around the bigger market share you will have. It’s not about becoming more efficient… it’s about being seen as the biggest.
Alistair put it this way…
“The Industry, for that read the real estate companies; want the inefficiency, they want to have agents fighting each other for listings … The industry protects the model and the consumer pays – heavily”
On top of these obvious inefficiencies, we could also discuss the huge amount of money wasted on unnecessary ego based advertising… most of which is intended to increase the agents ‘profile’ (to attract more sellers) and adds little to no value to you, the client. (We will discuss this in more depth in a future article).
We could go on about how the traditional model supports old fashioned and inefficient business support structures, the big franchises, the sales training coaches etc… the list goes on and on.
Bottom line, the more you look, the more you realise the industry is massively inefficient. The question is…
Who do you think ultimately pays for it?
But enough ranting about what’s wrong with the industry. Deep down you know the industry is broken. So why aren’t we (consumers and agents) talking about solutions? How do we fix these issues? How do we create a real estate industry that is more efficient, fairer and better for both you and us?
Many commentators believe the industry itself will never change. Most of the industry doesn’t seem to want to change, which we found out the hard way. Over 12 months ago we approached the traditional real estate group (that we were affiliated to at the time) with a vision and proposal for a new real estate business model. One that can fix all of the issues stated in this article. One that is inherently more efficient. One that could be a ‘game changer’ and lead to a better industry for us all. We asked for their support to develop and grow this model under their brand. What was their answer? Well lets put it this way … we are no longer part of that group. And Restate was born.
The traditional industry is too entrenched in it’s culture and ways. Also, why would they change when you as consumers continue to support the industry in it’s current form?
As we suggested in “The ‘Sales Job’ in real estate is not what you think”
“Without knowing it, you (the consumer) hold the ultimate power to change real estate.”
The industry as a whole will only change when you demand it.
At Restate, we have thought about and developed solutions. There is a better way. And it’s actually really simple. Not easy, because it meant we had to totally re think our entire industry, but it is simple.
When you dig deep and look at the problems within the real estate industry, they can all be traced back to one fundamental cause. Think about everything you (as a consumer) hate about real estate agents… Then look at why those things happen? You will find that the ‘root evil’, so to speak, the fundamental underlying problem that leads to all those issues is…
The “commission only” sales culture and business model … that the entire industry has been built upon.
And that is what we believe needs to change if we truly want a better, more professional and efficient industry.
At Restate, we do want to change real estate for the better, so have done something about it.
The burning question now is…
Do you (as consumers) really want to see the real estate industry change?
If the answer is no, then keep supporting traditional real estate agents. Keep listing with them and paying for the inefficient model… and they will keep on doing what they have always done.
If the answer is yes, then support the movement for a better industry by demanding change. Speak up, tell us what you hate about the real estate industry in it’s current form? Tell us what you really want from your real estate agent? Tell us what you would like to see change?
Take control and help create a better industry – remember, you hold the ultimate power.
We are listening and would love to hear your thoughts and stories. You can contact us at firstname.lastname@example.org
“About 12 months ago we were thinking about moving but did not want to be rushed. So we invited Carl to come and have a chat. After listening to our concerns and discussing different options, he suggested and laid out a plan that was best for us and our situation. It made a lot of sense and put us in control, so we could go along at our own pace.
Nine months later, when we were ready, we met with Carl again to get the rest of the plan underway. Carl and Liz worked closely with our solicitor to make sure we were protected. They helped us throughout the whole process including advice around buying our next property privately.
They were never pushy and we always felt they had our best interests at heart.
We ended up with several offers within a week of putting ours on the market and sold for more than we had planned. Their new fee structure also saved us $4,900 compared to traditional fees. This meant we ended up with a bit extra and could comfortably buy our new home without having to touch our savings. We couldn’t be happier with the team at Restate.”