Flat-fee real estate agents…I need your help!

In Freakonomics, we wrote about my research with Chad Syverson which looked at how real estate agents did when they sold their own houses versus those of their clients. You can read the original academic paper here.

Now we’ve got a new paper idea on real estate, but we need some help from real-estate agents/brokers — especially ones that either themselves provide a flat-fee service for clients wanting to list a house on MLS, or know a lot about such services. Please spread the word.

If you fit the bill and want to help us, I think you might have some fun and possibly get a great marketing tool for your business. Please email me at levittdubner@freakonomics.com.


Martin Anderson

I am a broker and a manager of 25 or so agents in Boulder, Colorado. Our firm, Colorado Landmark Realtors, is run on a traditional model: There is a managing broker, he hires agents (55) on a split (our average is about 73% to the agent). That agent is an independent contractor, and negotiates her own deals with her clients on commissions. Usually they negotiate something in the 5-6% range with the sellers. In our MLS, the coop fee is posted, and it is almost always 2.8% - regardless of the price of the home and regardless of what the listing agent may have negotiated (5-6%). I don't know if the fixed buyer's agent rate is common across the industry, but it is an extremely important factor for the success of fixed cost (we call them limited service) brokerages. Here's why:

A brokerage like Help-U-Sell has a business model that is built upon gathering many listings at a fixed fee of $3000-$4000, and putting the homeowners to work by having them host their own open houses. According to the franchise sales pitch I went to, “you could have 20 open houses on a single Sunday.” Those 20 open houses generate buyer leads. Those leads are qualified and passed on to buyer agents who pay a deep (50/50) split for the qualified lead. You guys talk about incentive structure a lot, and here is where the incentives get twisted in this model. If Help-U-Sell finds a buyer for a house they have listed, they generally make about 1% as a buyer-side commission. This is usually a negotiated deal done at the time of the listing. If, however, they sell my listing they take the full 2.8% commission – and pay their brokerage the 50/50 split. Bottom line, the fixed listing fee is the loss leader to put owners to work as prospectors. The leads are passed on to poorly qualified (no good agent in our market would accept a 50/50) buyer's agents who have more incentive to sell one of my listings than they do toe sell a listing that belongs to Help-U-Sell.

In our market probably 90% of more of all homes are sold through a brokerage and are entered into the MLS. Another 90% or more of the homes reported sold in the MLS are sold with a cooperating broker. Intra-company deals are no more common than inter-company deals – buyer's agents are agnostic to the color of the sign and are more focused on the color of the money. The buy-side commissions are the true fixed commissions in our market, so generating buyers and selling them houses is the truly lucrative side of our business, and that's what many of the discount brokerages are set up to do.

Agency versus Brokerage may be the saving grace for our business. Stock traders, travel agents, and even mortgage brokers, all got beat up by the internet and all saw their numbers and their margins shrink as their businesses became more transparent. I never saw any of the people above as an advocate for my interest, but as sales people selling commodities and trying to fit their fee into the deal. The emotion involved in buying or selling a home, the infrequency of the experience, the variability of condition and location of every home all tend toward having someone involved to participate in the process. Colorado and probably many other places have moved to an agency model where old-line transaction brokerage is what has become the endangered species. As an agent on the buyer side or the seller side, I have a fiduciary responsibility to prosecute the interests and goals of my clients. As an agent I use the data and all of my sales and negotiating skills to my client's best advantage. Just because lexis-nexis lets us look up legal precedent doesn't mean we're all equipped to research our own cases, defend ourselves in court, and negotiate our sentences. Similarly, just because Zillow says a property is worth “X” based on their black box algorithm, and just because graig's list has some house listings, doesn't mean every regular Joe should be negotiating the purchase of his next home.

Read more...

Altos Research Real Estate Insights

Real Estate of The Times

The New York Times today published it's real estate mega-issue. The depth and breadth of content that paper consistently churns out always amaze me.My favorite articles are by and about the economists (I need to get out more, I know.)Some Highlights...

burkesterjr

I am a former media executive who created the largest “DISCOUNT” Real Estate company in Southern California. After being featured on CNN and growing from $0.00 in 2004 to over $300 million in 2005, I was persuaded to “sell-out” and switch sides over to the largest “FULL-SERVICE” real estate company in the world. I went from independent entrepreneur to working for Warren Buffet. I know both sides very well.

The Boston Real Estate Blog » Blog Archive » Freakonomics authors on agents: your time is coming to an end

[...] (The authors of the book, “Freakonomics”, are looking for real estate agents for a study they are doing on brokers who charge flat-fee commissions. Looks like their research is going to continue.) [...]

RealEstateCafe

Steven and Chad,

How is your new real estate research project coming? Hope it looks beyond the current MLS structure, where sellers who use flat-fee listing entry services too often get only half of their potential savings, because they still offer "traditional" full commissions to buyer agents.

Since it's St. Patrick's day, isn't it time for buyers and sellers to BYOB -- Bring their Own Brokers -- and compensate them separately? Ten mega trends suggest that the obsolete, two-sided real estate commission may be "uncoupled" or "decoupled" in 2006, fifteen years after the Consumer Federation of America first called for that reform:

This blog post:
http://tinyurl.com/r2nnd

and 90 second video explain why:
http://tinyurl.com/nbzme

Jenniferhershey

Well, anyone may sell a house without any broker. It becomes quite easy now - go to google and type "sold by owner" - find a lot of places to post to. Besides, if you need new mortgage, visit my site - it's easy to search for what you need there: http://www.explainingmortgages.com

milancole

For what it's worth, I had such trouble trying to find a flat fee broker to sell my house that I decided to start a blog dedicated to the subject. So far, I've compiled a small but growing list of websites for flat fee brokers (only where I can verify the license, no referral sites) and am working writing brief reviews.

MikeO

Gents:

I found this by coincidence, although I am a "fan" of the book. I am an owner of a Help-U-Sell office in Northern Virginia; we are a flat fee company, but not as described in the first post. Actually, that post is riddled with errors and common misconceptions. The most egregious being the "limited service broker concept." Unfortunately, I am in a rush right now, but please feel free to email me with any questions regarding the company- or for the authors, the front lines of the Flat (or set) fee real estate business models. Thanks.

jpillow24

I don't know much about flat-fee real estate. Who would benefit more from it-the buyer or the seller? or the agent?

drkai

The real estate business is due for a major overhaul, because there is no strong correlation between the amount of service and the compensation. % of price fees will eventually give way to flat fees, which may lead to agents/brokers charging for their time and expenses like other professionals - lawyers, CPAs, etc. This will lead to a huge reduction in the number of agents, and the whole business will become more transparent and rational. Or maybe not :)

MikeO

jpillow:
In theory, all market participants benefit as it is a much more efficient system. For the sellers and buyers, the greatest benefit is savings over traditional commissions. As a stakeholder in the business model, I see a great number of other benefits for the market as well, but for the consumer it boils down to dollars in hand. The agents in a set fee model also benefit, but that is a factor with high variability; the broker/manager must have an effective and efficient model in place. Even within a franchised system, there is room for variation- both good and bad. The commissions are obviously lower on each sale, but if executed correctly, sales volume is drastically higher and workload is significantly reduced- lower margins force greater efficiency which lessens the individual burden.

I can't agree the agent representation system will find its way to billable hours, but I do agree with drkai overall. I especially like the comment about transparency- dead on!

Read more...

pgioffre

You guys can try this flat fee mls site
flat fee mls in all 50 states!

flatfeemlsmarketing

Any updates available on this research? Also, if you are still looking for more flat fee listing brokers I've found them in 29 states and counting.

eauclairerealestate

Hi-

Not sure if you are still searching for flat-fee real estate agents, but I am one. I started my company as a pure for sale by owner site and have now moved on to flat-fee. Clients pay about $400 up front. If another agent procures the buyer, they pay a co-broke that we set up at the time of listing (about 2-3%, or a flat fee). But about half the time they end up selling by owner to someone who found the home on the MLS. I'd be happy to talk about my business if you still need info.

Thomas Moulding

Hi
I'm the owner of Flat Rate Realty inc. and Have also owned one of the first Century 21 office's. There is alot of confussion about discount real estate. Yes there are some companys that take your money and put you in MLS. We in the business do not call them real estate company's. Company's like Mine and HelpUSell and Assist2Sell, and many more offer a reasonable fee and provide a value of service. We negoitate the commission and do not set it at 6%.
Flat Rate Realty list's a home for 1% and pays a buyers agent 2-3% and provide full service. And for the buyers we offer up to a 2/3% Rebate from our commission. The internet has provided a new vehicle for marketing Real Eatate. If the traditional agents do not get it, They will soon.
The internet is her stay and has changed the Real Estate Market. There are alot of smart people out there, They all now how to do the math. Within the next few years there will be fewer agents doing more of the business. I call them Trans-action Brokers. Buyers and sellers need brokers to handle the negotiations and contracts, they will not pay 6% much longer.
Pay 6% or Pay 3%, Do the math people and you will
get it. If I owned a Tradional real estate office I would be planning on selling or changing my business model to complete it the new market place.

Read more...

Rich Littlefield

I have been a mortgage broker now for 18 years. My experience is that discount brokers come and then go out of business quickly.

It appears they are not making enough money and have to close their companies. The exception to this is Help You Sell. They charge a flat fee of $5000

The main differenceis that the sellers are under no illusion that the discount broker Help you Sell is going to sell their homes. Yet I have called on real estate offices for years and found that Help you Sell has a lot of listings and most do not sell.

So perhaps, just maybe you should consider the fact that full service brokerages who charge 6% or more are actually charging a fair price for their services, being that those who charge much less go out of business rather quickly.

The problem is that people have no concept of how hard real estate agents need to work to sell a home.

Perhaps you should also realize that a large part of their business is negotiating. The fact is that discount brokers have proven they can not get the market price even for themselves.

Also keep in mind that the way agents get full price for the homes is to:

Expose it fully to the market and through negotiations.

Discount brokers do neither.

Read more...

Ravi Kanth

Here is one more site offering a set-fee alternative to paying the traditional broker commission - http://www.helpusell.com/
They says -
"Help-U-Sell Real Estate's Consumer-Focused Set-Fee Model Saved Consumers $400 Million in 2006"

Rodge

Some of the things you may want to consider in your paper on flat fee MLS companies would be assessing whether some of the traditional agent claims are true or valid.
For instance:
What do traditional agents actually do (for instance, sending you to their partner lender to get you pre-qualified -- does this ad value and can't most people do this themselves)?
Are traditional agents list prices lower out-of-the gate vs. flat fee customers that can price at whatever they desire
Do list price vs. sales price ratio's mean anything?
Days on market -- is there a difference and is it material considering the enormous difference in cost of services?
Is there a positive return on investment for any advertising beyond the MLS & Craigslist?

Mike

I have been offering Flat Fee for about a year and half. I started because I saw an out of state company racking up the listings and figured why should he get those dollars?

So far the people I have done this for had some kind of knowledge (Lawyers, Mortgage Professional, Builder)and only needed the help of the MLS for advertising as we get higher inventories in my area.

I have just started offering hourly service for the Seller who wants to pay as he goes and take away the risk from me of possibly not selling his house.

I have offered the Flat Fee many times to FSBO's but most want the full service commission option much to my surprise.

It will be interesting to see how many people take me up on the per hour service. Or will they find it too different?

http://mikecandoit.com/?page_id=152

Carla

The best move I ever made was accidentally stumbling upon a Michigan realtor who provides full service for 1%. She understood my needs as a home seller, the market, the costs. Because they reduced their commission and NOT the quality of service, the savings was applied toward a price reduction which made my house 'more competitive.' It sold in less than 3 months. Saved $9k and she was the best agent I'd seen in 30 years of home ownership. Look her up

http://www.michigandiscountrealtor.com