Alternative fees for home buyers: Still the “Unfinished [r]Evolution”?

Four years ago, June 7, 2004, Banker & Tradesman quoted The Real Estate Cafe in a page one story entitled, "MLS Policy Statement Fuels Commission War."  The skip page read:

Unfinished Evolution

During the last decade or so, alternative services — such as flat-fee, listing-only or fee-for-service models — have been offered to home sellers, but there haven’t been a tremendous amount of choice for buyers, according to Wendel. 

This is one of the untold and unfinished pieces of this [real estate r]evolution," he said.  Wendel, who charges $100 an hour rather than charging a commission, has been offering a full menu of services to both buyers and sellers for the last 10 years.

Do you think the residential brokerage community now offers enough alternatives to the traditional real estate commission?  What kind of money-saving options would you like The Real Estate Cafe to add to it’s Menu of Fees & Rebates?  Should we bring back our $3,000 and $5,000 flat fees, first offered when we opened in 1995, or continue to focus on hourly fees?

Would you like to see the traditional, two-sided real estate brokerage commission uncoupled so home buyers and sellers can BOTH maximize savings in an open, competitive market place?  If you are not familiar with the issue, watch this 90 second video.  Why hasn’t this happened already, and what will it take to get there?  Your ideas are welcome on the "divorcing" commissions section of our wiki, or in the comments section below. 

See what we mean about the "Unfinished [r]Evolution" in real estate brokerage fees?

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Dual agency: Untold story of real estate bubble?

I think there is some truth to complaint that the "traditional" real estate business model contributed to bidding wars over the past five years, hence the anger by some home buyers.  As a buyer agent, I can honestly say that our buyers seldom beat an in-house offer at well-known dominate firms in the Boston area.  My guess is that buyers were manipulated to drive prices up, and commissions were then shaved to insure in-house sales — enabling the brokerage to keep both sides of the commission.

FLASHBACK

Link to Trulia thread with 113 responses so far, including a few posts from The Real Estate Cafe about fee-for-service options:

Buyer Agents wanted on a fixed price basis.
http://tinyurl.com/64wz73

Hard to believe that the former chief economist, of the National
Association of Realtors made this prediction more than a decade ago:

"The next major revolution in real estate will be fee based services
replacing the blanket commission pricing that has dominated the
industry for so long."

We use it as a tag line on each of our emails, and have offered
consumers a menu of fees & rebates since we opened in 1995.  Wish
the Boston Globe had mention in their story, as we blogged a year ago
in this post:

Real Estate Rift or Rebate Envy?
http://tinyurl.com/6985su

Billion dollar break-up: Protecting rebates vs divorcing two-sided real estate commissions

Stupidtax_1
Redfin’s corporate blog is cheering because an "Anti-Rebate Bill" introduced in Illinois that would have banned real estate rebates has apparently died in committee, or in Redfin’s words, been "crushed."  Other sources report that the bill has changed focus, and as The Black Knight in Monte Python’s Holy Grail famously said, may not be dead yet.  According to sources, there may still be an attempt to morph the anti-rebate bill into a procuring cause bill before Friday’s deadline, which could be extended.  What’s at stake is the definition of procuring cause, a legal concept which Realtors use to decide who procured the buyer, and therefore who is entitled to collect the buyer agency fee under their guidelines.  Although the exact language has not been shared, Redfin and other sources allege that the reworded bill would require a buyer agent to accompany their client to property showings to collect the buyer agency fee offered through the multiple listing service (MLS).

Buyer agency compensation is an old family fight in the residential real estate industry, one the consumer has been dragged into because a growing generation of discount business model use rebates to hook home buyers.  What most home buyers don’t realize is the two-sided real estate commission is obsolete, and some critics have likened it to a real estate transfer tax (hence our photo above).  So, IMHO, firms discount business models like Redfin are actually propping up an artificial pricing structure and reinforcing a barrier to competition and consumer savings.  While a recent Redfin blog post called the 3% buyer agency fee "boring," it did not challenge it or call it unnecessary or anti-competitive.  In fact, the blog post says "Redfin has always been careful when listing a home to encourage our clients to offer the buyer’s agent 3%…"

I agree with Redfin, the proposed IL bill is not the answer, neither in it’s original form, which sought to ban rebates; nor it’s amended form, which may seek to define procuring cause.  However, there is a long overdue reform that would reduce real estate commissions by billions of dollars annually:  separate fees for listing agents and buyer agents.  Think of it as a real estate version of BYOB: Bring your own broker.  That’s the only way to create an open, competitive market place in residential brokerage, where as one attorney wrote:   "the ability to freely price one’s service is a pretty basic, bread and butter tenet of competition." The Consumer Federation of America first proposed that reform 16 years ago, and there is growing interest in "divorcing" the commission even within the Realtor community.  You can learn more by viewing this 90 second slide show:

Uncoupling the traditional two-sided real estate commission:  10 Mega-trends leading towards a tipping point (click to see video)

As the real estate industry transitions to a more competitive marketplace, The Real Estate Cafe’s will continue to offer a menu of hourly and flat fees plus rebates, including a 100% rebate option.  However, we’d prefer to work with other change agents to unlock billions of dollars of consumer savings annually by compensating buyer and seller agents independently.  If you are interested, please use this wiki to brainstorm about building a coalition and action plan to divorce real estate commissions.  If you’d like to meet in person in Boston, no need to BYOB — we’ll buy the beer.

How can we improve our money-saving Menu of Fees & Rebates?

Menurebates_v1It’s been more than a year since we updated our Menu of Fees & Rebates, so we’d like to invite home buyers to meet in person to discuss possible improvements.  Our current options are shown above (click on arrowheads in outline for more detail) and on our wiki.

  • We offer three basic options:  traditional commissions with limited rebates, hourly fees with full rebates, and flat fees with performance bonuses
  • Our most popular options include a 100% rebate of the buyer agency commission included in the sales price. 
  • Our hourly fees range from $75 to $125 per hour depending on the size of retainer prepaid (or $150 per hour with no retainer or minimum fee).
  • Limited availability:  Flat fees start at $3,000 plus performance bonus.  Each performance bonus is negotiated individually to motivate us to help you maximize saving (see map of savings totaling over $1 million).
  • We’re also willing to work with a few buyers on a 1% fee option, some restrictions apply.
  • Finally, you can propose your own fee / rebate, particularly if you are selling "for sale by owner" and would like us to represent you as a buyer.  That way you can maximize savings both buying and selling.

Our ideal is a mix of fees — hourly, flat fees, and traditional.  If you select option 3.3 and prepaid $3,000 in the next few days, we’ll cut our hourly rate by 50% for the first 40 hours.  We’re pushing this special offer so we can attend the National Association of Realtors mid-year convention next week to identify the best new money-saving tools and trends for home buyers and sellers. 

Should we host a series of webinars or meetings off-line to discuss the benefits of each fee / rebate, and to help new clients decide which money-saving option best meets their
needs?  We can meet on short notice at a local cafe or in the privacy of your home.  We’re also eager to begin meeting at  TogetherInMotion in Arlington, MA so working parents can talk over food while their kids play.  Please contact us for additional information.

Will real estate “consultants” replace real estate agents?

Several days ago, a blog reader asked:

Anyone know of any national source out there promoting or aggregating discount/fee based real estate agents/brokers?

The question comes on the 6th anniversay of the first course "Consumer-Centric Real Estate Consultant" (C-CREC) training offered on October 1, 2000 in Orlando, FL by Julie Garton-Good, founder of the National Association of Real Estate Consultants (NAREC.com).  NAREC is one of two national organizations formed in the past six years to help promote alternative or fee-for-service real estate business models. 

Here’s my short history of attempts to aggregate alternative / fee-for-service real estate service providers:

1997-98:  Pat Rioux, of http://www.listforless.com, worked with an assistant to develop a nationwide database of alternative real estate services.  The same database was published on the International Real Estate Digest, http://www.ired.com, at approximately the same time because Pat also wrote for the site.  IRED was a pioneer in the online real estate world, nominated around the same time for a Webby Award.

July 1999:  The Real Estate Cafe (https://realestatecafe.com), publishers of this blog, hired Pat and her assistant to update their database.  The directory of over 500 companies was available to visitors to the Cafe, then a walk-in, internet-based housing information center in Cambridge, MA — the first nation when we open in 1995.

2000:  Julie Garton-Good founded the National Association of Real Estate Consultants, http://www.NAREC.com.  Their membership includes a wide range of alternative real estate business models.

November 2000:  The National Association of Realtors (http://www.Realtors.org) released a strategic planning committee report, written by consultants at Arthur D. Little in Cambridge, MA, which predicted that the use of the term real estate "agent" would be replaced by real estate "consultant" during the second half of this decade.  Think we’re on schedule?

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