Buyer Beware: FREE-for-service vs Fee-for-Service real estate agents

Insert Thumbtack screen

Two weeks ago, I disclosed that I am attending Dave Ramsey’s Financial Peace University class for the third time.  Tonight’s lesson is one home buyers should heed: Buyer Beware.

As consumer advocates with a long track record of championing money-saving real estate business models, we were excited to learn this week that OpenChime released a new update.  We first corresponded with their founders, fellow MIT grads, about their bid model in January 2011 and subsequently added The Real Estate Cafe to their directory.  Last summer we added our fee-for-service business model to another RFP (request for proposals) app, Thumbtack, using the headline:

Wanted:  Cost-Conscious, Tech-Savvy DIY Home Buyers

Long before “FREEmium” was added to the digital marketplace, real estate agents routinely — and we would argue deceptively — advertised that their services are available at “no extra cost” or “free.”  The Consumer Federation of America (CFA), Consumer Advocates in American Real Estate (CAARE) and others have offered alternative perspections on negotiating real estate commissions and the question: “Who pays the real estate commission?

Because the buyer’s pays the real estate commission out of the funds they bring to the closing table, our perspective is that is their cost.  If they are not receiving a rebate of the buyer agency fee, they maybe financing the cost over the life of their loan. So what appeared to be a FREEmium, is actually a PREMIUM — the true cost exceeds the 2.5% to 3% buried in the sales price because interest is being paid on the commission every month instead of getting cash back at closing.  In contrast, The Real Estate Cafe has offered a Menu of Fees & Rebates since 1995, and our 100% rebate option has been featured in an article in Wall Street Journal on “Cutting the commission.”

Thankfully, the internet and mobile devices enable homebuyers to do much of the home buying process themselves.  Unfortunately, our experience is that DIY homebuyers unintentionally short change themselves in at least three ways.  We’ll write more about that subject soon; in the meantime,buyers beware.

If you’d like to become more aware of money-saving opportunities in real estate, we’d love to demonstrate how buyers can use new request for proposal business models like OpenChime andThumbtack to save money.  Want to TweetUp at your convenience for a tabletop demo or participate in a demo online?  Either way, we’ll show you how to monetize the difference between alledgely “FREE-for-service” and fee-for-service business models.

DEMO Request for Proposal sites

Related Articles

Say NO to full real estate commissions, YES to unbundled services & fees

The comment below was posted on the leading real estate technology web site earlier today in response to an article entitled, Just say ‘no’ to commission-cutting Part 1: Why agents are worth full commission

Bernice,

I respect your perspective and fellow real estate professional s who choose to provide full services for a full fee. But wouldn’t you agree that the internet has been unbundling real services for more than a decade, and buyers and sellers can benefit from the "best of breed" services without paying a full commission?

So, why not encourage individual sellers to do their own math? If they (1) can do some of the work themselves, (2) pay to use self-service tools online, and (3) hire fee-for-service real estate consultants on an hourly fee to do other tasks, some may conclude that will "translate into more dollars at closing" than hiring with a full fee agent.

What some agents offer as a "premium marketing package" can easily be unbundled and individual components are already available "a la carte" for penny-pinching consumers who want to save money:

  • Pricing within the call capture industry is very competitive – base monthly costs are comparable to cable television bills in our market. No reason to pay a full commission for this benefit.
  • If the goal is to "publishing your listings on as many Web sites as possible," why should full fee sellers be content to syndicate content to 30 sites via Post2Agent.com when a FSBO friendly site like Fizber.com syndicates listings to 80 sites for a flat fee (about the cost of two print newspaper ads in our market)?
  • Video can be an attention getting upgrade, but is not essential. Still, prices at the best real estate video solution providers start under $1,000 and syndication via TubeMogul.com appears to be FREE.
  • Yes, OBEO.com’s StyleDesigner is magic and sellers can turn a liability turned into an asset by giving buyers the opportunity to do their own virtual "makeover." But that upgrade cost less than most entrees at upscale restaurants in our market.
  • The ever expanding menu of money-saving real estate tools makes tracking an important tool for do-it-yourselfers to assess cost effectiveness. Value-conscious sellers can use tracking tools to (1) decide when they need to purchase more tools or services from a real estate consultant, (2) when to change their price, and finally, (3) when they can save more money be working with a full service, full fee agent.

So doesn’t it make sense for real estate consumers to consider unbundled service providers before concluding they can save money money by paying a full commission, particularly when some listing entry only and fee-for-service real estate business models offer service or money-back guarantees, too?

Will real estate consumers begin comparing hourly fees to savings?

What’s a familiar story about agents vs "for sale by owner" properties doing "above the fold" on page one of the New York Times?  Because:

"The
findings [– that "One City’€™s Home Sellers Do Better on Their Own –] fly in the face of studies by the National Association of
Realtors. The group has said that houses sold via its members’ local
multiple listing services get a 16 percent premium over homes sold by
their owners."

The timing of the story is also important because it echoes a Wall Street Journal headline this week cautioning
"What You Don’t Know About Real Estate May Cost You."

One of the stunning findings in research conducted by the AARP and
Consumer Federation of America is that "Only about one-quarter of
respondents knew that they can negotiate broker commissions."
Apparently another WSJ story three years ago which advised consumers
that "It Pays to Negotiate Your Agent’s Commission," has had little impact (despite a reference to The Real Estate Cafe’s 100% rebate model 😉

So how can an enlightened homebuyer or seller compare the
value added by real estate agents versus their level of effort and cost of doing
business?  One of the researchers in the NYTimes article concludes that
real estate consumers will begin asking for time sheets:

"…sellers [and homebuyers?]
will begin to examine more closely the cost of all the small tasks
handled by agents. To justify a $12,000 fee on a $200,000 house, he
said, "you’d have to have a very high hourly rate" for an agent’s work."

Another industry critic, Mark Nadel, says that kind of disclosure could help deliver an
estimated $30 billion annually in consumer savings.  Yes, existing
fee-for-service business models like The Real Estate Cafe would benefit
greatly from such a regulation, but if "unit pricing" is now commonplace in
supermarkets why not require similar transparency in real estate so
homebuyers and sellers can compare effective hourly rates? 

Want to see time sheets for our past clients and compare their total hourly fees to savings last year?  Ask our competitors — traditional full commissions or competing rebate business models like Redfin — for the same information so you can compare hourly fees and savings side-by-side.  (Our goal is to help you save so much money, you’re GLAD to help save a life as well.)

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