Sellers getting smarter...
May 5, 2005
The phone rings...caller ID reports Big Local Realty Co. Great, a call on one of my listings!
Prolog: [Merv ] Hi, Merv Forney of RE/MAX.
[Agent] My name is Smarty Agent.
[Agent] I'm calling on your listing on Curb Appeal Drive.
[Merv ] Sure. How can I help you?
[Agent] Will your client pay a 3% buyer commission?
[Merv ] Pause. Uhhhhh...No, I don't believe they will.
[Agent] OK, then tell them I will not show their home.
[Merv ] Thinking...then I respond: That is certainly your perogative.
[Agent] It is. Click.
[Merv ] Click.
Analysis:
To say commissions are a sensitive subject is an understatement...
- Sellers are moving after 10 years in their home. Original owners.
- Their home has appreciated about 25% per year for the last two years.
- The home is market valued at around $600,000 today.
- It is a strong sellers market
- I offer to list their home for a negotiated fee and they instruct me they will not pay more than 2% to the buyer broker.
- I get the listing
| 2003 | 2005 | % Gain | |
| Market Value | $385,000 | $600,000 | 56% |
| 3% Buyer Broker Fee | $11,550 | $18,000 | 56% |
| 2% Buyer Broker Fee | $7,700 | $12,000 | 56% |
Now, the difference between 3% two years ago (the "standard") and 2% today is a net positive of $450 or a four percent (4%) increase from 2003.
A quick study of the local market in the 3 largest counties yeilds a surprise on buyer broker commissions offered:
- 2003: 40 homes were sold at less than 3%.
- 2004: 219 homes sold at less than 3%.
- 2005: 267 homes (first 4 months this year) are sold or listed at less than 3%. That's 801 on an annualized basis.
We can make all kinds of arguments why less than 3% is out of line. Buyer agents have to do more work writing multiple contracts until they ratify one for a buyer (probably true, but do sellers care?). There are more agents to feed (lousy argument). Brokers profits are narrowing (buyers and sellers simply do not care).
Mr. Market and Mr. and Mrs. Consumer are having their way with us. The market will drive home prices and consumers will drive what they are willing to pay for services. In a buyer's market, the tide will turn back...I'm sure.
As for my caller, it's apparent his personal interests are more important than his buyer's. For the buyers this agent represents (if he has any), you may have missed a great buy.
The greatest of companies have died because of arrogance and failing to listen to their customers.
Epilog:
This property had over a dozen recorded showings and a ratified contract in 13 days.
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It's getting weirder and weirder. I can't believe what I just heard from an agent today. Yep, another call about my seller providing less than a 3% buyer agent commission. It went something like this:
Agent: Your listing is very nice and it is $30,000 more than one down the street. The seller down the street is offering a 3% commission. Your seller's home is $30,000 more and offering less commission. Will your seller pay more?
Answer: I will ask him/her.
Agent: Ok, because if he/she will not, we won't make an offer on the home.
Answer: Let's make sure I understand this. Your clients want to make an offer only if my seller will pay YOU a higher commission. Is that what you are saying?
Yes, your house is more and you offer less.
Answer: Are you a real estate agent?
Agent: Yes.
Answer: And, you are telling me that your buyers want to buy the home but you won't write a contract. Is that right?
Agent: Yes
Answer: I don't think we should be having this conversation.
Agent: I don't have time for this. We won't make an offer.
Answer: You are wasting my time too. Bye.
If I am failing to see the logic here, someone please help.
The industry is getting crazy. It's no wonder the DOJ is investigating everything.
That's why I believe we need to change the models. There is absolutely nothing wrong with getting paid for your expertise and time. Our business models (as in Pam and I) are based on the cost of service, not equity.
I posted to my own entry.
Wake up out there. I want to be challenged!
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