Overpriced Listings and Discount Brokers

Overpriced?

I’ve encountered this scenario on repeated occasions now. My Buyer is interested in an over-priced listing. It’s WAY over-priced – by about $20 per square foot, or about 15%. I am unable to find sales comps that even come close to justifying the list price, but my Buyer likes the place so I try to obtain further information from the listing agent. The property is listed by a Discount Broker. Over-priced listings are, in my experienced, disproportionately represented by Discount Brokers. That seems counter-intuitive to me, but it’s what I’ve observed. You’d think the Seller would use some of the “commission savings” to set a competitive price, but that’s not what we commonly see.

I email the listing agent and the conversation goes exactly as follows:

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More About Austin Discount Realtors and How Commissions Work

Real Estate Commission

Sylvia received a call today from an Austin home owner she met with last week. He called to thank her for coming out to discuss selling his house, and told her he has decided to go with another agent – one who is going to list the home for a 1% commission and offer a 2% commission to Buyer’s agents via the MLS.

For this Seller, a discounted commission was important, and he was up front about that requirement when he met with Sylvia. We don’t offer a discount program, so we did not win the assignment. Are we angry at the Seller or at the Discount Agent? No. Would we discount our commission to this Seller if we had it to do over again and could obtain the listing? No. That isn’t our business model.

We only know full service, full tilt real estate and we are good at that level of service. We don’t know how to give anything less. For example, there is no way I could bring myself to place only 1 photo in an MLS listing and charge extra for additional photos, as many of the Discount Brokers do via their “Unbundled Services” or “Ala Carte” programs. I’d actually be embarrassed to have my listings show only 1 photo. Photos are very important, as are virtual tours, because of the number of out of town buyers who select candidate properties online. We are simply not mentally oriented toward a partial, or limited service approach, and we are willing to leave that segment of the market to those agents who see value in this approach.

Do we think this Seller made a mistake by hiring a Discount Realtor? No. Well, we hope not. We wish for nothing other than a fast sale at top dollar for his home. We are not offended or hurt that he chose a Discount Broker over us. We understand that he wanted a service product that we don’t sell, and that’s ok. Real Estate customers do have choices, regardless of what we read in the news media and hear from consumer groups.

But this scenario provides a perfect opportunity to further discuss how real estate commissions work, and what might happen with this listing when it hits the Austin MLS with a 2% Buyer Agent commission instead of the more commonly seen 3%. Will the 2% Buyer Agent commission make the home harder to sell? Maybe – but not for the reasons most people assume.

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The Discount Realtor Debate

Do discount brokers save money?

Below is an article I saw on CNN/Money. The debate is whether Realtors fix commissions and lobby for laws that make it harder for Discount Brokers to offer services. I’m not happy to see politicians involved in this debate. It is humorous that politicians, who perform shameful funny-business with money more than any other class of people, feel qualified to scrutinize the appropriateness of the compensation structure of the highly competitive real estate industry. The real estate industry is already very highly regulated by laws designed to protect the public, and the real estate business is extremely competitive. Ask any of the thousands of agents who wash out of the business each year.

The current system works well. Buyers and Sellers can, with little difficulty, find Realtors who are willing to negotiate lower commissions, or offer Limited Service arrangements, if that is what the Seller or Buyer deems most important with the agent they hire. There is no price fixing. We don’t blacklist Discount Broker listings as some suggest. (I’m going to write a separate blog article on the fallacy of this assertion)

We have several Discount Realtors in Austin (search Google for “Austin Discount Realtor” if you’d like to consider hiring one). These companies and agents have captured little market share in Austin though. For example, the most visible Discount Broker in Austin, One Percent Realty, ironically, has 1% Market Share in Austin. This despite massive media advertising by One Percent, including a barrage of radio ads that disparage traditional full service Realtors and portray us as sleazy, greedy money-grubbers who drive BMWs and own Power Boats. See the One Percent TV ads on the One Percent Website. Their marketing stategy seems to be a combination of stirring ill will toward traditional Realtors, and promising big savings to potential customers.

The owner of any business must decide what his unique selling proposition will be. Realtors are no different. Some attract customers with lower fees; some with exceptional service; some with unique and specialized market knowledge; others have very effective brand identity and marketing campaigns. Some industries do limit competition and create barriers to entry (the medical profession for example), but there is perhaps no business easier to enter than real estate. In Texas, two to six weeks of classes will qualify most people to take the real estate exam. More than half of those who take the test flunk the first try, but most pass by the third attempt.

Real Estate customers are free to select from a vast sea of agents who want to earn your business. I’m going to write more about this subject later on, but for now, the article below does a pretty good job of outlining what people are saying about this topic.

July 26 2006:
NEW YORK (CNNMoney.com) — The fight over competition in the real estate industry went to a new battlefield this week as representatives of consumer groups, brokers and government agencies clashed before a House subcommittee.

Few participants pulled any punches.

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Realtor Ethics, Dilemmas and Screw-ups

Our real estate commissions

When representing a Buyer or a Seller in a real estate transaction, REALTORS® must, among other things, abide by the Realtor Code of Ethics and Standards of Practice. Article I of the code begins with:

“When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly.”

A common challenge we have as agents is deciding what to do when we know that the agent on the other side of the deal is committing a screw-up that might cost the other agent’s client money, but doesn’t necessarily jeapordize the deal. This happens quite often in fact. Agents we’ve dealt with in transactions often misinterpret the language of the contract, don’t fully understand what their client is agreeing to, miscount the days in an Option Period, and, in general, commit errors or omissions in their representation of the other party that benefit our client.

Does Article I of the Code of Ethics say that we have to point these things out to the other agent? No. Article I says we have to treat all parties honestly, but we do not have to educate and train the other agent on how to best represent their client, nor do we have to ask if they understand what they are doing, or determine if they are competent. Sometimes, however, the lines become very difficult to draw. Let me give you some examples.

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Staging an Austin Home for Sale – Sylvia’s Tips

Staging an empty house

In the mid-1980’s I worked as an Interior Designer. Every once in awhile I run into designers I knew when I was in that business. Last week I decided to add a few window treatments to my home and called a designer that was referred to me by a sales agent at a model home. I called the designer and set an appointment and sure enough when I saw her face I knew her! It was Jeannine from my past life as a designer.

As we were looking at my windows she asked me some tips on “staging homes for sale” because she has been asked to help people stage homes for sale but has never done this. As I rattled off the list of things I do, Steve – who was standing there – said “you should write a blog on that!” He’s been encouraging me to start adding blog articles to our website, so here we go – my first blog ever!

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