Can the Web Save the 6% Commission?
In its September 2008 issue, alongside its reviews of tub cleaners and organic produce, Consumer Reports turns its critical eye on the real estate industry.
The publication polled a sample of 3753 readers who sold or tried to sell a home, 4029 readers who bought a home and 7368 readers who did both. The results are illuminating to anyone in the industry; especially some of its findings which will surely be controversial.
Let’s look a bit deeper at the numbers.
First, the good news. Only 1% of sellers tried to use an online web site (craigslist, forsalebyowner.com etc.) to sell their home. 80% chose to go with an agent. It suggests that any fears that online players may someday distermediate the Realtors seem overblown. Sellers want to work with a real estate professional.
The bad news is that CR concludes is that overall “higher commission didn’t always translate into more service or better results.”
Moreover, respondants who “paid commissions of 3 percent or less were just as happy with their brokers performance as those who paid 6 percent or more.” In fact, those who paid more were “more likely to say they had regrets about the selling process”.
More troubling, is that CR recommends that consumers continue to aggressive negotiate the 6% commission downwards.
Seems to me that the real challenge here is that, moving forward, the industry needs do a better job of communicating its value (beyond puff advertising pieces) and, more importantly, delivering that value to consumers.
There are many ways to turn this tide, but I believe one way to slow the downwards trend on commissions is if brokers and agents can demonstrate to consumers they have an aggressive multi-modal marketing package in place for each and every listing.
Unfortunately, despite overwhelming evidence that consumers are looking for homes on the Internet (about 80%), it seems some Realtors are still choosing to ignore the medium.
According to CR, 85% of Keller Williams agents advertised homes on the Web - compared to only 76% of RE/MAX agents and 75% of Century 21 agents. The numbers, while high, are still unacceptable.
Agents should be syndicating their listings across the Net, taking dozens of high quality photos of the home, creating single property sites, doing video tours, blogging about their listings’ key selling features. Any or all of these approaches can add value (either real or perceived) to the bottom line of the transaction.
Brokers aren’t off the hook either. They need to be educating their agents on what the 21st Century internet-savvy buyer is looking for and then provide platforms that can deliver those services to their agents.
The Internet is not the be all and end all to getting a home sold. But far from being a threat to the 6 percent commission, it may just end up being its salvation.
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25 Comment(s)
2 Trackback(s)
- From Don’t Blame the Victims: Online Marketing & Agents « The Notorious R.O.B. | Aug 19, 2008
- From Internet Marketing for Real Estate » Week in Review Overload | Aug 22, 2008
Melissa | TalkSFRealEstate | Aug 18, 2008 | Reply
I personally think that it should be a requirement and a given that you market every listing online. Come on, that should be the bare minimum. Also, regarding the pictures, it is so ridiculous when I see a listing in the MLS with no pictures. That is just unacceptable. I think that to earn your 6%, you have to do the job that you are supposed to do which involves a lot of hard work. It’s too bad that some people have a bad experience with Realtors, and those situations get more attention.
RealEstateCafe | Aug 18, 2008 | Reply
Joel,
Interesting take on one of the industry’s never ending debates. Top of the head responses. You write:
“Only 1% of sellers tried to use an online web site (craigslist, forsalebyowner.com etc.) to sell their home. 80% chose to go with an agent.”
Where did the other 19% go?
Of the 80% who chose to work with an agent, what percent worked on money-saving, alternative fee arrangements?
* Listing entry only
* Flat fee, limited service
* Flat fee, full service
* Companies that rebate some of the commission, * Companies that rebate all of the commission if they are paid an hourly fee?
Regardless, any and all of those service / fee options above can offer an “aggressive multi-modal marketing packages” without charging a traditional, full fee. (Suggesting otherwise could raise price fixing / anti-trust issues, and I am sure that’s not your intent or anyone else’s.)
Don’t sites like vFlyer offer listing distribution and syndication services at very modest costs to multiple sites?
http://www.vflyer.com/main/Pricing.jsp
http://www.vflyer.com/main/FAQ.jsp?cc=blog#q15
How does those monthly or annual fees justify 6% commissions?
If one doesn’t exist already, it is just a matter of time before some innovator creates a modestly priced listing distribution application for FSBOs (for sale by owner).
Until then, “do-it-yourself” real estate consumers — both buyers and sellers — will continue to find a ever expanding menu of money-saving tools and new business models, as well as agents who will work on alternative fees because of the internet!
So my answer to your question is NO, the Web is destroying the 6% Commission?
The commission is obsolete, and it’s just a matter of time before the traditional, two-side commission is unbundled or divorced. Here’s a somewhat dated 90 second video identifying 10 mega-trends pushing towards that tipping point:
http://tinyurl.com/nbzme
That change will unlock billions of dollars in consumer savings, annually — thanks to the web, tech-savvy real estate consumers, and the money-saving innovators who serve them.
Ted Mackel | Aug 19, 2008 | Reply
Funny….I just gave a class at my Keller Williams office on listing photos and virtual tours last Tuesday. As a former C21 agent I can see why the Keller crowd utilizing the web more.
What CR does not understand is that the Keller System, C21 System and Remax systems already have syndication built into to their corporate websites. So if a agent from one of those companies loads their listing in to the corporate system, that listing is automatically syndicated.
Additionally what CR misses is that there are many agents who dont know their listing are syndicated, but probably think that IDX is advertising for them on the web.
The average agent knows very little about syndication and web advertising. I think CR needs to add a few qualifying questions in there to see what these agents really know about advertising on the web outside of what is already done for them.
Ted Mackel
Keller Williams Realty
Simi Valley, CA
Jim Reppond | Aug 19, 2008 | Reply
I agree with Melissa on the photos thing. Our MLS here in Seattle (Northwest Multiple Listing Service) has made photos mandatory with automatic fines for agents who do not post photos for each listing. During the first 3 weeks of March when this was first implemented there were 1217 violations. That number is down significantly now. Hit them where it counts - in their pocketbooks.
HH | Aug 19, 2008 | Reply
To give you guys a perspective of another country, in Ireland the fee range is 1.5% - 2.5% and at one stage in 2005, some firms were selling for 0.5%. You guys are blessed at 6% and I hope you do get to hang onto it.
Fees are heading back up and vendors are becoming more aware of the benefits of a good agent. In the current market the fees are well earned.
Obeoman | Aug 19, 2008 | Reply
Joel,
Once again we see how consumers-home buyers, in this case-are the highest form of life in the market. Consumers expect more when the pay more for any goods or service.
And Realtors are faced with balacing the scales:What can I do to market the home vs. what can I afford?
“How do I do all this blogging, video, single property website when I (mostly) can barely take a good picture?”
There is no monolithic way to market a home or to get paid for it.
Steve
Obeoman
Sam Chapman@Austin Real Estate Blog | Aug 19, 2008 | Reply
Not advertising a listing on the internet is like not having a cell phone or an email address. REALTORS need to get out of the dark ages and into today’s reality. Move than that, we need to start paying more attention to the online habits of high school students. In 8-10 years, these will be the home buyers and their use of technology needs to be understood.
Mark | Aug 19, 2008 | Reply
Saying consumers are Internet-saavy is the equivalent of putting “Color TV” on a Hotel sign. Yawn…It is obviously here!
That being said…MANDATING “digital ads” ie; “Internet marketing” is ridiculous. It would be like mandating placing color ads in print magazines..Just Because Saavy-Literate consumers deserve to ready a Homes Magazine over lunch!
If an agent is hired to sell a home, the agent may choose NOT to use photos for a special reason…This ad works all the time..
“Home Too Ugly for Photo!” Home needs TLB..Tender Loving Bulldozer… This ad is a showing generation machine!!!!!!
Life … Liberty, and Free Online listings…
This joke called… “Internet marketing” needs to be exposed…All it is DIGITAL ADVERTISING. And the goal of all of these New wave of listings aggregators is to grab eyeballs for search engine metrics, so they can charge advertisers more money. Get off the CONSUMER RIGHTS soap box and just admit you are all widget salesmen selling ad space.
Kori Covrigaru | Aug 19, 2008 | Reply
Joel,
Great post. I believe those brokerages that understand the importance of educating their agents, and through them, their sellers with technology and development will ultimately succeed. The brokerages are those who posses all the power with the information and data. Its just a matter of can they use it to their advantage? What advantages do non-brokerage owned listing websites have over brokerage owned sites besides venture capital?
Side note, my grandmother of 80 asked me if I’d heard of “The Facebook” and informed me she would be “Friending” me tonight. What does that tell us?
I think a vital piece of information is still being left completely out of the real estate industry and it boggles my mind. I bet less than 0.5% of listings for sale in the U.S. have floor plans available online for the potential buyer (total guess, don’t hold me to it). How is this possible in this day and age? Why aren’t buyers demanding this information from the selling agent knowing very well what technologies are available? Isn’t this just as important as professional photography? No bias here…
Best,
Kori
PlanOmatic
Jon Strum | Aug 19, 2008 | Reply
Joel,
Great post. You’ve summed up the biggest threat to the traditional real estate business model — it’s those traditional real estate agents and brokers who don’t feel the need to use all of the marketing avenues available to them on behalf of their clients.
You also write, “Brokers aren’t off the hook either. They need to be educating their agents on what the 21st Century internet-savvy buyer is looking for and then provide platforms that can deliver those services to their agents.”
I think this is a spot-on observation. My question, though, is who will educate the brokers? So many brokers are former agents who achieved a high level of success in the 1980’s and 1990’s. “Internet strategy” was never a part of their marketing arsenal, and their lack of familiarity and obvious discomfort with the subject causes many of them to continually avoid it. Until we find a way to move these folks forward, our industry may be stuck simply waiting for them to die off.
Sean Giorgianni | Aug 19, 2008 | Reply
Most once popular forms of communication are now obsolete: smoke signals, papyrus, telegraphs, and rotary phones.
Complain all you want, the question is: how do YOU communiacte YOUR value and the vaule of YOUR listings?
Seems to me that as silly as it may seem, online listing syndication is a reality, just like Paris runway fashion is silly but real.
If a guy in NYC can charge $20 for a pizza (see the NYT), there’s plenty of room for real estate sales agents to make a better living without flat rate commissions than our compatriots in Ireland.
Replace yard signs and the MLS with these tips: fixate on differentiation, dominate the listening, and know that something is better than nothing and more of something is better than something.
Always be nice, never be last. You’ll do just fine.
Demetri K | Aug 19, 2008 | Reply
I have to disagree with the view that the 6% commission is on it’s way out. The inability of Help-U-Sell and other “discount” brokers to present a viable business model is testament to the necessity of 6%(they’re back in bankruptcy AGAIN). I have sold several discount-commission listings and always received my full commission split (my buyers weren’t going to pay the difference). After looking at the HUD sheets at settlement the sellers vanquished on the market and did a lot of the work themselves for a savings of hundreds or a thousand dollars. I think it is our own faults for not conveying our value to the consumers and this is largely due to the flood of “so-called” agents that entered the market during the boom market(and are now on their way out again). Even though agents sell most homes, the internet is an important part of the sales process and should be used 100% of the time to market listings and communities. I believe in my own knowledge and abilities and how that has helped every one of my clients save valuable time and money in the long run.
For Sale by Owner Center | Aug 19, 2008 | Reply
As Melissa points out, the 80 / 20 seems to be supported by NAR’s own data when you factor in alternate / discount models.
I think the trend you will see is since first time home buyers (most under 35 and truly internet savy) will drive most of the market for the next few years, the RF and Zip real estate commission rebate models from the buyers agents will gain traction.
With competition for the few available buyers even traditional agents will advertise these types of offers to attract buyers much like when the market was hot for sellers competion amougest agents led many to advertise discounted models.
The adverstising of the rebates educates the consumers about the RE commission model and empowers their negotiations.
So the overall trend I see happening is that the internet is slowly chipping away at both ends of the real estate commission dependant on the market. Over time, commission will drop thinning the real estate agent herd down to the successfull high volume agents.
Shuki Haiminis | Aug 19, 2008 | Reply
I would have to mirror what Melissa has already said.
Going above and beyond in your online marketing materials is the wave of the future. Time is a scarce commodity and being able to filter online results before actually stepping into the actual property is only achievable with tons of high quality images and video.
Jamey Bridges | Aug 19, 2008 | Reply
Probably the reason people are just as happy as when they pay less is their end goal was achieved. They don’t know what the difference between full service and partial service would be because they did end up achieving their goal of either buying or selling.
Also, real estate professionals should try the “menu of comissions” approach to limit the negotiation process. This way they can limit the service based on the limit of price so expectations stay within line.
As far as marketing online, man real estate professionals need to wake up if they aren’t focusing on being online as a major part of their strategy
Chris | Aug 20, 2008 | Reply
Joel,
Thank you for your continued interest in “The Future of Real Estate” and your up to date eye on the times.
It never ceases to amaze me that wherever this discussion is found it is always surrounded by commission = worth of advertising!
Granted, advertising and distribution on-line and off-line are a valid part of the home buying and selling process, but what Realtor out there feels like that is the value of their worth?
Whenever clients and customers ping me on the changing times of the internet and the common commission structures I have an easy and honest response-
“Mr. Buyer, if my worth was based on only getting buyers and sellers to their respective positions on a real estate transaction, I should probably hang up my real estate license. Most of my work comes from negotiation, specific pricing knowledge, being a non-emotional third party, having intense knowledge of area inspectors, surveyors,title issues, architects, engineers and handy men. I can help answer the questions;
Who can I trust to fix my roof on a moments notice? What are the different levels of survey that I can obtain? Which one is the best for me in my situation? What will the water fees be for new construction in this particular neighborhood?…and 500 other such questions.
This is where I earn my living and an on-line “anything” will never be able to replace that.”
I am the biggest proponent of the changing times and 2.0 progress, but these thing do not shake my confidence of future job security, they only aid me and my clients by providing amazing tools to make our jobs more productive through deper knowledge.
jack barry | Aug 20, 2008 | Reply
Bill:
I agree with your points, and am impressed by the breadth of your knowledge…
Please email me privately, so I can send a reply.
jack barry
john | Aug 21, 2008 | Reply
blogging and putting videos on youtube are both great marketing tools and strategies but there s a problem - we need to wait for them to met us in person. some realtors hate what other clients will do , clients or searchers online try to inquire from one website to other website . it brings conflict
Steve deGuzman rehava | Aug 22, 2008 | Reply
We are an alternative Broker in Charleston, SC. We have positioned ourselves as a Client focused Broker by having all of our agents on a salary and focused on the customers cycle of service. Our clients love us and our competition loathes us.
We use Bleeding edge technolgy including live chat programs, CRM, IDX and list management. No one in town does more than us for our clients.
We reward our clients with a rebate of 50% our buyers commission AND expert negotiation skills, as well as expert knowledge of the market areas.
It amazes me to continue to hear about all you get for 6%. If you buy your next home from us we sell yours for free AND rebate your next purchase of 50% of commission.
We do all of our media in house. Every home gets a full video http://www.225delahow.com, professional photos (hi res).
We think our concept is the future of real estate.
Realistic Seller | Aug 22, 2008 | Reply
Curious as a seller how agents syndicating my listings to free sites (free because they need my house and everyone elses as content to make money from ads) is supposed to make me want to pay them 6%? 6% on a half million dollar home is a lot of money if all I get is useless sites that have less than 1% penetration in most markets. Sellers will soon realise that agents bring no value and are certainly not worth 6% with the cheap valueless marketing they offer.
Giancarlo Gonzalez | Aug 24, 2008 | Reply
We run a broker/fsbo web portal in Puerto Rico, serving over 400 brokers and totaling over 10,000 listings. We also serve the MLS for Puerto Rico…
The “craigslist” of Puerto Rico has hit hard on a lot of brokers, but that didn’t keep 70% of transactions from being broker based!
This, like every other industry, is reinventing itself and brokers who evolve with it will do fine… Rates may be lower (Puerto Rico avg. 3-4%) but hasn’t the Internet done this to every industry?
Appraisers - automations such as zestimate have reduced the need for their services…
Other industries - Recored Labels - they have suffered with digital, piracy, itunes, etc. And are now relying on concert revenue…
What about music teachers? You can find any guitar / piano lesson on YouTube… want to learn a song? Look it up, i’m sure it’s there…
My point here is simple: This industry will do fine, it just has to reinvent itself… A lower commission only replaces lower advertisement costs - newspaper classifieds were much more expensive than today’s web - and that should balance out a lower commission…
It saves money accross the board for the consumer, but it’s not the Realtor getting hit - it’s every industry the Internet has reinvented…
Sarah Taylor | Aug 25, 2008 | Reply
RealEstateCafe is right on the money and I’ve been preaching what they are stating for a long time. As a part of Generation Y, the realtors in my town do not embody the standards I would want in an agent and I truly believe that it will be the younger generation to turn things around and bring a new solution on how property is bought and sold.
I laugh when I see the e-Pro designation because I know that I could be a way better “e-Pro” than any of the agents in my town and I didn’t pay $300 for the stupid designation.
Stan | Aug 26, 2008 | Reply
Chris,
Thanks for adding a most significant aspect of an agent’s value. All the talk about internet marketing ignores major components of what an agent does. We are professionals which means we apply education, experience and judgement to the real estate process to help the client get the best results. Getting someone to make an offer on a listing is barely half the battle, yet sellers don’t understand that until they’ve had a failed contract negotiation or a deal fall through on a variety of details. Also, on the internet marketing comments of CR, I’m a Century 21 manager and familiar with the system. I suspect all of the majors are like us in that all listings must be entered into the corporate system. Part of that system places the listing on the corporate web site. MLSs also feed to various web sites. CR said they interviewed readers who were buyers and sellers, not agents. I suspect that the problem lies in agents not explaining what they are doing for the clients. CR even said that 75% of KW and Prudential agents (and 67% of RE/MAX agents) helped negotiate the terms of the sale. That just sounds like someone didn’t understand the question. How does a full service agent not help negotiate the terms of the sale? I’ve seen many occasions of media reporting where the reporter tries to become an instant expert on a subject and manages to miss significant details due to lack of depth of understanding. I think the CR article is suffering from this. Still, we’ve got to ensure that our clients and potential clients understand why we price our services based on value as we do. There will always be do-it-yourselfers and those looking for a discount in any business. Real estate is no different from others. Look at the tax preparation business for parallels starting with the forms and a calculator going on up to tax specialist CPAs. Yes, you can do your taxes on-line now, too.
Michael Ranger | Sep 11, 2008 | Reply
Fantastic post and I will add you to my blogroll.
One point you touched on that I feel is very key for any seller. Is what percentage of traditional MLS listings provide top notch service? The other point to make is while 80% chose to use an agent. What percentage of those agents or Flat FEE listings were 4% or less in fees.
We always here statistical numbers like 88% of homes are sold on the MLS. Well we never hear what percentage is Flat FEE or discount. I will have to look into the CR study in greater detail.
PHP Developer | Sep 24, 2008 | Reply
I’ve worked with several agents and find most are order takers. The real value they could have they did not possess - knowledge of the market.
I would say I want this and they would provide a list. I would go look at the properties and when i found something I liked they would open the door and let me see the property. Not much value added service for $9,000 - 12,000.