Boise Real Estate Blog

Real Estate’s Broken Business Model – Part I

(Part I of a four-part series)

Ever wondered how real estate really works?

Here are some insights based upon my 37 years in real estate:

The typical real estate broker needs to have bodies in the office to create the appearance of largesse, success, and to, well  .  .  . look like they are really in business.

So .  .  .  the broker hires anyone with a pulse and puts them on a 50/50 commission split, based upon the theory that more bodies = greater agent sphere of influence = more commission dollars.

Then they encourage those new agents to list everything they can, at any price, so they can put up more signs and make the broker’s company look really, really successful and visible.

And, they run impressive print ads or publish their own real estate tabloid to impress sellers ~ so they can get more listings and put up more signs, so they can run more print ads and get more listings and put up more signs ~ while ignoring the fact that 90% of all homebuyers use the internet to find their next home.  Some companies even go so far as to charge their agents advertising fees to subsidize those ads that only serve to glorify the broker’s image.

In a bricks and mortar office world, that office space = higher fixed expenses that do not go away in a market downturn.

Then, the broker sometimes charges those agents “desk fees” (for the privilege of being there), “sign fees”, “transaction management fees”, “seller transaction fees”, etc.

Some of those fees, especially “seller transaction fees”, may get passed on to unquestioning sellers who agree to pay several hundred more dollars on top of a commission.

Then, some brokers place their agents’ listings on their national franchise’s website and treat any incoming leads for those listings as “relocation leads” and charge the unsuspecting agent a referral fee for leads on their own listings!

Get the picture?

(continued tomorrow)

July 13th, 2009 Posted in Inside Real Estate  Print