Boise Real Estate Blog

Real Estate's Broken Business Model – Part IV

(Part IV of a four-part series ~ continued from yesterday)

The real estate profession relies upon a compensation system that is fatally-flawed.

Why are real estate fees based upon a percentage of the value of the property?

Does it really take 8X more effort for an agent to sell a $800,000 home than a $100,000 home?

Is it realistic that the commission on that $800,000 home may be $48,000 vs. $6,000 for the $100,000 home?

Fact is, it’s often more work selling a $100,000 home than a $800,000 home!

The problem is that, under a percentage-based fee system, agents only get paid at closing instead of getting paid for the effort they expend on each seller or buyer they work with.

There’s also a issue of the buyer’s agent sharing a commission paid by the seller.

Buyer agents are supposed to represent their buyers, but they are dependent upon the seller for their compensation.

Finally, there’s the issue of dual agency (aka “double-dipping” or “double-enders”).

Does it really make sense that a real estate agent will earn twice as much when they sell their own listing?

Not to mention the inherent conflict of interest while representing both buyer and seller.

No wonder attorneys love to sue real estate agents when something goes awry in a dual-agency transaction.

In a (more) perfect world:

• Buyers and sellers would each have their own respective agent.
• Buyers and sellers would each compensate their own agent.
• Dual agency would be prohibited.

Is it any wonder why real estate agents are not viewed as respected professionals?

Yeah, I know ~ lots of complaining and no solutions.

Stay tuned for an upcoming post on the future of the real estate business !

July 16th, 2009 Posted in Inside Real Estate |  Print This Post | No Comments »

Real Estate's Broken Business Model – Part III

(Part III of a four-part series ~ continued from yesterday)

The end result is that up to 84% of all new real estate licensees fail before their first license renewal and brokers must endlessly stay on the recruiting treadmill to keep their doors open.

The hapless broker can only hope that the new agent’s mother, brother, or one of their friends will buy or sell a home before the agents fails.

Some way to run a business, isn’t it?

You’d think those same brokers could figure out that they have set themselves up for failure in a market downturn when their agents fail to make sales and generate commission income.

To make things even more interesting, the public usually can’t figure out the difference between a good agent and a bad agent. They often select their agent because she’s their cousin’s daughter who’s new in real estate and they want to help her out.

That’s because the public sees all real estate agents as one and the same ~ a commodity to be obtained at the lowest possible cost because they think all agents provide the same level of service.

(continued tomorrow)

July 15th, 2009 Posted in Inside Real Estate |  Print This Post | No Comments »

Real Estate's Broken Business Model – Part II

(Part II of a four-part series ~ continued from yesterday)

The agents become cash cows for their brokers.

What a concept ~ hire a herd, milk them, and hope they return to the barn every night.

Works great in a hot market, but it’s a dismal failure in today’s slower market.

What’s missing here?

Well, perhaps it’s the fact that most new agents coming into real estate are clueless about how real estate really works.

There is the illusion that taking a few courses to pass the licensing exam is all that is required to become successful in real estate, but nothing could be further from the truth.

Those courses prepare new agents to pass the licensing exam; not for the real world.

And, brokers usually don’t provide adequate training in the real world aspects of real estate to ensure their agents’ success.

So  .  .  .  these new agents go to the office, sit at their desk, drink coffee, look at some homes, and wonder why there’s too much month at the end of the money.

“Gee ~ real estate isn’t anywhere near as much fun as my broker told me it would be and my Lexus lease payment is due next week!”

(continued tomorrow)

July 14th, 2009 Posted in Inside Real Estate |  Print This Post | No Comments »

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 This Post | No Comments »

The Masturbating Monkey

It was my first day in residential real estate, back in 1974.

I had been in real estate a couple of years, having begun my career selling recreational lots at a beautiful subdivision in the Sierras called Pine Mountain Lake.

When we finished selling out Pine Mountain Lake, I decided to learn the residential side of real estate and joined California Realty in Santa Clara.

On my first day in the office, I attended the weekly sales meeting, which included a motivational pep talk, a review of new listings/haves/wants, and then we headed out on the weekly “office tour”.

Office tours are a relic of the past now, but back then it was a way to impress sellers by parading our agents through new listings and telling sellers “you have a lovely home”.   It didn’t accomplish much, but it made our sellers feel good.

We toured a couple of typical subdivision tract homes before coming to a property that had an abundance of, shall we say  .  .  .  “character”, off Capitol Expressway.

The home was down a muddy, potholed dirt road beneath a couple of scraggly old oak trees at the base of a hill.

It was mostly noteworthy because a private pilot had bored his V-tailed Bonanza into the ground nearby on a foggy night while on approach to San Jose airport a couple of weeks earlier.

Some would have said that the property had some “deferred maintenance”, but the blunt truth was that the place was a pit!

Since I was the new kid in the office, I got to lead the other agents through the house, starting with the kitchen, then down the hall to the back of the house.

As I opened the door to a hall bath, I was stunned to see a duck floating in a bathtub full of brackish, black water, cheerfully quacking at his new visitor.

Taken aback, I made my way through the rest of the house and out the back door to check out the back yard.

Our office manager, Jim Ridgeway, was trailing me as we walked out onto a rickety wooden walkway behind the house.

As we rounded the corner, I heard a screeching sound that drew my gaze toward the tree limb above me.

To my amazement, there was a monkey hanging upside down, by his tail, in one of the old oak trees.

And, he was gleefully masturbating.

I must say, the little guy had a big grin on his upside-down face and seemed to be having the time of his life.

I turned to Jim, speechless.

Without showing any emotion, Jim simply smiled and said “Welcome to real estate, Phil!”.

I’ve had many interesting experiences during my real estate career, but none as memorable as that one.

Can any of you top that one?

July 12th, 2009 Posted in Inside Real Estate |  Print This Post | No Comments »