You Mean Real Estate Agents Have An Image Problem?
A: Good old Jonathan Miller reminds me today that I am at the bottom of the bucket in terms of professions, the scum on the street, the lowest of the low! Just kidding JM, you now I love ya! But in all seriousness, the fact that real estate agents have such a tarnished reputation is one reason that drove me to take out time in my schedule to blog here on UrbanDigs. That way, maybe you can learn a little about me and my view on the markets and Manhattan real estate before putting me into the tarnished category of lowly real estate agent. But that is for you to decide. In a commission based industry with little transparency, huge competition amongst peers, and high production expectations, it should be little surprise that real estate agents push to get a deal done. Afterall, their salary is entirely dependent on getting that deal done and while some view good service as the way to go, others view it as a game of sales that must be mastered.
Jonathan Miller's Matrix discusses how, "Real Estate Brokers/Agents Have An Image Problem":
Firefighters are at the top (one of my sons is a firefighter!) as well as scientists, doctors, nurses, teachers, military officers and real estate bloggers (ok, ok that last one I slipped in to see if you were payin’ attention).Here is the survey results:
At the very bottom of the list were real estate agents/brokers after accountants, stockbrokers (no surprise there), actors (surprising given our celebrity culture) and bankers (yep, thats for sure).
The problem with this industry is a lack of will for change (excluding brokers like Douglas Heddings and Tom Demsker who clearly understand the inevitable changes that lie ahead). On the one hand, I thoroughly enjoy taking time out of my schedule to blog here on UrbanDigs and to answer calls from buyers & sellers that are already committed to another agent. On the other, I have to accept that what comes with this path that I have chosen is plenty of pro bono work and a customer that is very cost conscious and very aware of the fragility of this economic environment; and rightfully so as this is probably the biggest purchase they will make. Go back a few years and you will see a much different tone for discussions here, something that doesn't really help a broker close deals.
Here is an example: After I wrote the July 8th piece, 'Low Ball Bids & Cold Feet' I sent a note out to my buyer clients that I thought the Manhattan market has disconnected from what was going on in the credit markets:
"Expect 2008 to be the year inventory rises, and 2009 the year that shows the price drops; with both years showing sluggish sales volumes."I didnt know what would be the spark (Lehman, Merrill, GSEs, WaMu, Wachovia, etc.) or when it would happen, but I advised my buyers to wait it out and re-sign their leases. Then Lehman failed in September two months later with several warnings prior to that discussed here & here. The result was that I did not do any deals between July of 2008 and February of 2009. I even disclosed this in the public round table discussion published in NOV 2008 for NY Mag and you can see Dottie Herman's response:
N.R.: I don’t expect to do a deal in the next three or four months. It’s not that I don’t want to. But my clients know what’s going on. If I said, “Buy now, you’re going to miss it,” I’m going to insult their intelligence.Now that was months after I gave the note out to clients; something not many brokers would do as it all but secures that you will not get a sale anytime soon. The best buying opportunities came about 3-4 months after that article was published.
D.H.: I have to disagree. If you’re going to live there and raise a family, and you try to wait for that perfect time, you might miss something you like. [But] if you expect to become rich in a day or two, forget it.
In a sales based industry, the longer term is often sacrificed for the sake of getting some deals done today! And there is absolutely nothing wrong with this - it is what it is and you cant fault brokers for trying to make a living. Its all a matter of the agent's model for their own business and whether they are more concerned with the long term and building a solid referral based business with a high quality foundation, or doing as many deals as possible today by mastering the art of selling. There are some great salesman out there and we shouldn't fault them for that. After all, being a good salesman is one major ingredient for success. But when its overdone it is counterproductive and the customer probably will choose to work with someone else.
In my opinion, the best service an agent could offer me is information on what is going on in the market real time and where it is trending so that I could better assess what is happening with property values and how to bid when the time is right. The internet has gotten transparent enough where listings are only a mouse click away - no longer do you really need a broker to see what is available for sale. What I don't want is someone insulting my intelligence by telling me to 'buy now or be priced out forever' or that the market 'can't fall more than 5% because of sideline buyers & foreigners' - that to me is the kind of shit that adds to the poor reputation of agents as a whole. And that stigma will be hard to break. This industry has work to do or change ahead of it - either way, better business will win out and in the end its the consumers that will benefit!
Transparency is GOOD!
Posted by Former Seller
Wed Aug 12th, 2009 06:12 PM
Noah, thanks for bringing up the topic of the real estate broker profession, and talking about it frankly.
I think that if there were deeper discussions for topics like this, there wouldn't be so much mistrust, misunderstanding, cynicism and downright ill will between buyers/owners and brokers in this market. Instead, people just vent their emotions like children on sites like StreetEasy.
As someone who had a condo on the market for most of 2008 and winter this year, I started out totally green but with the help of the credit crisis I went through Manhattan RE boot camp and got educated very quickly about transactions happen- but more so, how they don't happen.
I have an appreciation now for the job of both buying and selling broker. I have observed that their job isn't all that different from any other: there are good employees who work hard and earn their paycheck, and others who take shortcuts, provide sub-standard service and don't deserve theirs.
As an owner, I can obviously relate to other owners and buyers about having to pay the "middle man". I beleive selling commissions were a major factor in the large buyer-seller spread during the illiquid period; if you have to kiss 6% goodbye at closing, it's harder to price your unit more attractively. In fact, my personal thought is that this compensation model needs to change in order to benefit brokers and their clients alike. As you point out, the internet gives a buyer or seller most of the information that would only have been available through a broker in the past. Transactions are also more streamlined than before because much of the documentation needed is generated electronically. This means a broker's primary role is to get a deal done- though anyone would have to concede this no easy task in a post Lehman market.
The problem is that one broker may happen into a fast transaction by luck, and another may have to work for months on one, constantly coercing both sides to the table. That they would both make the same commission is arbitrary, and that's the problem the way I see it. Do you foresee this model changing?
Posted by sechel
Thu Aug 13th, 2009 05:58 AM
real estate agent= professional shoppers assistant.
always doing it with other people's money. why should one trust that?
Posted by Noah
Thu Aug 13th, 2009 07:20 AM
FormerSeller - I agree with much of what you say. I think there will always be demand for full service commission based brokerage here in Manhattan. Whether the commissions fall or they lose some steam or market share to a new service or idea, is another questions. But there will always be a need for full service brokerage.
The job is NEVER easy and I definitely think that the majority of agents dont make much money and rather most of the money is made by say the Top 20% or so of producers. Volume in numbers and team approaches certainly contribute to that.
With this said, I do see change coming but its only going to be as successful as the consumers make it. The consumers say they HATE brokers, brokers are overpaid shills, are morons, and have no trust, etc... Yet if a competing service was introduced to their benefit that made the buying process more efficient, yet it cost them something, they likely wont embrace it. So, any change will only be as successful as the consumers allow it to be - it could be the best idea ever, what every buyer or seller wants, but unless they buy into it, it will be hard for that new idea to make it off the ground.
So I am going to launch a flat fee buy side service. It will prob cost about 1500 or so. So a buyer uses my outside, independent consult for a property valuation, bidding strategy, comps analysis, negotiating strategy and analytics for a flat fee. When my work is done, they submit a bid directly to listing broker without buy side representation. It seems to be what buyers are screaming for, but will they participate? Will they ignore because they dont like the fee? Do they see value in working directly with seller broker yet with outside consulting on value, market trends, where this market is now, what the place should trade at? Will they use the service or choose the 'free' buy side broker - who then gets 3% or half of what the co-brokered commission is paid by the seller?
Posted by Scott
Thu Aug 13th, 2009 07:41 AM
Wow, Noah, $1,500 for a consulting fee? I totally agree with your article and in almost every article and e-mail I write, I almost always mention the current state of integrity of this industry and how the positive side has plummetted as fast as home prices have.
Real estate services by the top 20% of agents who make the money as you say are likely like us, who study the macroeconomics of things. Buyers/Sellers like that and feel that they are getting their money worth from a guy with real biz/street experience.
I'm all about lower commission scales and like your approach to the flat fee service, but we all know how much work is done in real estate transactions 1. Consultation, 2. Valuation, 3. Different strategy 4. Miscellaneous time.
Do you really think that your time is only worth $1,500, even in the financial hub of the world like Manhattan where some of the worlds best businessmen are? Sorry, but I think you are worth more than that. Although I am sure your volume will pick up, is it enough to compensate the alternative? Hopefully I am wrong and hopefully you make millions with this, but I'm just not sure if that is enough??
Posted by Noah
Thu Aug 13th, 2009 09:01 AM
Scott, thanks for kind words.
Well the service is just a concept idea right now and my plans. I am still brokering right now the way I did when I was at halstead. I wont launch a flat fee service until we fully launch all the other ideas we have that are now in development.
I grappled with how much the fee should be 1500, 2000, 2500...a % of the purchase price, other model? $500 flat + certain % of purchase price, etc..
But the idea is a volume based idea. I think it would be about 5 hours of total work or so, so that is about $300/hr. Its not as sexy as the 3% that you would get on a deal, but for me, not being a salesman and not doing 50+ deals a year like most successful teams do, I think it could be a stable, business that allows me to fodus on other revenue streams with our future business model.
lets say I do 100 of these consults a year, so 150K without the hassle of running around showing properties and not knowing when the buyer may pull trigger. Of course, the final cost structure of this is unknown, but I think Id rather keep the cost lower and focus on more volume.
if its higher than 2,500, I think many may choose not to use that kind of service. perhaps a 2500 flat fee for 2 properties of buyer choice is the way to go, or such. So many ways to tweak the idea. Just too early to tell.
THANKS for your input. What do you think is fair? Your right though, many dont see how hard our work is, only the bad reputation and that we dont earn our fees. I guess its true in every industry to an extent, but some agents work very very hard for their clients
Posted by Noah
Thu Aug 13th, 2009 09:12 AM
sechel - yes, but the buyer makes the final call whether or not to bid and what that bid is. We just service it and broker the deal. If the buyer doesnt want to raise bid, well then, the agent is out of luck if seller wont comply.
In the end, its the buyers call. Its the agents job to make sure a seller is realistic and willing to accept an offer where the market is, but on the sell side, you cant force anything. If seller is not ready, willing, or motivated, or doesnt feel their place fell in value, well then the seller agent is out of luck.
The lack of trust is in how the agent services the client - seller brokers often lie and quote a very high price for the sake of increasing the chacnes they GET THE LISTING AGREEMENT. Then you work on price cuts later. Most sellers interview multiple brokers, and as a seller, usually youll work with the one that thinks your place is worth the most - even though it may be counterproductive
Buyer brokers often pressure their clients to be aggressive in bids for fear of MISSING OUT or being PRICED OUT FOREVER. That is what builds the reputation that tarnishes the industry. But just because an agent behaves this way to expedite a deal and getting paid, doesnt mean YOU the buyer or YOU the seller should listen to it!
Posted by Anon
Thu Aug 13th, 2009 09:22 AM
Sounds like a great business model. Where can I sign up to join the team?
Posted by Scott
Thu Aug 13th, 2009 09:24 AM
Good point Noah. $1,500 for 5 hours of work without the showing side of things seems pretty fair. I guess the way to analyze would be on the price of property. If the buyer is looking at a co-op for a million bucks, and the buyer side fee is 2.5% ($25,000), they now have a bargaining chip with the sellers agent to negotiate that 2.5% off the top of the price right off the bat. Now your $1,500 flat fee looks miniscule and a good deal for your buyer you consulted for. Is even a $5,000 flat fee justifiable for professional services on likely one of the largest investments the buyer will make in their lives? Of course...because it's not even close to 3% when this could be a buyers true savings on thier home. Ultimately you are offering a good exchange for your service and of course if you could do 100 of these a year, that is a great revenue source, especially if your other revenue streams are more lucrative and consistent.
I think buyers will see huge value in this. A flat fee for way less than the average 3% commission, and a great one on one lesson in real estate that will catapult their knowledge in realty investments higher than the average joe who lets the common realtor handle everything. I believe experience that we possess is worth every penny of $2,000. Then again, many in this industry aren't worth 2,000 pennies.
Posted by Noah
Thu Aug 13th, 2009 09:43 AM
anon - thanks! well, dont know yet. We wont be ready for another 5-6 months. Development is going to very tedious!
Posted by Randy
Thu Aug 13th, 2009 09:45 AM
Hi, well like most other professions, there are terrible ones, bad ones, good ones and great ones, whether we are talking about lawyers, stockbrokers, doctors and politicians (no wait not politicians they're all terrible :~)). And maybe there are even more of the poor ones here in the RE sales industry as the low cost to entry, and the potentially high returns (during the good times) acts as a magnet for those seeking a quick buck, or income without having to work too hard. But the facts are that being a good broker, or a good anything for that matter requires hard work. It takes a lot of effort to achieve excellence, and many times in this and other sales industries a broker spends a lot of time and effort servicing a customer well, and then the customer walks away. That happens, a good broker consoles himself that this is the cost of doing business and approaches the next customer with the same amount of energy and integrity.
Many of the bad brokers won't make it through through the down cycle, they'll search for the quickie in another industry. Or their reputation will spread. Do a good job and a customer will tell someone else, but do a bad job and he'll tell 10 others. Word gets out either way.
Sechel, you obviously have had a bad experience with a broker, but yet you are here. Finding value in Noah's posts, his site. It is helping you in some way or you wouldn't waste the time reading it, let alone posting. I would hope that if you need any real estate servicing you would consider Noah, and the value you have already received from him, not just the value you might receive from him selling your place or finding you another.
Randy
Posted by Former Seller
Thu Aug 13th, 2009 10:10 AM
I empathize with the (good) real estate brokers out there, especially in the tough market it's been over the past year. I'm sure it's stressful knowing that paying the bills often comes down to whether or not a deal you're working very hard on goes through when fickle minded buyers and sellers are involved. I can imagine how exasperating it is when ink is about to go to paper and one side changes their mind at the last second.
-but this is just one example of why I think the current RE industry has too many arbitrary components that need to be changed. One broker I interviewed told me tales of other buy-side brokers stealing her clients in an underhanded way.
Throughout my experience I also discovered that my listing broker did not always have an incentive to act in my best interest; since he often shows a client all his listings in the area at the same time, how can I know that he won't favor another of his listings over mine because he believes he can make a better commission or quicker sale? I happen to trust him, but this was always a concern.
For these reasons, when I decide to sell again I'm going to try it FSBO or possibly as an open listing. Again, I have nothing against brokers at all and believe the top 20% provide value that is worth the commission. I just feel the current system that they operate in is outdated, if not broken.
Posted by jn
Thu Aug 13th, 2009 10:28 AM
I'm a lawyer and know firsthand the problems which can arise when charging clients for services in connection with the purchase/sale of a home, etc. The problem with a flat fee, from my perspective as a lawyer, is that it can create a windfall (if the deal is easy, with no hitches, you get paid for more work than you actually provide) or can create dimishing returns (if there are problems, which require additional work for which you don't paid). One possible solution is a blended fee structure which provides for a minimum payment, then an additional payment based on performance/success. Several years ago, when I was selling an apartment, the broker and I agreed upon a base commission, and then depending on the final sale price of the apartment, he would get an additional amount. Not saying that it would work for everybody, but at end for us, it worked well.
Posted by Noah
Thu Aug 13th, 2009 10:47 AM
jn - yea that is one thing I am concerned about. The model does have its flaws. Also, if the market falls, perhaps they will want to sue me for giving a bad analysis? Not sure if they can, but who knows.
The purposes is to provide an analysis on where the market is right now, with analytics to back me up and provide as much detailed information so as to make an informed decision on the property moving forward.
back to your idea, one idea was a flat base fee + a % of the discount that is procured from the asking price. Or such. Not sure how that would be received. Or other incentive to buyer.
great comment and thanks for your thoughts. Look forward to your response?
Posted by Trompiloco
Thu Aug 13th, 2009 11:30 AM
Hi Noah,
Would you include in your fee things like help with a co-op package once an offer is accepted, or would you bid farewell and good luck to the buyer once you've advised that person on the bidding strategy and how to deal with the seller?
Posted by jn
Thu Aug 13th, 2009 11:35 AM
The broker and I established a realistic minimum sale price for the apartment, and then set the base commision at 3% of that. Then, he got a percentage of the amount of the final sale price which exceeded the minimum sale price. We capped the total commision at 7%, though to achieve that amount he would have needed divine intervention. In the end, we were both very happy with the result.
On the buy side, I think it would be hard to convince a buyer to pay a flat fee, and a commission based on the reduction of the sale price of the asking. Instead, maybe the flat fee should be $750 for places under $500,000, $1,000 for $750 and under, etc.
Posted by Noah
Thu Aug 13th, 2009 11:36 AM
Trompilco - Since the buyer is bidding directly with the seller agent, the seller broker will be responsible for preparing and handling the board package. Of course I will be there for clients should questions arise to advise for them, but the package will be the selling brokers job.
After all, the seller broker will get paid about 4-6%, depending on the agreement, of the sales price as a commission; way way more than my fee.
i am sacrificing alot of profit potential with this model, but I think the buyers will benefit greatly from this type of service
Posted by Noah
Thu Aug 13th, 2009 12:16 PM
jn - yes i thought of the scaled model of fees, but I dont know how that will be received as work doesnt really change for a 500K 1BR and a 2M classic 7. Its the same property consult and analysis, yet the 2M guy probably can afford more and see it as more of a value given the size of the transaction they are about to embark on.
I didnt want the scaled model to give out the wrong idea. Its all food for thought for now. Thanks
Certainly the flat fee will be way less than 3% of a realistic sales price of the property. Nobody will pay that as a flat fee, when they can use a buyer broker services and have seller pay out the commissions for them. This needs to be way cheaper.
Posted by Noah
Thu Aug 13th, 2009 12:23 PM
scott - EXACTLY! they might see value in unbiased independent consulting and at same time, dealing directly with seller broker
Posted by jn
Thu Aug 13th, 2009 12:53 PM
Maybe the same work, but I think the value increases with the size of the deal - think of it as a form of congestion pricing!
Posted by Donald
Thu Aug 13th, 2009 03:02 PM
Realtors came in below politicans and lawyers? Oh my. Too bad Somali pirates were not included on the list, otherwise realtors would not have come in dead last.
Posted by MeekSheep
Thu Aug 13th, 2009 10:45 PM
Noah, don't undersell yourself. 1500 is paltry. Charging per hour of work with a cap is better.
Posted by A downtown Broker
Tue Aug 18th, 2009 01:51 AM
I love this site. And Noah is a good guy, but I have said from Day one - He is NOT a broker. he is a econ guy posing as a broker. its good to see that he has finally reconciled this to some extent. Actually, he is still with readers help, trying to figure out to monetize his skill set. Perpahs like Jon Brownster, or many other bloggers you run an indepdent blog - maybe that's where your talent lie. The third way didn't work for Bloomberg and it will not work here. Face the facts - this reminds me at the end of the internet boom, when people were trying to get out of th internet but still hang on to some vestigages of their old job - Noah, I knew you were never gonna make it as a broker and I was right - concentrate on your fantastic blog and how you can get more eyeballs - the conflict of interest is just too great to overcome when you start coming up with ways to make money.
Posted by Noah
Tue Aug 18th, 2009 10:05 AM
A Downtown Broker - your right, I am NOT a broker. Of course I am in real estate and work as a broker, but it has never been my mission to be a broker in the traditional sense.
With that said, I averaged 14 deals a year for the past 3 years and make a fine living for myself. Not sure what you mean when you write a comment such as yours, but the feeling I get is that I am not successful in making money as a broker. And that of course is just not true. But how would you know my business. I left my company 3 weeks ago and already have 3M in deals signed, and I dont have to split anything - do the math.
I appreciate the kind thoughts on my efforts here, but I think its a bit overboard when other people start to assume how successful any one agent is. I will never be a top performer, ever, because I dont have a salesy mentality and I dont handle my business in a team/volume type of manner. My future goals are different from brokers trying to build a successful business from scratch. For me, I have a different calling and different plans in mind.
Thanks, will def concentrate on urbandigs and take it to the next level. As far as monetizing this site, our plans have been in place for just under 18 months now, waiting for the right time to strike. Well, time has come and our partnerships are in place and we are in development. The plan all along was to build credibility, a good reputation, and a loyal following for UrbanDigs the brand - creating a high barrier to entry and a niche market for our ultimate plans. Nobody knows what those are yet, but they will in 4-6 months.
Posted by Jane
Thu Aug 20th, 2009 01:13 AM
This is not surprising as it has been known since, I can't remember when, that the real estate business is one of the most profitable ones. Thanks. By the way, I know a real estate coach who could also help many in the real estate industry make money despite the current crisis.
Posted by suzie100
Sun Aug 23rd, 2009 05:30 PM
Maybe they need to get a new image of a less sterotypical image and more direct.
Posted by Alexis Jamenson
Fri Aug 28th, 2009 06:22 AM
I am interested to join the team Interesting.Please give me more info how to sign up!
Posted by Alexis Jameson
Mon Sep 7th, 2009 07:04 PM
Great explanations!Thanks for psoting this very informative post!
Posted by Suzie 100 Mortgage
Tue Nov 10th, 2009 12:16 PM
Would they ever admit it though?!! ;-)