One of our competitors doesn't believe his people are worth their price!

In an article published last week by the Denver Post (http://denverpost.com/business/ci_3437532) Dave Liniger (the founder of Remax) predicted that the average real estate commission will drop to 4% of the sales price of a property in the next 5 years. This prediction makes it appear as though Liniger has lost confidence that the members of his company command value for their services. The article states that commissions will be reduced because agents will spend less time showing houses due to consumers searching for properties on the internet. The only reason I can surmise that Liniger might make this prediction is that he has bought into the fallacy that the abundance of information on the internet reduces the cost of a real estate transaction. As I have mentioned in earlier posts, we know that the true costs of real estate transactions have in fact risen, not fallen. Transaction costs are driven by other variables like insurance, governmental regulations, litigation risks, office overhead, advertising, etc. At Realty Executives we believe that consumers really do deserve professional guidance and skills from knowledgeable real estate associates. We know that the average commission rate for the top companies in the U.S. has actually increased in recent years, despite overall average commission rates decreasing. This tells us that people who hire professional real estate associates (or Executives in this company) are willing to pay for skills and services they find valuable. We also know that consumers also want relationships with professionals, even though they do spend more time on the internet searching properties of interest. One of your jobs as an Executive is to help consumers sort through all of the information and help them interpret it. Just because there is less driving around showing properties, doesn't mean that the professional real estate person is not working harder or smarter. Finally, and most importantly, I think it is imperative that I emphasize to you how valuable I think your services are to the consumer...despite what my counterpart at Remax thinks.

The Spirit of Youth and The Richness of Diversity

Over the weekend I attended our Northern California Region's convention and awards dinner. It was so gratifying for me to see so many of our executives, and to get caught up in their incredible energy! As I looked around the room, I was struck by two major things:

1. The average age of the people in this region is quite young. After inquiring, I found that the average age in our Northern California Region is 34! The average of a Realtor nationwide is 52. I feel like this is a huge step forward in the regeneration of our business, as well as our company. Kudos to those young entrepreneurs who have seen the benefits of joining our company.

2. The cultural diversity within the room made me proud to be the President of this company. The number of different nationalities, languages, backgrounds and personalities in this group is a true statement of "getting it." I think this a reflection of the values of our company and I think this diversity is inherent in Realty Executives in many of our locations.

I am so glad to have attended that meeting and I hope the people who were there got as much take-away value from my comments as I did from theirs.

"Why do we charge a percentage of the sales price?"

Over the long weekend I was traveling. By amazing coincidence, I was seated in the airplane next to one of my executives (we call our real estate agents "executives"). He has been in the business a short period of time, and we had a great dialogue.

He posed the question to me: "Why do we charge a percentage of the sales price as our commission?" I really don't know how this form of compensation began in the real estate industry, but it made me think.

I believe that real estate professionals should get compensated for the skills they bring to their customers and to the marketplace: skills like marketing expertise, negotiation skills, market and product knowledge, transactional expertise, to name a few.

Few people realize that real estate people pay for many items for their customers (advertising, inspections, meals, gasoline, etc) with the real possibility that they may never get paid for their time, effort and expertise. This risk is one reason for getting compensated on a percentage of the sales price.

Another reason is that the risk of litigation, the costs of malpractice insurance (called "errors and omissions" insurance), and the cost of any possible settlements if something goes wrong is in direct proportion to the sales price of the home. Therefore, getting compensated in proportion to the same basis makes sense.

Consider if a real estate professional gave a seller a choice: "You can pay me for results only, in the form of a percentage of the sales price. I take the risk that I may never get paid if I don't perform, but I have an incentive to sell your home for you quicker and more efficiently, OR you can pay me by the hour for my time, reimburse me for all my expenses and you will pay me whether your home sells or not. I have an incentive to work less efficiently because I will be charging you by the hour, not for the ultimate result."

Which do you think the client would prefer?

The Horse May Have Left The Barn, But...

It sounds like many of you have already dealt with the issue of the lead generators and referral companies in several different ways. I commend you for creating your business strategies and moving forward with them. Some have decided to never pay any more referral fees to those companies and go after creating the leads yourself on your own websites. Some have chosen other tactics. No matter what your strategy, the Internet cannot be blamed as the culprit for the reducing or removing the real estate professional from the transaction. The blame for that must lie with those who refuse to acknowledge the power and efficiency of the Internet for our business. It is imperative that you design your strategy around that.

The "Discount" brokers have chosen to say to the consumer, "Real estate services are not worth much. You don't have to pay me for the value of my services." This gets the consumer's attention for low prices, and then the "discount" broker either fails to provide any services of value, or switches the consumer to menu pricing that actually costs the consumer more money.

The Lead Generators and the Referral sites have chosen to say to the consumer, "We will be a repository for your information and then we will find you a professional real estate person to help you. We believe in real estate professionals, but we are going to charge them a bunch of money for giving them your information." Someone described the Lead Generators as the person who shows up at the church pot-luck dinner with only a fork, and then expects everyone to pay them for bringing dinner. I think that describes them very well.

Unfortunately, we as real estate people have not been very good at letting the public know the value of our services. Most people think that just because there is an abundance of information about properties on the Internet, that the cost of a real estate transaction has gone down. This is absolutely false. The costs of a real estate transaction are not about the information database; the true costs are about advertising, insurance, governmental regulations, risk of litigation amongst others.

We must continue to let the consumer know the value of our skills, rather than let them think that access to real estate properties for sale is all we get paid for.