Flat Fee MLS Listing

You have always heard the saying, “location, location, location”.  They are often described as the three keys of selling a home and getting top dollar. However, while location, location, location are not the three keys of selling a home; they are the three keys of buying one.

The 3 keys to selling a home are:

 #1 - Pricing your home

 #2 - Staging your home

 #3 - Listing your home on the MLS & Realtor.com

#1 – Your List Price

The most common mistake people make selling a home, is overpricing, and this occurs about 80% of the time … So why do people do this?

Here are the reasons why people come up with a list price and overprice their home.

  •  I need the money to buy a new home.

  •  I am not going to give it away .

  •  Other homes are listed for $$$$.

  •  I need to leave room for negotiating.

  •  The Realtor said to list it for $$$$.

  •  My neighbor/friend said they got $$$$.

  •  Homes go up in value.

  •  We got an appraisal.

  •  I need to get $$$$ to cover the agent’s 6% commission.

  •  My home is the best in the neighborhood.

  •  I am not going to loose money on this home.

  •  We are not in a hurry to sell.

So how do you come up with a true and honest list price?

You need to look at all the homes that have been listed in your area and analyze all the data. You need to look at: Active, Sold, Pending, Canceled, Expired, and Withdrawn listings. This is called a CMA (Comparative Market Analysis). You are analyzing the total market conditions in your area, so you can make an educated decision on the list price. Only a very experienced broker knows how to do this properly, and has access to the data.

Some of the brokers you will find listed on the right hand side of this web site are able to do a CMA, give you an honest opinion (because there fee is not based on the price of the home), and explain how to sell your home. It takes a broker that has done a lot of listings to possess the experience necessary to give you an objective listing price.

#2 – Staging your home

Staging your home means getting it ready to sell. Click Here for is a great web site, from HGTV, that will explain staging in detail. Most homes that are on the market are not staged, so when you stage your home, you are placing your home well above most of the competition. This may be one of the best kept secrets in the home selling business.

#3 – Listing your home

You can do steps #1 and #2, but if you are not getting your message out to the home buying public, then your message is falling on deaf ears. Listing your home on the MLS (which is the data feed for Realtor.com® and many other great websites) is by far the best may to market your home. Many people know this, but do not want to pay 6% to get it and THEY DO NOT HAVE TO. We have compiled a list of highly recommended Flat Fee MLS Listing Brokerages (see right hand side of web site). Listing your home on the MLS for a Flat Fee may be the best way to market your home. Not only do you get the MLS, but you get the advice of an experienced and successful broker.

In closing, the staff at www.FlatFeeMLSMarketing.com has done a lot of research on the art of selling homes. If you follow these 3 steps, you should not only sell your home for top dollar and fast; but you will net more money by lowering your selling expenses. Research has shown that selling your home with a Flat Fee MLS Listing Broker factoring marketing time, commission and price, nets you the most money for your home in the shortest period of time.

Most Flat Fee Brokers are also able to help with contracts and closings, and because of the sheer volume of properties they list, they are much more experienced than most traditional agents you would retain for a high 6% fee.

Staff Writer

Flat Fee MLS Marketing

According to a report in Inman News, former employees of Iggy’s House/Buy Side Realty report that they are about to shut their doors.  This flies in the face of reports in the same article by CEO Joseph Fox that they are just restructuring.

It would appear that freebies and loss leaders don’t always stimulate enough business to compensate for the expenses they incur.  This is not a free car wash with a tank full of gas.  Iggy’s would list a house for free on the hope that one or more of the buyers that called inquiring about their listing would buy a home through them.  Wishful thinking in the worst real estate market in 15 years.  That’s more like a tune up, brakes and a new set of tires with a tank full of gas and not only that….you don’t have to buy the gas until after you get all that stuff.  Now granted, today a tank full of gas is not cheap but unfortunately when they refund 75% of the buyer’s commission, their service was pretty cheap; so cheap in fact that it could never compensate for the free listings they gave away.

Where did Iggy’s go wrong?  Most likely their founders are to blame for having inflated egos in a deflated economy.  Joe and Avi Fox got lucky once.  They sold their online stock brokerage Web Street to ETrade and thought they could repeat their success in Real Estate.

ETrade bought webstreet for $45 million and the Fox brothers were reported to have earned $9 million each on the sale; certainly enough to live comfortably for the rest of their lives without starting a hair brain real estate model that gives away most of it’s services for nothing or next to nothing.  Then again, these are the same two guys mentioned in a 2005 press release about launching Stand-Up Comedy TV.  Iggy’s house was certainly a comedy…..of errors.

FFMLS Staff Writer

Á la carte brokers are carving out a buffer zone between selling For Sale By Owner and traditional real estate.  Do-it-yourselfers have long sought an alternative to traditional real estate.  In 2000 the term Flat Fee MLS was almost unknown. A Google search produced minimal results.  Early flat fee companies got business by targeting for sale by owner sellers.  Today that is changing.  Consumers know what flat fee mls is.  Instead of stumbling on it, they seek it out.

This would seem to model other industries.  The success of Home Depot, Lowes, Schwab, and eTrade would tend to indicate that real estate should not be any different.  There is a huge do-it-yourself sector of real estate that needs tools and à la carte brokers offer those tools; they sell the hammer but the consumer gets to swing it.

The result is that consumers are saving hundreds of millions of dollars in commission.  Real estate sales are a 60 billion dollar industry and Flat Fee MLS is 2±% of the market or about 500-600 millions dollars in saved commissions annually.  One billion dollars in annual saved commissions is in site.

Staff Writer

In 1981 the National Association of Realtors began tracking what percentage of homes sold by owner.  The number has fluctuated from a low of 13% in 1997¹ and a high of 20% in 2005¹ but the number seems to hover around a mean of 15%; hence the 85:15 ratio (Realtor Sold:Owner Sold).

The most interesting part about these figures is that there was no internet in 1981.  The Internet did not even play a role in real estate until the late 90s and when it did, the numbers did not change much.  In a seller’s market, the percentage of For Sale By Owner (FSBO) sales continued to rise and in a buyer’s market it fell.  This would tend to indicate that it’s not the medium of communication that affects the percentage of FSBOs but instead the market itself.  In other words, sellers might be more apt to try FSBO because it’s easier but not because the web makes it easier to upload a digital photo and a description but instead because the market is hot and more apt to respond to any type of posting by a seller.

What motivates a FSBO seller to be willing to try to sell without a Realtor is far more inate, however.  FSBO sellers have what one might call the do-it-yourself gene.  FSBO sellers like home projects; not just selling the home but fixing and improving the home.  It would seem that FSBO sellers are the type of people that like to shop at Lowes and Home Depot and take on projects on their own.

Years ago, the local plumbing or electrical supply house had signs….contractors only; this is their livelihood.  That was until Home Depot and Lowes began selling all the same products for less money to anyone.  A FSBO website is similar to MLS but it’s like a knock off of the real trade product.  It does not have the acceptance that MLS does because it does not reach the same people as the MLS.  This is because 85% of buyers are still going to brokers or broker websites to buy their home.  Besides the fact that 85% of the people want service, to the buyer, the perception is that the services of a buyer’s agent is free and that the service is paid for by the seller.  Buyers do not see the cost as coming off the top of the deal.  So FSBO websites have never been the real trade product and never will be.

So the system remained imperfect with the advent of the internet because the FSBO seller had no ability to buy the real trade product.  That was until Flat Fee MLS brokers began springing up around the country.  Suddenly there were brokers who would sell the formerly wholesale product, retail to the public.  Flat Fee MLS was essentially an unbundling of the materials from the labor provided by professional.

Flat Fee MLS has turned the 85:15 ratio into an 70:20:10 ratio (Traditional Realtor Sold:Flat Fee Realtor Sold:Owner Sold).  A new service level was carved out of the decades old ratio.  It’s just a sign that Real Estate is changing and will continue to change.

Staff Writer

¹Source: Home Buyer & Seller Survey Shows Rising Use of Internet, Reliance on Agents
         January 16, 2006, The National Association of Realtors
         http://www.realtor.org/press_room/news_releases/2006/hmbuyersellersurvey06

By FFMLSM Staff Writer

In 1971 Charles Schwab incorporated First Commander Corporation and in 1972 he bought out his partners and renamed it Charles Schwab and Company.  In 1974, Schwab had the good fortune of an SEC pilot program that deregulated some brokerage transactions and in 1975 the SEC mandated negotiated commissions for stock trades.  At this point most brokerages raised their fees.  Schwab in contrast started what he called a discount brokerage.

Schwab’s discount brokerage was really an unbundling of trading and advice much like Flat Fee MLS Listings are an unbundling of marketing and transaction management.  This meant that instead of Schwab supporting a force of trained advisors that demanded high pay, he could use back office staff to place the trades and investors would be free to do their own research.  For investors that wanted research and advice, he offered separate services.

To understand how this compares to Real Estate, one has to examine the different structure between the stock brokerage industry and the real estate brokerage industry.  Stock is largely national.  The National Association of Securities Dealers (NASD) is a trade group that is closely supervised by the Securities and Exchange Commission (SEC).  In contrast the National Association of Realtors (NAR) has little or no oversight.  State Real Estate Commissions have power over licensees but little power over National, State or Local trade associations.

Schwab got his start in a nationally (or even internationally) regulated medium.  Flat Fee MLS Pioneers, immediately came up against the wrath of local Realtor® associations.  Schwab was free to grow without persecution where Flat Fee MLS Brokers were taken out back and tarred and feathered.  Sellers were told by local brokers (and still are as of this writing), you can’t List in the MLS for a Flat Fee; that’s illegal.  Sellers were told by traditional Realtors® (and still are as of this writing) if you list with a flat fee firm, we won’t show your listings.  Perplexed sellers asked….Why?  We are still offering you a 3±% commission?  Traditional Realtors® rarely have a response.  However, Realtors® did not count on one major change; Realtor.Com.  Realtor.Com empowered buyers to begin telling Realtors® what they wanted to see.  Realtors® were no longer picking the houses.  This was the gateway that opened for Flat Fee MLS Listings.

The different type of regulatory environment made Flat Fee MLS a more local and regional industry.  In the late 1990s, one firm, Homebytes, actually acquired 50 state licenses and operated in 40+ markets but due to poor management they ceased operatations in under two years.  Today the only national firms are referral firms that farm out work to local and regional brokers.  Four to five regional brokers exist and two brokers cover both the east and west coast with many gaps in service in between.

To be continued…..as more changes occur.

By FFMLSM Staff Writer:
MLS stands for Multiple Listing Service; a database of homes that Realtors^® use to share their listings with other Realtors^®.  In the traditional real estate model with a high 6% commission, the Listing (the Seller’s) Brokerage usually splits its commission 50:50 with the Selling (the Buyer’s) Brokerage each earning 3%.  With a Flat Fee MLS Listing, the listing broker works for a flat fee.  However, today Flat Fee MLS is far more than a Flat Fee Listing of days past.  Today Flat Fee MLS is also à la carte services.

 The traditional brokerage industry prefers to refer to Flat Fee MLS as limited service but it’s far from limited.  What it really is, is consumer choice.  Many flat fee brokers offer all of the services that traditional brokers offer but in a menu format where sellers can pick the services that they want and pass on those they don’t want.  The majority just want MLS marketing and pass on transaction management but a growing number are asking their broker to negotiate and brokers are catering to that demand with a range of programs from a flat fee of a few hundred dollars to ¼%, ½%, ¾% or greater. 

 Who is purchasing Flat Fee MLS services?  The client base seems to be broad.  It seems to be a mix.  Some are sharp educated consumers.  Some are frugal value minded consumers.  Others just want control of their listing and the price is not necessarily the factor.

For Sale By Owner (FSBO) sellers also flock to it as an alternative for costly commissions while still getting the benefit of maximum exposure on MLS and Realtor.com.  The one thing that stands out is the growth in market share.  In 2000, less than 1/10th of 1% of the people used a Flat Fee Broker.  Today it’s about 8%.

By FFMLSM Staff Writer:

Flat Fee MLS Listing - In January of 2004 a savvy group of brokers had a novel concept.  At the time, IP based searching was in its infancy and Texas Broker Jack McLemore (WhyMLS.com) noticed that national advertisers had an advantage in Pay Per Click advertising (PPC) that local IP based advertising could not compete with.  Shortly thereafter he teamed up with Schaunon Winter (BrokerDirectMLSCo.com), and Derek Eisenberg (MultipleListingSystem.com) to form the first cooperative advertising group to market Flat Fee MLS listings on Google, Yahoo and Microsoft.  Soon after, Jeff Kermath (AmeriSellIt.com) and Richard Webber (HomeworksRE.com) joined as partners followed by over 20 affiliates in over 42 states.

 Coops have been around for years.  They are found in small pharmacies and hardware stores that want to compete with the big chains but they are somewhat new to PPC advertising.  Through Broker Direct’s cooperative efforts, an affiliate of Broker Direct is usually in the top two sponsored link positions at any given time for all key flat fee mls list advertising terms.

The Broker Direct Group, LLC currently operates several websites including AmeriOwner.com, ForSaleByOwnerMart.com, ListByOwnerOnMLS.com, ListFlatFeeMLS.com, and SaleByOwnerAmerica.com.

The cost of flat fee MLS listings in many urban markets has dropped to a few hundred dollars, and now you may even be able to get an mls listing for free! One of the leading discount brokers for real estate buyers, BuysideRealty, has changed its name and begun offering mls listings in 20 states today with 17 more coming soon.

The question that I would ask, is can a service, effectively compete with a paid service that is perceived to be free, especially when it involves the incredible risk of being the one of the largest financial transactions of your life?

The American Real Estate Broker Alliance, formed in 2006, is a new trade association representing an alliance of flat-fee real estate brokers who are offering a variety of non-traditional real estate services such as flat fee MLS listings and other fee for service brokerage options. Many of the charter members are already listed in our directory, and we will be reviewing the others for inclusion as time permits.

One of the things I most like about blogs is the fact that you can comment on them. Unfortunately, for the past couple months I have had to disable comments due to the time constraints of dealing with large volumes of spam. However, I am experimenting with some new software, and my hope is that this will allow real people to get back to the business of discussing real estate

According to the best-selling authors of Freakonomics, the answer is a resounding Yes. In a recent New York Times article, they support the much debated theory that real estate agents are headed for the same fate as stock brokers and travel agents. In this scenario, only a handful will survive, and most people will turn to discount brokers, flat-fee brokers, and fee-for-service agents.

Despite this ominous prediction, and their scathing review of agent behavior in their book, one might expect them to express disdain for this profession. However, in an interesting twist, they make the case that the public should feel sorry for real estate agents. Agents appear to be caught in the confluence of powerful economic currents, that are now being disrupted by the explosion of Real Estate information on the Internet.

I just ran across Meetup.com’s real estate networking group, and was quite impressed. There are nearly 16,000 people in 166 cities available to meet with, and there’s nothing like talking about real estate to learn more about it and find people to do deals with.

Whether you are a novice or an expert, with so many people involved, there is bound to be someone that you can relate to and bounce ideas around with or swap stories. As the title says, I think real estate networking just got easier.

As this blog has evolved, I have decided lately to focus my energy on the flat fee real estate broker directory portion of the site because I feel that much of the other information is already available elsewhere on other great news and blog sites. As a result of these efforts, I am proud to say that the directory now covers 29 states and more then half the country!

Today I worked on cleaning up the directory organization, so that the real estate broker’s are more accurately listed in the states they are licensed in. If anyone has any broker’s to add or update, or if any state is missing the license search link, then please contact me via the form listed on the about page. As always, I appreciate hearing people’s experiences and other agent’s thoughts, so thanks to all those who have made meaningful comments and contributions to the discussions here.

The ThinkingAboutMoney blog had an interesting piece analyzing the state of the housing industry. Many pundits have proclaimed that there is a bubble and that it is bursting. Much of the evidence is related to the recent growth in the number of houses on the market and the reduction in the number of transactions, however, the question this article raised is whether that is a relevant measure of a decline in the housing market? Since housing prices have remained relatively stable, while price growth has slowed down, it may be that a reduction in the number of transactions is more consequential to realtors then the homeowners, in that now there are more realtors working fewer transactions.

The MSN Money jornal put online appraisals to the test in a great review of the various online appraisal services including the hot newcomer Zillow. Not too surprisingly, Electronic Appraiser, which is the most expensive service they reviewed, came out on top. Indicating that in this case at least, the old adage “you get what you pay for” holds true. Unfortunately, they did not compare such services to those of real world appraisers, which would make for an excellent academic study for any real estate PHDs looking for a dissertation topic.

Also, kudos to the fsbo primer blog for pointing me to this info.

The National Association of Realtors recently released their quarterly report which indicates that prices are up 10.3% but that sales are slowing and inventories are growing in many markets. The NAR interpretation of this is as follows:

“The growth in single-family home prices continued to cool in the first quarter, but many metropolitan areas are still showing double-digit annual gains, according to the latest survey by National Association of Realtors®. At the same time, metro area condo price appreciation has generally cooled to normal levels.”

On the other hand the Marginal Utility blog’s analysis of NAR’s raw statistics had this to say:

“The appreciation is highly concentrated in the early part of last year; for most metro areas, prices peaked or plateaued around quarter 2 or quarter 3 of 2005. So while the year-over-year increases appear to be “cooling,” the sequential increases have ground to a halt.”

The Milwaukee Journal Sentinel recently had a nice piece on the challenges that consumers still face when hunting for a house online. There’s lots of information and lots of websites, but the information that you really want may be hidden or in many cases not yet available online.

“A lot of information is hard to come by, such as lot size, (house) layout and square footage. I have to drive by a place to find out my truck won’t fit in the driveway and there’s no way I can do anything with the boat except put it diagonally across the front yard.”

This highlights one buyer’s struggles to find just the right place. Of particular note to this blog’s readers is that they also ended up going with a flat fee MLS broker that offered substantial rebates for buyers as well. The other key point that was raised was the additional information that is exclusively available to realtors in the MLS.

“Joy Busse was astounded at how much more property detail MLS supplies brokers than the general public.”

If this more detailed MLS information remains in the proprietary domain of Realtor-only access, then the real estate profession may well ensure that it continues to thrive for many years to come.

As if the city of San Diego didn’t have enough problems with the enormous pension scandal and the as of yet still unfinished audits going on, it looks like the number of mortgage defaults in January rose from 374 in 2005 to 536 in 2006 according to the Voice of San Diego.

The scarier part is that in “2005, more than 70 percent of home loans in the county were interest-only or negatize-amortization loans.” This incredible rise in these types of agressive loans cannot bode well for the future.

“Loan Performance reported that in 2005, 26.7 percent of loans made to homebuyers and those refinancing their mortgages were negative-amortization loans. In 2004, that number was 9.9 percent. In 2003, it was 1.1 percent.”

If this continues, pretty soon we will have to come up with double-negative amortization loans to pay off the insanity of our 1st mortgages in this beautiful city.

Before people stop buying it. The New York Times just ran an article on the least affordable places to live in the country, as measured by the ratio of housing prices to income. As a California resident, I was not surprised to learn that the Top 11 most unaffordable places in the country are found in this state; next on the list was New York City at #12.

The data has been graphed and there is a nice map of the country. It seems like the big city metropolitan areas are where most of the unaffordable housing is located. Unfortunately, there is no one explanation for why California is so absurdly overpriced, but some of the reasons given are the growing population, low property taxes, and the high birth/immigration rates.

I thought I had found an answer when I read the quote from a Freakonomics reader:

“I talked to the author of this study at the National Association of Realtors and it was based on a survey return from 155,000 mailings. The returns totalled 7400. The criteria was a sold, single famiy, detached home in the suburbs.”

But then I came across this comment on none other then the New York Times blog:

“NAR surveyed 108,000 people who had sold their homes, got about 3,700 responses, and compiled the results.”

Now I am confused.

So I went to the NAR website to try to dig up some more information on what really happened, and I found this file on the highlights of the survey. It says:

“In August 2005, the NATIONAL ASSOCIATION OF REALTORS® mailed an 8-page questionnaire to 90,000 consumers who bought a home between August 2004 and July 2005. Information on sellers comes from those buyers who also sold a home. Hurricane Katrina disrupted mail service in late August 2005 in some areas of the country and artificially depressed the response rate to the survey. Consequently, the questionnaire was re-fielded to an additional 55,000 homebuyers in selected areas. All told, the survey yielded 7,813 usable responses yielding a response rate of 5.4 percent. Consumer names and addresses were obtained from Experian, a firm that maintains an extensive database of recent home buyers derived from county records.”

So according the survey’s author, neither of the above comments were correct. It sounds like there were 145,000 surveys mailed, and 7,813 usable responses. Of course, that still doesn’t explain how they calculated their different prices for FSBO and realtor assisted home purchases?

Well, according to the National Association of Realtors, they are worth $31,800, which seems like an awful lot. However, I’ve recently run across some more research on the subject and a few answers to my earlier questions about how the NAR came up with this magic number. A comment by Leonard of the website mainemls.com on the Freakonomics blog says:

“I talked to the author of this study at the National Association of Realtors and it was based on a survey return from 155,000 mailings. The returns totalled 7400. The criteria was a sold, single famiy, detached home in the suburbs.”

Ok, then my next question is - what did they do with this data? Is it a simple price average or median that they are presenting or is there more to it? Fortunately, the Real Estate Center at Texas A&M University did some more research on this subject, although they were focused on limited service brokers versus traditional full service brokers. What they found was this:

“Interestingly, the empirical results from the models show that limited service listings sold for 1.7 percent less than typical exclusive-right-to-sell listings and took 17.1 percent longer to sell. Given that the typical discount offered by limited service brokers is approximately 2 percent, there does not appear to be any net gain to sellers using limited service representation.”

This came as a bit of a surprise to me, however, they went on to say:

“If the limited service broker charges a total 4 percent commission, then the commission plus the 1.7 percent lower price is approximately equivalent to a 6 percent commission from the seller’s perspective. If this result holds up in additional studies, it would indicate that limited service brokerage offers no dollar advantages to the seller over typical brokerage when using the exclusive right to sell contract.”

Ok, so what this tells me is that using a discount agency versus using a full service agent has a fairly nominal difference, although the above math would still indicate a .3% gain by using the discount broker that charged 1%. It doesn’t sound like much, but this could be .3% x $500,000 in Southern California which would equal $1500 and is probably enough for a nice weekend vacation to Hawaii.

The more interesting question in my mind, is that if I am doing the math correctly then a flat fee MLS listing that costs $500 + a typical 3% buyers agent commission = a total of 3.25% commission on an average $200,000 home. So based on this research, if a flat fee MLS listed home sold for the same 1.7% less then the homeowner using a full service agent, then that would amount to a 2.75% gain which equals $5500 and is certainly enough money to motivate some people to do the extra work involved in this kind of transaction.

In the NAR blog they recently posted that the Cost of Selling without a Realtor is an average of $31,800. Based on the latest 2005 NAR Profile of Home Buyers and Sellers. This is based on the national average home price and the survey number indicating a 16% gain in price by using a Realtor.

“The median home price for sellers who use an agent is 16.0 percent higher than a home sold directly by an owner; $230,000 vs. $198,200; there were no significant differences between the types of homes sold.”

I would love to know exactly how did they come up with these numbers? Moreover, as a follow up, another great study would be to measure the difference between Flat Fee MLS listed homes, and the average price gain on a home that is listed with a full service broker. Do full service brokers make a difference, or is it merely the marketing magic of the MLS that make this price gain possible?

In Business Week’s blog today, Chris Palmeri discusses the boom in real estate jobs, and also the changing nature of the real estate job market. Naturally, as the industries business models and participants change, their is likely to be a similar change in what kinds of jobs will be available. So what kind of jobs will there be more of in the future?

This is a difficult question to answer, since it still remains to be seen what business models will stand the test of time, but it certainly seems to me that discount real estate agencies are on the rise. Also, since working with home seller’s is traditionally the more profitable side of the real estate transaction, I wouldn’t be surprised if the biggest losers are the agents who have been listing houses for sale with excessively large commissions.

In Where should you list your home? from TMCnet.com they mention that preliminary research in Madison, Wisconsin indicates that seller’s of higher priced homes tend to gravitate to the FSBOmadison listing service as opposed to the traditional MLS.

“Ortalo-Magne is researching the differences between MLS and FSBOMadison listings. Preliminary findings indicated that owners of expensive homes seem to gravitate toward FSBOMadison, he said.”

If this is true on most FSBO listing sites, then it might actually add credibility to the National Association of Realtors oft-quoted statistics about FSBO housing prices being lower then Realtor/MLS listed homes. Why? Because if pricier homes are being listed on FSBO sites, then the NAR study couldn’t be a result of merely simplifying the numbers to discredit the FSBO market.

On April fools, as would be appropriate, the Real Estate Cafe had a great blurb on the meaning of agency in real estate. It’s an often misunderstood subject that has little in common with the advertising agency, for example, that most of us are familiar with. In real estate, agency is basically about who you are working for - ie are you a buyer’s agent, or a seller’s agent?

Wouldn’t you know that this seemingly simple idea is greatly complicated by the common practices of the real estate industry, in which it is not uncommon for an agent to be both a buyer’s agent AND a seller’s agent in the same transaction… a conflict of interest, perhaps?

Ok, so you’re thinking that you just need to make sure that you have your own agent, right? Unfortunately, the potential for a conflict of interest doesn’t end there. The problem is that the general practice of the buyer’s agent being paid a commission out of the selling price is actually incentivizing the buyer’s agent to encourage the buyer to pay a higher price because then they get a higher commission.

So what do you do? As is often the case, there’s no easy answers, but a good please to start is the association of Real Estate Agents for Real Agency’s pamphlet on the subject.

As discussed on Barnako.com, the potential impact of Google Real Estate is quite enormous, even if their initial offering leaves much to be desired. The reason is that they can launch this product at the top of their search results in every market in the country. Since the majority of people are now starting their Real Estate searches online, the amount of exposure Google’s listings will get is undeniably huge and thus the quantity and quality of listings is sure to rapidly improve.

Jeremy Conaway in RealBlogging suggests the idea of starting a sweepstakes or competition to come up with a new business model that will define the “killer service application for the consumer real estate experience.”

This is a great idea, that unfortunately does not yet have a wealthy benefactor or university sponsor. Of course, in some sense the venture capital community has already put the prize money up for grabs with their funding of numerous real estate startups in recent times, such as Trulia, Zillow, Redfin, and others.

As reported in the Mortgage News Daily there have been numerous lawsuits against discount brokers, flat fee brokers, and fsbo websites, by various traditional brokerages and real estate associations. The rulings have been mixed, with FSBO websites being likened to online newspapers, so they are here to stay, while minimum service laws that limit consumer choice to only using full service brokers seem to have also been sucessfully implemented for the time being. What this portends for the future is anybodies guess, but many are watching the DOJ lawsuit to provide a roadmap for what is going to be deemed fair.

As reported in Inman news (account required $) , California real estate sales have fallen 15%. I have to wonder if a decline in real estate will make consumers increasingly sensitive to commission rates? This could be a boon for flat fee and discount brokers.

On the other hand, frightenened consumers might decide that their best bet is to go full-service and pull out the red carpet for buyers. It doesn’t seem likely from where I stand, but only time will tell.

In many respects, flat fee mls services represent the halfway point for people considering trying to sell their house themselves. Some reports have estimated that as much as 50% of homeowners try to FSBO before hiring an agent, and also that as much as 80% of those people who try to FSBO do end up hiring an agent.

Thus, somewhere between the many people who try to FSBO and the many people who give up on doing an FSBO is a huge market for flat fee mls service. Flat fee mls represents almost a halfway point in the comission, in that the amount charged by the listing broker is only a few hundred dollars, but you still have to offer 2-3% to the buyer’s broker.

In my mind the 2-3% offered to the buyer’s broker is not that big a deal for the incredible amount of additional exposure you get. It’s like offering a bounty on a buyer for your house in the same way that the US goverment has been offering million dollar bounties on terrorists. Money is an extremely effective motivator, and there are many hundreds of agents who will go to work when you post that ad.

Moreover, everyone know’s that housing prices are negotiable, so if you think the agent is getting to much money, then just raise your price to make up the difference. The NAR 2002 Profile of Buyers and Sellers report even indicated that median sales price for FSBO’s was 27% lower then for homes sold by agents. So surely the use of a flat fee mls service can make up the difference in the price of a house after the commission???

As discussed on Business Week’s Blog and Inman News (account required) comissions for real estate agents are likely to continue their downward trends due the ever growing number of full-service brokers and discount brokers offering reduced rate services.

This is great news for consumers IMHO, and I’m not the only one as Redfin also threw in their support for the idea of a broker offering performance based services, where they get an increased fee based on the actual selling price of the house over a certain amount (such as the appraisal value, or perhaps a zestimate from Zillow).

As discussed in the real estate cafe blog, and originally from Inman news, there are signs that the year 2006 may be a tipping point in the real estate revolution. Some of the signs mentioned are Zillow’s coming out of stealth mode, and the DOJ lawsuit, which are both landmark events.

The concept of flat fee real estate services has probably been around a pretty long time, and so you’re probably wondering - what’s the big deal???

Historically the reason for the need of real estate agents was similar to the need for stock brokers - in order to have a market with some degree of liquidity, there needed to be a group of highly specialized people that pooled together the available information to both participate in and actively create the market. However, in modern times this pool of paper and indiviudal communication has largely been replaced by computer databases.

The result of this in the financial industry, for example, is that the old fashioned stock broker who took a sizable commission in order to merely execute your stock transaction via a computer interface, has been largely replaced by online trading services.

This is not to say that there were not certain stock brokers who truly added value by providing good advice, and I think it’s fairly safe to say that these same individuals who did offer good advice have adapted to the growing industry of financial consultants to continue doing what they were previously doing.

What this means, at least in the case study of the financial industry, is that if a person who was formerly a stock broker could provide truly valuable financial advice, then they could probably continue to make lots of money by charging high hourly rates for their services, similar to lawyer, doctors, and accountants. However, for the many people who were previously able to charge high rates without adding value, they have had to face finding alternative employment.

I think a similar shakeout is going to happen in the real esate industry as the growth in online information services provides consumers with increasing amounts of knowledge previously only available to real estate agents. These newly educated consumers are going to ask themselves, why should a real estate agent get thousands of dollars for entering my house into a database???

And so they will turn to the growing cadre of brokers offering flat fee MLS services, and so the revolution begins.

[tags] flat fee MLS, flat fee mls [/tags]

In an effort to curb the success of minimum service offices that offer things such as flat fee mls listings, real estate lobbies in several states have convinced their regulators to set state-wide minimum service standards.

I personally think this is completely anti-competitive behaviour that will only hurt the public image of real estate agents over the longterm (disclosure: I hold a license but don’t currently practice). I hope the DOJ steps up to the plate with it’s lawsuit.

Click for more info.

[tag]minimum service, flat feemls, flat fee MLS, flat fee[/tag]

Ok, so I am still working on figuring out how to use Wordpress, and trying to get all the plugins configured.

There’s nothing like trying to setup your own blog to appreciate the incredible amounts of work that other people have gone to in creating some of the more long running blog sites.