Source: Detroit News Flat fee delivers flexibility Pricing a house to sell is something Glenn King has learned. He agreed to drop the price of his Novi home from $700,000 down to $675,000 and an offer came later that day. Anxious to move the deal along, King listed with a flat fee or discount broker because it offered him greater "pricing flexibility." "When we did the calculation, we essentially got a full price offer from a profit standpoint," King said. Flat fee brokers don't charge the traditional 6 percent to sell homes. Instead, King's broker charged him $595 to list the home. King then paid less than 3 percent commission for the sale of his home. Nowadays, savvy home sellers are negotiating real estate commissions to protect their investment. Once unusual to forfeit the 6 percent commission traditionally collected by real estate agents, those days are over, says discount broker Peter Fuciarelli, owner of Mid City Real Estate in Warren. Fuciarelli charges 1.5 percent to list a home, which he says lowers a seller's costs. One stipulation with discounters like Fuciarelli is that he only lists homes that appraise for at least $150,000. Brokers like Fuciarelli generate profit on volume business. Even though they charge less, they can make more money if they generate sufficient activity in specific market segments. "If I can do a volume of three, four, $500,000 homes, I can make as much if not more, because the houses are so high," said Fuciarelli. Flat fee brokers don't offer all the bells and whistles like other full service brokers, says Chris Brandemihl, a Realtor at Premiere Hometown Realty in West Bloomfield. He admits services are reduced, but he says not everyone wants or needs all the services offered by full service brokers. "We don't do separate advertising or open houses," said Brandemihl. "We rely on the Web and (multiple listing service) to sell our homes." Listing with flat fee broker translates into getting your home on the multiple listing service, a database of homes on the open market that allows prospective buyers to find homes. Listing a home is a fairly quick process. That's one reason flat fee brokers can offer reduced rates, Brandemihl explained. "It's an hour's worth of work to get a home on the market," says Brandemihl, who said computers and the Internet carved out the niche for discount and flat fee brokers. "Seventy percent of people start out looking for homes using a computer," said Brandemihl. "We currently have over $12 million worth of listed properties and we did over $10 million in sales last year." At one time, only Realtors were privy to the multiple listing service, but not anymore. Now anyone with the Internet has access to it by logging onto www.realtor.com, he said. The Michigan Association of Realtors doesn't take a position on either full service or discount brokers, says Robert Campau, its vice president of public policy and legal affairs. "We're all for innovative business models that serve the public and keep our level of professionalism intact," Campau said. "There are various levels of services people prefer." When the real estate process becomes more complex, that's when people better understand how real estate agents actually earn their money, Campau said. It may look easy to bring a real estate sale to fruition, but it takes "some doing" to close the deal, Campau said. Flat fees don't apply when listing with a discount broker like Fuciarelli. He simply charges a discounted commission rate of 1.5 percent. "Worst case scenario, sellers will save 1.5 percent; best case scenario, sellers will save 3 percent," said Fuciarelli. Elise Oberliesen is a Metro Detroit freelance writer ----------------------------------------------------------- Source: Time - Business The Commission Squeeze Jan. 31, 2005 - When Bryan Geston set out to buy a home, the first thing he did was log on to LendingTree.com where he described what kind of house and mortgage he wanted. A day later, several real estate agents and lenders That night he made an offer. The process was painless, says Getson, 23, who moved into his Centreville, Va., home just five weeks after starting his search. "As a bonus," he adds, "I'm getting a Home Depot gift card for $1,000 that I'll use to redo some cabinets." This is not how most people buy a house, largely because it is not the way the nation's dominant real estate firms, including Century 21, Coldwell Banker, ERA and ReMax, choose to do business. The big guys on Frequently the houses are closely held listings on which the agents have exclusives, and they pocket a hefty 5%-to-7% commission on each sale. Today that clubby world is being shaken more and more by a handful of upstarts. Internet interlopers like LendingTree, along with regional discounters like Foxtons in the Northeast and CataList Homes on the West Coast, have been gaining traction with a new scenario--one that simplifies and shortens the process for buyers and offers sellers overdue relief on the commissions they must pay. ---------------------------------------------------------------------- Source: Newsweek - April 5, 2004 Edition: U.S. Edition When Larry and Jean Weed of Sparks, Nev., decided to sell their home, they invited some real-estate agents by for a visit. Most offered to sell the house the old-fashioned way, by listing it in the local brokers' database and charging a 6 percent commission (worth $16,800 on the Weeds' $280,000 home). Then the couple met an agent from Assist-2-Sell, a "flat-fee" brokerage that charges just $2,995 to sell a home. In their area, as in much of the country, "it's a sellers' market--houses are going like hot cakes," Jean says. So they decided to try the cheaper approach. Eight days after the for sale sign went up, they had a buyer. By using Assist-2-Sell, they walked out of their closing with an extra $13,795. As she packed boxes last week, Jean wondered if regular agents might become relics. "I don't foresee ever using one again," she says. It's been a generation since Charles Schwab bullied his way into the stock-brokerage business by cutting commissions. It's been nearly a decade since Web sites like Edmunds, Priceline and Travelocity helped drive down middlemen's profits on minivans and Caribbean cruises. Now a growing number of firms are moving to serve home sellers who balk at paying a big commission. And even among home sellers who use a traditional agent, many are growing more price-conscious and haggling with brokers to reduce their rates. The average real-estate commission was 5.12 percent last year, down a full percentage point over the past decade, says Steve Murray of Real Trends. Folks like the Weeds remain rare: the vast majority of home sellers still use full-commission agents. But alternatives are emerging--and many observers are surprised they didn't gain in popularity even sooner. The industry spent much of the 1990s worrying that brokers would be dot-commed into oblivion. "In 1999, if Bill Gates had walked into a [real-estate agents'] convention, he'd have been dismembered," says John Tuc! cillo, an industry consultant. But predictions that Web sites would re place brokers have proved dead wrong. Today the industry is facing pressure from a very different set of problems: rising home prices and a glut of agents. The economics are easy to understand. As home values escalate, home sellers are balking at the usual 6 or 7 percent commission--a fee of more than $10,000 on the median-priced U.S. home. "Why pay so much money if my house is going to sell in a week?" sellers ask, especially as more agents are scrambling for listings. The biggest squeeze is occurring in markets where home prices top $350,000. Along with competition from newbie agents, the pressure has limited brokers' earnings: half earned less than $52,500 in 2002. Another threat comes as a small but growing number of homeowners try new ways to sell a home. The two largest "flat-fee" brokerages, Help-U-Sell and Assist-2-Sell, are well over a decade old, but in the past year their networks of franchises have exploded; together they now have nearly 900 offices nation! wide. And even some established brokerages are experimenting with "a la carte" pricing, where instead of commissions, sellers pay an agent separate, set fees to price a home, hold an open house or write the contract. Says Murray: "There are a lot of new entrants into this business, and they're not all playing by the existing rules." Some agents have learned to love the emerging playing field. Boston broker John Ford uses Craigslist.org, a free Web site now operating in 32 U.S. cities, to advertise his listings. He's cut his newspaper advertising bill by more than $100,000 a year--and by using the Web, he says, he's reaching more under-35 buyers who generally don't read newspapers. To gain listings, he's cut his commissions to 4 percent, but since home prices are rising and his costs are falling, he's more than breaking even. Barbara West, a broker in Quechee, Vt., has a client who's trying to sell her home on eBay; if she succeeds, West's commission will be cut in ha! lf. But West doesn't feel threatened. Like most brokers, she loves the Internet because it allows buyers to study photos of listings at home and weed out the losers, limiting the time she spends schlepping from house to house. And even those homeowners who gripe about agents' high fees usually call one when it's time to sell their own home, she says. Why? They're scared of listing it for sale by owner by time constraints, uncertainties over pricing or paperwork or the fear that agents will steer buyers away. Nationally, "FSBOs" account for fewer than one in five sales and don't appear to have grown much during the boom. As for her eBay client, the online listing has attracted one visit from a prospective buyer. West has brought by 60. Still, thanks to a new breed of brokerages, do-it-yourselfers say it's becoming far easier to sell a home. When Gus Treewater decided to sell his three-bedroom San Francisco condo, he spent $3,000 to create brochures and found a broker who charges $995 to handle the paperwork. Like many "broker-assisted" s! ellers, Treewater will still pay a 2.5 percent commission of the $890,000 price to an agent who brings him a buyer, but he expects to save $25,000 by doing legwork himself. "All our neighbors are watching with interest, saying 'Wow, can we really do this?' " he says. For buyers, sellers and agents, the big question is whether this wave of cost cutting and experimentation will survive when the market finally slumps. Then, skeptics say, many of the low-cost brokerages will fold and homeowners will happily revert to paying big fees to experienced pros who can move a home quickly. For better or worse, the market shows little sign of doing that flip-flop any time soon. If the tepid job market helps keep interest rates low the rest of this year, there's a chance home sales could top last year's record. Economist David Lereah of the National Association of Realtors expects prices to rise by merely 4 to 5 percent this year, off slightly from the blistering pace of 2000 to 20! 03. But as long as those numbers are rising, some sellers will look fo r alternatives. "People are tired of paying higher and higher commissions just because houses are going up and up in value," says Dale Eads of Abana Realty in Birmingham, Ala., who converted to flat-fee selling three months ago. If more brokers follow his lead, today's small band of rebel agents may someday be an army. Copyright (c) 2004 Newsweek, Inc. ----------------------------------------------------- Source: Realty Times - November 8, 2006 Will New MLS Rules Change The Marketplace?by Peter G. Miller For as long as anyone can remember the only form of listing allowed in local MLS systems has been the "exclusive right to sell" agreement. With an exclusive-right-to-sell listing a broker knows that if the property is sold within the listing term he will receive a commission -- even if the property is sold to a buyer found by the owner. There are, however, other forms of listings. For instance: An "open" or "general" listing means a broker has a right to sell a property, but not exclusively. An owner can grant open listings to 30 brokers and still offer the property for sale by himself. When the property is sold open listings end automatically. An "exclusive agency agreement" means that only one broker can list the property, however the owner still reserves the right to sell directly and without paying a fee. The FTC has now settled with five MLS systems that did not allow brokers to post listings with anything other than exclusive-right-to-sell listing contracts. From this point forward exclusive agency agreements can be used with MLS systems based in Loveland, CO; Concord, NH; Williamsburg, VA; Appleton, Oshkosh, and Fond du Lac, Wisconsin; and Monmouth and Ocean Counties in New Jersey. Two Michigan MLS systems that did not agree to the FTC proposals face administrative complaints, matters that will be contested in the court system. The instant media reaction to the FTC announcement is that consumers who use discount brokers will now have greater access to MLS systems. The reason is that discount and flat-fee brokers often use exclusive agency agreements rather than exclusive-right-to-sell contracts. By requiring MLS systems to carry exclusive agency listings, listings through discount and flat fee brokers are expected to gain greater exposure. While discount brokers have been the focus of the FTC action, the actual impact is different. First, the new settlements do not say that only discount brokers can enter exclusive-agency listings into local MLS systems, all member brokers can post such listings. This means that one of the attractions of working with a discount and flat-fee brokers -- the ability to both list a home and yet retain the right to sell it yourself -- will now become commonplace. In effect, discount firms and flat-fee brokers will be losing a perceived marketplace distinction, something that helps them compete more effectively with traditional brokers. Second, exclusive-right-to-sell agreements are often mislabeled. For instance, Broker Smith may have an exclusive-right-to-sell agreement to market the Jones property. However, owner Jones has reserved the right to sell the property without a commission to Thompson, Flowers and Thuman. If this is the case -- and it happens commonly -- then the exclusive-right-to-sell listing is simply not exclusive. The owner can sell directly to named individuals and not pay a fee. In effect, a nonexclusive exclusive. Third, the great oddity of the FTC initiative is that it will result in fewer sales by self-sellers. Self-selling sounds great. We all like to save money. Self-selling in some sense has become easier with forms and information posted online. Online pricing data helps consumers better value their properties for sale. But in practice self-selling is increasingly less feasible. A proper and reasonable urge to defend buyers has resulted in a huge array of consumer protections. Caveat emptor -- buyer beware -- is dead. The onus to get transactions right falls increasingly on home sellers. The unintended by-product of real estate consumerism is that sale agreements now resemble international treaties in terms of size, scope and complexity. Moreover, many if not most buyers today have some form of buyer representation. The result is that owners cannot just download a generic sale agreement and complete a real estate sale. You need the right form for a particular jurisdiction. You need disclosure forms. You need to understand what the forms mean. You need to comply with local rules. You need to know that your buyer is financially qualified. You need to hold a deposit in an escrow (trust) account. You likely need to deal with a buyer broker. For most homeowners, self-selling is both attractive and implausible. Because self-selling has become so unlikely, traditional brokers will eventually offer exclusive agency agreements knowing that the odds of a seller completing a transaction without the broker are minimal. What many discount and flat-fee brokers really do is provide direction in the increasingly-complex world of home selling. There's a need and value for such services. As to how services are priced or what package of services are offered, brokers are entirely free to price anyway they please and to offer any package of services that they think will bring marketplace success. In effect, the old either/or options of self-sell or sell through a broker have now been joined by what appears to be a third choice, the broker-assisted sale. In fact, a broker-assisted sale is merely a brokered transaction -- if that were untrue then brokers would not be getting a fee. There's little doubt that exclusive-agency listing agreements will become more common in the next few years -- and there's also little doubt that at the end of the day brokers will still be in the center of the transaction. Why? Because the same consumer concerns that ended "buyer-beware" marketplace standards virtually mandate the need for listing brokers. Whether the FTC effort will produce a significant shift to discount brokerage either in specific local markets or nationwide is unknown. It will be interesting in a few years to look at the data and see if self-selling volume increases and if discount and flat-fee brokers gain market share. For more articles by Peter G. Miller, please press here. |
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