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Is it insulting to offer a 1% commission to a friend?

Asked by Voices Member, Mon Sep 29, 2008

I recently found a home I would like to make an offer on. I located the home from numerous searches on many different websites and contacted the listing agent to tour the home. I was planning on making an offer through Redfin and pay them a 1% commission. However, I thought I would offer the same 1% commission to a friend of mine who is a real estate agent to write the offer for me. Would this be insulting to an agent? Or would you welcome the additional business for what looks to be a very simple negotiation and closing.

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Ben Kakimoto’s answer
Wow, I'm flabbergasted by the responses you've received. Seems most agents are trying hard to protect their commissions with dire warnings if you don't use a full-service, full-commission agent. I'm full-time agent with a traditional full-service firm in Seattle, but a lot of the answers are making me cringe. It also seems that agents are answering without even reading your statement thoroughly.

I do agree with James, I believe your friend would rather you offer him/her the opportunity, even for a reduced commission amount (assuming you'd want him/her to rebate the amount over 1%), than not being considered at all. I think what many people below fail to realize is that you're not taking away your friend's ability to earn a living, you're giving your friend the opportunity to transact a deal and earn a commission (assuming of course that you've yet used the services of said friend). Personally,I'd probably be offended with a friend asking me to rebate the majority of my commission, but I'd be more hurt by a friend bypassing me altogether. But, only you know how your friend is likely to react. And, in this market, with sales around 50% of the level last year, I don't think agents have the luxury of being obstinate in how they work with consumers.

However, I do agree with the responses below that not all transactions are necessarily simple to negotiate and close. The value of real estate agents are in the negotiation, transaction management and closing processes, not in being the door opener.

In respects to Redfin, I'm probably one of the very few traditional full-service agents who welcome their business model. Though I haven't dealt with them directly, I've spoken with other agents in my office who have...they really are no different from traditional brokerages. That said, even with the 2/3's commission rebate that they provide, a full-service agent may be able to negotiate a deal worth more to a buyer than 2/3's of the commission.
2 votes Thank Flag Link Mon Sep 29, 2008
BEST ANSWER
Harry,

There are loads of comments here that miss the point. This is not a battle about real estate commission. If you trust your friend and would like him to get the business, tell him your option is to use Redfin or him, provided that you give him a similar deal. It is never insulting to offer the business to someone, and many agents are hungry for business these days.

If his brokerage/business model allows it, he will help you. If it doesn't he'll pass on it. Either way, he'll be happy that you made the offer.

Brokers like Redfin can work well for a situation like you describe. And despite some of the rants below, the world will not end if you pay less commission!
Web Reference: http://blog.findwell.com
0 votes Thank Flag Link Thu Oct 2, 2008
Actually Patrick, I'll tell you what shows "true arrogance." It is your belief that with the representation I have chosen, paired with the inherent knowledge I (and my wife) bring to the negotiating table, that we have NOT taken into account "considerations inherent in a purchase and sale transaction." Your (not very) thinly veiled reference that the listing agent is getting the better end of this deal because we have not chosen qualified representation. Maybe certain buyers need your style of patronizing and education, I can tell you that we do not. The value-add for your services is very limited with certain buyers, especially in this highly educated market.

Also, your car dealer analogy is way off base. I know that my offer to your car dealer friend still leaves a profit margin cushion because the dealership across the street is selling the same car for the price I offered your friend. I'm just offering my business to him instead of the anonymous guy across the street. If his inflated sense of self-worth prevents him form selling me the car at less-than his previously over-sized profit margin, then I can just buy the same vehicle across the street.
1 vote Thank Flag Link Tue Sep 30, 2008
Hi Harry,
How do you know what kind of negotiation or closing it's going to be until you actually do it? The purpose of having an experienced agent working for you is to help guard against things you might not know to look for, or how to navigate issues that may come up in the sale negotiations, title report, home inspection, etc. That knowledge is invaluable, and with Redfin, you'll get only the bare bone basics of transaction management. What if things get complicated? What if there are issues that it takes a true professional to work through on your behalf? What if your friend ends up being able to save you a substantial amount of either headache or money by seeing something that you don't? Would that be worth more than 1%? Who would give you advice to walk away if they thought it was a bad deal for you, even if they would lose out on a commission? I've represented buyers and sellers in over 200 transactions and I still learn new things with almost each negotiation and each house. You're taking an awful chance with a large investment by not having a true professional in your corner representing you with all their experience.

Also, many listing agents stipulate that to pay a buyer's agent the full commission, they must initially show the property, so you'll need to check if that's the case with whatever house you're interested in.
1 vote Thank Flag Link Mon Sep 29, 2008
I purposely did not use the doctor analogy because people seem to object to it.

James’ example was of a client who had designed something themselves and wanted me to reproduce it. Therefore this client is asking me to reproduce his image. Since I charge by the piece, the fee would be whatever it cost to reproduce this piece. It is a different process. To use your doctor analogy, it is like coming to the doctor and saying “my appendix needs to come out” and wanting to just pay the doctor for the extraction.” How much would you save there?
0 votes Thank Flag Link Sat Dec 13, 2008
JR, Specifically, "that's not 'designing,' James." As James' last post indicates, I don't think you were clear in your criticism. For instance, if you are going to state what something is NOT, you should state what you think it IS. I'm not a designer and I really don't care, that wasn't the point of James' comment. I would just like to hear a better "designing" analogy or a clearer explanation with details.

I don't think I'm disagreeing with your general points on the traditional commission structure. But I'm not disagreeing with some of James' points either that it will and should change. It is changing now and it will continue to change. What we should be debating is what would an equitable change in the commission structure for all the stakeholders look like.
0 votes Thank Flag Link Sat Dec 13, 2008
JR...are you talking about my lack of knowledge in design or the medical field? The analogy to doctors was given to me by a doctor whom I was discussing the pros and cons of the current commission model. As for design, no...I've never been in the design business, but I have hired designers before. I had no problem paying the rate they asked based on what I needed. However, if I asked for less work from them, I would fully expect to pay less than I would if I wanted more work Make sense?

This idea that agents are entitled to a full commission regardless of what they do or what value they bring to the transaction is not going to work for very long. Consumers are getting more educated ...sites like Trulia is furthering that education and your one-price-for-all approach is going to get tested. My belief is ...sooner or later, it's not going to pass.
0 votes Thank Flag Link Sat Dec 13, 2008
JR, I don't understand these comments in the thread. Please take the time (in the future) to clarify your comments specifically, rather than attacking people generally. Perhaps James' analogy was not the best illustration of his point but I don't think it furthers the conversation to be vague or accusatorial in tone or content.
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How would you like me to clarify my comment, Mark? James' analogy was wrong, and showed a lack of knowledge in a field he isn't familiar with. In the same way non realtor posters make comments here about our industry, who simplify and generalize from the same lack of knowledge. If you would explain to me what it is exactly you would like me to clarify, because you don't feel that I've made my point, please elaborate.
0 votes Thank Flag Link Sat Dec 13, 2008
JR; That's not "designing", James. Thanks for showing us you don't know about my former field, just like non realtors here demonstrate every day that they don't know anything about ours.

JR, I don't understand these comments in the thread. Please take the time (in the future) to clarify your comments specifically, rather than attacking people generally. Perhaps James' analogy was not the best illustration of his point but I don't think it furthers the conversation to be vague or accusatorial in tone or content.

Thanks
Web Reference: http://www.homehounds.com
0 votes Thank Flag Link Sat Dec 13, 2008
JR...what you fail to recognize is the way buyers buy homes and the way they find homes no longer relies on what everything agents used to do.
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Au contraire James, if the agents didn't LIST them, and if the agents didn't pay for the MLS to get them into a database that Trulia, and other portals can mine, you'd be correct. But you're not.



James: If a client came to you with a design they did themselves and wanted you to re-create it in digital format ...what you're saying is... hey..my fee to create the design from start to finish is $X dollars... you're asking me to do just the finish on this one but ya know..I'm still going to charge you $X dollars.

JR; That's not "designing", James. Thanks for showing us you don't know about my former field, just like non realtors here demonstrate every day that they don't know anything about ours.
0 votes Thank Flag Link Sat Dec 13, 2008
The day the buyer is willing to put an agent on a retainer like an attorney, or to pay an agent an hourly rate just to be shown around, is the day that you can expect JR to give up her expectation of a full service commission from every customer, regardless of the work involved. In the meantime, buyers are demanding the best of both worlds, which is making it very difficult for some agents to stay in business.

~~~~~~~~~~~~~~~~~~~

That's correct, Joanna. The day Long Island buyers don't expect something for nothing, and are willing to sign contracts with us, just like sellers do, is the day I change my pay model.
0 votes Thank Flag Link Sat Dec 13, 2008
People are free to do what they please. As for me, my time is money. I will very rarely compromise on commissions, even for friends/family. If they want to pay less, I'll try to find them an agent that is willing to charge less for more work. If that particular agent is starving for business, he/she will appreciate it and everybody will be happy.

I hire agents for my short sales who are willing to work for reduced commission. Like Harry, I know exactly what the job entails; I do all of the analysis/negotiating, they list and do showings.

My problem has more to do with a home buyer underestimating the value of a professional real estate agent. I can reduce commissions because I do most of the professional work on their behalf. Most homeowners do not have this capacity. MOST, not all.
0 votes Thank Flag Link Fri Dec 12, 2008
What really needs to change is the offer of commission to the buyer's agent from the seller needs to go away. Buyers should be able to negotiate fees with a buyer's agent just like a seller does. For this to really work, a few other things need to change:

1.) Dual Agency should be outlawed
2.) Lenders should permit buyer's agent fees to be included in the purchase price and loan amount.
3.) Just like listing agents, a buyer's agent should be required to have a written agreement with the buyer detailing what services are to be provided, what each parties responsibilities are, and all appropriate fees detailed before doing any work for the buyer.

In my perfect world anyway..... I can dream.
0 votes Thank Flag Link Fri Dec 12, 2008
"I think savy sellers are going to stop paying brokers so that they can pay buyers. This will eventually lead to more "fee for service" arrangements, ergo, more costs upfront to buyers."
__________________________________

Mark, I agree with you, and I would go further and say that savvy buyers who need or desire full service agency will not settle for working with a sub-agent of the seller or listing broker, and this will lead to more buyer representation for those wanting full service.
0 votes Thank Flag Link Fri Dec 12, 2008
First, I want to make it clear that I am not arguing for or against the status quo commission structure. But I am arguing that buyers are not homogeneous. They have varied wants and needs and varied abilities. There are still plenty of buyers that want and/or need a full service agent. I don't think that means that they are necessarily "unsuspecting buyers."

The commission structure originated with the idea that the seller was paying the broker to "bring" a buyer to the table. If the broker is not bringing the buyer to the table then what is the incentive for the seller to pay the buyer to bring himself.

Yes, the real estate business is changing but people are still the same. We are in a down market now but when the market recovers, I think savy sellers are going to stop paying brokers so that they can pay buyers. This will eventually lead to more "fee for service" arrangements, ergo, more costs upfront to buyers.
Web Reference: http://www.homehounds.com
0 votes Thank Flag Link Fri Dec 12, 2008
I see this from both sides and most often it's the agent who gets the raw side of the deal. Buyers are only too happy to hang onto old traditional ways when it comes to exploring properties of interest in areas where they are not familiar. The day the buyer is willing to put an agent on a retainer like an attorney, or to pay an agent an hourly rate just to be shown around, is the day that you can expect JR to give up her expectation of a full service commission from every customer, regardless of the work involved. In the meantime, buyers are demanding the best of both worlds, which is making it very difficult for some agents to stay in business. As I said at the beginning of this thread, we do offer flexible services, you only pay for the services you use. However, there are still many services you use that we can't charge for because you, the buyer, are not willing to give up the old way of doing things. If you go to Best Buy to look at electronic equipment and spend an hour talking to a salesperson, then armed with your new found knowledge and expertise, come home and buy it for less on eBay, does that salesperson not get paid because of it? No, the salesperson does get paid, they are on wages and they make enough on those who do buy from them to keep that person on staff. No so the real estate agent, who is self employed and has not insignificant expenses to pay every month if they want to stay in the business and do a professional job. So next time you take an agent out for a day, remember that while they are with you, they can't do anything else.

As I said, i see it from both sides. When I spent some time recently in another State where I am not licensed looking at condos for my student daughter, I hired a buyer's agent to represent me, who drove me around for a couple of afternoons, as well as spending a considerable amount of time on the phone with me and setting up drip campaigns, and monitoring "MY" sector of the market . After a month of so of this, he had educated me sufficiently well for me to know that I really didn't want to buy at this time, i wanted to rent, and he didn't handle rentals. Imagine how awful I felt when I broke the news, yet he was the ultimate professional, and kindly said he had really enjoyed working with me and perfectly understood that I wasn't going to buy a property just so he got a commission. Of course not, but if I hadn't drawn on that expertise, I would never have got to the point where I realized it wasn't the right time for me to do this. The next day, I mailed that agent a $500 check as a small token of my appreciation, at least to help defray his out of pocket expenses. I suggest that only a fellow agent would ever think to do that. Please correct me if I'm wrong.

The view from here is that some of the new business models make a lot of sense, especially for the buyer, so if you are a buyer who doesn't want to pay for full service and you want to cherry pick the services you pay for, that's fine, please come and see us. But before you walk through our door or the door of any agency, please think about doing the right thing by the agent who helps you, even if things don't work out as expected. Then perhaps more agents could afford to work that way.
0 votes Thank Flag Link Fri Dec 12, 2008
If you look at my earliest responses to this question back when the question was first asked, my response was to offer it to his friend and let his friend decide. It's somehow morphed into a commission entitlement debate.

JR...what you fail to recognize is the way buyers buy homes and the way they find homes no longer relies on what everything agents used to do. Let's take your design example. If a client came to you with a design they did themselves and wanted you to re-create it in digital format ...what you're saying is... hey..my fee to create the design from start to finish is $X dollars... you're asking me to do just the finish on this one but ya know..I'm still going to charge you $X dollars. How does that make sense? Sure, the design may not be great but it's what the client wants. Likewise in real estate...if a person says...Here's the house I want to buy..I just want you to write the deal up and carry it through to closing ... how could you justify that your fee still be 3%? Your reasoning that you have other clients that will make you drive around for months and not buy anything is irrelevant to this client from their perspective. In essense you are telling the client you are entitled to 3% regardless of the situation. I simply cannot understand that.

The percentage commission model as a whole is flawed and unfair to the seller. The amount they pay is based on the value of their house. If this were the medical profession, it is analogous to charging based on the patient's net worth. A physical exam is a physical exam regardless of who you do it on .. ..but no no....because the patient makes $100K per year...I'm gonna charge you $1000 bucks for it. For the person that only makes $50K a year... it's only $500 for them.

You are not entitled to 3%, you must earn your fees and it's a weak argument to say you deserve it just because you're better. Watch out! Much of a buyer's agent's services are becoming or can easily become commodotized in this day and age. But ...like I said before, you do what you believe is right and if you can make a good living from it..kudos to you. I just happen to disagree with your approach. I'll be happy to take the fraction of commissions when all I have to do is a fraction of the work.
0 votes Thank Flag Link Fri Dec 12, 2008
Wow! This is a heated discussion! I think everyone is forgetting that this is a "friend" of his. If a friend of mine came to me with this same senario-I wouldn't be insulted. I might not take them up on the offer, but I would appreciate them thinking of me. No bashing please, just an opinion.
0 votes Thank Flag Link Fri Dec 12, 2008
Remember what the industry has told sellers about market value?... Your house is only worth what a willing buyer wants to pay. The same can be said about us agents. We're only worth what the client is willing to pay. If you steadfastly think you're worth 3% regardless of the situation, and you're client thinks you're only worth a fraction... good luck.
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Thanks for your opinion. I was very experienced in another field prior to real estate, design. There were many inexperienced designers who bid against me, and sometimes they got the job. And usually get fired. Or produce a crappy design. You get what you pay for. Sometimes the job was simple and they got it right. I was so busy that after a while people just came to me and paid me my price without asking for bids. So if my client thinks I'm worth only a fraction, well they aren't my client, they're yours.
0 votes Thank Flag Link Fri Dec 12, 2008
This is getting ridiculous. The fact is the industry is changing. As agents in this industry, you're simply going to have to decide to adapt and lead, play catch-up, or stand your ground and stay where you are. Just don't complain when everything around you starts changing and you're no longer relevant in the consumer's eyes....cause really..that's all that matters.

Remember what the industry has told sellers about market value?... Your house is only worth what a willing buyer wants to pay. The same can be said about us agents. We're only worth what the client is willing to pay. If you steadfastly think you're worth 3% regardless of the situation, and you're client thinks you're only worth a fraction... good luck.
0 votes Thank Flag Link Fri Dec 12, 2008
JR, your "paycheck", as you call it,
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LOL and what do you call YOUR paycheck?
0 votes Thank Flag Link Fri Dec 12, 2008
Tell me JR, do you deserve the same 3% if you simply wrote up an offer vs. spending every weekend for 3 months driving me to properties?

~~~~~~~~~~~~~

Yes. Because I could drive you around every weekend for 3 months, then have you get your friend to write up the offer for 1%.
0 votes Thank Flag Link Fri Dec 12, 2008
It's not about the money, it's about the choices. But the money gets between the message and the brain.
0 votes Thank Flag Link Fri Dec 12, 2008
P.S. It's a slow change that happens one person at a time, Harry. That is why I bother to talk/blog/social network, so others can read. First they hate me. Then slowly one by one the light bulb goes on.
0 votes Thank Flag Link Fri Dec 12, 2008
Thanks Harry.

Agents in the Seattle Area are about 10% tuned in to what IS...the rest of the Country...not so much. They like the past better than the future, and I don't blame them for that. Eastside the % of "tuned in" to reality and fairness jumps to say 30%, but 1/3 of those are still kicking and screaming about it.

It's not hard to understand...just hard for some to swallow. It's more of a tantrum than a business decision for too many.

I put myself in a room full of non-industry people to force myself to get ahead of the curve. If you keep sitting in the same room full of agents...you're not going to "get it". But hey, that works for some, just not me.
0 votes Thank Flag Link Fri Dec 12, 2008
JR continues to show his ignorance. I have been perfectly clear that the service I required was for someone to write up an offer and take me through closing. Something Redfin would have done for me for 1% of the transaction. JR seems to think that he is entitled to 3% of a transaction regardless of the amount of work he puts in. Tell me JR, do you deserve the same 3% if you simply wrote up an offer vs. spending every weekend for 3 months driving me to properties?

Now that I have closed on my property, I know for a fact that my friend put in less than a few days worth of paperwork and made more money than I make in a month for it. JR, your "paycheck", as you call it, is not a standard fee that you are entitled to on every transaction. It is a negotiated commodity that can change with every transaction.

As far as my paycheck is concerned; my company can easily outsource my job to India for 1/4 of what they pay me. Should they ever choose to do so, I will need to find a new job; not get on public websites and attack my company for making a financial decision that is best for them. That is the difference between you and me. My company has deemed that I am worth what they pay me, even when discount options are available to them. You, on the other hand, take it as a personal offense when others do not agree with what you think you are actually worth in the open market. That is not my problem, it is yours. It is highly unethical of you to equate your negotiated commission structure with a contractual salary. You may be able to mislead unsuspecting buyers with your lies, but the opening up of the MLS to consumers will slowly take care of unethical agents like yourself. Have a good day!

And Ardell, you understand exactly what the situation is. Thank you for an intelligent response.
0 votes Thank Flag Link Fri Dec 12, 2008
It's more like fee for service than it is discounting.
~~~~~~~~~~~~~

I wonder what "fee for service" the Voices Member (who apparently is now either embarassed by his own question, had his membership revoked, or was in reality a discount broker) would have done for a small portion of his own paycheck.
0 votes Thank Flag Link Fri Dec 12, 2008
Patrick,

I just saw your response to mine. I've read a lot of your things here and there, and it seems that often when you get ticked off you are really just a bit confused as to what people are trying to accomplish. It's more like fee for service than it is discounting. Recently I saw your rant about agents being too nice to people that are being...how do I say it..."odd" :) Reality is that we need to catch up with the world and not keep trying to drag them to our sense of what is. We need to create more options without hurting ourselves in the process. That is the best of both worlds.

We should have coffee sometime.
0 votes Thank Flag Link Thu Dec 11, 2008
It's funny that you should ask this. We, my wife and I.. both real estate agents, were approached very recently from someone that we didn't know but found us on our website. They told us they found a place and wanted to put an offer in. The catch was they wanted 50% of our commission... in this case that turned out to be 1.25% of the list price. Well obviously the real estate market is not booming right now so we decided to take the deal. What appeared to be a very "simple negotiation and closing" turned out to be anything but. Negotiations were very intense and just the purchase price took over a month. Yes at one point both sides had to have a break and then came back to the talbe when they realized no other home/buyer was going to work. We worked very hard on the deal and in the end were sucessful in closing the transaction. Our buyers were very pleased and stated multiple times how thankful they were and that they had no idea things would be as difficult as they were. I guess my point is this... you never know how "simple" the process is going to be. Using an experienced professional is very important through tough transactions and most of us are reluctant to discount based on the idea that it's going to be really simple. You just never know until you do it. Would you be willing to help your friend in the manner you provide for your family for a fraction of what you usually get paid? Would you want your friend to take advantage of you that way?
0 votes Thank Flag Link Wed Nov 19, 2008
Excellent post Ardell! As usual. There is a huge difference between someone coming to you with a deal in hand vs. asking for a general discount while expecting full service agency. I didn't give this the thought it required in my initial answer.
0 votes Thank Flag Link Wed Nov 19, 2008
I received a call like this from a former client who purchased his primary residence in Bellevue through me in 2006. He researched properties and found an investment property he wanted to purchase in Federal Way. He worked for Microsoft ,and so had the opportunity to do what I call a Microsoft Redfin Deal, which is 75% back (or was at the time) with 25% to the agent. The amount offered by the seller was less than 3%, as is often the case for 4 plexes.

I could tell that he seemed a bit embarassed to call and raise this issue. I viewed it as part of my job in representing him to make sure that he was comfortable, and not ill at ease in speaking with me. I thanked him for calling us, as I would clearly be more upset if he proceeded with purchaing a property, without having called us first. There was no issue of seeing the property, as often a 4-plex cannot be viewed until after the offer is accepted.

When he purchased his primary residence, we were heavily involved in what he "should" buy. In the investment purchase, my only condition was that he take full responsibility for his choice of property. Consequently what he was asking us to do was not the same as it was with his first time purchase. We did all the things that Redfin would do for the same price. We did not do all the things we usually do for the Redfin price. We did not compare what he wanted to buy with other options. We had no discussions about whether or not he should buy it.

As to your situation, the fact that you called the listing agent to view the home instead of seeing it at an Open House or calling your friend to view it, raises some issues that I do not see addressed here. I do require that my clients not call any other agents to view the property. The listing agent can refuse to pay the commission in whole or in part, if the listing agent showed the property without knowing that the buyer intended to use a different agent to purchase it, before he met the buyer at the house. So I have to give that warning for events that might take place that are not totally in my control.

Bottom line? I would have been more "insulted" had he not called me at all.
0 votes Thank Flag Link Wed Nov 19, 2008
Hello Harry!

Kudos to you for offering the commission to your friend and good to know it turned out well in terms of your reaching an agreement. Clearly from your original question (and subsequent contributions to this thread), you care about this topic and how your friend would feel being offered 1%. And, hey, it was an offer...at the end of the day, that's pretty much what real estate is (sellers offer their real property to the market and buyers make offers to buy)....you made an offer, and it came together; that is great!!

And no problem with Redfin; the more business models, the better. But here's an option for people who don't have a friend in the business.... the local expert in the neighborhood in which you are purchasing (that may be your friend's case, too. I can't tell from the description).

When a consumer calls an agent to list a home, the consumer needs to have a conversation first......ask about the agent's knowledge of neighborhoods (pockets within the neighborhoods), traffic patterns, schools, developments that will soon be breaking ground, price trends, etc. Ask some of the less technical questions: What is the agent's working style, business philosophy, communication system, whether the agent is a member of the community.

However, people seem to prefer computer research with regards to real estate....Redfin has played heavily into the misconception that real estate through the portal of a computer is where it is "at". Certainly the computer has revolutionized untold aspects of the field of real estate. But a well-thought out set of questions and setting appointments with 3 agents to interview them is a fantastic way to invest in the real estate buying or selling process.

Setting a commission that you are willing to pay is fine, and pair it with going to bat for yourself in terms of spending that commission (be it 1% or 10%) in the best possible manner. Making a deliberate, educated choice about who will help you make one of the biggest investments in your life is well worth the effort. The local expert, a friend in real estate, an agent that a friend or family member trusts, all are great to include in your interviews.

Harry, by choosing your friend, you stood up for having someone whom you like and respect navigate this huge investment with you and paying a commission that you are comfortable with. You created a total win-win situation!
0 votes Thank Flag Link Sat Oct 4, 2008
Good points Ken--Especially with regard to experience. I don't actually have disdain for Redfin, but their business model seems to require them to be little more than order takers. However, they have a very professional system in place, which is preferable to having to deal with an agent who doesn't know what he/she is doing. Having an agent like that representing the other party makes our job very difficult and I admit I resent having to pay out 3% to a dolt when I had to struggle just to keep the transaction going.

Your comment about Home Depot was funny--I actually wish some of these homeowners DID get warned in front of the store. It's sad when you walk into the front door of a house and immediately see the results of an unskilled attempt at flipping.

It is easy to become an agent--But it's not easy to earn longevity and to become what many people would consider successful. That's probably a pretty good litmus test.
0 votes Thank Flag Link Thu Oct 2, 2008
For all the agents that continually feel the need to defend 3% fees by demonizing Redfin, you're doing nothing but justifying them in the eyes of the public. To date this year, in King County, Washington, where Redfin started, they have represented buyers in only 248 transactions out of 14,522 total sales in the area.. That's about 1.7%. Just like there are some people that do their own home repairs instead of hiring a contractor, there are some people that will continue to focus only on commission, especially those that have not had the experience of working with a top quality agent, and those people will think they are getting a great deal.

If you have faith in your abilities as an agent, you should feel no threat from Redfin, as their business model lacks all the personal attention, benefit of experience, negotiation skills and service that top agents give to clients. You don't see contractors out in front of Home Depot telling consumers how badly their going to mess up their home improvement project if they try to do it themselves. The overwhelming majority of consumers recognize the value that a top agent provides, and those are the consumers top agents should continue to focus on.

Despite all the attention they've received, and the amount of angst and discussion of their business model, they continue to produce a low volume of sales compared to the industry, and continue to lose money. For those of us in business a long time, we know the overhead costs, and the overwhelming amount of time and energy that have gone into lisings that fail to sell, transactions that fail due to inspections, financing, appraisal or buyer remorse in which we get paid nothing. In my opinion, unless something changes, they will either fizzle out when their venture capital runs out, or be forced to change their business model, much as happened with Zip Realty. If they are able to sustain, and their customers are happy, more power to them. Nordstrom still has plenty of shoppers though despite Marshall's opening up down the street, so I have faith that my business will continue.

Our industry needs to accept a lot of blame for some of the public perception out there that real estate agents do nothing to earn their commission. For many years, obtaining a real estate license has been almost as easy as getting a driver's license, training by the major companies has been severely lacking or non-existent, and brand new agents make the same commission % as agents that have been at it for 20 years. What other industry can brand new people staring out make the same as people with genuine experience and longevity?
0 votes Thank Flag Link Thu Oct 2, 2008
JR--I understand what you're saying, but I personally don't think I'm automatically entitled to a 3% commission. I do think I'm entitled to earn what I'm worth and welcome the opportunity to work for my money. I do take 1% commissions, sometimes I take 2%, sometimes 4%. It all depends on the transaction and the client.

In the situation that Harry Long wrote about, 1% might very well have been appropriate, but he would have been better off to ask his friend to earn that 3% by getting him a better price. Performance based compensation is not a bad idea.

If I'm saving or making extra money for my client as a result of my work, I think that's worth being compensated for. But there's no automatic assumption that I'm going to make a certain amount. Sometimes I have to ask for 3% because I have to pay referral fees, desk fees, taxes, assistants, advertising, etc.

Right now one of my pending transactions includes 3 (yes three) different referral fees I have to pay out before I can even begin to address what my office is going to charge me. On paper it looks like I'm making enough to buy a new car--In reality I'm walking away with enough to buy a decent television (that's after investing that much just in marketing the property).

I try to move my listings quickly because having a large inventory of listings is a bad idea--It costs money to service those listings week after week. I try to work only with sellers who are reasonable and will price their properties commensurate with what the market will bear, but sometimes they are stubborn and turn down offers, even fair ones. Most of my listings turn fairly quickly, but I have some right now that aren't moving. So, after a certain amount of time, I have to ask those sellers to find another agent--If that doesn't work, I just let them expire and then politely decline to renew (and I'm happy to refer them to another agent). I'm not one who believes having more than a few listings at a time is a good idea.

One of the first things I learned when I started is that it's ok to fire a client. This frees you up for new (and better) business. That's why I won't suck up to potential clients or "protect them" from the truth. If someone doesn't want to work with me, that's ok with me. And a giant red flag is when someone immediately asks me to discount my commission before we're even working together.

Sometimes sellers are running on very thin margins or are close to having to do a short sale. If I see my client struggling, I make sure I'm not making much on the transaction. Even if I'm paid 3%, I never walk away with 3%. There are transactions when taking a 1% commission would mean it would cost me money to sell someone's house. That's not the best business plan.
0 votes Thank Flag Link Thu Oct 2, 2008
It is your contention that as a buyer's agent, you are entitle to a 3% commission as a birthright.
~~~~~~~~~~~~~~~~~
Our commission is our salary. What we charge is not our birthright, it is our fee. Just like I wouldn't take a $10 an hour job, I do not take 1% fees.
0 votes Thank Flag Link Thu Oct 2, 2008
Now you presume to know what I did and did not do. Please find other outlets to deal with your insecurities, Patrick. I am finished with you.
0 votes Thank Flag Link Thu Oct 2, 2008
No more glad that I did not have to work with you, Patrick. And not that it makes any difference, but we spent an entire day in my friends office faxing offers and counter offers back and forth before arriving at mutual acceptance. Again, your assumptions only show your negligence.

And thanks, Maria. Everyone IS happy. Everyone except Patrick for some unknown reason.
0 votes Thank Flag Link Thu Oct 2, 2008
Harry, I guess we should have asked the price of the home first. :) It really was good of you to give your friend your business. Obviously, you knew what you were doing, there were no complications, and everyone is happy. Congratulations.
0 votes Thank Flag Link Thu Oct 2, 2008
You've misstated every point on your list. But you have made me glad I didn't have to work with you.

If your offer is accepted with no counter or negotiation, did you get the best price?
0 votes Thank Flag Link Thu Oct 2, 2008
Oh but I have Patrick, I have.

It is your contention that the service you offer is superior to any agent at Redfin. It is your contention that all buyers are unable to navigate a negotiation without an agent. It is your contention that I would "coerce" a friend into something that he would not find profitable for him (he is much to smart for that.) It is your contention that as a buyer's agent, you are entitle to a 3% commission as a birthright. All of these contentions are incorrect. It sounds like you need to question why you take such outrageous offense to such a simple transaction.

I wish you well and know that I will not be referring any business to you.
0 votes Thank Flag Link Thu Oct 2, 2008
Harry--Clearly you haven't closely read any of my posts. But it doesn't matter, instead of trying to explain myself to deaf ears, I'll just wish you well.

It sounds like the seller didn't counter-offer so you must have made the perfect offer. Congrats!
0 votes Thank Flag Link Thu Oct 2, 2008
Kevin understands the situation perfectly while Patrick continues to be condescending for some unknown reason. My motivations have always been clear since day one, both here and to my friend.

After doing extensive research on the property and the neighborhood (including extensive market analysis throughout the neighborhood, and pulling microfilmed permits from the DPD) I determined exactly what I thought the property was worth and offered exactly that amount (roughly 10% below asking). I was going to use Redfin, who would take the 3% commission and refund me 2%; but I thought that maybe my friend might want to do it for the same fee I was going to pay Redfin. As has been shown here, some agents would not be offended by the offer, and some would. Which is precisely why I asked the question before bringing it to my friend.

I can't help it if Patrick sees this question as an affront to all that is holy. Your overreaction and belittling tone to a simple question is puzzling to me. Why are you so convinced that a buyer is unable to negotiate a deal without help from an agent. Your arrogance and condescending nature would not seem helpful to me in a negotiation. Also, Patrick, it is precisely the high dollar value of this transaction that made me consider my friend vs. paying the commission to Redfin. Let's just say that 1% of this deal is considerably more than 1 month's take home pay for a senior software engineer at Microsoft. It's not an amount of money I would scoff at for writing up an offer and taking it through closing.

The bottom line is, my offer was accepted, financing is secured, inspections have been completed, we close in 2 weeks, and my friend stands a make a good chunk of money for a few days of work. I'm very happy that he can profit from this deal instead of a faceless corporation. Thanks for the input from most of you.
0 votes Thank Flag Link Thu Oct 2, 2008
Harry
Thank you for answering the question "Why should I do business with you?"

The truth is that we have a difficult time conveying the value of intangible benefits. Redfin has been able to "convince" people that they are "paying too much". The fact is that the price of a poor negotiation is not realized until it is too late...when you have a problem.

To be candid managing a transaction is a lot of work if done correctly, so one percent is not worth it for me, personally. The funny thing is that if you selected your "friend" as your buyer's agent, he would be paid based on the seller's agreement with the listing agent.

IMHO you get what you pay for.
0 votes Thank Flag Link Thu Oct 2, 2008
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
Contact
They simply marry up those who want to sell a home to those who want to buy a home and take 6% of that transaction for their efforts.
~~~~~~~~~~~~~~~~~~~

That is the definition of a broker. They have person A who wants to sell something, and they know (or find, thru their networking/maketing efforts/prior transaction history) person B, who wants to buy it. So they get paid. If person A already knew person B, person A can save their money. As an agent, I have all 20,000 other agents in my MLS system working for me. 90 of them are with my own company, and 300 of them are local. That is what brokers do, Dan. Broker deals.
0 votes Thank Flag Link Thu Oct 2, 2008
Dan, I used the car sales reference in response to Harry's incorrect summation of my statement. Car dealerships are not the same thing, but the sales portion--A salesman telling you what the dealership paid and why you can't pay less--Is very relevant to the thought process that many people follow. If you can't see the difference, then you're not trying, because it's pretty simple.

Sara's right--It's very expensive to work in real estate. But in this case Harry was not asking his friend to market his property. Depending on the specific transaction it may or may not be worth it to his friend to work for 1%. Discounters count on volume to survive (and sometimes VC money). I choose not to follow that business model and feel quality is more important than quantity. There are lots of people who disagree with me--But they will never be my clients.

I would be interested to know the MLS number of the property Harry is making an offer on. I'd like to see how he did.
0 votes Thank Flag Link Wed Oct 1, 2008
Dan's obviously not an agent...lol

Dan - before I got my license, I could point you to several posts on another web forum http://(www.reiclub.com or biggerpockets.com) where I bashed real estate agents as well.

Rule number one to effective negotiating - don't do it yourself. Hire someone else to do it for you - period. My experience as an agent is enough to have proven to me, time and time again - that my skills as a professional salesperson are very valuable to my clients and customers. Very.

If there's only one reason to list or buy a home via an agent, it is to acquire their professional negotiating skills. BUT - you've got to choose wisely who you're going to use.

Regarding the 1%. I mean, if it's a friend, maybe they'll do it. But my time is worth more than 1%. Here's why. I spend a few hours on your deal to make 1%, when I could spend that time acquiring more listings or showing buyers properties where I"m going to make 3%.

If I'm a friend and want to do you a favor by writing up and presenting the offer - well that's different. I would just tell you 3% - and I'll give you back (as a friend) a portion, say $1500 for example. This way I present the offer as a buyers agent with a 3% fee built into the deal - oh and I negotiate it so that you get the property for LESS than what you're prepared to spend!!!
0 votes Thank Flag Link Wed Oct 1, 2008
Wow,
Jeff just jumped on this thing all defensive. Sara spoke her position very eloquently, while Patrick made the perfect "salesman" move with his "car dealership" post. He claimed he was comparing apples and apples when he was really comparing apples and birdseed. You see the problem with comparing car dealerships and real estate agents is the fact that car dealerships OWN a portion of what's being sold or bought. Real estate agents, although they claim to, have no real "skin" in the game. They simply marry up those who want to sell a home to those who want to buy a home and take 6% of that transaction for their efforts. They are simply selling their time and can even decide how much of that they want to spend on a particular client. I'm not saying that real estate agents aren't worth their money. Some of them are. They are usually the ones who do not have to exort to sarcasm or comments like this
"You've made your choice, and I'm happy for you. I hope you get the best deal possible on this property, and because you're so confident that you will, I know that I won't have to spend any time worrying on your behalf." or
"Harry,
I don't think you need to pay anyone. You obviously know what you are doing. No one needs to tell you anything. Why don't you just write the offer yourself and save all the money?"
And this is from a forum geared towards agents!!!! And they wonder why they get the "rap" from the general public they do.
My 12 year old can better defend her position in debates!!!!
0 votes Thank Flag Link Wed Oct 1, 2008
Hi Harry!
To add on (trulia doesn't have the option to edit my posts!) some agents reinvest their money into their business, some don't. I spend quite a bit on personally paid marketing, I have a lot of fun with cutting edge methods, and everything I do costs me money. It's not right for everyone, but it's right for some.

So there's a point at which as an agent you break even, but you can't live on merely breaking even. Even established agents make a lot less than many people think they do. It's a casualty of agents trying to seem successful touting being in the "millionaire's club" or whatever else is on their cards ("Millionaire club just means you sold a total volume of 1 mil, which could be two houses, or four, but in any case not anywhere enough to be able to eat. Four houses in one year? Yikes! Not a very experienced agent). People have just come to think of agents as making money by doing nothing. It's unfortunate.

Good luck and I hope it's a smooth sailing on your house. Let us know how it goes! :)
Sara
0 votes Thank Flag Link Wed Oct 1, 2008
Hi Harry!

Everything's negotiable. Some women will marry a man without a job, some women won't. Some people will buy a used car without a warranty, some people won't. It's the same thing with real estate. Everything's negotiable.

What's right for you may not be what's right for me. If I have a real friend, a true friend and they're trying to buy a house, I would discount the commission, but not because I'm not worth more, but because they're my friend and in my code of what's good I like to invest in the lives of my close friends and family, and that's one way I do it. It costs me something when I do it, and I give that something back to my friends.

If you're not a close friend, I would probably be offended. I might feel like you're using me, or taking advantage of the connection. I'm very loyal in my friendships and don't like to be used.

That's said, when dealing with non-friends, it depends on the price of the house and the scenario. There is a minimum amount I have to make to justify the hours I pour into it. Contrary to some thinking, the hardest part of buying starts not when you look for a house, but when you start negotiating. It is much harder than it seems to hold a deal together. Apply the law of distrophy to real estate, if you will. If anything can go wrong, it probably will. Numerous clients of mine have reported how easy and effortless the process seemed, but I have my own stash of stories I don't tell. Stuff blows up behind the scenes, but much of that I don't bring to my client unless I can't avoid it. I take care of it and my goal is that my client will never know.

I realize that hiring an agent is a luxury proposition. I've thought it through and through, and come to believe that there's nothing wrong with different levels of service. Often times, those in the business world themselves realize fully the value of having an expert take care of everything, and that's exactly what they want the expert to do. To take care of everything. They are paying to have the stress mitigated, and to get what they want in a good fashion. Negotiators aren't replaceable, meaning, one agent is not as good as the next. You've got to be picky based on what you want.

Do you want your friend to do it for 1%? Ask. See what they say. If you were my friend, even my close friend, I've have to tell you no. That's too little. Real estate is a profession, after all. It's not charity work, or a casting call. It's not day labor. It's an valid profession with real costs to do business.
0 votes Thank Flag Link Wed Oct 1, 2008
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