former new england patriot hernandez charged with murder

November 20th, 2008 by Al Lewis (alewis)

former new england patriot hernandez charged with murder

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40 Responses to “former new england patriot hernandez charged with murder”

  1. salespro Says:

    It is even worse than this. I was in the business. the commission is sacrosanct. we weren’t allowed to change it, to charge for appraisals for people who obviously weren’t in the market. Certainly we couldn’t “consult.’ There were way mroe people in our office than we needed. we would take turns sitting up front to get the walk-in traffic. what we did do, which isn’t mentioend here, is advertise in print, whcih was the only real marketing we did to earn our commission

  2. lisas Says:

    I wanted to sell my own home by being the “listing broker” so I looked into becoming a broker so I could list on the MLS. It’s nowhere near that easy — you have to apprentice and take a test and then work for another broker and split the (already split) fee with them. the whole system is exactly the opposite of stocks where it is very easy to sell your own

  3. tennisanyone Says:

    Freakonomics, which you site in here, also says that these people don’t get you a better price anyway. If a union did this, the right wing would be all over it. Who is monitoring these people and why hasn’t this been fixed a long time ago?

  4. palinfey Says:

    When i looked for houses, I couldnt’ believe how much “makework” there was. Realtors driving me and my husband around to meet other realtors saying — you guessed it — “look at these hardwood floors,” which aren’t exactly easy to miss. I spent maybe 5 hours with “my” realtor, most of whcih was unncessary (I am quite capable of finding addresses on my own) and her share of my purchase was about $10,000 for those five hours of totally witless makework.

  5. samlippe Says:

    Without fixed commissions, the liquidity of the market would also increase dramatically, just like stock trading multiplied many times over after commissions came way down. This by itself would facilitate an orderly sale of excess capacity

  6. susanbates Says:

    I notice no brokers have commented to defend themselves.

  7. alewis Says:

    Yes, where is the counterargument? Where are the defenders of the status quo? I’ll tell you where they are: hiding. The status quo is indefensible. We aren’t saying get rid of it. People are still going to be able to pay high-cost brokers under the new system. But only if they want to.

  8. dmeyer Says:

    this is the second one of these postings I’ve read and my reaction is the same — why aren’t we already doing something about this? Why is it on some blog that only semi-unemployed policy wonks like me can even find instead of where it matters?

  9. katiebird Says:

    I am a realtor and you ARE missing something. Realtors know of houses for sale which aren’t on the market, realtors know of people discretely looking for houses, realtors know who might be a fit with which house, realtors know which houses aer overpriced and which aren’t. We work hard for our commissions and deserve them. Pick on someone else. We’re just part-time working moms trying to make ends meet.

  10. alewis Says:

    Well, first, Katiebird, you are obviously way smarter than the average realtor becasue you found this website, which is not easy to find. Second, if someone wants to sell discreetly (note spelling for future reference) or buy discreetly, then by all means, represent them! They WANT a broker. We are not proposing OUTLAWING brokers, just making them optional.

    I did have to chuckle at the comment about knowing which listings are overpriced — how did they get overpriced? On the recommendation of a broker, that’s how.

    And I have NO QUARREL WHATSOEVER with working moms making ends meet. Just not at taxpayer expense and not in an artificial monopoly. You would obviously do better under my proposal because you are clearly savvy enough to use the ‘net and compete directly for business rather than be saddled to a firm.

  11. buchanan Says:

    when I bought a house years ago there were way more closing costs than now. In particular the lawyer charged much more. All the costs of buying a house have come down except this one. I alwyas thought somethign was suspicious and you put it in words.

  12. sellingmyhouse Says:

    I came across your website while looking to sell my own house. I would much rather price it somewhat lower than market and sell it immediately than pay a broker when there is no evidence they get a better price. I didn’t realize how monopolistic this industry was until i read your posting. NOw I am going to go back to looking for a way to sell my house, and I will be even more upset if I need to pay a broker because I know what is going to happen, whcih is about a year after I sell it, the government is going to do exactly this and if I could wait iwould be able to save thousands of dollars.

  13. marge Says:

    people in the real estate business are hearing about this and they don’t like you and don’t believe you are right. You can expect some rebuttal postings starting with this one. First, there is no price-fixing. in Medford people only charge 4%. Second, it is very expnsive to be in this field — fees, licenses, advertising etc. You have no idea what you are talking about.

  14. alewis Says:

    You are making my argument for me. What is so special about Medford that you are all colluding on 4% instead of 5%. When you say, “There is no price-fixing. In Medford it’s 4%,” that just confirms that indeed there is price-fixing. Why is Medford only 4%/ How is the cost of doing business so much lower there? Why aren’t some people at 4.5% and others at 3.5% etc.?

  15. henskefile Says:

    You know, Marge, if you went to buy a car and all the dealers charged exactly the same price, you’d be miffed. And if you heard of some town in some faraway place where they all charged exactly the same price but it was a lower price you’d be even more miffed. I thought this whole thing was suspicious before I read the posting but I know it is crooked

  16. deb Says:

    And also, car dealers hold sales. Realtors never do. And also you don’t find ANY realtor charging MORE than everyone else and saying that they provide a premium service. That by itself tells you this whole thing is a scam

  17. freakeconomist Says:

    Steve Levitt got it halfway right when he said these people added no value but he didn’t get to this solution. Yes, these people are leeches. Unlike auto dealers they are personable working moms and not professional sleazebags, but the effect is the same AND, unlike with cars, now taxpayers are paying for it. My solution is far simpler than this one — just let people list their own homes on MLS.

    One way or the other, WHY ISNT SOMEONE DOING SOMETHING ABOUT THIS???

  18. globereader Says:

    same comment as I already made on another posting, which is where are the economics bloggers on this? Why can’t they come up with real solutions like this, instead of just shooting down other ideas.

  19. walterclark Says:

    you CAN in fact list your own house on MLS for a few hundred bucks so in theory none of this solution is needed. In practice, the other brokers — the ones who the buyers rely on — won’t show it because they are not getting a cut. Imagine how you’d feel if you hired someone to represent you and you saw a house that someone else was bidding $200,000 on and you said to your broker, let’s match that bid and add $5000, and the broker said, OK, plus my fee, so we’ll have to bid $210,000, and you lose the house to a lower offer directly from a buyer. That’s why they won’t show it, because it exposes brokers for the sharks they are to have their fee actually added onto the price

  20. bobbrokerboston Says:

    The commission stays — that’s how we make our money. The problem is that a lot of brokers don’t earn it. We need them to get out of the market in this recession, and only the ones who add the value to deserve the commission should remain.

  21. harvardeconomist Says:

    Al, I’ve been lurking on this blog for qutie some time and it just occurred to me that I’ve heard your name before: Are you the Al Lewis who was once engaged to someone in my department, who had another fiance at the same time? You’d be amazed how word gets around. You’re not missing anything, by the way. She is known for messing up everything she comes into contact with outside her narrow expertise and that includes people’s lives.

    Bob, there’s a guy in my department who’s written on “shrouded pricing.” You should read it. This commission should be completely exposed and then the better brokers can charge more, instead of hiding behind your cartel pricing. Both you and Marge are making totally the opposite points from the ones you intend to make. If a lawyer is better than another lawyer he charges more. In your field you all charge the same becasue the price is “shrouded.”

    And why is it that if I walk into your office WITHOUT a broker and buy a house you’ve listed, you get 5% but if i walk in WITH a broker and you do exactly the same thing you get 2.5% What kind of market pricing is that?

    we have a guy in this department named Glaeser who has written extensively on making housing markets more efficient — you should send this to him.

  22. alewis Says:

    yes, that is me but as far as I’m concerned it’s ancient history and we’ve both long since moved on. She has to live with herself, and know that half of her department knows what she did, and thats payback enough for me.

    However, every poster should be on notice that I won’t accept any more personal posts about her or me or anyone else. I put your comment in because it’s a really good observation on the reat estate brokerage cartel. This pricing is truly unique, and I don’t mean that in a complimentary way. I am hoping this blog gets used in the inevtiable antitrust suit against the real estate brokerage lobby because the brokers who have posted are making points which support that this is a cartel.

  23. MikeQ Says:

    I should be able to walk into a broker and say “I am acting as my own broker. Show me some houses.” And then the 5% gets split in half just like if I was using Marge or Katie, and AI get my half. I can walk into any other store without representation. Why should a real estate office be any different?

  24. Rob Says:

    Regarding this point below in item #2 of Solutions:
    “The “consultant” might just offer access to the MLS and a few hours of advice, or be a conduit for marketing the house in print. Ot they might do more”…

    In many parts of the country, creative brokers are offering “MLS-only” or “MLS-limited” services for a fraction of the cost you would pay to a full-service broker. My wife and I recently sold a condo through one of these in the Boston area, and paid only about $300 on the sellers’ agent side for MLS listing, plus a few minor pay-as-you-go items.

    As another commenter noted, if you want agents to show your place, you may want to offer a commission to buyers’ agents… But by no means to you need to offer half (2.5%) of the normal rate. I believe that over time, this flexible pricing will squeeze down the commission structure to the point where people are able to pay just what they want - small commission for a few services, large commission for full service.

  25. thistimeisthetime Says:

    I think the idea here is to do exactly what Rob says but expedite it hugely. The market will do this on its own probably in about 10 years

  26. panicked Says:

    this one too. we need to do it right away . Why doesn’t anybody do something? We’re very good at spending money but not good at solving problems any other way

  27. thinkthenact Says:

    As a licensed agent for 15 years since the age of 18 I can tell you that a good agent earns every penny. I have worked entirely off referrals for more than 9 years and can tell you that the regular person trying to sell a house has no clue what they are getting themselves into legally (I will definitely agree that most agents do not either). Most of the agents who only close a few transactions a year only stay in the business for a year or two. There is a 80% loss of new licensed agents after one year and another 50% of the remaining agents after two years.

    On the surface selling and buying a home seams simple, but real estate is a service business based on expertise in legal, financial, negotiation and construction. I have a degree in finance and real estate and work only for the benefit of my clients. My commissions are lower than most agents and negotiable based on the amount of time a given transaction will require. I work full time and spend no time or money on advertising, only on working for my clients. Any good agent should be proficient in construction techniques, sales negiotiation techniques, finance, and contract law. I definitely agree that most agents do not have enough expertise to earn the money they are paid, but that needs to be solved by making it harder, not easier, to get a license. A real estate license is a limited license to practice law and making it easier to obtain one would lead to a huge increase in lawsuits from unknowledgable individuals trying to practice the law and understand the risks associated with this large purchase, as well as abuse of people who are in way over their heads.

    Why these thousands of dollars, time, value, and RISK! We are the first ones to get sued (in many cases for good reason) and can spend lots of time with clients that results in no income. A good agent will spend lots of time with the client and even more time working away from the client on their transaction (preview homes, reviewing title and HOA documents, reviewing and then informing clients of there position, risks, and price of the home). A good agent will also be willing to walk away from a transaction at anytime if it is in the best interests of the client (even though that means they will make nothing for the time and resources spent).
    I will definitely agree that in many cases agents do not display these attributes and a high level of professionalism. Many times I feel bad for people working with agents that I feel are sub par, because I know I can take advantage of it and cost them thousands for the benefit of my clients. I am perfectly willing to deal with FSBO homes and show them whenever they might meet the needs of my clients, but I almost always have to spend time pointing out parts of the contract to the seller, of which they are unaware of, so they don’t get surprised at closing and refuse to close (which I only do because that would affect my client), this incidently greatly increases my chances of getting sued and I do not get paid for this advice. Not because I did a bad job, but because the person selling has no business trying to understand contract law.

    A good real estate Attorney charges anywhere from $250 to $500 per hour. In most cases you will spend thousands for review and preparation of contract and consulting throughout the transaction. You will also have to spend your time showing your own home to potential buyers, which does make buyers uncomfortable because psychologically they have trouble seeing it as their home (I can tell you this is 100% true), and will take up your time because to give your home the best chance to sell you need to show it when it is convenient for the potential buyers (even in the middle of the day while you work). Most people would be surprised how many people are only available to look at homes during the week. Another major problem is that for most people their home is an emotional attachment and they do not (believe me I see it all the time) have the ability to separate themselves from the transaction and accept the realities of their home value or market conditions.

    Real Solution- Make licensing harder and get consumers to ask their agents what really qualifies them (lots of ads and their face of every bus stop is not a qualification). Also, if you want, ask your agent to work for an hourly rate or fixed fees based on work/time, but do not complain or be surprised when those fees add up to as much or more than the commission would have been. Also remember hourly fees are paid whether the transaction closes or not so if you find something wrong with a home and pull out of the transaction and still need to find another one more time is required.

    Bottom line a true professional is extremely knowledgable in every aspect of their business and charges fees that allow them to make a living while providing a valuable service to clients. There are agents who do precisely that!

  28. thinkthenact Says:

    One more thing to note, by making it more difficult to become licensed and increasing the level of professionalism, you will reduce the number of brokers (and potential brokers) substantially. This is will allow for a lot fewer brokers chasing the same business and an increased ability to offer services at a lower cost.

    As far a operate like a business, I would like anyone to show me a lot of industries that do require every bit of compensation to be disclosed. But it does not show expenses. Seeing the amount may get you fired up because you see it as a lot. How would you like to work as an accountant for 30 years and make 80-100k a year, then have someone say “well, all you do is take the numbers, punch them in the screen, hit print and mail stuff, a chimp can do that so we are going to reduce your pay to 30k that will make company services cheaper” or “I know you have been working on the line of this factory making cars for 30 years, but you just supervise guys who do the same repetitive thing that is not skilled labor and requires very little education, you make 90k/year and live in Detroit where you can still buy a huge house for 120k, so we are going to reduce your pay to 40k because that is all you deserve”. The problem is not the amount paid to agents or others, it is that it needs to be earned for the job completed.

    PS. Stock trades may seem cheap, but they take little effort, have few legal considerations for the average person, and most peoples IRA, 401k etc. get hundreds of trades or more every year. The cost to manage most mutual funds is between 2 and 5% each year. Compared to moving every 7 to 10 years (or if you are smart much longer, which I advise my clients)and paying 5% once. Think about it.

  29. thinkthenact Says:

    MikeQ Says:

    January 4th, 2009 at 9:25 pm
    I should be able to walk into a broker and say “I am acting as my own broker. Show me some houses.” And then the 5% gets split in half just like if I was using Marge or Katie, and AI get my half. I can walk into any other store without representation. Why should a real estate office be any different?

    Response:

    Because then the agent can only show the houses that they personally have listed, because if you represent yourself the agent would not get paid for showing you anyone else’s listings (even people in their own office/company). So you would need to go to the individual agent on each listing and ask to see the home and tell them you want to represent yourself, which is fine, BUT then that agent will have to get you to sign a disclosure ackowledging that you are choosing to take the risks on your own. In addition I would probably advise my clients to seek a higher price than usual because you will for certain miss some detail during the process because you don’t have expert advice and will likely sue later and base your case on the idea that you did not understand the contract or risks. The first one the attorney would tell you to sue is the listing agent, if the agent did their job she/he and the seller would be protected and you would call the agent a crook istead of realizing that you needed help.

  30. Will Says:

    Folks, I hope people are still reading this thread. I just learned about it. You wanted a defense from someone in the industry, well here is a long one.

    I am a (male) broker. I have read thoroughly this post, the thread, and the Freakonomics articles. They all begin with false premises and fall off in their arguments from there.

    The bottom line is that — while not perfect and while there are certainly bad apples, as in any profession — the residential real estate industry is a model of American capitalism in a quite pure form.

    Whatever the going commission is in a certain area, it is not price-fixing any more than the going rate for any other service. There is a myth that the commission is the same everywhere. In fact, it is more likely to be 6% many places outside of New England. And as sellers have a harder time selling, that rate does hit 6% around here even, which may seem counter-intuitive. But there is a higher demand for better listing brokers to market a home and advise more expertly.

    It is also incorrect to assume that if a commission rate remains consistent at a certain rate in certain towns therefore it must be “fixed”. It is no accident that the commission rate is higher and more consistent in more expensive communities. The reason is that homeowners and buyers in Wellesley and Lexington (my town) neither have the time nor the desire to do all the grunt work involved in marketing a house or in spending hours of time previewing and researching every house on the market. They tend to be busy, financially well off, and would prefer to keep an arm’s length in the transaction. They have no desire to meet and escort often rude buyers or – more likely – unqualified lookers through their home.

    They also understand both agents and their brokerages in a transaction get paid from that transaction only if they close. The price of marketing and the commission in set by the market. If there was not a market for it, it would not bear the commission rate and the overall market and commission rate would lower or disappear. These communities thus attract often highly educated, highly entrepreneurial, and driven people as agents who are willing to work months without pay, be responsible for all their own expenses, including all insurance. The best and most successful agents are actually more skilled as negotiators than the real estate attorneys, who literally just shuffle around the paper after the negotiations have been made. I take representing my buyer clients as seriously as my seller clients. I do hours of research on property history, data trends in my market, have lived here for 15 years, worked as an agent for 8. I know the town inside and out. I know why certain houses sell and why some don’t. I am in tune with all the news in town, where certain developments are coming, why certain builders are better than others, who the best home inspectors and mortgage brokers are, etc. I am not a “part-time mom” as mentioned in one thread. I am the sole source of income in my house right now. No benefits. Health, disability, etc. all paid out of pocket.

    In markets where the going rate is lower or has been driven down, fewer skilled agents will be attracted to the profession. And yes, prices will remain lower. Do you want to buy into a community where prices remain stagnant? You might and that is fine. You just want to buy a house to live in it and don’t care about building equity. There is no analogy to buying stocks online. Stocks are something that are the same price everywhere, if you buy Apple in San Diego or Bangor that price is the same. All information and research is available online. This is also why I bristle when people generalize about “the real estate market” as if it is a nationally consistent market. Look at Miami, Las Vegas or Phoenix then come back here and look at Brookline, Newton, Lexington or Cambridge. All real estate is extremely local. If you own a home, you want the value to increase, just as if you were buying stock. Agents do not falsely inflate value, but they certainly help sell it and buttress it. To blame agents for overpricing, as someone did above, is to completely misunderstand how pricing a home works. The seller sets the price of their home. Yes, agents can advise to price too high, but most often it is a seller who wants to price too high. As Freakonomics points out, agents are more motivated to price homes aggressively. Who wants a listing that will not sell? If something is priced too low, usually the market will drive the price up to true market value. Believe it! I see it still — multiple bidding wars in my town regularly — in 2009! You can’t have it both ways — either we over price or underprice. Freakonomics claims we underprice others’ homes and get top value for our own. Choose your stereotype of agents and defend it! Maybe we just price our homes correctly while patiently working with clients and waiting for them to understand the market as well as we do.

    I have no problem seeing a business model where people pay for a tier of service. In fact, I would rather get paid by the hour for consulting and accompanying buyers. I have worked for two years with buyers who never bought. I have paid out of pocket for advertising and other expenses for houses that never sell. Now tell me how much I make an hour! Very few of even the very top agents get rich at this job. I would say I am in the top 2% in my town and I am middle class at best. Commission or hourly, you’re going to have to pay for service one way or the other. All this resentment of agents in general is misplaced. If you had bad experiences with specific agents, I am sorry to hear it. But I hate getting painted with a broad brush. I serve on the state ethics committee. I mediate disputes between brokers. The ethics and self-policing is highly successful at weeding out the bad eggs. Is it fool proof? Of course not. But I will tell you that the commission model also succesfuly separates the what from the chaff. The best agents are successful for a reason – they get paid and the bad agents do not get paid. At all. If the rookies who are not made for the job start getting paid by the hour (see Zip Realty, by the way), you will see more mediocre or inexperienced key-turners sticking around in the business for longer periods of time.

    Around here, sellers can list there home and offer a buyer agent commission through MLS entry-only services, thus paying a few hundred dollars. They usually have no idea to negotiate. If I have a buyer, I automatically recommend reducing the offer price of my buyer clients by the amount that the sellers should be discounting for not paying for an agent. They tend to do little work and have no idea how to move a transaction along, from offer to inspection to P&S to closing. Buyer agents in such transactions end up doing almost all of the work. So prices fall, but so does service.

  31. Carljr Says:

    All you’d have to do is make the buyer write half the check and that half fo the commision would crash within days

  32. Will Says:

    Carljr, the buyer does write half the check, whether they realize it or not. Brokers are paid from the proceeds of the sale. It just happens to be on the seller’s side of the HUD statement. But the commission is built into the price. If brokers are omitted from the transaction, prices might drop to reflect it, but everyone else would be doing the work, the amount of which in a typical RE listing and transaction seems to be underestimated by many posting rants against RE brokers. BTW, there is also this myth the RE agents are one of the main reasons for the RE crash. I suggest people start with the macro — the securitized debt created with chopped up mortgages, the insurance agencies — and work their way down to the micro, mortgage companies and brokers who wrote the insane interest-only and subprime mortgages on which the macro was based. We simply didn’t see much of these in stable towns. This is no accident.

  33. kathyorsue Says:

    used to be a broker and these women (yes, mostly women) are SHARKS. They don’t “represent” anyone but themselves. They are not trying to get anyone the best price. They are trying to get commissions for themselves. This proposal is long overdue.

  34. thinkoobfan Says:

    Will makes some good points but none of them address the central point that Al makes: that we shouldn’t be ede facto required to play in this game to buy or sell a house. If an agent is good he can jsutify his own services against the alternative of doing it himself. If I was forced to choose an agent, I’d choose Will based on his comments, but I don’t want to be forced to choose an agent. I want to have choices of consultants, self-brokering — all that stuff.

  35. alewis Says:

    If I were to choose a broker, I must admit I would choose Will. THis is an eloquent sales presentation he has written. The economics are questionable, like the suggestion that making licensing harder and minting fewer brokers would reduce the commission. But as long as Will is sticking to what it takes to be a good broker, I would find his email address in my system and retain him if I ever needed a broker.

    However, my point is that I may not need a broker. I may prefer to represent myself, at least on the buy-side. Picking a broker should be an option, not a requirement. Or I might prefer to pick Will but say I’d like to do a lot of it myself, may I retain you by the hour?

    Ultimately, that’s all this posting was about — creating options and having brokers/consultants sell their services based on merit rather than de facto requirement.

  36. Will Says:

    Thanks for reading my comments. I did write too long of a reply and don’t blame Al for editing down, but I think I might have agreed that an hourly rate would be a fair alternate choice for a pay structure, in fact I would often desire that acting as a buyer’s agent, as I would hate to see what my commission breaks down per hour for some slow-moving or non-buying buyers. But I have no idea where this idea that retaining an agent is a requirement on either the buying or selling side. I see plenty of sellers using “entry-only” for-fee MLS listing services for owners selling their own place. A few of them do well. But most would have done better using an agent. The reason is that if they are successful in selling their own homes, it is usually only a function of having an unusually low price, as there is almost always very little marketing going on. Thus, they limit the actual pool of buyers seeing their homes. My first act in a listing it to get all the brokers in their for a preview. Most FSBOs don’t or can’t do so. So the sellers end up doing more work and/or dropping the price to the point that the house sticks out and can no longer be overlooked. Anyway, my main points are, there is no requirement that I know that you have to use a broker. Knowing what I do, I would honestly still do so if I were a seller and I would build the commission into the price just like 95% of the other sellers. And if I was a buyer, there is no doubt I would use a commission-based agent. There is no extra fee to have a good buyer’s agent who will be paid out of the offered cooperating commission. It is also a myth that a good buyer’s agent will want to just quickly get “the sale” to get the commission. As I depend mostly on referrals, I would much rather have a satisfied client that I know if going to buy eventually than push them into the first house we see. I don’t know buyers would want to pay by the hour and thus feel more pressure to buy faster. The current structure allows them to take their time and the agent is usually satisfied, knowing that he/she will be paid upon closing one or another house.

  37. alewis Says:

    Joel Stern, jstern2@state.gov, would like to be contacted by anyone wanting more information on this cartel and its inherent conflict of interest. He is probably the most knowledgeable person in the country about it and has a lot of links and data which he is veyr happy to share

  38. Nithi Vivatrat Says:

    I will state up-front that I am the founder and CEO of a fee-for-service real estate brokerage firm launched a few months ago. It was fascinating to stumble across this lively discussion on a topic inherent to my work.

    First, I believe it is undeniable that the information advantage of the real estate broker over the consumer who does his or her homework has eroded significantly, due largely to the proliferation of online information sources. Information, however, is not the same as expertise. It takes context and skill to effectively sift, interpret, and transform that information into valuable insight. In my opinion, this is exactly where a great real estate professional (say, someone like Will, who has contributed eloquently to this discussion) can and does add significant value – to leverage the experience of hundreds of real estate transactions to advise a client as to what is fair, normal, questionable, anomalous, unreasonable, etc. and guide the client during what can be an extremely stressful process. Why did my partners and I hire lawyers when we sold our consulting company when we are perfectly capable of reading contracts? Because we wanted the insight and guidance of a trusted advisor with the expertise garnered from hundreds of M&A transactions that we didn’t have.

    But this leads to my second point: how did we pay for that legal expertise? By the hour, based on the amount of services we consumed. In real estate, however, the common value proposition is this: pay a set commission (say, 3%) for a black box of services. Maybe you’ll get this service or that one, it depends on what happens or with whom you work – but in any case the fee stays the same. This is fairly anomalous in professional services: your accountant doesn’t calculate the fees to do your tax return based on a percentage of your net worth or your earnings that year – you pay based on the amount and value of the time spent.

    I take issue with two points that Will made previously in this thread: that “the commission model also successfully separates the wheat from the chaff,” and that an hourly model would result in “mediocre or inexperienced key-turners sticking around in the business for longer periods of time.” To the first, I assert that it would serve us well to differentiate between “good” agents and “economically successful” agents. We tend to conflate the two concepts, largely because transaction volume is the scoreboard most commonly used to rank agents – you tend to hear terms like “top producer” and “million dollar clubs”, which are not necessarily the same as “agent who provided the best customer service” or “agent that negotiated the hardest to get his/her client the best deal.” The commission model favors those who can market themselves most effectively and close the most transactions, not necessarily those who provide the best service or fight the hardest and longest for their client – there might be some correlation, but they are not the same thing.

    Similarly, I disagree with the argument that the hourly model is friendlier to mediocrity than the commission model. To the contrary, I contend that consumers paying out of pocket and receiving unsatisfactory service will in short order terminate that relationship rather than continue paying for it. When consumers are not paying for the service along the way, on the other hand, tolerance for poor or mediocre service is greater. There’s a false perception that one is “getting the service for free,” and people are sometimes made to feel “guilty” for terminating a relationship with an agent. This dynamic is exacerbated when a consumer is working with a friend or relative – a common occurrence. For these reasons, I believe a fee-for-service model will tend to improve the quality of service by prompting consumers to be more discriminating.

    My final point is this: if we consumers want change, we need to own up to our part of it. We have to step back, honestly do our own individual risk/reward calculations, and live by them. For example, Al and others express a desire earlier in this thread to be able to represent themselves, at least on the buy side. My firm will help you make an offer on a property for a flat fee as well as assist in negotiations as needed. We help FSBO sellers with only those services they need and choose to pay for. Clients who work with us, though, have to be willing to pay our fees on a non-contingent basis. The decision as to what makes sense for you is largely based on your certainty that a transaction will occur combined with the potential savings in our model, compared against the amount of fees you know you will pay in a commission model but only if a transaction occurs. In case you’re wondering: people are making this calculation and do choose our fee-for-service model.

    With that in mind, I have no expectation that the fee-for-service model will replace the traditional commission model. I believe both models can and will co-exist – just as you can hire a lawyer on retainer OR on a contingency basis. The choice should be up to the consumer.

    Thanks for reading – I appreciate this opportunity to present my point of view, and I look forward to continuing a frank exchange on this topic.

  39. Thread on brokerage fees at ThinkOOB.com | SmithAdams Says:

    [...] commission fee model to the SmithAdams fee-for-service model, I thought you might be interested in this lively discussion about brokerage commissions at ThinkOOB.com. It’s great to see that we are not the only ones actively thinking about this [...]

  40. donna Says:

    two observations:

    (1) If I were paying my buy-side broker by the hour, I would see all the houses the first time myself, then bring him or her in for the final cut, nad pay a fee per showing and then an hourly fee for advice. I did not get $15,000 worth of advice out of my buyer’s broker, not even close

    (2) I know the brokers are in cahoots sometimes because I saw a house that was not at all appropriate — the master was not big enough for a king, which was one of my specs. “My” broker said, “Oh, you can tear down this wall.” She was freinds with the listing broker.

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