Flat Fee Buy Side Brokerage Services...

While not quite a flat fee service, I would be happy to work with a broker operating under the Red Fin (http://www.redfin.com/home) business model.

Red Fin's minimum fee is $5,500 of the buyer's broker's commission, or half the commission if the commission is > $11,000, and the rest of the commission is paid to the buyer.

I am not sure I would pay a consulting flat fee without getting a financial benefit: a greater discount on the sale price or a refund of a portion of the buyer's broker's commission.

my first question urban is, unless i'm missing something is why don't the buyers want to use you? It won't cost them anything and they get your expertise anyway.
But to answer the question. I would think that the information is readily available so you wouldn't chew up much of your time. So why not $500 for say, the first 5 properties or until they buy. It's a tough question.

I'm not a broker and I've never sold so I'm not in the loop. I have never sold, but to be honest, I would use the fsbo 2.5% to any broker that brings me the buyer route.Good luck. Sounds like some nice extra cash.

That's what we've been looking for, urbandigs. Obviously, if you are getting your commission from the seller, I'm still not sure why the buyer's broker would not try to get the best price for the unit or convince the buyer to buy. But if your main purpose is to negotiate the price for the buyer, then it makes sense that the buyer pays for that service. I'm not sure though how much it should cost, can't be more than the savings the buyer gets from hiring you. :) Maybe a percentage of that savings?

well you never really know how much it ends up saving you unless we have two worlds, one where we bid with me as your buyers broker, and one where we bid on your own with no broker, but with my consulting on the side. Then compare.

Here are my thoughts.

1) Vested Interest - many people view the buyer broker as working for the seller because they ultimately get paid form the sell side commission. Then there is the argument that the buyers broker works on behalf of the buyer, because that commission is coming from the buyers money to buy the place. Its all moot. The point I find is, buyers want consulting that eliminates any vested interest in the transaction, and that can come from a flat fee type of model.

2) Many buyers feel they can get a better price if they work WITHOUT a buyer broker; via any savings on the commission for the seller. Yet many want unbiased consulting and rather not deal only with the hired seller broker. Since listing agreements often, not always, but often have a tiered structure in that there is a discount for the seller if there is a direct deal, one can argue that this feeling is validated. If a co-broke commission is x% and a direct deal is x-1%,2%,3% (whatever), then you can see the potential incentive for the seller to want a direct deal or be willing to do a lower deal with a direct buyer. Of course, market dynamics play a role here and this is no environment to mess around when a bid is received. Just talking hypotheticals here people.

3) Many buyers feel the seller broker will push for a deal if it is direct, as opposed to if its co-brokered. The reason lies in the shadiness factor where the seller broker is more incentivized on a direct deal, and splits commission on a co-brokered deal

But mainly, I find that buyers want unbiased, non vested consulting and are willing to pay a fee for this. As a buyer broker, I would likely get 2-3% of the purchase price at closing. So, clearly this model is sig less money but from a broker standpoint it makes my life easier in the following ways:

1) it eliminates non serious buyers or lookers
2) it maximizes your time, and eliminates working with potential buyers (leads) who may run around the city with you for 3,6,12 months before buying; looking at many properties. Or they may not buy at all after all this time is put in
3) focuses consulting on the meat of the transaction; market value, what is it, real time trends, comps analysis, bidding strategy, negotiating, consulting up until contract is signed and closing.

So there is an incentive for me, and I think there is an incentive for the buyer because Ive literally received dozens of these types of requests, so clearly there is a demand for it.

If you were going to buy a 1MIL apartment, in this environment, $500 for a property consult sounds awfully cheap especially if the consult pits the value of the property x% less than what you were considering bidding for it. I can tell you I got offered $2500 for a property consult on a 1.5MLN apartment, and decided not to do it because I wasnt sure how that type of service was taken by my employing brokerage firm; likely not a problem and something I could have done but whatever.

But this person would have been more than happy to pay for good consulting. So I figure to ask you guys. Maybe the cost should be relative to the purchase price. maybe it should be 0.25% of the purchase price. Im trying to feel it out here.

Stevef - sorry missed your question. Mainly because they have found the property already, dont know what market value is, and want to do any deal directly with seller broker and without the use of a buyers broker. Yet, they dont want to negotiate or formulate a bid by talking to the seller broker, they want an unbiased third party that is not part of the transaction or involved in getting a portion of the commission at closing via a split with the seller broker

OnTheMove - well it seems that you are the type of buyer that doesnt see value in both this idea or use of a buyers broker. Is this assumption correct? If you were going to buy, would you be doing it on your own? And the only reason you would take on a buyers broker or this model, is to get a refund of sorts to offset say the closing costs of buying?

absolutely nothing wrong with this. But there are many buyers out there who absolutely want to work with a buy side broker, if anything, for their consulting on the product, the market, determining market value, bidding, etc..

Well, I think maybe there should be a flat fee, plus a percentage on the buyer's savings from the listing price. If the buyer ends up paying the same price as the listing price, I'm not sure where's the benefit for the buyer hiring you.

hmm, excellent idea cleanslate! Now we are getting somewhere. What do others think of that idea?

wow, some sophisticated buyers out there. Well, like a lawyer or accountant you are providing valuable information. Not only do you have your "pounding the pavememnt knowledge", you have us SE people...:) plus your blog and conferences etc.. So your clients are getting some quality advice. Please keep us updated.

"they want individual consulting on property valuation, comps analysis, bidding strategy, negotiating, etc.."

I think it's a valuable service, but have no idea on how you would price it.
So, this is for buyer who have already found an apt, so you won't rep both S & B? Maybe start it as a separate division called "Buyer Consultant", figure out flat rates for different packages: Consult on 1 apt covers X hours & includes x,y,z; consult on 2 apts covers Y hours & includes a,b,c. Get paid up front. Write a good contract so Buyer understands what they're paying for & put in disclaimers so you have no liability if the B doesn't get the apt or if the B gets the apt & then later claims you did a bad job because price was too high.
It's a good idea, just set it up correctly.

Actually Noah, I think there would be more of a demand for flat fee service on the SELL side.

dwell - yes it would have to be protected. definitely. Need a lawyer to do that when time is right. Im just not sure what a fair price for this service would be, both for me and for buyers that utilize a service like this. Its their choice, so if they do it, clearly they want buy side consulting outside of the seller broker advising them on the deal.

I was thinking something like

$X for 1 property consult includes property valuation, comps analysis, charts etc., bid preparation, bidding strategies, and negotiating strategies during the process. For those that found the property on their own but simply want consulting on its market value and bidding.

$x for up to 3 properties with all the above. For the buyer that knows they want to buy, but didnt find the place yet and may want 3 property consults.

The question is, should it be $x flat fee, OR a smaller $x fee plus a minor percentage of the deal or savings? Say 0.25% of purchase price or 1% of the savings between asking price and purchase price? Or should it be based on purchase price right off the bat? So many different ideas. Clearly, no buyer will pay $5000 up front for a property consult. That is not what I am suggesting. You get the idea of what I mean though. Lots of options on where to take this

Alpine - thats coming. in the works. cant talk much about it here because of who i am in talks with

ps: i love all u guys! appreciate you taking time out to offer opinions here.

Good point, alpine. You could do it on the S side as well, but, wouldn't that overlap the services of S's broker?
I think flat fee sounds more attractive. If B or S returns for additional consultation, they pay another fee or just set up the fee structure so additional consultation is included.

shhh, lets not talk about sell side here. shhhhhhhhh, nothing to see here. look away look away!

"Clearly, no buyer will pay $5000 up front for a property consult. That is not what I am suggesting."
Noah, you know your business, so, what would a B pay? But ,like you said, if the apt is $1.5 or higher, would the B spend it? Depends what you're offering & whether it's cost efficient for you.

Yes, you have lots of options & you know there's a demand for this service. Definitely have a lawyer draft the contract to CYA.

I'm thinking something like $750 for 1 property consult, $1500 for up to 3; but Im thinking now that a lower amount and a small percentage (maybe 0.25% of purchase price) due at say contract signing may be better. Flat fee, paid in advance. Something like this. Its possible someone pays me the 750, the property is asking 1.25MLN, I say market value is 1.05MLN, and the buyer was about to pay 1.2MLN for it because they had no idea the market was so pressured or that market value was so much less.

happens all the time. They may choose to not buy at all. Or disregard my opinions.

redfn model maintains the buy side broker as included in the transaction. That is not really what I think it should be. It should remove the buyer broker from the transaction and be a fee paid for by the buyer on the side. What if the buyer has to pay 12,000 more for the property to get back 7,000 from the redfin model?

Noah, you're a broker, so you're used to waiting for your $ until closing. Me, I likes da $ upfront, but then you're talking flat rate. If it doesn't close or they decide not to buy, there goes your percentage fee. I like flat fees: clean & easy to understand. Maybe you should charge like an appraiser, cuz in a way, that's what you're doing; aren't appraisers paid upfront? Play around with all options & scenarios.

yes appraisers are paid up front but benefit from volume...I agree dwell, that was the original idea. The service should be paid for up front, totally optional for the buyer to choose to do it.

I think if you take a percentage off of the listing price, it would still be beneficial for a buyer's broker to get a higher price. The buyer may offer 1.2M, and though the buyer's broker thinks it should be 1.05M, he may just say 1.15M. If you take the percentage off of the savings, then both you and the buyer would work for a better price. Just my opinion. :)

In the end, people like me, who likes to find the property themselves, know how much they want to pay and follows the trends, stats, etc, just need someone to reassure them. I am not putting down UD expertise, I actually like him a lot! Buying is such an emotional issue for most, that the help of a buyer's agent, even with the enormous limitations of most of them, gives some sense of protection, of having a sounding board. In these cases, it will be RE therapy. People needs different amounts of attention and expertise, so it makes sense to pay by the hour, like therapists.

great stuff mimi. If anything, a new company should offer an array of services. thanks!

I think there should still be an upfront flat fee. There could be a case when the seller will not agree and the buyer likes the unit so much and decides to buy it anyway. It would be unfair to take 0.25% at that point from the buyer, but at least the buyer already paid for your time. The percentage off of savings is just a bonus.

RE Therapy, love it!

mimi - what do you think would be fair for me to charge per hour for this type of real estate consulting?

I think there is plenty of market for this, and quite frankly I wouldn't be surprised to see an industry push to this model. Maybe call it a "Real Estate Concierge"?

A couple's therapist once charged us $300 an hour for the consultation. I think that lawyers or doctor's hourly fees could be a comp for your professional services. The world of consulting for business or advertising is not a comp, because they are services geared to companies, not individuals.

The problem is that there are way more individuals needing psychotherapy that RE therapy, and usually the former goes on for a long time once a week!

I think Ill call it UrbanDigs 'something'...building a brand for urbandigs for 3 years. in this business, brand is very important, at least I think so. When it comes to broker reputation, in general, its not the most positive in a service type industry.

I love the idea of a flat rate service that would allow me to sign up for x number of consults (and perhaps make the subsequent consults slightly less $). I think $750 per property would be really fair - you could probably even push that number a little higher. I wouldn't go for paying a % below the seller's ask. As we all know, many asks are totally out of line with reality. I would be looking for someone to reassure me within a $200,000 spread. I don't need a RE consultant to help me figure out if something is in the 1.5M ballpark vs. 2.5 ballpark.

As far as names, I'd call it "Buyer Consultant". Name it what it is.

Digs, I recently negotiated a deal with a broker for some commercial real estate that addressed the concern regarding a broker getting a large commission for doing nothing. My client was facing a number of options regarding a building they were currently operating in. To keep it simple, let's call the options 1) renew existing lease 2) find new space in current area or 3) find new space in new area. It was pretty clear that 2 & 3 were a lot of work and that 1 was almost no work, however each of the options would receive about the same commission from the owner. Additionally, we would know the answer on 1 before we needed to start on 2 or 3 (we also needed some basic services from the broker to help position for 1). What we worked into the deal was that the broker would give us 40% of their commission should the result of the effort be renewal. This incented the broker to find us a better deal elsewhere, aligned compensation more closely to effort, and locked it a bit of the savings for us.

Coming back to your question, If I only need the buy side broker to help with negotiating a deal or dealing with the co-op board, would a broker be willing to share a piece of their commission with me? That option would guarantee me savings and would pay the broker for the value provided. I say, get the full 3% from the seller and then share it with the buyer based upon mutually agreed on terms. I know this would work, but the brokerages would hate it.

As a buyer - i would prefer to use no buyer broker. It gives the seller broker twice the incentive to push for me if i am even with another buyer. Simple math. As a seller -- I am indifferent to the number of brokersd as the fee negotiated up front.

JuiceMan - negotiated in what capacity? As an attorney? Sorry if I should know that answer...
I was under the impression from my broker that we are not permitted to "refund" cash to our buyers. Am I wrong about that?

I think that falls under the category of 'kickbacks', which is illegal. Yet, Redfin has a business based around this. Have to look into it more because something aint right.

Im not sure we can compare Commercial rentals with Residential sales in terms of this though. Am I wrong in thinking this? Commercial is quite a different game, for example, receiving a commission on a lease renewal? That in no way exists in residential sales or rentals.

Sharing the commission involves leaving the model the way it is now in terms of me not getting any upfront payment, the buyer broker being vested in the transaction, time element is unknown, whether buyer buys is unknown, and Im pretty sure sharing the commission is illegal.

My guess is Redfin & Real Estate Cafe can follow that model b/c they are not in NYS. My license is here, so I'm unfamiliar with the other states' laws regarding kickbacks.

Question: If you do this model, how can the seller eliminate paying commission on his broker? You don't really want the seller to pay commission on the seller's broker after the buyer's broker negotiated the price down. Otherwise, not sure if there is enougth incentive for the seller to negotiate the price with a buyer's broker and then still pay commission to his broker.

Agreed Digs, a very different game, I just used it to illustrate the point. tina24, I'm not a broker or an attorney but I do a lot of deals within varying functions.

kickback? What's the difference in what we are talking about compared to a listing agent taking 2.5% instead of 3%?

Juice - of course!! Thanks for chiming in! A kickback, in real estate terms, is basically paying off someone to do the deal with you. So, if a mortgage broker has a buyer and contacts me, and says, "listen, Ill recommend you to this buyer but I want $1,000 after closing" or a doorman/super saying "Hey broker in building, I know a unit owner that wants to sell, if I give you the listing, I want $1,000 up front".

http://www.dos.state.ny.us/lcns/realestate/salessyllabus.htm
*this is the basic test you must pass, its pretty much a joke, to get your salesperson license. Kickbacks are discussed in Section 1

This is illegal and I can guarantee you it happens ALL the time here! Thats a different argument for anotehr day.

I dont conduct my business in this manner. Im an honest guy. So, any model that I do fine tune here for buy side, will have to be 100% legal.

Cleanslate - that is the sell side model. That wont change until a new model comes out for that business. The big boyz + no public MLS pretty much give the 6% model a stranglehold on this market. Time will tell if a slow market and bad reputation in the industry eventually leads to a new/fresh idea or model to come along. Thing is, if it does, sellers need to use it!

Even if a better model for sellers comes along, that could save them thousands, I think they will be hesitant to be the first ones to try it! But Im working on something

basically a kickback is an illegal referral. Here is how it is defined in the online NYS re salesperson license school:

"fees or other compensation given for services not performed, but as a means of undisclosed commissions for business referrals..these are prohibited by RESPA"

As far as I know, referrals have to be issued to another licensed employer brokerage firm; broker to broker. So if I get a referral from another agent in my office or another state's office

now that I think about it, the redfin model is DEF NOT a kickback! It benefits the customer and is a broker to customer arrangement. Its when a third party is paid off to get the customer that is a kickback.

So, a buy side model of rebating the buyer 50% of the commission received at closing is fully legit.

Does anyone disagree with me here?

So how is sharing a commision with the buyer a kickback? How is it any different than a listing agent that says, I will take your listing for 2.5% commision instead of 3%?

i dont think it is...after thinking about it

UD, this reminds me of flat-fee financial advising. I think this is a great idea. I am a very capable researcher and would certainly know how to find an apartment I want. What I have a harder time with is negotiation. I'd very cheerfully pay a flat fee for an analysis of the apartment of my choice - maybe you could offer a package deal if someone is considering more than one property - and be even happier to pay a percentage of the negotiated final price savings. Unfortunately this plan wouldn't make sense on a property where bids go over ask.

evnyc - your right in line with my thinking. Great responses here. I have to talk about it with my partner Jeff Bernstein, who will be doing it with me. Obviously cant do every idea but this is great feedback.

Im getting excited

Again I ask - what is wrong with the wide variety of current models? UD - could you not offer to reduce your share to 1% of the commission, thereby saving the buyer 2% of the sale price? This model benefits the buyer in other ways as well, as it reduces the sales price and therefore the taxes and closing costs.

If, rather, the buyer simply consults with a broker then makes the bid through the listing agent, there may be nothing keeping the listing agent from taking the full 6% commission.

Tina I get that but its not really a feasible model given the slowdown. This indstry is going to change, and I want to take advantage and do the types of services that I would want if I was a buyer. For me, a flat fee model is exactly what I would want, just like I pay my atty 2K for his services to handle my re transaction.

The buy side, in my opinion, can be broken down so much better than most brokers generally do to 'seal the deal', to benefit the buyer. If you can get a better price this way, isn't that worth it?

Sure - but what stops the sell side broker from pocketing the full commission if you're not the broker of record on the buy side?

the 6-Mth exclusive listing agreement signed with the seller broker

The nice thing about the flat-fee model is that even if the buyer decides not to buy you still get paid. I imagine there will be more volume for this type of service than there would be for the sell side since some people inevitably wouldn't buy. You'd be selling decision support. The more I think about this the more I like it. I would love it if I could pay someone to analyze a property and tell me things like, have you thought about the fact that the garbage chute goes down the wall by the bedroom? or whatever problems I might not have considered.

UD,
I realize you're working on your 'buyer consultant' thing, but this hit me:

"The big boyz + no public MLS pretty much give the 6% model a stranglehold on this market."

Since your changing the paradigm on the buy side, ever consider changing it on the sell side? No MLS & the 6% model gives the big boyz a stranglehold on the market. Since you're being bold & dynamic on the buy side, maybe try something on the sell side? Just a thought.

dwell - in the works

Urbandigs, you might be starting to fight Goliat.I wish u luck because WE WANT CHANGE. as we demonstrated in the last election. Change of a wasteful, speculative era. A moment with an epic and a redemption....Is a fairy tale, but I buy it.

Wait UD - I don't think you answered my question. Given the dysfunctional system, can you solve it with a buy-side solution? I understand (given all your nudge-nudge-wink-wink asides like the one above) that you are working on the sell side too - you never answered my "real estate doomsday machine" query in that other thread - so why parse the one from the other here?

Late to the thread, here's my thinking:

I will at some point in the next 1-2 years be looking to buy a $1.5-$2MM apartment. Say it's $1.5MM. Buyer's broker's 3% of that is $45K (yes, a lot). The way I think about it, if I don't use a buyer broker, maybe I can convince the seller broker to lower their fee to make the deal happen, since they don't have to share. But not all the way, maybe to 4%. So savings are 2%, which I probably end up splitting with the seller, so my savings are 1%, or $15K. So in practical terms, I think using a buyer broker costs me $15K.

Therefore, I think I would be willing to spend up to that much for something that Noah describes. Preferably less, of course, but that's my ceiling, assuming it covers the comprehensive search and deal from soup to nuts. If you use $200/hour, that's 75 hours, which doesn't sound crazy. If I use less hours, I pay less.

And yes, I like the idea a lot. Hate the current incentives.

I like the idea of a flat fee Realty Consultant model. My 2-cents is that it initially be offered as a low cost suite of advisory services with different packages depending on the client need. Pricing can range from basic market research - to building/unit comps analysis - to contract guidance - and finally to board package and closing prep. I think you price at very attractive rates since you want to generate volume early on and build a reputation. Also, good pricing limits your being undercut by copy cats who can easily duplicate your offering.

Just tossing numbers out, but I think from $20 to $500 depending on the individual service, and $1,500 max for a soup-to-nuts consult. A rule of thumb should be that your max fees not exceed attorney fees.

The pricing thing is crucial because this is a long term play, initially obscure but ultimately disruptive to the powers that be. Moreover, as we undergo a deep dive into buyer's market territory, commission pricing is almost irrelevant as a cost factor to the buyer. The average buyer effectively can negotiate out the broker fee when you are talking about a market that is 20%-plus off prior year transaction values. And, that buyer would see your service as a supplement to their bargaining power; not essential to it. So price accordingly. Once you have established your business it will come into its own in a normalized market and be crucial in a seller's market. At those moments you can ramp up your fee structure.

The urgency right now is for sellers attempting to capture as much value from their deflating asset. The 3% to 6% brokerage transaction cost heaps insult unto injury. But, that is another story . . .

newbuyer99 - I think I mostly agree with your train of thought. This is what I think most buyers feel, at least the ones I spoke to. They do believe going directly to seller broker likely nets them a slightly better deal, the question is whether they want consulting on the side and the ones I spoke to do.

tina24hour - two things

1) The seller signs an exclusive agreement with the seller broker? If there is no buy side broker, the selling broker gets the full commission! If there IS a buy side broker, they split it with the seller broker. Other than this, I dont understand your question

And second and more important,

2) YES, this is like taking on GOLIATH! Thing is, buyers want change, sellers want change, but when a new model is introduced it is UP TO THE BUYERS AND SELLERS TO BOTH LIKE THE NEW SERVICES (AS CHANGE) AND USE THE NEW SERVICES!!!

If I launch this new model, it may EXACTLY what buyers have been waiting for. But if they do not use it, it will not last and will die out and the bog boys will continue their dominance with the same old model! The only chance I have is if I deliver services you want, the brand is good, the reputation is good, the service is good, buyers USE the service, and talk about and spread the word! Then there is a chance.

This is especially true for any sell side idea where the challenge to break the mold will be much greater! In the end, its up to you guys. It may be the best idea ever, but if no one uses it, it will go away.

Tina - "you never answered my "real estate doomsday machine" query in that other thread"

Which thread? link?

UD - "1) The seller signs an exclusive agreement with the seller broker? If there is no buy side broker, the selling broker gets the full commission! If there IS a buy side broker, they split it with the seller broker. Other than this, I dont understand your question"

That is my question precisely - if the buyer uses a "Realty Consultant" rather than a buy-side broker, the selling broker gets the full commission. In a buyers' market, I think that stings the seller. Let's say the selling broker takes 5% (instead of the 6% full commission). Yes, the savings is 1% above a traditional co-broke. But if, rather, you were to come on as a full buy-side broker, the selling broker is limited to 3%. Let's say you take only 1% of the sale price as your reduced commission. That saves both buyer and seller money - only the brokers get dinged.

I understand that the add'l 2% is an incentive for the selling broker. But I'm not seeing a lot of bidding wars in the current market. As angler7 says, "Once you have established your business it will come into its own in a normalized market and be crucial in a seller's market." When do we think we're going to see a seller's market again?

Don't get me wrong - our business is weird. But unlike an attorney, I'm not sure I can break down the services I provide into billable hours. I know this differs from agent to agent, but I spend months with my clients - getting to know them, researching properties, viewing properties, bidding, negotiating, returning to the property multiple times to meet with appraisers, architects, contractors, etc.. I like my job! And I appreciate the fact that my buy-side commission gives me huge leverage in negotiating a sale price with a listing agent. In a recent transaction, reducing my commission by a third got us to an accepted offer. And saved buyer and seller money. I think informed buyers can ask the same of their brokers. The Goliaths may not be able to be flexible - and my hope is that this will make us little guys more powerful.

I'll find that other thread and link it...

Here it is!
http://www.streeteasy.com/nyc/talk/discussion/6535-how-would-you-restructure-the-buyers-broker-commission-

tina - Im going to look ahead a bit here, as this to me is very important. I seriously think the 6% commission model is in peril, as the market both slows and falls. many will argue this, but I wont. If a sellers home is worth 30% less, trust me, they will think twice or three times before signing a 6MTH exclusive listing agreement that pays a 6% commission to the agent.

Second, though we are not supposed to talk about it and honestly I can care less about that because this industry is antiquated and controlled by a few large firms, the commission is negotiable. The only reason why people dont think it is, is because every agent is hush hush about this. Hints of Sherman AntiTrust come to mind to maintain this 6% commission model here. But thats a whole new argument.

Moving forward, as time goes on, I have a strange feeling there will be more than a 1% GAP between a sell side commission that pays for a direct buyer received. Just a feeling. I could be wrong. I think it will be more like 2% or even 3%. With that said, you can clearly see the more efficient nature of a flat fee model for buyers to pay for buy side consulting. Just removing the buyer broker from the vested interest of receiving a commission on the deal, on its own, in my opinion makes the model more efficient.

You see, in my opinion, slow markets are just the cure for inefficient business models. Take the autos. Sure they are getting a bailout and we can argue that forever. The Big 3 biz model was highly inefficient, and it took a slowdown to force them to the edge. Unfortunately, they will be saved and who knows how they will restructre. I do know that if they went into bankruptcy, they would make the hard moves that SHOULD be done to make the model more efficient.

Same thing here. You have to look ahead! Everyone thinks this market is going to just have a short downturn and come right back. I really doubt that and I think the brokerage firm model in place now in manhattan, will end up seeing innovative new competition. Whether by me or someone else. Clearly there is a demand for it, as you see from writers on this forum. Time will tell, but I think change is coming here and the Big 3 will see many many agents die out before this is set and done

Tina - Ive been brainstorming this for 16-18 months now. UrbanDigs plan was to ultimately be positioned to launch a new idea for this industry. Its been 3 years, and I tried to get the brand out there, earn trust, get people to know me personally and how I think, credibility, first and then launch new services after.

This to me was very important as the timeline to do this. Honesty/Credibility is something usually not thought of when it comes to brokers; sure there are agents out there that are excellent, definitely, but I mean the general perception of the masses. All in all brokers have a bad reputation.

In a service business, good cred is very valuable. The answer to your question though, is yes. I just want to get it right and meet demand.

I agree with you in principle. People, both buyers and sellers, often overpay for brokers' services. But my sense is that while many people claim to want a new model, they will be unwilling to pay upfront for services if they have a (bank financed) alternative that is also attractive. What if the standard commission dropped to 4%? Or 3%? Would people still choose to pay up front?

If it dropped to 4% or 3%, how will that affect the sellers willingness to share that with a buyer broker? Giving them only 2% to split with their employing brokerage firm in a tough market? I can see unethical behaviors starting already in thta environment.

I just think the current model is inefficient and antiquated. What other market in this country has a 6% model? Tell me?

bank financed alternative? I dont see how that fits in with this idea in any way

If there's a mortgage involved, the brokers' fees are paid by the bank and amortized through the mortgage payments. If you're a buyer with tight margins as far as down payment and closing costs are concerned, you may be more willing to pay $25/month for 30 years than $2500 cash prior to purchase.

2500 cash was only one real life example. I wouldnt make it that expensive. Volume is key here and making it reasonable is very important. 2500 is way too high.

And! Walk me through the logic here:
"If it dropped to 4% or 3%, how will that affect the sellers willingness to share that with a buyer broker? Giving them only 2% to split with their employing brokerage firm in a tough market? I can see unethical behaviors starting already in thta environment."

Okay - if that leads to unethical behavior (as if we don't already see that with the 6% model, but still), THEN:

"What other market in this country has a 6% model? Tell me?"

Does that mean the places with a less-than 6% commission are all unethical? I disagree. I feel like you may be arguing against yourself here. Is "only 2% to split with their employing brokerage" NOT enough money? If that's true, then brokers are not being overpaid...

for this city Tina! Agents got used to 6% model and 3% for themselves. I know brokers that wont even show an apartment if commission is 2% or under! Its reality Tina, not for me and likely not for you, but in this world in this city, agents got used to the 6% model

I know. And f@#k them, frankly.

Digs, flat fee is interesting but you will need to be very structured in your pricing. Do you plan on menu pricing (e.g. $500 for negotiations, $500 for co-op package, $500 for finding a listing, etc) or would the pricing be all-in? The issue I see with menu pricing is that most buyers don't know what they want/need and will always choose the least expensive option. You are then left justifying your services at every turn and trying to up-sell when the buyer "creeps" into another service area. Menu pricing is great for buyers, but is a disaster to manage for you. I would recommend a one fee fits all approach that covers all of your services.

Tina - exactly

Juice - well in this model the seller broker would handle the board package as they normally would with a direct deal/client. Remember, I would be removing myself from any vested interest in the transaction.

With that said, there is still options for structured pricing as you say, and I think its a good idea. I was thinking

1,000 - for 1 property consult and that includes

a) visit to the property
b) property valuation; determining market value
c) in depth comps anaylsis; charting of real time trends, etc..
d) bidding strategies
e) bidding preparation
f) consult during bidding process
g) negotiating consult during bidding process

etc..One fee fits ALL of the above that is outlined clearly and does NOT involve me finding the property!

Then I can do $1995 for up to 3 properties and all of the above! Or an hourly pricing option

Okay - so: buyers and potential buyers - what do you think about that model?

It is interesting, but the economics don't seem to work. Assuming your average deal is $1M, you would have to do 30 of these consults to make the same as doing one deal under the current structure. That's 30 individual deals. I think you said somewhere you closed 12 deals last year, so you would need to do 360 of these new structure deals to break even. Additionally, just starting this business will cannibalize your existing 3% business. EVERY buyer would choose this option given the choice so, you can’t do both.

I think your heart is in the right place Digs, but the model you are proposing does not seem sustainable. You won't make enough money to keep you in the business.

Juice - this is my only worry. I did 12 deals last year, and lets not forget that my employer brokerage gets a big chunk of that. So, in reality, if I get paid 30,000 for a 1M deal, I get about 18,000, so its actually the same as doing 18 of these types of deals.

But here is the catch, I see this market as changed, and changed for a while. Last year was a good year for me, and 10 of those deals were done from JAN-JUN. For 2009, I would expect to do maybe half of this in a slow market! I think getting paid upfront, in advance, with time paid for as opposed to working many months for a potential buy side deal at 3%, is worth it.

Besides, this is just the buy side of the business! What about the sell side? 4 of the 12 deals I did this year were sell side, so actually I did 8 buy side deals. And I would say 6 of these were sig under $1M. I would not call me a high end broker. I work with clients that have 400K budgets, 700K, budgets or 3MLN budgets.

"What if the standard commission dropped to 4%? Or 3%? Would people still choose to pay up front?"

I think so. Perhaps I'm being harsh, but I believe the total real estate broker's commission should be limited to 200bps of the asset value up to $60,000. If sellers want fluff for their glamour pad, then they can opt into a supplemental fee arrangement (ie. for high-end staging costs) with their broker not to exceed 50bps on the asset value up to $15,000.

As a buyer, I gladly would pay $1,500 up front for a Realty Consultant and assume the $4.5-million apartment that I contract for includes up to $75,000 in brokerage fees.

Under this scenario, no fee splits. The Realty Consultant is paid whether or not a buyer gets to closing. That professional is paid for educating the consumer. The Sellers Broker takes the full fee, as described above, at closing.

do you think tiering the flat fee based on purchase price is shady or ideal for this idea? I thought it would be kind of insulting to charge someone more, for a higher purchase price? But now that i think about, maybe that is how the economics of the model can work?

So, say $500 per $500,000 of purchase price?

this may be the way to go

Would it also actually help negotiation on the buyer's side if he made it known that he consulted with a professional/expert and that it has been researched by so and so and it was found that the price for the unit should be this price, etc.? That way the seller cannot dispute facts and comps since the data is coming from someone who knows. If that's the case, then it is worth it to have professional consultation.

Why isn't there a standard MLS? I understand each large brokerage trying to protect their territory, but are there any laws in the rest of the country that force brokers to list on MLS. I thought there was, and if that is the case the law here needs to be changed. In this current market and the near future, transparency is essential for illiquid assets. Trust me, I am an ABS/CDO trader at a HF.

Being able to go online and do a search like on street easy is more valuable than a buyer consultant. If I were looking to buy an apartment I'm, not sure a what stage the value add would be?

a) visit to the property
b) property valuation; determining market value
c) in depth comps analysis; charting of real time trends, etc..
d) bidding strategies
e) bidding preparation
f) consult during bidding process
g) negotiating consult during bidding process

d through g above - what does that mean bidding strategy, negotiate/consult bidding process?

I personally find most of shady brokers are shady because they simple are not experts in the field. It's not because they are trying to scam, rather lack the adequate information to add value. Therefore, undeserving of their fee. I would rather pay a buyer broker 1.5%, selling broker 1.5% plus advertising expenses. Rather than 3% to selling broker and fees to a consultant.

I fully get and appreciate you are trying to change a broken model. It is clearly in need of change. Good luck.

cleanslate - part of the service would include a pdf package of sorts explaining the bid

ante - you make great points. Most people know me from UrbanDigs.com, as I have been blogging about the Manhattan market and this credit crisis daily for 3 years. I think the calls have been pretty forward looking since the very beginning of all this, when everyone downplayed the severity of the crisis. When brokers were screaming 'weak dollar foreign demand', I was dissing it and explaining why. When brokers scream 'sideline buyers will put a floor to manhattan prices', I was dissing it and explaining why. I agree most brokers are not experts because there is such a low barrier to entry in this industry. Its a joke to get a re license

Thats why I started blogging so people would know me, the person, and my views.

Would that mean that it will include your contact just in case they want to question the validity of the report and your firm?

"Being able to go online and do a search like on street easy is more valuable than a buyer consultant. "

Disagree. Street Easy info is raw data. The value is taking the data & crafting an offer. Like paints & the painter, marble & the sculptor. Value lies in what you do w/ the raw material.

Actually, this sounds really good as long as you can force the seller's broker to submit the bid. But then again, it may actually help the seller's broker get the seller to be more realistic. Yeah, I'm willing to pay the consultation fee to offer a realistic bid with sound data to support it.

"So, in reality, if I get paid 30,000 for a 1M deal, I get about 18,000, so its actually the same as doing 18 of these types of deals."

Wouldn't the brokerage still get a cut or is this new venture as an independent?

"So, say $500 per $500,000 of purchase price?"

No, keep it % based. You would get screwed on a $999k price. That said, do you do more work for a $500k listing compared a $5M one? The answer is either no or that you actually work harder on lower priced listings. Nature of sales, smaller deals are easier to come by but take 4x the effort to close. Also, the smaller deals are probably your target market so the % of sales method would actually work against you. You may want to explore a model that decreases % charged as the purchase price increases.

UD- I am aware of your blog! it certainly has been ahead of the curve. Is there an answer to the MLS question I had above?

Btw- I came to the 1.5% thinking the typical buyer looks at an average of 10 apartments if not more and your service is going to cost them $9000 (for 12 apts). I would rather have your unlimited expertise for a few more bucks. In the grand scheme of home buying its not a lot.

Dwell- I meant the transaction history aspect. You can look at comps and glean from recent trasnactions. In any market the last few trades are what set the bid/ask... same as housing. Buying/selling apartments is not an art.

clean - "as long as you can force the seller's broker to submit the bid"...well the seller broker MUST submit all offers and with this model, there is NO buyer broker, the buyer is direct with the seller broker so I dont see why the seller broker would not submit the bid, which is agains their fiduciary responsibility anyway

Antel148 - there is no public MLS for Manhattan because if there was the big firms would not be able to have a stranglehold on the 6% commission brokerage model. Streeteasy is trying to solve that. Its like a little cartel, keep the listing system private, and to get access you have to sign a 6MTH exclusive listing agreement that pays 6%

ante148 -- with the disclosure that I am from a small brokerage, there is not a straightforward public-access MLS in NYC because the big brokerages do not want it. Corcoran and Elliman especially have spent a lot of money and a lot of time gaining their market share and building their websites, and they want you as a buyer to go through them first. The existence of an MLS on the order of what, say, Long Island has (www.mlsli.com) would devalue those investments immediately

That said, there is something called "MLS Manhattan" which is a function of all MANAR (Manhattan Association of Realtors) agents agreeing to cobroke. MANAR catches all the big firms and many smaller boutique firms such as the one I work for (Chelsea-based DG Neary). MLSmanhattan.net is kind of buggy -- notably in that not everyone gets updated on status changes -- but any MANAR agent should be able to search it and get you most of the transparency you want.

ali r.
{downtown broker}

"Buying/selling apartments is not an art."

Disagree: IMO, buying & selling at the right price takes art & science. Anyone who is really good at what they do has a knack for it. To me, that knack is the art.

"You can look at comps and glean from recent trasnactions. In any market the last few trades are what set the bid/ask... same as housing. "

But, this is the prob in this market: recent transactions may be bubble prices and the market is heading down. So, seeing 6 mo old sale prices may not be helpful in a down market.

I agree that buying and selling, and dealing with the seller or buyer, and negotiating is more of an art than science. Sometimes I made a very ballzy move with my buyers that worked out wonderfully for them, and when I told other brokers about what I did after the deal was done, they said I was crazy and they would have just advised the buyer to raise their bid.

Noah--the only problem i see with this model is the fact the the seller agents eventually provide the service you're requesting. Every time I look at a property, even in good "sellers" markets, as soon as they seller agent realises I am about to walk out the door they start giving more info. By the third visit they've laid their guns on the table. Seller agents really don't care what the seller gets, they are typically volume shops who need to move on to the next deal. Freakonomics lays the logic out very well. So, I do applaud the fact that you're looking for a better model, I think the averge NY buyer is too sophisticated for the service. i say this because either 1) they're wealthy and have done it many times or 2) they're not wealthy but about to make an enormous purchase and propbably have been saving for years and will be quiet educated on the market.

After all, your guess is likely to be as good as theirs.

That said, it doesnt cost anything so do it, so go for it. No one should ignore what turns them on as a business idea.

When are you planning to have this model? I'd say this will work after the data of the distressed sales this last quarter is out.

I think the difference here, eah, is that there is going to be this valid document that supports your bid which would be hard to dispute.

eah - well it does cost something to do it, I would be leaving my firm, I would have to build a new website, I would have to build some backend tools to generate the reports I have in mind, etc..Not much, but something.

Im not sure I agree with your statement "the only problem i see with this model is the fact the the seller agents eventually provide the service you're requesting" though. I don't think many buyers think this way. Remember, this flat fee idea hit home like 18 months ago when I started getting requests for it. After I started getting more and more requests, it didnt take long to realize there was a demand for this type of service. I agree though that there are buyers out there that are either used to doing it themself or been educating themself for years as they time their purchase, but these buyers are not the target. The target are buyers that want buy side representation, but may not realize that this could be a alternative option.

Thanks for chiming in