21st Century RE Brokerage model

How about something like redfin?

Don't think they'll take over the market, but I could see more folks moving to "nontradional" options like theirs...

All of this interest in RE over the past few years.... like what happened with stocks, folks are going to expect cheaper rates as they do things themselves.

Even the dot com crash didn't stop the move away from expensive brokers and commissions in equities....

separate consulting services for buyers and sellers.

Dereg destroyed airlines. Stock brokers had to find other ways to charge to earn after commissions were deregulated, which led to the tech bubbles, and then the research model was regulated, leading to no research and part of the reason for today's stock market problems. Careful what you wish for!

I agree with you that the 6% commission is way too high. I suspect that, as the entire industry comes under greater regulatory scrutiny, brokers' commissions will come way down. I just came back from Miami, and there they are cracking down hard on mortgage brokers, and they just initiated a slew of new regs, including annual criminal background checks.
I suspect that UD's idea of consulting services makes sense. It seems to me that the main function performed by the seller's broker are:

1) Advertising
2) Showing the unit (So you don't have to bother)
3) Interacting with the boards to facilitate the sale
4) Handling other misc issues
These tasks can be time consuming, and I do believe that there are some seller's brokers that do earn their commission, but the vast majority do not. And any way, a 6% charge to the seller is way too high.

As for buyers, I guess some very uninformed people may need consulting, but most of the main due diligence is done by the attorney. If you know what you like, have access to the internet, you can pretty much find out everything you need.

Adm and NYC, I've been pondering this for my "friend" the "rockhard" group or whatever.. .he's got this name your own price gig... but its half-baked.

I think I might have posted this, but the 6% (sale) and 15% (rental) given the huge run-up in prices does not equal the economic benefit that a traditional broker brings to the table, and I know they aren't compressing their commissions to bring buyers and sellers together.... so what to do?
1) Have a sliding scale commission so the anything above $1MM is 3% or something (just kicking around numbers) or;
2) They need to provide more services. I am thinking along the investment banking model, with large brokerages actually warehousing listing on its balance sheet... this will put their money where their mouth is.. if you think the clearing price is $850psf.. .then Elliman competes with Corcoran... then the winner gets the list... if the house isn't sold in 3 months or is sold 10% less than listed then the listing brokerage will pay seller 50% of the price differential up to 6% commission.

2a) on the rental side, keep the 15% commission but put up an LC with the landlord for 20% of the contracted rents for the 1 or 2 yr lease... this way the brokerage will have to do some due diligence on the tenant and the better they are the less cost it will be for this "insurance."

3)... (you didn't think I could just let this get too serious)... anyone not putting in a square footage measurement will be flogged, lose their license/SE account. and be forced into a bad RE themed porn movie :) LMAS (that's laughing my ass silly)

The socialist in me would also require that the brokerage industry hire 50% physically handicapped people as RE Brokers... in all my years in the biz I've never seen a handicapped RE broker (I've seen wheelchair bound Korean doctor) WTF? Seriously every broker that I've come across seems physically capable of doing any job, they dress the part, not missing many teeth, can write and speak yet they take a job which requires almost no training and no hard work (physically)... aren't these jobs perfect for physically handicapped people? I know AgentRachel... what if it's a walk up? I don't have all the answers :)

> and then the research model was regulated, leading to no research and part of the reason for today's
> stock market problems

Not quite sure about that... research partially cause the dot com bubble. Anyone remember blodgett?

Like Peak Credit, 2007 will be known for another peak - Peak Commission. Agents in NYC will never again make as much money as they did in 2007. This will roll out in several phases:

1) Massive dropoff in volume while the recession/depression continues. Job losses, greater down-payments, tighter credit standards, reduced compensation in finance, and an expectation of further drop in prices will continue to suppress demand.

2) Crash in prices. We're already down 15-20%. At 50% down from peak, even a full recovery in sales numbers means drastically reduced compensation.

3) Maturity of competition from companies like Redfin. I ordered my first book from Amazon in 1995. It wasn't until a few years ago that I did all my Christmas shopping on it. These types of dramatic shifts play out of decades, but expect these services to really take off when we hit a bottom and are stuck in 90s style flatline growth for a number of years.

4) The opening up of MLS. People, looking to save whatever they can, on their underwater houses will explore FSBO more and more. Look for your local MLS system to open up to accommodate or a rival system to make it irrelevant.

Will agents be gone in 10 years? No, but their influence and profits reached a peak in 2007. Like newspapers, they will slowly fade in influence and numbers until we wonder "Who sells their home with an agent anymore?"

Are you people commies? This is a free market. w67, if you want to get a 3% brokerage fee or some of the other suggestions, go find a broker and negotiate for it. If you don't negotiate it with the first broker, try a second and third and fourth. After all, if you are such a good negotiator, if you don't really need the services of a broker, if you have so little regard for brokers, then it ought to be easy to negotiate the type of fee arrangement and relationship that you think is appropriate.

I'm not in the real estate industry, but w67, you remind me of when I was a child. I'd say to my dad, why don't "they" pay if your car is broken into, why don't "they" make sure poor people have a place to sleep, why don't "they" stop the war between x and y. And my father would ask me, who are "they?"

oh, ps - I'm a renter and you can go screw yourself for a letter of credit with the landlord - I can pretty much put money on the line that my credit and income to rent ratio would be better than yours.

Oh... can't the "industry" standardize a condo and co-op transaction sheet... so I can just fill it out once for all the co-ops and Condos in NYC? Have you ever tried to travel through Europe with all these weird electric prongs? Must be terrible for AgentRachel to bring her "friend" along to Europe. :)

again, nyc10022 quickly followed by his ideitical twin jgr

Wah? I didn't even mention his name and my post isn't even remotely similar? You just looking to troll tonight or something?

77.. drink too much Haterade today?

Hey w67thstreet, so far you've talked about sex with urban's wife, blow up dolls, stevejhx's hole, agent rachel's dildo

I'm sympathetic to a lot of the angst expressed here. Unless I'm wrong, though, I'm guessing only something like 1% of all Manhattan homes today are sold FSBO. If that is such a good model...

Why so?

As regards reticence to change, I'm guessing that the New York real estate industry is very generous in their contributions to virtually all politicians. So change will come very slowly.

"Are you people commies? This is a free market. w67, if you want to get a 3% brokerage fee or some of the other suggestions, go find a broker and negotiate for it."

"but w67, you remind me of when I was a child"

Admiral asked for what he thought the market would look like 5 years out. w67th was laying out the case why things were changing. Don't be a dick.

"I'm sympathetic to a lot of the angst expressed here. Unless I'm wrong, though, I'm guessing only something like 1% of all Manhattan homes today are sold FSBO. If that is such a good model..."

Well that's because until very recently FSBO was locked out MLS (still that way in Manhattan, no?) and few other avenues (Craigslist) existed. In a rising market 6% seems like very little when you're home has more than doubled in 10 years. But with deeply underwater mortgages requiring buyers to squeeze every last dollar out of their home and increased online competition coming, expect this to change with time.

How important is MLS? Can't a FSBO just advertise on the NY Times web site?

Frankly, the fact that 6% seems to be "standard" for just about every broker I've ever heard of makes me think that if someone really looked into it, they'd see a MASSIVE, MASSIVE anti-trust violation. You don't just get everyone settling on 6% by coincidence. It may be hard to prove, but I'd bet that there was some kind of price fixing agreement there.

Ah, Slope11217, we meet again. Remember Foxtons?
http://money.cnn.com/2007/10/01/smbusiness/Foxtons_update.fsb/index.htm

The article (quoting real estate insiders, so take it for what it's worth) claims discount brokerages can't compete in a down market, as their profit margins are low and they rely on a higher transaction volume to compensate. This seems to go against the sentiment expressed here and elsewhere on SE. But the article also points out the fact that "real estate commissions have been dropping steadily in recent years, largely because so much market information is available free online."

Regardless, there is no price fixing. The "standard" 6% has long been a flexible number, and I agree that in most cases it is too high. But it's possible that 3% is too low in some cases, too.

"Stock brokers had to find other ways to charge to earn after commissions were deregulated, which led to the tech bubbles"

LOL. So wrong! Profits from brokerage are higher than ever, even though margins are down, b/c volume is MUCH higher than when regulated. And brokerage had *nothing* to do w/ the confluence of I-banking and research.

"require that the brokerage industry hire 50% physically handicapped people as RE Brokers... in all my years in the biz I've never seen a handicapped RE broker"

Yeah, but they've been hiring MENTALLY handicapped ppl for YEARS!

"I'm not in the real estate industry"

Really. That's too bad. You should think about going into it. You certainly have the IQ for it...

Topper: regarding the MLS - in NYC, there isn't one. There are a number of listing services brokers can buy into, but every attempt to standardize the system has failed. Try searching for New York City properties on Realtor.com - you won't find any Corcoran listings. Despite the refreshing monicker "realt-whore" Admiral has lovingly bestowed upon us, most brokers in NYC are not members of the National Board of Realtors, and therefore don't qualify for that saucy honorific.

Tina - just b/c you may not be a member of the NAR, does not mean your behavior doesn't earn you the moniker "realt-whore".

What do you do Admiral?

Thanks, Tina. That's interesting.

All in all, I think I'd be comfortable on the buy side (using online resources like SE) finding my own place and working with a good lawyer. On the sell side, though, I'd probably prefer a professional to represent me - particularly in a tough market. Would be nice if I could benefit financially on that buy side - while accepting the sell side cost.

Would also be nice if general closing costs could be reduced as well. They can be pretty onerous. Title search has always seemed wildly overpriced. My impression is that in other parts of the world title search costs are minimal.

My model isn't name your price, that was said in jest. But my fees are negotiable on a case by case basis. With the help of technology I can effectively market any apartment or help someone find a rental, make a purchase within my fee model.

I have been at this since 1991 not a pretty market when I started out. So I do have some experience in this business and since we don't come out of "broker" school there is nothing more important than experience. Regardless of what firm your broker may work for you need honest, knowledgeable representation. Brokers get the deals done for the most part,not their firms.

Foxtons didn't work in my opinion because it was so poorly run and represented. Their model was based on trying to eliminate the competition and working with buyers directly. In my opinion that can not work, you need to work within the brokerage community to be successful. My model is based on lower commissions and I can do that by simply agreeing to be paid less. On a typical $1m dollar transaction I will agree to be paid 1% that's $10k instead of $30k. The deal has just become $20k lighter for my buyer or seller. And the other broker makes his/her 2.5-3% so everyone is happy.

My business model is still evolving but on the rental side it's been hugely successful. I know I can represent sellers/buyers as effectively as any firm; why? There is no big secret to selling an apartment and the Internet has leveled the field significantly. I am just one of the first brokers trying to do things representative of the times. For me this is not a theoretical conversation I have been doing this for the last 8 months with a great deal of success even in this crap market.

This could certainly work on a much larger scale as well, just as Schwab, E-trade and TD Ameritrade are working. I am also now negotiating with rental building owners directly to be able to show units in their buildings at "no fee" by simply accepting a fee that they can live with and so can I. This way my clients won't miss out on any other incentives the owner may be offering, like a free months rent.

Admiral you asked the question, it's clear how you feel. But have a look at my site and my evolving business model. I agree with the premise of some of your thoughts on the current broker model. I can't say I understand your stereotyping an entire group of people. www.theburkhardtgroup.com

I have been working with a realtor for almost a year now and I appreciate the services she provides. When I come into New York she has made all the appointments, arranges a car to get us around quickly, she takes pictures for me when she sees something and I am not able to see it in person. She really works for me and I want to compensate her for her efforts. I wish there were hourly fees for buyer's agents. The bad ones would fade away because no one will pay for a service that has no value and the good agents would thrive. As I have said before, the real estate model is broken.

there are a number of things you guys must understand.

1) many many many sellers do not really understand how the brokerage system works. Sure, many SE folks do, but many sellers out there dont. I just had a call with a seller who hired his super to market the place, and was told it would be co-marketed with brokerage industry for 5% commission. Unreal. The listing was no where to be found anywhere.

2) commissions are NOT set! That would be price fixing and huge ant-trust violation. Sure there are general standards and 6% is the general standard assumed here, but fact is, ALL commissions are negotiable. Agents usually tighten up big time when it comes to this and many wont discuss for fear of getting in trouble. Most of the sellers I pitch already know they can negotiate, especially over $1M properties. Its only a matter of time, as the market slows and prices are shown to be down, that sellers get in touch with this reality.

3) most commissions are structured so that co-brokered deals are higher and direct are lower for the seller. Say, a 6%-4% structure. So, the property is marketed as 3% to co-operating broker, but if a direct deal comes in, the commission is 4%. More for the seller broker + Less for the seller. Talk about things that make you go hmmmmmmmmmm..Again, Im sure any broker that reads this will email me, "Noah, are you crazy..shut the hell up!"...I can care less what brokerage industry thinks of me.

4) vested interest - seller brokers get paid more for direct deal. Period. At least most full service ones do. Now, it has come to the point where they arent moving property so quick, so now they welcome the co-operation of buyer brokers. Anything to move the property and collect their fee. But have no doubts about it, seller brokers have a vested interest in getting a direct deal done and this allows for shady behavior. Not that it is widespread, just that it allows for it to occur.

5) Most deals are co-brokered. I would go as far as say 85% of transactions are co-brokered here in Manhattan. Give or take 5%. No data to back me up, but in my experience, Ive sold like 40 properties over the past 4 years, half of which went under my first partners name, and I would say 80-85% of them were co-brokered. With that said, a seller is almost forced to work with brokerage community in some capacity, preferably by signing an exclusive to get the property included in RLS.

6) This IS a service business. The best brokers out there know how to provide exceptional service. In my view, honesty, ethics, and integrity is the best service you can provide. By being able to figure out where the place would likely sell for, you can work around that to a) hopefully price right, b) target the marketing efforts to right buy side price point, c) avoid overpricing, becoming stale, chasing the market, d) sell fast. Most sellers want to sell fast but they also want the best price. most sellers have that hope that maybe tomorrow the perfect buyer will stop by. Some sellers get fooled by a good bid if its received too early. Honest consulting on both the direction/strength of the market and the marketing of the property itself is the best service you can provide.

7) Some seller brokers rein back on marketing after 4Months. yes its true but many will argue. Not all, but some! If a listing hasnt sold after 4 months and seller wont lower price, the broker has less incentive to continue full marketing and spend their ad budget further for what they may perceive as throwing good money after bad. The commission model of getting paid at closing has this side effect if it looks like the agreement will expire before a deal is brought in. Do sellers deserve this laziness as they near expiration? If they are really unrealistic and seller broker tried explaining to them, maybe, but many sellers just are not consulted properly because the broker doesnt really know where bids are likely to come in at. 2006-2007 are gone, over, done. Its 2009 now, and its a much different world. Many still need a wake up call.

8) No MLS - now why do you think Manhattan has NO mls? Honestly? Think for a moment. Who benefits from NO MLS? Thats right, the big brokerages. FSBO is much tougher here because of:

a) the fact that most deals are co-brokered
b) to get your property into the RLS, you have to sign on with exclusive agreement with brokerage firm

...this usually means a 6% like commission. Yes this RE model is broken but...

ITS UP TO THE BUYERS & SELLERS IN THIS MARKET TO SUPPORT A NEW IDEA IF THIS WILL EVER CHANGE!!!!

If a great new idea does come forth, but gets no support, it will fade away and die off. It may be the best idea ever, just what every seller or buyer is looking for, but unless you support it, the big boys will get all the business, and protect their interests appropriately.

i'm sure you all know this, the NYC market is different from everywhere else, the big realtors run it like a mafia. my freind has been trying to sell his place, he had a broker for a while, didnt do much, didnt call back right away (i understand it is a tough market for RE right now) but finally he broke the deal with the broker.

now he's using forsalebyowner and craigslist. brokers come to the open houses but they are only trying to get him to list it with them, if not, they wont bring their clients. some of the smaller brokerages will. SE still doesnt allow FSBO, but they say they will (any one know about this progress?). i think SE adds more legitamacy to a listing than craigslist and FSBO. especially with the comps, listing history ect.

i think if someone doesnt want to be bothered with the hassle, a broker is great.

Urbandigs and burkhard (pls shorten it.... I know you are getting free advertisement, but re-do the business cars and do like a one word corp. ala Corcoran, Elliman... there's my little tidbit for ya)... you just earned my business. Thank you for edumcating me in some portion of the Res RE brokerages in NYC... When I am ready to buy... you two are tops on my list... maybe we can get AgentRachel on the other side :). It'll be a few years or maybe I'll make that killing on HRP (up 85% since my selfish extol to uwsmom three weeks ago) and I'll be like Britney.. .earn easy and spend easy.. At the end of closing I'll have you sign a confidentiality and I'll slip you a piece of paper with "w67th" :) Good work guys.

http://bmwrealty.wordpress.com/