From the Cheap Seats

Feeling frugal?

You’ve got plenty of company.

Fully half of Americans report that they have permanently changed their consumption habits, deliberately spending less across the board. That’s according to the First Command Financial Behaviors index, a consumer survey sponsored by First Command Financial Services.

Survey participants overwhelmingly predict a double-dip recession driven by high unemployment. About half also cited the weak housing market as a key factor to an impending economic slide. Families are counting on long-term frugality to weather the economic storm they see bearing down on them, according to the First Command researchers.

As frugality becomes ingrained, it is bound to blend with the rising popularity of doing it yourself, as reported in various remodeling and home improvement studies recently. It’s all converging to make DIY home selling and buying the common-sense route for real estate transactions. After all there’s nothing less frugal than a rich commission.

Image courtesy of Morguefile contributor cohdra.

Will Work for 2%

No, not milk: commission.

Last week, ForSaleByOwner.com's own general manager Eddie Tyner was on a panel about the relevance of the for-sale-by-owner business model, at the National Association of Real Estate Editors conference in San Antonio.

Also on the panel: Michael Crowley, representing the National Association of Exclusive Buyer Agents (NAEBA..sounds like 'neighbor,' get it?)

Inevitably, a question was raised by one of the journalists in the audience about whether or not agents shun by-owner listings. Tyner, of course, reiterated the point of view long espoused by ForSaleByOwner.com: that it's smart to offer a buyer's agent at least 2%, and only fair that buyers' agents be compensated for their work.

To which Crowley commented that buyers' agents actually had to do more work for their commission to get a by-owner listing over the finish line, as compared to getting a seller-represented listing to closing.

Really? With 93% of buyers culling online listings to zero in on the houses that fit their needs and budget? With agents confessing in other panels at the conference that online listings have all but wiped out the 'tour guide' aspect of their jobs? Really?

We recently heard from a ForSaleByOwner.com successful seller who offered a 2.5% buy-side commission. When buyers showed up, agent in tow, the agent thrust a document demanding a 3% commission at our customer even before the showing commenced. Wisely, our customer set the document aside and never signed it. And, even smarter, she read every line of the sale contract that the agent later presented, discovering that the agent again rewarded herself a 3% commission.

Guess what? That agent so bumbled the negotiations that her clients lost the house to a competing, full-price offer.

Lesson to buyers' agents: You'll get your commission. Make sure you actually earn it.

Soon on the Menu: Real Estate a la Carte

The lurching drop in real estate sales – 25.5% down in July from 2009, according to the National Association of Realtors-- makes us wonder when the agents’ business model will break. Their clients aren’t the only ones under water. The 6% commission business model just can’t hold up.

In yesterday’s page one story about the freefall, the New York Times cited industry insiders making the by owner business case:

Those on the front lines of real estate describe an unusual standoff between buyers, who can afford to be fickle as rarely before, and sellers, who feel they cannot go lower. For many sellers, agents say, another 5 percent would mean taking a loss.

Let’s pause for a moment on that thought. Five percent makes the difference. Gee, that’s awfully close to the 6% commission that is the entitlement embedded in the agents’ current business model.

The raw truth is that a sinking market doesn’t provide enough business to justify the current brokerage infrastructure. We’re already seeing big agencies collapse.

They’ll have to evolve – fast – to survive.

Here’s what they need to do:

• Unbundle their services. Does a seller want help only with negotiation and closing? Offer those and other services in an ‘ a la carte’ menu.
• Lose the attitude about ‘by owner’ sellers. Even now, with buyers scarce, foolish agents shun ‘by owner’ listings – even when the by-owner seller offers a 1% or 2% commission. Get over yourselves!
• Advocate for the long-term value of housing, not just for the transaction. Nobody is fooled by your high-dollar lobbying. Masquerading as champions of homeownership when it’s all about the commission is totally transparent to the American public. Hit ‘restart’ on your advocacy and realign your message so Americans feel you’re about more than your check at closing.
  

Think they’ll listen?

Morguefile image by npclark2k.