Quote from @James Kerson:
It's understandable that this thread has touched a nerve. I’m proposing a radical reworking of how houses get bought and sold in the United States, and asking agents to comment on what would be major changes in how they work, who would compensate them, how, and how much.
The end result I envision will be many fewer commission dollars paid and agents employed, but those remaining agents would be much more regularly employed, on an hourly and not a commission basis, paid to provide advice and nothing else. SFR transactions are generally fairly simple, and condos are not too much more complicated. Depending on the principal, a lesser or greater degree of professional advice is necessary, but most SFR transactions are similar in their mechanics. My brokerage would employ data-driven pricing guidance (hard to see how this would be materially different from MLS comp sheets; perhaps more accurate). It would hire photographers like traditional agents do, and would advise buyers and sellers, up to a predetermined number of hours, after which the advice would cost extra. This would disincentivize tire-kicking and over-pricing, I hope.
Whether my brokerage would work for sellers alone or for both buyers and sellers is a technical matter, an important one to be sure, but a technical one that can be overcome. Marcus & Millichap, the commercial brokerage, more or less exclusively functions as a listing agent or a dual agent. Are commercial buyers more sophisticated than residential ones? Maybe so, but I doubt that they’re less litigious.
Likewise, I’d need to work out how prospects would tour properties safely, legally, and at minimal expense. I don’t have an easy answer, but if Uber made private cars taxis for hire, I’m sure this could be overcome, too. My guess is that there are inactive licensees who could be drafted to a new brokerage whose sole function would be to open doors, especially if those licensees are paid per-tour…like Uber drivers.
1. Data-driven pricing does not work. Look at what happened to all of the ibuyers. Look at my street right now: the "zestimates" are off by hundreds of thousands on every single property. It doesn't work. Only local agents/real estate professionals who know the area house by house and can see, touch and smell the property can price a listing well, period. Literally my neighbor's house is off by $300k right now and it should be an easy one to price.
2. If you're paying employees an hourly wage, you need to factor in payroll taxes, benefits, and overhead. Your all-in, total cost of labor is going to be around $75/hr if you are paying $50/hr. You'd probably have to provide a company car, insurance, E&O insurance, cell phone, and laptop/ tablet also. You can't expect quality licensed professionals to be willing to work for only $50/hr., especially if they're driving their own car, paying their own insurance, cell phone, continuing education/licensing costs etc. When I bill by the hour, I charge $350 in order to cover all of my expenses and make it worth my time. You'd need to be charging closer to $450/hr. and paying $350/hr. in order to have a viable business model IMO, which probably isn't much different than charging the typical commission rates. It's going to be impossible to staff this business with competent people if you pay them less than a liveable wage.
3. Dual agency is illegal in my market, and I'm glad it is. Sellers always want to get the most for their property, buyers always want to get the best price. The agents are there to keep seller or buyer from screwing each other. Dual agency residential is the most litigated type of transaction in all of real estate.
M&M actually mostly does single agency transactions actually, although it is probably more common for commercial agents to act as dual agents where allowed by law. But commercial is totally different because it is not someone's personal residence. If there is an undisclosed mold problem in a closet, the buyer probably won't even notice. Their wife won't complain, their kid won't get sick. In resi, somebody is going to sue and everybody involved is getting named in the suit, which is why E&O insurance doesn't like dual agency. Dual agency combined with limited services, combined with bottom-feeder employees, means you will get wiped out by lawsuits.
Hiring and turnover/ staffing issues will make it very difficult to scale and sustain this business, and a nightmare to manage IMO. Every state has their own real estate laws of course, so legal compliance will also be challenging. Yes national brands manage it, but they typically charge 6% not 0.6% lol. You would not be covering overhead charging 0.6%. You'd be operating at a loss and the greater you scale, the more you'd lose.
Like I said, good model if you hate making money and love being sued. Spirit Airlines is an interesting business model for you to reference considering they just filed for Chapter 11 bankruptcy. That's where you'd end up as well, so what's the point? This is a difficult business to be in. I don't see why anyone would do it if they aren't making good money. If you stay in the business a minute, you will see many discount brokerages come and go.
