In Freakonomics, we wrote about my research with Chad Syverson which looked at how real estate agents did when they sold their own houses versus those of their clients. You can read the original academic paper here.
Now we’ve got a new paper idea on real estate, but we need some help from real-estate agents/brokers — especially ones that either themselves provide a flat-fee service for clients wanting to list a house on MLS, or know a lot about such services. Please spread the word.
If you fit the bill and want to help us, I think you might have some fun and possibly get a great marketing tool for your business. Please email me at levittdubner@freakonomics.com.
and 
. You can also watch it on 
I am a broker and a manager of 25 or so agents in Boulder, Colorado. Our firm, Colorado Landmark Realtors, is run on a traditional model: There is a managing broker, he hires agents (55) on a split (our average is about 73% to the agent). That agent is an independent contractor, and negotiates her own deals with her clients on commissions. Usually they negotiate something in the 5-6% range with the sellers. In our MLS, the coop fee is posted, and it is almost always 2.8% – regardless of the price of the home and regardless of what the listing agent may have negotiated (5-6%). I don’t know if the fixed buyer’s agent rate is common across the industry, but it is an extremely important factor for the success of fixed cost (we call them limited service) brokerages. Here’s why:
A brokerage like Help-U-Sell has a business model that is built upon gathering many listings at a fixed fee of $3000-$4000, and putting the homeowners to work by having them host their own open houses. According to the franchise sales pitch I went to, “you could have 20 open houses on a single Sunday.” Those 20 open houses generate buyer leads. Those leads are qualified and passed on to buyer agents who pay a deep (50/50) split for the qualified lead. You guys talk about incentive structure a lot, and here is where the incentives get twisted in this model. If Help-U-Sell finds a buyer for a house they have listed, they generally make about 1% as a buyer-side commission. This is usually a negotiated deal done at the time of the listing. If, however, they sell my listing they take the full 2.8% commission – and pay their brokerage the 50/50 split. Bottom line, the fixed listing fee is the loss leader to put owners to work as prospectors. The leads are passed on to poorly qualified (no good agent in our market would accept a 50/50) buyer’s agents who have more incentive to sell one of my listings than they do toe sell a listing that belongs to Help-U-Sell.
In our market probably 90% of more of all homes are sold through a brokerage and are entered into the MLS. Another 90% or more of the homes reported sold in the MLS are sold with a cooperating broker. Intra-company deals are no more common than inter-company deals – buyer’s agents are agnostic to the color of the sign and are more focused on the color of the money. The buy-side commissions are the true fixed commissions in our market, so generating buyers and selling them houses is the truly lucrative side of our business, and that’s what many of the discount brokerages are set up to do.
Agency versus Brokerage may be the saving grace for our business. Stock traders, travel agents, and even mortgage brokers, all got beat up by the internet and all saw their numbers and their margins shrink as their businesses became more transparent. I never saw any of the people above as an advocate for my interest, but as sales people selling commodities and trying to fit their fee into the deal. The emotion involved in buying or selling a home, the infrequency of the experience, the variability of condition and location of every home all tend toward having someone involved to participate in the process. Colorado and probably many other places have moved to an agency model where old-line transaction brokerage is what has become the endangered species. As an agent on the buyer side or the seller side, I have a fiduciary responsibility to prosecute the interests and goals of my clients. As an agent I use the data and all of my sales and negotiating skills to my client’s best advantage. Just because lexis-nexis lets us look up legal precedent doesn’t mean we’re all equipped to research our own cases, defend ourselves in court, and negotiate our sentences. Similarly, just because Zillow says a property is worth “X” based on their black box algorithm, and just because graig’s list has some house listings, doesn’t mean every regular Joe should be negotiating the purchase of his next home.
I am a broker and a manager of 25 or so agents in Boulder, Colorado. Our firm, Colorado Landmark Realtors, is run on a traditional model: There is a managing broker, he hires agents (55) on a split (our average is about 73% to the agent). That agent is an independent contractor, and negotiates her own deals with her clients on commissions. Usually they negotiate something in the 5-6% range with the sellers. In our MLS, the coop fee is posted, and it is almost always 2.8% – regardless of the price of the home and regardless of what the listing agent may have negotiated (5-6%). I don’t know if the fixed buyer’s agent rate is common across the industry, but it is an extremely important factor for the success of fixed cost (we call them limited service) brokerages. Here’s why:
A brokerage like Help-U-Sell has a business model that is built upon gathering many listings at a fixed fee of $3000-$4000, and putting the homeowners to work by having them host their own open houses. According to the franchise sales pitch I went to, “you could have 20 open houses on a single Sunday.” Those 20 open houses generate buyer leads. Those leads are qualified and passed on to buyer agents who pay a deep (50/50) split for the qualified lead. You guys talk about incentive structure a lot, and here is where the incentives get twisted in this model. If Help-U-Sell finds a buyer for a house they have listed, they generally make about 1% as a buyer-side commission. This is usually a negotiated deal done at the time of the listing. If, however, they sell my listing they take the full 2.8% commission – and pay their brokerage the 50/50 split. Bottom line, the fixed listing fee is the loss leader to put owners to work as prospectors. The leads are passed on to poorly qualified (no good agent in our market would accept a 50/50) buyer’s agents who have more incentive to sell one of my listings than they do toe sell a listing that belongs to Help-U-Sell.
In our market probably 90% of more of all homes are sold through a brokerage and are entered into the MLS. Another 90% or more of the homes reported sold in the MLS are sold with a cooperating broker. Intra-company deals are no more common than inter-company deals – buyer’s agents are agnostic to the color of the sign and are more focused on the color of the money. The buy-side commissions are the true fixed commissions in our market, so generating buyers and selling them houses is the truly lucrative side of our business, and that’s what many of the discount brokerages are set up to do.
Agency versus Brokerage may be the saving grace for our business. Stock traders, travel agents, and even mortgage brokers, all got beat up by the internet and all saw their numbers and their margins shrink as their businesses became more transparent. I never saw any of the people above as an advocate for my interest, but as sales people selling commodities and trying to fit their fee into the deal. The emotion involved in buying or selling a home, the infrequency of the experience, the variability of condition and location of every home all tend toward having someone involved to participate in the process. Colorado and probably many other places have moved to an agency model where old-line transaction brokerage is what has become the endangered species. As an agent on the buyer side or the seller side, I have a fiduciary responsibility to prosecute the interests and goals of my clients. As an agent I use the data and all of my sales and negotiating skills to my client’s best advantage. Just because lexis-nexis lets us look up legal precedent doesn’t mean we’re all equipped to research our own cases, defend ourselves in court, and negotiate our sentences. Similarly, just because Zillow says a property is worth “X” based on their black box algorithm, and just because graig’s list has some house listings, doesn’t mean every regular Joe should be negotiating the purchase of his next home.
I am a former media executive who created the largest “DISCOUNT” Real Estate company in Southern California. After being featured on CNN and growing from $0.00 in 2004 to over $300 million in 2005, I was persuaded to “sell-out” and switch sides over to the largest “FULL-SERVICE” real estate company in the world. I went from independent entrepreneur to working for Warren Buffet. I know both sides very well.
I am a former media executive who created the largest “DISCOUNT” Real Estate company in Southern California. After being featured on CNN and growing from $0.00 in 2004 to over $300 million in 2005, I was persuaded to “sell-out” and switch sides over to the largest “FULL-SERVICE” real estate company in the world. I went from independent entrepreneur to working for Warren Buffet. I know both sides very well.
Steven and Chad,
How is your new real estate research project coming? Hope it looks beyond the current MLS structure, where sellers who use flat-fee listing entry services too often get only half of their potential savings, because they still offer “traditional” full commissions to buyer agents.
Since it’s St. Patrick’s day, isn’t it time for buyers and sellers to BYOB — Bring their Own Brokers — and compensate them separately? Ten mega trends suggest that the obsolete, two-sided real estate commission may be “uncoupled” or “decoupled” in 2006, fifteen years after the Consumer Federation of America first called for that reform:
This blog post:
http://tinyurl.com/r2nnd
and 90 second video explain why:
http://tinyurl.com/nbzme
Steven and Chad,
How is your new real estate research project coming? Hope it looks beyond the current MLS structure, where sellers who use flat-fee listing entry services too often get only half of their potential savings, because they still offer “traditional” full commissions to buyer agents.
Since it’s St. Patrick’s day, isn’t it time for buyers and sellers to BYOB — Bring their Own Brokers — and compensate them separately? Ten mega trends suggest that the obsolete, two-sided real estate commission may be “uncoupled” or “decoupled” in 2006, fifteen years after the Consumer Federation of America first called for that reform:
This blog post:
http://tinyurl.com/r2nnd
and 90 second video explain why:
http://tinyurl.com/nbzme
Well, anyone may sell a house without any broker. It becomes quite easy now – go to google and type “sold by owner” – find a lot of places to post to. Besides, if you need new mortgage, visit my site – it’s easy to search for what you need there: http://www.explainingmortgages.com
Well, anyone may sell a house without any broker. It becomes quite easy now – go to google and type “sold by owner” – find a lot of places to post to. Besides, if you need new mortgage, visit my site – it’s easy to search for what you need there: http://www.explainingmortgages.com