august newsletter: you get what you pay for [2019]

August 15, 2019

“If people like you, they’ll listen to you, but if they trust you, they’ll do business with you.”
Zig Ziglar

This month, I’m writing a different kind of newsletter for you: I am addressing a few other options available to you in the real estate industry, in simplest terms. I feel like, as my clients and friends it’s important for you to always have a clear understanding of all of the options in front of you, so that you can make the best and most informed choice for you and your family.

In this newsletter we will be talking about the many forces that have gathered to kill the Realtor – some of these are actually fantastic options for certain scenarios – however most have eschewed the most fundamental piece of real estate in the search of digitization, optimization, and automation: Relationships.

First, it’s important to know the basics of real estate sales, on the business side. Traditional model realtors are responsible for all expenses incurred; brokerages don’t provide reimbursements, salaries, paid time off, insurance, or healthcare benefits. They also don’t provide buyers, listings, or a magic formula to be successful. This is actually one thing I love about this industry; success looks different for everyone, and your business is uniquely ‘you.’ Some agents get all their leads online, and they love cold calling new prospects. Some work on referral only. Some farm certain neighborhoods. Some utilize social media marketing to its highest capacity; some never post at all. Your business is up to you, and that can be empowering at times and daunting at others. Thus, the incentive to earn a client’s commitment and perform is high for a businessperson in real estate sales because mediocrity isn’t an option if we want to provide for ourselves, our clients, and fuel future business.

Let’s start at the beginning; why a Realtor to begin with?

These emerging options are a result of the large amounts of money poured into our industry to develop the technology and systems to automate everything and ultimately ‘save the consumer (buyer/seller) money’ via not paying Realtor commission fees. The reality is much closer to the simple truth that to them you are not a person – you are a data point and a dollar sign. By using the power of the internet, the goal is to convert as many millions of those data points into many billions of dollar signs.

However, it’s important to know your options that aren’t traditional brokerage models, and also know that I’m not threatened by them. Here are a few of the most popular:

  1. Redfin – I’ve personally heard mixed reviews from people on this one. Redfin offers the seller “1% (or 2%) fee for listing,” but it’s also important to read the fine print. You have to use Redfin to buy your new home (and the seller has to pay them 3%) or you are not eligible for the 1-2% listing fee. Redfin agents are employees, so they are salaried and given bonuses based on performance. So, there is somewhat of an incentive to provide great customer service, and I’ve done deals with several amazing Redfin agents. However, the dynamic and outcome of a transaction shifts when the customer is working with an employee versus a tenacious full service agent who is a businessperson.

  2. List for Less/FSBO – The best way I can sum it up is what I typically ask any potential customer who asks me about how difficult it would be to do a For Sale By Owner (FSBO). I will ask them in response: “Do you have time, energy, and experience to make the sale of your home your full-time job?” If the answer is “no,” then it’s better to hire someone. The legal, technical, and logistical implications of selling your home without a professional aren’t worth it. List for Less Realty charges you a fee to put the house on MLS (multiple listing service), but you have to handle the rest.

  3. Opendoor – Opendoor attempts to streamline the buying and selling process with cash offers, automated online systems, and no additional fees; think of buying a house like you’d buy something from Amazon. This iBuyer system sounds quick and easy in theory, but their process neglects to account for the complexity of a real estate transaction. Just because you have a contract does not mean you have a deal; that’s really only the beginning.

  4. OfferPad/Zillow Cash Offers/etc. – These companies very simply create a portal for you to submit your home information into, and then deliver a cash offer on your home within 24 hours that is ready to close in as soon as 21 days. Often these offers are competitive – or even over market value. Sounds magical – and sometimes it is. However, what most home sellers don’t pay close attention to, is that in additional to a 6% commission, there are often up to an additional 8% of “services fees”  that are wrapped into the closing documents – as well as a post inspection “renegotiation and retrace” period that 100% of the time seeks to garner an additional $3500 in concessions for the purchaser – regardless of the condition of the home – because they know they can as you’re on the verge of closing and just want to not have to start over at that point. At the end of the day 9 out of 10 times the client would have netted significantly more with a traditional listing process. The convenience of it all is good, but the closing statements most often are not.

Commission for both sides in Tennessee is traditionally 6%, so 3% for the buyer’s agent and 3% for the listing agent. I haven’t had many customers push back on this amount, but it’s more controversial now considering all of the other options. I understand 3% sounds like a lot to many people, but the old saying is true: you get what you pay for. The Critical Role of the Realtor in the Residential Real Estate Transaction (click link) details each step we take on the buy and sell side of a transaction, and there are hundreds of tasks. And that is if the transaction is relatively smooth and linear. Getting a client from the first step to the closing table requires considerable risk, time, and money.

You hire a professional to file your taxes, represent you in court, invest your money, and prescribe medicine when you’re sick. Buying or selling a multiple hundred thousand dollar investment is no different, and I can guarantee you’ll make more money/save more money and retain your sanity with a professional than without one.

My belief is that the power of the Realtor will stand the test of time and the winds of change – and even more importantly – the Realtors still standing will be better than ever.  There’s a tool for every task and a task for every tool. If you ever want guidance on selecting the right tools for your real estate asks, I’m here to help and will look forward to it.


Syd Phil