Zillow’s Last Act of a Desperate Business Model

If you are not buried deep inside the residential real estate industry, you probably do not know that there is a heated debate going on over Zillow’s new “Coming Soon” feature. This new feature allows an agent to advertise their seller’s home on Zillow before it can actually be purchased. The purpose, ostensibly, is to gauge buyer interest for the home and make price corrections, as necessary, before the home is marketed for real (including posting it on the local MLS). Of course the truth is far different.

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Real estate agents will tell you that the real purpose of the “Coming Soon” feature is to generate pocket listings. Nothing in the real estate industry makes a broker happier than a pocket listing, because it enables the broker to get both sides of the commission (buyer’s agent and seller’s agent). These “dual agency” deals are so heinous, they are illegal in almost every industry except real estate. And almost without exception, pocket listings result in a lower price for the home seller. The good news for the brokers though is that most home sellers do not know that. Hell, even NAR (the National Association of Realtors own trade association) does not think it is such a good idea.

Zillow, the nations largest third-party real estate portal, makes most of its money from real estate agents advertising on its site. These agents advertise to attract new clients. In an effort to increase this advertising revenue, Zillow only offers this “Pocket Listing on Steroids” feature to, you guessed it, agents who advertise on its site. The message is clear: if you want both sides of the transaction, you are going to have to pay Zillow.

The idea of pre-marketing a home is not inherently bad, only the way it is being used by Zillow is it bad: to foster dual agency. The real problem though, for Zillow, is that the “Coming Soon” feature is the last act of a desperate business model.

The real estate advertising market is roughly $10 billion – $12 billion annually. Ironically, the information and marketing platform that Zillow (and others) make available to consumers will soon make home buying and selling an (almost) frictionless transaction. It follows then that this will ultimately reduce the number of agents, as well as drive down the average commission per transaction, just as it did in the travel industry and the stock brokerage industry. And the less the agents earn in commission, the less they can afford to spend on Zillow ads. In essence, Zillow’s success will eventually put them out of business, if they stick with their current business model. One real estate agent recently lamented that Zillow’s “Coming Soon” feature is so last year. So is trying to grow revenue through agent advertising. That number is going to go down over time, not up.

So, what will Zillow do? Will they continue to cling to their existing business model, desperately trying to squeeze dollars out of a shrinking pie, or will they do as Brad Inman suggests and become the company who fundamentally changes the old ways of doing business? Will they become “the company that controls the quality of the transaction from end to end, offering a connected, elegant and easy-to-use online place for buyers and sellers as they go through the rigorous 90-day workout.” Time will tell.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

There Are Two Kinds of Home Sellers-Which One Are You?

A recent study conducted by the U.S. Census Bureau found that there are 18 different reasons why people move. It might follow that there are 18 different kinds of home sellers. But, I do not think so. I think there are only two kinds of home sellers: motivated and opportunistic.

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The difference is very easy to understand, because each type of home seller relies on a different primary decision factor for moving. Motivated home sellers choose to sell their home based on the primary decision factor of time. And that time is now. For motivated sellers, selling their home is not an option. They have somewhere else to be. They are selling their home now.

On the other hand, opportunistic home sellers choose to sell their home based on the primary decision factor of money. If they can get “their” price, they will sell. Otherwise they will wait. Time is not a factor. They have nowhere else to be.

Even if this is true, why is it important? It is important because motivated home sellers can use their motivation to their advantage when negotiating lower real estate commission.

Ask any real estate agent about problems they have had with home sellers are you will probably hear a hundred different horror stories. There has never been a study done to my knowledge, but if I had to guess, I would bet 90% of the horror stories are about opportunistic home sellers. Opportunistic home sellers represent the single biggest risk factor to traditional real estate agents: not getting paid. I could even make the case that one of the reasons agent commission rates are so high is because they have to be compensated for the times they did not get paid when working with opportunistic sellers. And as a motivated home seller, you can use that to your advantage.

You can tell if you are a motivated home seller by answering this question: Would you be willing to pay your real estate agent their commission up front (rather than after the home sells) if they gave you a massive discount on their commission? A motivated seller would have no problem agreeing to those terms because they know their home will sell, but an opportunistic seller would not. Nobody would pay a commission up front if they are not certain their home is going to sell.

So, as a motivated home seller, how do you use your motivation to your advantage? Do exactly as the question above suggests. Ask several real estate agents what kind of discount they would give you on their commission if you paid some or all of their commission up front. At least one of them will jump at the chance. What is the saying? A bird in the hand…

If the real estate industry operated like any normal industry, the above scenario would actually be standard operating procedure. Do you think a general contractor would do a room addition without getting some money up front? Of course not. In the meantime, you do not need to wait for the real estate industry to catch up with everyone else. Change the rules. Pay a discounted commission to sell your home and reduce the agent’s risk by paying them something up front. You will definitely save some money, and you just may wind up with a better agent, because the really good ones tend to walk way from opportunistic sellers.

To learn more ideas how ReaListing can save home sellers money, click here.

 

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

Agent Performance is Almost Always Invisible

How do you know if your real estate agent did right by you? Ask any of them and they will tell you that they can get you more money for your home. But how do you know? No matter what your home ultimately sells for, there is no way to know if a different agent, or maybe even you, could have gotten more for your home. Unless two identical houses next door to each other, represented by different agents, sell on the same day for different prices, there is no way to know if your agent got you more. And that is exactly what they are counting on. There is just no definitive way to measure agent performance, because it is invisible. You have nothing to compare their results to.

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Agent performance is invisible because you cannot measure the differential effects of what your agent did (and did not do). It is also invisible because many of the things agents do are out of earshot of the home seller. You do not even know it happened.

Many of the things agents do are subtle, but can have a major impact on the selling price. For instance, when a buyer wants to make an offer on your home, one of the first things that will happen is that their agent will call your agent and try to get some information out of them (called guidance). They may ask your agent how many offers you have received so far. How your agent responds to that question will have a significant impact on the offer your receive from that buyer. The problem, of course, is that you have no idea what your agent told the other agent.

So, how do you make sure your agent does right by you? Two ways. First, you have to choose a good agent. Most real estate agents encourage sellers to interview multiple agents. The thought being that if sellers interview several agents, the good ones will make themselves apparent. The challenge is that most home sellers cannot tell a good agent from an incompetent one. They have no idea what questions to ask during an interview, let alone what constitutes a good answer. The real work that needs to be done is educating home sellers on how to identify a good agent.

The second thing you must do is manage the home selling process. No matter how good the agent is, you simply cannot take a hands-off approach to selling your home if you expect top results. There are too many conflicts of interest in real estate, and even the best agents are human, and can make questionable decisions under difficult circumstances. Think of it as hiring an employee (which it is). Even if you hire a good one, you still have to manage them if you want to get the best out of them.

Unfortunately, most home sellers go with the first agent they contact and rarely get involved in the sale of their home. Ultimately, this ends up costing them thousands (or tens of thousands) of dollars. I suppose this happens because just like agent performance, those missing dollars are invisible. They are sitting in someone else’s bank account laughing all the way to the…

To learn how ReaListing teaches home sellers how to identify a good agent, click here.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

Hey Home Seller, How do Those Buyer Rebates Make You Feel?

It is all the rage in the real estate industry today: buyer rebates. One of the consequences of too many real estate agents is that they really have to try and woo clients. And what better way to do that than with cold hard cash? Today, it is not uncommon to see buyer’s agents offering to rebate a chunk of their commission to the buyer in an effort to get their business. There is even a startup service called UpNest that pits agent against agent to see who will offer the biggest rebate to prospective buyers.

With the advent of online home searches, and buyers finding homes to purchase on their own, the buyer’s agent’s job has been dramatically reduced. For many transactions, agents do little more than some paperwork and a few hours of consulting. No need to be so greedy.

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In essence, what these agents are saying with their rebates is, they make so much damn money for their level of effort, they can afford to give thousands (or tens of thousands) of dollars of their commission away, and still make a pretty fair living. There is really only one problem: it should not be their money to give away in the first place.

Am I the only one who thinks the person receiving a service should have to pay for it? It is only in the topsy-turvy world of residential real estate that the home seller is expected, by custom, to pay for services received by the buyer. As a home seller, how does that make you feel? That part of your hard-earned equity is actually going to pay for services the buyer receives? It is like having to pay for a lawyer who is suing you.

It was one thing when they seller believed that the commission they are forced to pay to the buyer’s agent actually resulted in services the buyer received. But now, it is clear. A portion of it is just thrown-away equity. Money rightfully earned by the seller, which should be sitting in the seller’s bank account, but instead, goes to supplementing the buyer’s purchase of their home—involuntarily reducing its sale price.

Buyer rebates do not make the seller’s home any more appealing. They only make the real agent more appealing. Which raises the question: why the hell do sellers tolerate this? They must not know what to do. So I will tell you.

Here is what to do if you are going to sell your home. Go figure out what the average buyer rebate is for homes in your price range. Let’s say it is $5000. Then, when you fill out the listing agreement with your agent, just subtract that amount from the buyer’s agent’s commission. If you are comfortable offering the buyer’s agent 2% commission, just stipulate that the buyer’s agent’s commission is 2% minus $5000, with the $5000 rebated back to the seller. (You must add that last part or, by custom, your listing agent will get the extra $5000).

Sellers, please stop throwing away your equity so carelessly. You worked years to accumulate it. Why give it away in moments? To learn how ReaListing puts an end to all the real estate shenanigans sellers have to deal with, click here.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.