I’ll bring you a big basket of cash if you’ll let me sell your house for free

Chris writes:

I’m looking to get into real estate after i graduate in a couple of weeks but i have a couple of questions that i’m looking to get answered, appreciate your help.

If all real estate brokers in an area generally charge the same fee for selling a house, how do real estate agents compete with one another if they cannot vary their fees? Also is the real estate profession overcrowded in your judgment?

Yes, the industry is horribly overcrowded, there are way too many agents chasing too few deals for all of the agents to make a decent living. This has been a true statement for at least the past four decades. 13 out of 14 agents fail and leave the business within two years. bugAll real estate brokers do not charge the same fee. Some brokers charge 6 – 7% to list and sell a house and others charge half that amount, some companies charging a flat fee of $300 – $500 to list a house. There is now a company affiliated with Buy Side Realty who will list the house at ZERO. Correct. A FREE MLS listing. And when you buy a house through Buy Side, they will give you back 75% of the commission. These companies are already “national” unlike the endlessly commented upon Redfin, who only has offices in a few cities.

A company was started some years back called HomeGain that was initially based on the premise of agents blindly (they wouldn’t know who the seller was – but the seller would know who they were) offering to list a home for less. The agent who offered the lowest commission won the prize of getting to list that home. This company was started by Bradley Inman and he sold HomeGain for enough money (tens and tens of millions of dollars) so he can now devote as much of his life as he wants to working on getting agent’s commissions down.

Then, how DO agents compete with one another? If you are in the business and working on getting business, you somehow contact someone and let them know you are in the real estate business. Do that one thing often enough and your other problems and issues tend to resolve themselves. Fail to do it often or at all and you become one of the 13 who are always in the process of actively routing themselves out of the business. Here is a post from March you might want to take a look at.

I believe that agents (and companies) who attempt to make their point of differentiation price (how little they will charge) had better be amazingly efficient or learn to beg effectively. If an agent were stupid enough (and many were) to play by the HomeGain rules they are announcing to the consumer – but more importantly to themselves – that they have very little value. The real damage done isn’t the low fee they accepted, it is the viewpoint they have accepted.

Last week Steve Martin was on the David Letterman show and Dave asked him if he played any other instruments besides the banjo. (Steve Martin is a very accomplished banjo player). Dave was just joking around and Steve’s response was also funny and lighthearted, “If Yo-Yo Ma was on your show would you have asked him if he played any other instruments besides the violin?” Steve was there with two other incredible banjo players, Tony Trischka and Bela Fleck. Steve Martin is a very funny guy. He also is a very bright guy who respects himself and his art.

It really does not matter how many agents there are or how stupidly low some companies set their fee structure. Unless you plan on actually paying sellers to let you be the one to list their house, you can not compete on price. The low point is now zero. The only way to beat that price is to pay the seller. “Hey sir, here is a nice prize and I’ll bring you a big basket of cash if you’ll let me sell your house for free.” Most people (and companies) in the real estate business are routing themselves out of the business. Some are efficient and do it quickly. Others are inefficient, even at that, and take a while.

If you are going to bother to get in, get IN. All the way. That means you are in to stay. Or better to not bother at all.