by Grant Wakelin
It’s always good to get coverage from news media of what you are doing. This weekend National Business Review covered 200 Square in its Saturday edition.
The online version of the article is here.
The article asks the question whether flat fee real estate models will succeed. There are actually two issues there - flat fees and business model. On fees - there is simply no economic justification for a percentage commission based fee. It is simply that it has been that way for a long time. All real estate agents should earn their income based on a fee - the value of the home has a very, very small impact on the amount of work or skill required to sell it.
We have outlined in the past here research that shows the commission structure can actually drive the wrong behaviour, for example taking the first offer because the extra commission earned with a higher price does not cover the extra expenses involved in carrying on selling it. The fact that commissions are tied to the value of the home is one reason why the charges today are so high. Commissions have increased dramatically over the years driven by increasing house prices (see here), with the benefits of reduced costs and increased efficiency from the internet, cellphones and whatever going into the agents back pocket.
Business model - we have changed the business model so that it focuses on the things that add value for owners and removes the expensive tasks traditional agents do that are really for their own benefit - open homes are one of those things. The open home being there to generate new listings rather than selling the home as we discussed here.
As is often the case the media doesn’t always get it right in their stories. In this case, we don’t force owners to host their own open homes - the fact that most do is a testament to how beneficial buyers find it to have the person that actually lives in the home showing them around.
The article added a comment from REINZ head Helen Sullivan regarding disclosure requirements. Her comment was that owners are not obligated to disclose defects such as a leaky home. So before sellers rush to avoid using an agent because they don't have to disclose issues, I would point out that the comment is technically correct but also incorrect - if that makes sense. The homeowner is not subject to the Real Estate Agents Act and its regulations, therefore is not required to disclose defects in a property in the same manner a real estate salesperson is. However, the homeowner absolutely has an obligation to disclose issues - in fact we recommend strongly that issues be identified up front. It is just not worth hiding things. Just ask any person that has owned a leaky home - the prior owner gets sued for not disclosing that the home in fact was leaky when they sold. So, no you don’t have to disclose an issue, but you run the risk of a much more expensive lawsuit down the track if you don’t!
One of the things that has surprised us as we developed our business was Open Homes and viewings. Buyers really enjoy being shown around by owners. They get to talk to the person that knows more about the house than an agent ever will. We still do all the tough stuff - the feedback, negotiations and so forth so that pressure is removed from both parties. The buyer gets to relax in the home and talk about what its like to live there, rather than being on edge trying to avoid saying anything wrong or too informational to an agent. Guess which environment enhances the buying mood?
The final sentence of the article was the most important however. It is absolutely satisfied clients talking about us to friends and family that drives the best business for us. An online, word-of-mouth story. Kinda cool don’t you think?
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