To The Highest Bidder

No this is not an article on buying a foreclosed property at auction. That is a different subject all together. Auctions have good aspects and bad. There are auctions that follow Wisconsin state law and web sites that do not. This article is about some of the most popular web sites and what goes on behind the scenes.

 

A lot of interesting information can be found on Real Estate web sites these days. Competing for views, clicks, and search rankings forces them to constantly investigate ways of improving service, to be the first to offer a new and exciting feature. But now good and truthful are these services? Some of these include value estimates. But what are the estimates based on? When a chief accountant presents estimates to a company board, they also explain the process used to the directors. How long would a chief accountant work for a company if they had the attitude the people employing them would not understand the process used to arrive at figures presented? Umm… but everyday thousands of people look at Internet facts and figures that come with no explanation. On the other side of the coin, I have no fear or trouble explaining the process I use when I provide Buyers with reports. Its a simple process. I use a 4 block radius looking for active and units sold over the past 6 months. I use the same major features of the property Buyers consider, such as 3 bedroom, 1.5 bath, 2 car garage. Then we sit down and discuss the figures. I treat clients as an equal.

 

Let’s face it. Search engines today follow criteria. First on their list is how much the site is willing to pay to be on top? Search results go to the highest bidder. I remember when I used to be able to advertise on the Internet at 5 cents a click. The price soon shot up to 10 cents, then a quarter, a half dollar, then $1 a click. A year ago I created a new ad campaign. I confirmed $5 a click, conducted a search and guess what. I was not on the top page at $5 a click. I have no idea how much web sites are paying to stay on the first page of search results. All I know is, Real Estate is one of the most competitive businesses for search results on the Internet.

 

So we know it takes a ton of money for businesses to compete for Real Estate search results. Where do they get the money from? Well to understand the process we have to start at the beginning. I used to be an instructor in the army and always look at explaining everything as a life an death situation. Money always comes from Sellers. Theses are the people selling a home and other properties. The Listing Agent comes to the Seller’s home with a Real Estate Listing Contract. The Seller agrees to pay a fee to the Listing Broker on the sale of the home. This is usually a percentage of the sale price. Once the home sells, the Seller pays the commission at closing. If another Agent brings in the Buyer, the Agent is called the Selling Agent. Commission is split between the Listing Broker and Selling Broker. The term Broker does not always apply to the people doing the work. Broker often refers to the office the Listing and Selling Agent work for. The order is, Broker, Agent. Think of the Broker as the office and the Agent as the person you talk to.

 

What happens to the commission paid at closing? To understand what happens behind the scene, you have to know a little about commission splits. Usually the commission is split 50/50 between Listing Broker and Selling Broker. But some listing Brokers claim they need 60% to survive. These tend to be the largest Brokers in the area. The commission split is 60% to the Listing Broker and 40% to the Selling Broker. Can you see where this is going? Are you asking why the Listing Broker needs more money? Remember how expensive Internet advertising can be? In a sense, the Listing Broker is asking the Selling Broker to pay their Internet advertising. What a twisted web they weave. The largest Brokers have devised a way of getting other Brokers to pay their advertising so they can put fees out of the reach of the Brokers who are actually selling their listings. I am not sure why, but this is a system that continues to work.

 

What happens with the commission once the Broker receives the check at closing. The check is issued to the Brokers. It is deposited into their general account and split between the Broker and Agent. Some of the major Brokers charge fees as high as 50% to Agents. The Broker may keep half the money and pay the Agent half the commission they receive. Some Brokers also charge monthly fees on top of the commission split. Other Brokers charge flat fees of a couple of hundred dollars for monthly office fees and a few hundred per closing. Broker fees can vary a lot. But using the model of a 50/50 split between Broker and Agent we have a simple formula.

 

Commission charged to Seller.

50/50 split between Listing and Selling Brokers.

50/50 split between Broker and Agent.

 

As you can see, Agents may receive only 25% of the commission. Depending on how many Agents a Broker has working for them, Brokers can make a lot of money. If a Broker has 30 Agents working for them, they can have 30 times the amount of money to live on than any single Agent gets paid. Now that a Broker has 30 times the income to work with, what do they do with the money?

 

Internet advertising is sold to Brokers and Agents. Brokers with the most money have a great deal of control over advertising prices. This gives them the opportunity to capture the maximum amount of Sellers and Buyers looking on the Internet. Is the biggest always the best? In Real Estate we have a code of Ethics that does not allow us to criticize other Agents and Brokers. There is a close connection between state laws governing Real Estate and our Ethics code. One state law forbids Real Estate Agents and Brokers from purchasing leads. In other words, if you came to me with the name of a friend looking for a home and asked me to split my commission with you for the lead, I would have to turn down the offer because it is against the law. Which brings me to the next point.

 

Being a licensed Broker I get a lot of calls from Internet sites. They have to pay for their advertising costs to stay on top of search engine results, and they get money from Agents and Brokers. Often the conversation, or sales pitch goes like this. The Internet site tells me they are offering territories. Often times the site is auctioning these territories which can be divided into zip codes, cities, or other areas. Sites offer Buyer and Seller leads in these territories to the highest bidder or may sell them for a flat fee. Years ago these territories cost $30/month. Now costs can easily exceed $300/month. Who knows what bidding prices can reach. I always tell the Internet Site I cannot take advantage of their offer because state law forbids me to purchase leads. Knowing how money corrupts, the state wants Real Estate Agents to succeed based on their skills and qualifications. The site always has the same answer. They are aware the conversation is breaking state laws. So they tell me, “we call this an advertising fee, so we are not really selling you leads.” Umm…. seems to me they put a lot of thought into getting around the law. In fact what they are doing is putting a knife through the heart of the law. If the law was created to ensure consumers are not swayed by money, why are these sites doing exactly what the law is meant to eliminate? Why are Brokers and Agents also ignoring the law, or finding loop holes to get around it?

 

How do you feel as a Buyer or Seller looking for help and answers on the Internet only to find out when you register on a web site, your name is sold to the highest bidder? I always get an uneasy feeling talking to the Internet sites on the phone. All they want to do is make a sale, close the deal and sign me up to a long term contract. They do absolutely nothing to investigate my qualifications. How are they supposed to match me with clients when they know absolutely nothing about me? What do I specialize in? Do I offer the maximum amount of service for the fairest, or lowest price? What makes me stand out from other Agents and Brokers? The sites promise to screen Buyers and Sellers. They tell me they have a system. Most likely they make the same promises to entice Buyers and Sellers to register on their sites. Based on the total lack of information they collect on me, I have to assume these sites drop the ball when collecting names to sell to the highest bidder.

 

Paying the maximum amount to advertise on the Internet should not be the only criteria to find a Real Estate Agent to work with. Searching on the Internet makes it almost impossible to find local Agents. One of the best sites I have found to locate local Real Estate Agents is ActiveRain.com. It is a Real Estate on line community which gives you the chance to view posts, opinions, and articles posted by local Real Estate Agents, inspectors, lenders, and other Real Estate professionals. You can find out how they use the latest technology, read stories about transactions, articles about Real Estate matters and contact them to see if they would be a good fit. On line community groups like this give you the chance to view qualifications. They are not at all like some of the major sites auctioning your information. How would you rather find people to work with? Do you want people looking for loop holes around the law, or people with integrity that shows through in all aspects of business and life?

 

Keep in mind. Some of the best Agents I have worked with belong to some of the largest Brokers. As well as some of the worst Agents may come from the smallest. The fact is there are good and bad Agents. When looking for a Real Estate Agent to work with look at the individual qualifications. Are they easy to talk to? Do they answer their phone? Are they able to explain matters? Do they have your best interests at heart? These may be the most important questions. Also pay attention to see if the Agent is leading you, or are you leading the Agent? An example of that is choosing homes to view. Does the Agent give you a list to choose from, or do they wait for you to collect your own list? I know a lot of Buyers like to be in charge. There has to be a balance. When a Buyer indicates a 1000 square foot ranch home is too small for them, why would an Agent take the same Buyer to view another 20 or 40 homes the same size? When Buyers insist on seeing more homes which will not suit their needs, the Agent needs to correct their search habits. Are Agents sending you a list to view on line first? Does the Agent explain the home buying process from finding a lender to choosing a home, inspections, what to look for, what to look out for, financing alternatives, down payments, and other details? A large portion of a Real Estate Agent’s job is to educate the public. This includes market trends which always focus on the immediate location, not nationwide or state trends. When you find a house to bid on, you should always receive a market analysis on the immediate area. This will help you determine a buying and selling price.

 

How to locate a local Agent? Many people call an Agent from the yard sign. Does this connect you to the Agent themselves, or to an office number? Try and Google the name on the sign. Take a look at the web site. Are they selling themselves, homes, providing information, giving you information you are comfortable with, information you can use? The Internet was intended to make information easily available. It is sad to see how money has distorted its usefulness and integrity. It is not going to change until consumers get wise enough to get around the web they weaved to gather information to sell. Spending a little extra time to find local contacts may be the only solution. The fact of the matter is, you need to find someone you are comfortable with, offering the best service, and making your Real Estate sale or purchase a success. Investing a little extra time and effort on the front end of the transaction can help ensure a successful finish and a new and better beginning in your investment.