How do you pick your real estate representation?

After 18 years of selling houses, I noticed a trend. Many people hire agents based on their connection and not on the agent’s competency. 

The hiring decision

Typically, the primary motivation for choosing an agent is rooted in guilt. People tend to choose agents who they know, like, and trust because they want to be in relationship. They might feel guilty to make a choice that could impact their existing connections. So, agents themselves are trained to have their sphere of influence and to make sure they’re connected.

The competency gap

Connections can trump competency. The barriers to entry in the real estate industry are very low. In our industry, we only go to school for about two weeks to get our license, and this involves very little coursework. In Tennessee, we only have to complete sixteen hours every two years to ensure we are up to date.

In this sense, our industry offers agents very little educational training, and then agents often don’t get enough on-the-job experience to make up for this competency gap. Nationally, the average agent only sells five and a half houses per year. This means that agents aren’t even selling one house every other month. Imagine being a baseball player in the World Series who’s had only six bats all year. Your odds of striking out are pretty high. 

Even though our industry is well-connected, it’s not an industry that necessarily fosters an environment of increasing competency.

The way forward

Now, when you’re choosing your real estate agent, you have the knowledge. You can ensure that you find an effective way to evaluate not only the agent’s connections but also their competency. 

At Scout, we have some very effective resources to help: our seller and buyer’s agent interview questions. These are the questions you must ask to safeguard against making a hiring decision just based on who you know.

It’s great to be able to serve people from the heart. And most agents do a great job of caring for their community. However, agents must also have the competency and capacity to be able to serve their clients on the deepest levels. 

Download our resources, find a way to effectively interview agents, and don’t fall prey to hiring just because you’d feel guilty not using the specific agent or brand.

Is your real estate equity eroding? 

It easily might be. Turns out, a simple solution can reverse this trend and build your net worth.

Your inevitable timeline

Financial planners often take their clients through an exercise. On a vertical line, they pinpoint you (or you with your family) at one end of this timeline which represents the present. Then, they place you (or you with your family) at the other end of the timeline which represents the future. 

Along this timeline, no matter if it spans ten or fifty years, you’re going to face financial decisions. They could be to invest, to save for a child’s college, to buy or sell a home, or many other options. As you do so, one of two things will happen. Your future self is either going to have more money or less money. Which will it be? The outcome is entirely dependent on the type of decisions you make along your timeline.

Your timely real estate impact

Along their timelines, the average homeowner buys and sells every five to seven years. This means a person will own about seven or eight homes and have about fifteen real estate transactions in their lifetime. Under the traditional real estate model, people pay a percentage of their home value each time. This directly correlates to their net worth eroding.

Inevitably, you have built up equity and value in your house. Two thirds of American homeowners have their networth tied up within their homes. As you pay a percentage of that net worth, your future self (at the other end of your timeline) will have less money.

Your way out

How can you avoid this negatively correlated erosion of net worth? Meet a fair fixed fee for services. Put very simply, this model doesn’t charge you outrageous real estate commissions which will erode your net worth. In fact, every time you buy and sell under this model, you’re actually preserving your net worth.

Who are “luxury agents?”

I’ve been in the real estate business for 18 years. We’ve done over 1,500 transactions for over half a billion dollars in sales. Because of this, we’ve learned a thing or two. Historically, I’ve seen many agents desire to be called a “luxury agent” who can focus on the “luxury market.” 

What does “luxury” mean?

When someone says they want to be a “luxury agent,” it typically has a lot to do with getting close to rich people: being their friends and charging them commission based on the value of their home. If the commission is based on home value, “luxury agents” can then often increase their pay without equally increasing their work.

What about non-luxury?

Rarely will you see an agent who says “I want to focus on first time home buyers! I want to focus on people who are struggling and don’t make a lot of money. I want to focus on teachers, policemen, and firefighters because they need our help.”

Unfortunately, you’ll tend to see agents migrating towards the luxury market. On Shark Tank, Kevin O’Leary actually calls this out, saying that the world has a big problem: real estate agents. I’ve been in the business for years, and at first it felt like he was taking shots at me, but I had to admit that he had something there. He said agents are eroding people’s net worth and equity.

What about your equity?

When agents want to focus on the luxury market, it has tangible effects. Sticking to only the selling side, if an agent sold one luxury home at $500,000, she’d make $15,000. If she were to sell another luxury home priced at $1.5 million, she’d make $45,000. 

What has this luxury agent done that’s worth earning $30,000 more for the second home sale? They may talk about doing a wine and cheese for brokers (and it better be some quality wine and cheese they’re utilizing). They may highlight a certain magazine where the home is listed, but do these services account for the additional $30,000?

Just because you have the money, net worth, and dream home does not mean that you should give it away when you sell. 

What now?

If you hear from someone who focuses on the luxury market, make sure they can quantify exactly what they will do for you to merit the extra money they’ll make. Ask questions, and do pay them more if they have a clear value proposition and clear additional benefits you’ll be offered.

And if they don’t? Preserve your equity. Don’t pay more just because you’re worth more.

I want to tell you a secret.

You’re not going to hear this from other real estate agents. If you know this, it can make you a lot of money. It can equip you to make better decisions.

What’s the secret? Buyer markets and seller markets really dictate the home sale.

Where’s the market balance?

The National Association of Realtors has said that a balanced market is six months. This means that if your home is listed for 180 days, neither the seller nor buyer has the advantage. However, if it sells before 180 days, the seller is winning. If it’s after 180 days, then the buyer is winning. 

What drives the sale?

Does the listing agent actually move the sale of the house, or is the market really driving the value and sale? Even though most real estate agents base their commission on the value of the homes, the listing agent is rarely in a position to actually sell the house. Almost always, the sale is market driven as the type of market is going to drive the sale of the home.

Who’s the seller?

There’s more. I’ve been in the business for 18 years; we’ve done over 1,500 transactions for over $500 million in sales. What I’ve seen is that, typically, the buyer’s agent is showing and tangibly “selling” the house. The listing agent usually has very few opportunities to actually sell the house. The buyer’s agent is the one who brings the buyer, unlocks the door, and walks through the house without the seller’s agent there.

Why the commission? 

Why would you pay a commission in a seller’s market to the seller’s agent, the? On top of it all, the sale is heavily market driven. All home values are determined by what a buyer will pay for the property and what the seller accepts. In essence, the buyer and seller are coming together and saying yes.

What about a flat fee?

If you want to hang onto your equity and preserve your wealth in such a market, negotiate a flat fee for your agent as you understand that they may not be driving the sale of the house. It may have more to do with market conditions, what the willing and able buyer has said, and what the buyer’s agent has done to promote the house. If you’re selling your house, in a seller’s market, and things are selling in less than a hundred days, a flat fee may be your best solution.

What about Scout?

At Scout, we offer a flat fee starting at $5,000. This $5,000 is full-service because we understand that we are sellers in a sellers’ market. Since our sellers are winning, we want to position you to win. Welcome to behind the curtain of how markets influence sales, with strategies of how to succeed.

What does the federal reserve’s deception of the housing marketing mean for you? 

Looking at a twenty year history of the value of homes, we can find the average home value–$200,000–in American during the early 2000s. Looking forward to this year, 2020, we see that house prices have increased to $400,000. They’ve almost doubled in twenty years. 

The increase for agents

This housing price increase is great for real estate agents working off commissions. If you attach a 3% sliding scale, agents who were making $6,000 in 2000 and now are making $12,000 in 2020. We need to ask what agents are doing to warrant making double the income.

To figure this out, since I’ve been in the business for eighteen years, I asked myself what I was doing even just 10 years ago. In 2010, the average home price was around $260,000 which meant the average agent was making about $7,500 per sale. Since the current 3% agent commission rate on an average home means the agent comes away with $12,000, what differences in services result in the $4,500 increase in pay?

The impact of technology

Working back in 2010, the real estate process was actually much more physical and manual. We had to get wet signatures on physical, paper documents. I had a call log; if people wanted to see a house, I’d write down the name, number, and everything else to coordinate with the seller. We had desk computers, SD car plugins, and perilous MapQuest. 

Now, in 2020, we have digital signatures so we can email documents, and with a click and signature, everything stays online and is very easy. We have laptops. We have iPhones to help with photography. We have apps to unlock doors and pull up surrounding listings.

In the ten years as commission doubled for agents, technology has made many things much more efficient, faster, and easier for agents as well. And, this technology has even decreased costs. Often, agents can work less and make more. Unfortunately for the customer, there has not been a clear pass down of benefits. 

The results for you

Home values are skyrocketing. That means your equity should be increasing. Whenever the agent has technological advances that makes their job quicker, easier, and more efficient, I believe there should be a monetary pass down to you as the client.

And that’s just what we’ve done for you at Scout. We decided that we just can’t ride this wave and make money off you. We’re just going to establish what we feel like our services are worth and set a very low fee. This has worked; our clients are saving around $10,000.

The bottom line

Don’t allow the agent community to erode your net worth. Be an informed seller, make decisions based on your best interests. And we know you’ll come out ahead on the other side. At Scout, we know it’s about a win-win and hope that we can win for you.

Have you ever wondered why real estate companies do not offer clear value for the customer? When customers consider all the various local and national real estate brands, how easy is it for them to notice what separates one company from another?

What about sellers and buyers?

It’s very uncommon to find a real estate company that clearly says “hey, if you’re a seller or buyer, this is the benefit of working with us.” In essence, most companies place their value proposition in being agent-centric. They aim to attract agents, because if they do so, theye figure the agents will go and attract clients.

However, companies like Zillow or Red Door have emerged with a great online platform. These companies are able to write an offer right off the bat without even listing the house. Even with their challenges, they, unlike the more traditional real estate companies, are doing a much better job of being client-centric. 

Why does client-centrism matter?

Being client-centric is simple. It means that everything the company and agent is thinking about is with the client in mind. 

The traditional real estate environment could learn from this model by simply asking “what are we doing uniquely different and especially beneficial for the customer? That’s why, at Scout, we started to innovate.  We realized there’s so many companies focused on the agent and the benefit of the agent. And, it’s not that we don’t value, love, and want to serve and benefit agents (because we do). It’s just that we want to be client-centric first and have the agent come second. That’s why, if you visit our website or see our ads, we aim to speak right to the heart of the customer.

What’s the Scout difference?

We are obsessed with adding value to our customers. We’re obsessed about over-delivering, about creating wins for them, about offering flat-fee service pricing rather than charging outrageous real estate commissions. 

What comes to mind when you hear the phrase “real estate commission”?

We each might have different ideas. We may have had various experiences with paying (or receiving) such a commission. However, when we take a step back, do we really understand how commissions  operate, and does the way they function actually make sense?

Unpacking Real Estate Commission

Imagine a real estate agent who does exceptional work. They’ve been in the business for ten or twenty years. They’ve served countless clients, completed extensive coursework, earned many certifications; they are agents with incredible value to offer customers. Then, imagine a real estate agent who has just earned their license four days ago and completed a two week course. 

What you might not realize is that both of these agents–experienced or fresh into the industry–can very literally charge the exact same amount of commission. 

Now, the agent who has been in the industry for twenty years has great value competency to offer their clients and should, arguably, be able to make more than the less experienced agent. This would be true if the real estate agent’s commission was based on their offered value and not the value of the house. 

Yet, this usually isn’t the case. A person who owns the home is often going to make their decision of who represents them often based on their connections. This means that agents frequently influx into and out of the market and around 90% quit by the end of their third year. It’s practically just as easy to get into the market as it is to get out of it.

Rethinking the System

We can put it another way. 

What if I took my car to a car wash, and they priced the car wash based on the value of my car instead of the quality and type of wash I wanted? I would probably drive away. I wouldn’t take my car to that car wash becauseI believe the price I pay should be based on the value of the service. 

Yet, this unconventional car wash model is how we often do real estate. The real estate commission is often priced on the basis of the value of the house, not on the value of the agent.

Finding the New Mission

I believe we have a lot of value to offer clients. And doing so, we want to go on mission to eliminate commission.

This starts sby putting the customer at the center of the conversation. We asked what it could look like if we charged clients a simple, low flat fee for service real estate. We want the clients to win and keep a substantial portion of the equity.

At Scout, we’re doing it differently. We’re disrupting the traditional real estate model and striving to create a customer-centric company by being on a mission to eliminate commission. That’s why we changed our commission structure; we eliminated it. 

It’s for you.

We need to face it. When it comes to real estate agents, some key questions are being overlooked.

What is a real agent truly worth? How much should they actually cost you? Is their commission too high or too low?

Many start the conversation around real estate agents through this lens of commission. When asked, many agents will reply “Yes, I’m worth my commission.” However, we counter that with “Great, but how much is that? How do you quantify it?” Often, agents respond that their commission is determined by the value of the house.

This begs the question. Is an agent’s worth, then, dependent on the value of the home, not on the value of the service they as an agent provide?

Typical Commission Structure

We can make this more tangible.

Imagine you have an agent who sold twenty houses last year which were all listed at different price points. One may have been priced at $1.5 million, one at $500,000, and a third at $300,000. Out of all the houses a particular agent sold, look for the home with the lowest price point. If this was a $250,000 house, with a commission rate of 3%, the agent would have earned $7,500.

This home sale which earned the agent $7,500 effectively establishes the basis, the lowest rate, for which the agent was willing to work in the previous year. If their commission is based on the selling point of the home, then all of the remaining homes yielded a higher commission for the agent. 

The Overlooked Problem

Now, if the agent selling the home at a higher price point (and thus earning a larger commission) can articulate the enhanced services they’ll offer and the larger amount of time this will consume compared to the lower priced homes, then this situation is very understandable. They should be paid more for such a sale. However, if the services are the exact same, it doesn’t make sense for the real estate agent to charge a higher price for the same service.

Your Tangible Solution

What does this mean for you? First, you can start by more fully understanding what you’re paying the agent to accomplish. Are they charging you based on their competence and the services provided or solely on the price of the home, potentially at a rate much higher than their base point shown by their sales record?

Practically, you can determine this by asking the agent about the houses they sold last year, finding the house with the lowest price, running their commission rate, and then asking questions. Ask what additional services they will be providing to earn the higher sum. If they have answers, great! We love paying agents their due. If not, you are protecting yourself from paying essentially a much larger tip than necessary. Why should you pay more, just because you have a bigger house?

Our Scout Difference

We hope this insider information saves you a substantial amount of money. We want it to equip you to receive a fair fee from the service agents provide by giving you the tools to run a price match based on their sales record. We’re here, looking out for you. 

Welcome to the Scout difference.

What if we told you some people are making $661 per hour, but it wasn’t who you thought? Well, turns out it’s true. Meet the real estate agency.

It all adds up

In 2019, 5,340,000 real estate transactions took place. Now, since a buyer and a seller are on either side of the transaction, this should be doubled to reach a little over 10 million home transactions occurring.

For these 10 million home transactions, approximately 2 million real estate agents were involved. These agents were selling homes that, according to the National Association of Realtors, were selling in the American market for an average value of $385,000. 

These agents typically charge 5% – 6%. On average, if an agent charged 5.5%, that would mean sellers paid out $105 billion. 

Can you imagine the real estate community making $105 billion from sellers? That’s a huge amount of money. In fact, it’s one of the largest asset classes in the country, comprising 13% of America’s GDP.

It’s driven by people

We can break this down more practically. How much do agents, themselves, actually make per hour from such transactions?

Nationwide, the average agent makes approximately $42,000 a year. There’s approximately 10 million transactions from about 2 million agents, so the average agent closes about 5.5 homes a year. That means that an average agent isn’t even selling a house every other month. The National Association of Realtors said that real estate agents work an average of 16 hours per client. They are averaging working 1.75 hours per week.

Can you imagine working 1.75 hours per week? Of course, there’s much networking, business development, and more not counted in these hours. But, in a sense, if you’re the seller, you’re paying for all of that.

It impacts revenue

For the sellers, based on the average sales price and how much agents make, the math works out. If you’re selling your home on average for $385,000, you’re actually paying $661 an hour. 

This is why it’s so shocking. When you have an attorney that goes to law school for four years or a surgeon who goes to school for six to eight years, either might make $350 or $400 an hour. It took them years to get that highly paid position. If you have this in perspective, maybe you wouldn’t tell your kid to be a surgeon or attorney. You’re going to have to go to school for years for that, and they’re likely going to make way less than a real estate agent.

It matters to you

But what does this mean in the end? 

Yes, if you’re a real estate agent, you can get your license in two weeks, and you’re going to get paid somewhere around $661 an hour. But, maybe that’s not right. 

At Scout, we very clearly understand the impact to the seller. And we have a model that is starting to bring things in line. If you’re looking for better solutions, we have just that.

If you had to guess, how much would you think was paid out in real estate commissions nationwide last year alone?

Over $105 billion.

How? With over 5,340,000 homes a year sold at an average purchase price of $385,000, real estate agents make around $100 billion dollars in commission. Now, having worked in the industry for 18 years, I love real estate agents. I love this industry. I believe we’re worth what we make. However, when I see $100 billion dollars, I think this represents something: someone’s college fund, a retirement plan, a down payment. And this commission seems a little unbelievable.

How did we get here?

Technology has driven down costs and made things faster and efficient. As agents, we’ve had the benefit of technological advances. However, there’s not a clear pass down for consumers. When almost any other industry experiences such technological advances, competition ensues and the clients, in a sense, pay less and get more. 

For example, I used to go to camp, get a long distance card from my mom, and have to be aware of the minutes I’m paying to use. Now, I have a cell phone and pay for an unlimited plan with email, texts, and more. It’s easier for me, the consumer, than it would have been before technology.

But what about real estate?

Typically, when technology advances, it drives down costs and significantly benefits the consumer. I’ve just not seen that happen in the real estate industry.

In 2019, we had this $105 billion paid out in real estate commissions. So, we have to ask the question: why? When is the industry going to start being advantageous for the customer to be able to retain their equity and net worth to be able to use it towards milestones or life aspirations?

What now?

I believe in real estate, and I believe that we as an agent community must start to have a shifted perspective: this is the client’s equity, not our commission. And I’m acting for this, as I talk about our fixed fee for service model. At Scout, we don’t charge for real estate commissions. We charge a flat fee.

I’ve found that, a lot of times, the rest of the real estate community is not like that. They really want us to stay in line and charge commissions. Yet, what I think you, as a customer, must understand is that whenever you have an agent who charges commission, there is an eroding factor to your net worth. That’s why at Scout, we want to help you retain your money. We want to charge this fair fixed fee to be able to fund your lifestyle goals.

This is the $100 billion dollar problem. The future of real estate is being on a mission to eliminate commissions so that you can have more equity in your pocket.

After all, the money is yours. Not ours.

CTA to find out more about the flat fee model, get started on your home buying journey, talk to an agent, etc