February 10th, 2015 12:07 PM by Gregg Mower
Here is a situation where the economy has made such drastic changes to the Real Estate Industry over the last several years that I believe the tide has changed in Real Estate in regards to the firms you choose to represent you. What I am referring to is the difference between the Large National Chain Real Estate Companies and the local mom and pop Real Estate brokerages. The traditional thought is that if you list your home with a “Big Box” Real estate firm your home will have more exposure to more potential Agents that can sell your home. But is this actually true anymore with the internet playing such a big role in real estate sales and marketing? Can a small company compete with the “Big Box” real estate firm, or can they not only compete but beat them out in service and price?
I want to explore the differences between the “Big Box” Real Estate firms and your local Real Estate office on the corner. First, I must state my qualifications to write about this. I have been in the Mortgage and Real Estate business since 1984 when I received my Real Estate License (00953953 a Broker license in 1991) in California while still in college where I graduated with a degree in Economics. I grew up, if you will, in the Mortgage Business where I started, grew, and sold a mortgage banking operation from the years 1984-2008, in 2010 I opened MAE Capital Real Estate and Loan also known as MAE Capital Mortgage. You see, I started the company with what I knew best, mortgage lending. I quickly realized with the changing environment and with on-set of the Consumer Financial Protection Bureau (CFPB) and Loan Officer licensing that there was a niche opening up for folks that had my knowledge and licensing. I have always believed that the consumer has been under-served and over charged for Real Estate services, thus MAE Capital Real Estate and Loan. I will get back that under-served and over charged part in a bit, I want to show you the difference the large Real Estate firms and the small local shops.
Anyway, let’s define what a Real Estate Agent’s responsibilities are daily. There are 2 basic functions of a Real Estate Agent or a Realtor (if they belong to the national association of Realtors) and those are, simply put working, with buyers of real estate and working with sellers of real estate. An Agent that works for the “Big Box” firm will generally be working there for one of three reason and none of which benefit you the client. One; they are new and work there to gain more information or are in constant training. Two; they have a friend that works there. Or three; they believe that the name recognition will benefit them in their personal career. I ask, does any one of those reasons benefit you the buyer or seller? I think you get it, but they will tell you that they can pitch your house to all of the Agents that work in their office. That might sound good to you but ask the Agent how often he or she is actually in the office and the answer might surprise you.
In today’s Real Estate world everything an Agent does revolves around the internet. An Agent no longer has to go to the office to “pitch” their listings to their colleagues as their colleagues are all connected to the internet as well. In fact, as an Agent today, we all have the same source to go see newly listed houses, and that is the Multiple Listing Service or (MLS) which is now done all on line. In the “good ole days” the MLS was published in a book and Agents depended on other agents telling them what was on the market. This is how the business was done for years until the internet came along and changed everything. I am not telling you something new but you must see how old habits are hard to change with respect to the mindset of the consumer and the typical Agent. So the concept of using a “Big Box” firm to list and sell your house has changed but, unfortunately, not in the mind of most consumers. Another aspect of Real Estate that has not changed is the commission rate charged to sell a house. Astonishing enough the standard rate to sell a home is 6% of the selling price of the home. You are probably scratching your head right now thinking, “wow, how do I get into this business”. Although, I am not downplaying what an Agent must do and maintain to be able to sell your home, I just think the concept of 6% is just way out of line. If you are trying to sell a $600,000 house and you list it with a 6% commission you will have to pay $36,000 in commission. What do you get for that you ask? You get an Agent that will put your home in the computer (MLS) and put a sign in the ground and will hold your home open several weekends for potential buyers to see. You also get the professionalism of a contract that will be written to a high legal standard. That is the basics and there might be some other nifty marketing techniques your Agent might have but rest assured it all has to do with marketing over the internet to a large audience. Your 6% helps pay for that nice “Big Box” office that you will probably never go in.
As a Buyer of Real Estate, the commission your Agent gets doesn’t really matter to you, as it has been pre-determined prior to the house coming on the market, or does it? Your Agent that works with you, as a buyer, showing you properties, is simply looking online to find the houses that fit your needs. This should not be under estimated either as an Agent representing buyers, they have the responsibility to know what homes are for sale in the market place and how to negotiate them. Although, the commission that is paid to them is not really your concern, their ability to negotiate a good deal for you is. The sales price of the home is generally where the property taxes are based on, so the lower the price of the home is the lower your property taxes will be over time. A good agent working with you as a buyer should pay for some of your costs out of their commission especially if the price is high. At a minimum a good buyer’s Agent should pay for a home warranty, that insures the buyer if there are problems with any of the major systems of the house in the first year or 2, they have a warranty that will fix those issues with little or no cost to the new home owner. This, however, is not legal for an Agent to advertise as is goes against the Real Estate Settlement and Procedure Act or RESPA to tell a potential client that as a client of theirs you will get something if you have them represent you. So it is always a good idea to establish what they will pay for you, on your behalf upfront, but you have to ask them specifically they can’t say “if you use me I will pay for X” that would be a violation.
Ok that is a typical Real Estate Agent’s job, now let’s look at the new Hybrid Agency, or the “New Mom and Pop Shop”. Realtors have their reasons for choosing to work for the big shops, most of which are not designed to help you as the consumer, it is so they have more opportunity to make more money (perceived). Truth is, they have to pay for that “big Box” so they have to charge for that. Now the smaller local shops, like MAE Capital Real Estate and Loan, can offer all the same services as the their “Big Box” Competitors, but they also have the opportunity to offer more. The listing and selling of homes is an art and you want a person that knows this and has the experience to do so on your side. At MAE Capital Real Estate and Loan our Agents typically have far more experience than those in the “Big Box” shops. This experience also allows us to provide multiple services to our clients such as standard financing options for homes as well as private money options. We have found that being able to show the Sellers and the Buyers how they can save money by bundling the services they need to sell and buy homes proves to be invaluable. Yes, we still market your home on the internet and find homes for our buyers that fit their needs, and yes we are “Realtors” (belong to the National, the California, and the local Association of Realtors), in addition to that we can also qualify our clients for their mortgage and provide them financing. We will also take the time to build a website for each home we list, so the home seller can promote their home to their family and friends though social media.
This ability to offer more services not only benefits our clients in the time they save to find out if they can sell their home and buy another home, it also saves them thousands of dollars. Take a typical seller of a home, they have to find an Agent to list their home as well as find a Loan Officer to see if they qualify to purchase their next home. At a smaller shop we can do all this at the same time for you with one call to one office to get multiple answers. The Big Box shops don’t have the ability to provide multiple services, they generally have to call a loan officer from a different company to get the loan done. So if you are listing your home with a Big Box shop you have to call your Agent to find out about people who have viewed your home or if there are any offer coming in. You will also have to call your loan officer to find out about the progress of your loan approval. At our shop that is one phone call and no hunting down your Agent and Loan officer, you make one call and get all your answers.
Let’s talk about cost now, as that is the most important part of all this. Remember the typical Commission on Real Estate is 6% (3% to the listing Agent 3% to the selling Agent) and most people are listing the higher end homes for 5%. What if you could get away with 3-4% or even less in some cases would you do that? Of course you would, as you know you will get exactly the same minimum service, (or better) and reach the same people for far less money. Oh, it will also cost you far less as well. One more thing, the cost of your loan will be less as we don’t charge you any fees for your loan. That’s right as a Broker we go and find you the best rates for your situation (Credit score, LTV, foreclosures, short sales, or perfect credit). As a Broker with a long history in the Mortgage Business we have sources across the county that can fund your loan. Also a little known fact, as a Broker, we are limited on the fees we can charge, and we receive wholesale rates (lower than retail rates) and pass those low rates on to you. In addition, our Agents must hold both a California Bureau of Real Estate license and the Nation Mortgage Licensing System license (NMLS). So what you end up with for your loan is a lower interest rate and a no fee loan transaction. As we are bundling these services we can lower your cost of all them, thus saving you thousands of dollars.
So let’s recap the differences between Large and Small Real Estate Firms. A large firm has high overhead, Agents that are there for selfish reasons, and they don’t do the mortgage portion of the transaction, and expect higher commissions. So a Hybrid firm like MAE Capital Real Estate and Loan (selfish plug) has low overhead, Agents that value their customers, and sincerely want to help them with the costs, can do the mortgage portion, can bundle services to make the cost significantly cheaper for their clients, and generally have more years of experience, and hold both a BRE and a NMLS licenses. It is still your choice on who you pick to help you with your real estate needs, but now you have the facts about the differences between a small real estate firm and a large one. I don’t want you to be under-served and over charged as you can see this can happen quickly in the Real Estate world. We would be happy to sit with you and show you how this works and the consultation is free, let’s get going today. Click here to begin your journey to home ownership or call today at 916-672-6130