We operate separate legal entities to offer our customers lending, title and escrow services.

I haven’t seen them offering or talking about these services yet, but the intent looks pretty clear that this is coming shortly or already underway. They did tinker with being a mortgage broker in Seattle, but shuttered the service in 2008 when they laid folks off. It looks like they’ve kept Redfin Mortgage, Inc. alive for this purpose.

It is not an entirely surprising move. Many large brokerages start mortgage or escrow divisions to extract more $$/transaction, though many of them do so through joint ventures so that they don’t have to run the services directly. Interesting that this comes on the heels of their new directory of 3rd party providers that offer these same services, just announced this week.

They’ve talked for years about wanting to improve and integrate the lending and escrow process with their home buying service, but it looks like perhaps they are ready to jump in. Whether they are big enough to sustain those efforts remains an open question. I’m guessing that whatever they offer will be tuned to their own customer base, and many in the industry would be hesitant to refer their clients to a Redfin-owned service. It is a tough road to be 100% reliant on your own buyers and sellers if you intend to offer loans, title or escrow.

Here is the job posting that came across today:

The promise of the new service level is that you get to have a direct relationship with an agent, rather than being shuttled around between team members. If they can pull this off, it will be a positive for customers. Frankly I’m a little surprised that it took them this long to implement the change, as we continue to receive customers who fall through the cracks of their automated system or are just frustrated by the lack of direct interaction with their agents. To support this, they’ve boosted their fees quite substantially to home buyers.

In the past, if you bought a home with Redfin, they would refund 50% of the commission they received from the seller, subject to a minimum for lower-priced homes. Gone are the percentages and calculator to figure out how much you can save. It has been replaced with a “black box” formula based on the listing price. Their rebate pages only say “Redfin keeps a portion as our fee” and “You save with Redfin.” To figure out how much you save, you have to look at the number on each individual listing.

I dug into the numbers further, and the new black box commission formula does result in a rather significant increase in their fees to many home buyers. In their blog post, they mention a 16% increase in fees, though based on these formulas, that depends entirely upon the list price of the home you are looking at. I’m not sure where the 16% number comes from. You could get a 39% increase in their fees for a $400k house.

It is not a straightforward formula, so here is a chart to show you how it appears they calculate their buyer rebates. I picked two cities that have different typical commissions paid to buyer’s agents, and looked up the rebates that they are offering at various price points. In Dallas, many sellers offer 3% to the buyer’s agent and in Portland, a typical commission of 2.5% is paid to the buyer’s agent. The commission formula appears to be different in these two cities based on this.

As you can see their buyer rebate climbs in a curve between $200k and $900k. You don’t get the full 45% rebate unless you buy a $900k+ home when commissions are 3% or a $1M home when commissions are 2.5%.

Depending on the price of the home you are buying, the fee that Redfin charges for their service is up dramatically compared to their previous rebates, with buyers in the $350k-$650k range looking at price increases of 20-39%. While they remain very attractive at price points nearing $1M, the savings for the middle-of-the-road homebuyer is reduced substantially. I can’t help but think that customers are going to be turned off by the lack of transparency on how these rebates are now being calculated.

It also appears that they’ve hit a snag on this already in San Francisco, where they’ve set their minimum at $900k to be able to use a Redfin agent. Anything under that and they’ll refer you to one of their partners who doesn’t work for Redfin. The limit is apparently temporary as they staff up in the Bay Area, but consumers have to deal with a moving target of how much they can get back on their purchases there until it’s resolved.

We’ve always liked Redfin’s approach to the real estate market. They’ve built a great website and have managed to break down a number of industry barriers by equipping consumers with in-depth data. We’ve also admired their willingness to try something different in how they charge consumers and compensate their agents. With the latest price increase, however, it looks like their efforts to transform the commission side of our business are reaching an end. Clearly they are going to message this price increase as necessary to support enhanced customer service, but there is likely a back story here about how they need to boost their bottom line to show a return and exit strategy for all of the venture investment that they’ve taken.

Whether they are successful with these new fees remains to be seen. Clearly customers want more from their relationship with a real estate agent than they’ve been offering, but the smaller monetary difference when picking one of their agents makes the comparison to traditional Realtors less clear.

In the spirit of old-school real estate pitches, one of their first posts is: “Take the Plunge! There’s never been a better time to buy a home,” and to drive the point home, yet another post: “Why now is a great time to buy a home.”

…media reports about falling prices and foreclosures may be be making you hesitate before taking the plunge and buying a new home. The truth is this: There’s never been a better time to buy a home.”

Pumping up the market is nothing new in the land of Realtors. This pitch has been around for as long as agents have been collecting commission checks. Realtors have been taught over the years that their job is to instill confidence in the market and convince buyers to buy because of the “great opportunities” out there, regardless of current economic realties. The CEO of Century21 stands in front of a sign when training agents that pretty much explains it.

What surprises me is that we seem to have collectively learned nothing from this market downturn. The crazed cheerleading and baseless optimism during the bubble did the consumer no favors, and now that times are tough, the message gets louder again.

For the record, I do believe there are some positives to being a buyer right now, and make no mistake that the health and profits of our own company hinge on the health of the real estate market. I would even venture to guess that some people will become wealthy by making the right bets coming out of this downturn. But to say with such authority that it is a great time to buy ignores fundamental problems in the real estate market and the overall economy that still need to be resolved.

As a real estate agent, I am out in the market every single day, so chances are that I have a pretty good pulse on the local real estate market. I even have opinions on where I think the market may head in the near future, but it is not my job to sell you on my optimism or pessimism about real estate. Our job is to facilitate and assist you in the home buying and selling process when the time is right for you. For some folks, it may be an excellent time to buy, but that is driven by personal situations like a growing family, a job relocation or other personal or financial changes. For other people, it is a terrible time to buy. Maybe you don’t have enough for a down payment and reserves, or maybe you anticipate a relocation in two years. If that is the case, you should probably wait to buy real estate.

I am using Century21 as an example, but the problem is industry-wide. I’ve been in meetings with a crowd of agents that feel like an evangelical revival camp, with rousing pep talks and raucous applause for the “never a better time to buy” message. Whether or not it is true, it is not our place to convince anyone about their own homeownership goals and timelines.

It is good to see an established brand like Century21 venturing into the blogosphere, but I hope they can tone down the rhetoric on why it is a great time to buy and focus on the helpful and informative content that modern consumers hope to find on a real estate blog.

1. I saw your job ad. How much does it pay? – These are the first words out of their mouth when they call or email. Let me let you in on a little secret. Everyone wants to know how much a job pays, no matter what that job is. We’ll get there, but we need to hear why we should hire you and find out why you are passionate about the position. If pay is your only passion, we are not going to be a fit.
2. I don’t have a resume. You can look up how many homes I sold on the MLS. – You don’t have a resume? You may have sold thousands of homes, but if you can’t find the time to try to sell us on your abilities, that is hardly an indication of interest in the job and doesn’t speak highly on your ability to sell yourself.
3. Your intro mail is blank – People send job applications as a blank email with just a resume attached. Really? Is it too difficult to tell who you are and why you want the job in a couple of sentences? Heck, even a short sentence that says “I am interested in applying for your job. Please see my attached resume.” is better than a blank message.
4. Showing up unannounced to check on the status of your application – Persistence is one of my favorite attributes in an employee, but popping by the office unannounced on multiple occasions to check on the status of your application is not going to help you. We all have busy lives, and you need to be considerate of others when applying for a job.
5. My broker let me go because of a lawsuit. My bank account is low, and I see you offer a salary. – This sounds like a perfect reason to hire someone, doesn’t it?
6. Run your spell check – Our jobs require tons of written communication. We can’t hire someone whose email and resume are loaded with spelling and grammar mistakes. My favorite was submission of a resume showing their “SOFEWARE EXPERTEESE.” Hardly the way to be hired at a company run by people who spent years in the software industry.
7. Your hiring date is unfair to potential job candidates. – We posted a position in January that we intended to hire in April. The candidate got angry that the position wasn’t being filled immediately. It can take a few months to find the right person, and if the business has hiring needs starting in April, then that is what the business need is.
8. Are you sure that the person you hired also has more than 25 years of experience and millions in sales? Thank you anyway. – This was the response we got when telling someone that the position has already been filled. Here is another job hunting secret. We will be hiring for positions in the future as well, so lashing out in frustration gets you nowhere.
9. I would like to become a real estate agent. I don’t have a license. Is it necessary to have a license? I have no idea. – You have no idea? Apparently you have no idea how to use the web? Within 10 seconds you will find the agent licensing requirements in Washington state.
10. Resume word count – I received a resume from an individual with 36 years of industry experience. I did a word count on that resume, and there were only 50 words there. He listed dates and company names, with nothing else. In 36 years you have nothing to say about the work you did at these various companies? Not looking for a novel, but one sentence about what you did would sure be nice.

I guess our experience is indicative of the poor to non-existent hiring practices that are so prevalent in our industry. I suppose the nice part about all of this as the employer is that it makes it so easy to sift through and exclude resumes.

Agents as employees

Why would a brokerage want agents to be employees rather than independent contractors? I think it boils down to teamwork and consistency of service. With a team of employees, a real estate brokerage can institute a consistent standard of service, ensuring that you will get the same experience from agent to agent. A real estate brand cannot represent a standard of service when it doesn’t have the ability to require those standards from each and every agent.

Providing a compensation package of salary, benefits and performance bonuses is exceedingly rare in the real estate world. Being able to provide some level of income stability during volatile real estate cycles is key to agent recruitment and retention, and I have yet to meet an agent would wouldn’t like help with medical/dental insurance or retirement plans. Of course there needs to be a mechanism to participate in the upside when times are good, so an employee compensation plan must also have a bonus component.

Almost as rare as agent benefits is agent teamwork. A fend-for-yourself independent contractor model leads to agents who don’t help their team members, or agents who fear asking for help from their competitor one desk away who may try to take the client. By employing agents, a brokerage can require and reward teamwork as a way to optimize client satisfaction.

Agents as independent contractors

The benefits to hiring an army of independent contractors is obvious to a real estate brokerage. Real estate revenues swing in volatile cycles, and we are in a particularly nasty cycle at the moment. Independent contractors don’t require a salary, don’t require benefits and are paid only when they sell homes. It is far easier to manage the bottom line when their isn’t an employee benefits outflow each and every month.

Many agents also like the independence that comes with such a model, effectively operating their own business and brand under the umbrella of a larger company. The result of this model, however, is that the bulk of agents in the industry make a sub-standard living selling a few homes each year, while still paying for their own benefits and business expenses. There is a sliver of top producers who sell large amounts of homes and make out well, but that is not true for the bulk of agents in this business.

findwell agents remain employees

Does the ZipRealty announcement signify the “beginning of the end” for this alternative business model? Will the current real estate slump put a nail in the coffin of these brokerage models that are striving to make changes in the industry? It is our hope that alternative brokerages like ourselves and Redfin can find a way to weather the storm and continue to provide more options to consumers and agents.

We believe that there is a better way to run a real estate company, and maybe Zip just got hit too hard by the market downturn to continue the model. findwell remains committed to hiring our agents as employees and providing them with a compensation package that is more generous than industry averages. We strive to share in the up and down market risks with our agents, rather than making them bear the downturns alone because we believe that the financial results of agents and the brokerage they work for should be closely aligned.

Check out the agenda and register for Seattle Agent Reboot here.

The chart shows the dramatic increase in realtors during the inflation of the housing bubble. In 2000, there was 1 realtor for every 368 residents in the US. By the peak of the bubble, there was 1 realtor for every 220 residents. Between 2000 and 2006, the US population grew by 6% while the ranks of realtors grew by a whopping 77%! This is particularly striking when contrasted with the 90’s, where the number of realtors shrunk 6% while the overall population grew by 9%.

The lure of easy money for little work was powerful during the housing bubble, driving hordes of folks to get their real estate license. Compared to historical data, we still have way too many realtors chasing way too few deals. You may conclude that too many agents flooding the market would lead to more competition and lower fees for their services, but the inverse is true. With too many agents comes a powerful incentive for the industry to keep fees artificially high because the low-producing agents need to make a basic living. An overabundance of agents also leads to the sub-standard service levels that seem to plague our industry.

What is also striking is that the efficiencies brought about by the internet seem to have had little effect on the total number of agents practicing our profession. The ability to search for homes online has dramatically changed the role of the real estate agent and reduced the number of hours that they need to spend per transaction, meaning we actually need fewer agents to service the population. (If you don’t believe me, I will take away your internet connection and send you large binders of paper-based listings to find your next home!)

I think we have at least 3-5 more years of declines ahead of us in the number of active real estate agents in the US, perhaps more if the internet drives more efficiencies into the process of buying a home. I think it will benefit our industry tremendously to have fewer, better-qualified agents able to close more deals. Raising the barriers of entry to our profession and increasing the efficiency of each individual agent will lead to better service levels and lower fees.

A few definitions are in order before I discuss further. In order to be a licensed real estate agent, you need to place your license with an established real estate brokerage. That company is managed by a “designated broker” or “managing broker” whose job it is to oversee all of the agents whose licenses reside at the company. Most real estate brokerages do not employ agents as employees, rather the agents are independent contractors who operate under the oversight of the brokerage. There are a few brokerages who do take the extra step of making their agents employees, but that is still fairly rare. Agents are usually subject to a commission split for some initial amount of their income. After that limit is reached, they typically earn 100% of the commission. There are also ongoing monthly desk fees, franchise fees and transaction fees that are payable to the brokerage as well.

Brokerage Income Example

Let’s take a look at a hypothetical example to show you just how messed up this practice is. Brokerage A is a company with 20 top-notch agents. Each of those agents closes 18 transactions per year at an average sale price of $400,000. Brokerage B is a company with 72 mediocre agents who only close 5 transactions per year at an average sale price of $400,000. Both brokerages typically receive a 3% commission on each sale. They both have the same commission split of 75% agent/25% brokerage up to a limit of $25,000 to the brokerage. After that commission is paid at 100%. Both have identical transaction and desk fees. Monthly desk & franchise fees are $500/agent and each transaction is subject to a $200 transaction fee. Let’s take a look at the numbers.

Brokerages Love Mediocre Agents

Are you as surprised by these numbers as I am? Both brokerages sold an identical number of homes for the year (360) and both earned $4.32M in gross commission income. Brokerage B pocketed 129% more income than Brokerage A, yet Brokerage A has 20 “rock-star” agents. How did they do this? The brokerage companies earn WAY more money by employing armies of mediocre agents who never reached their commission cap limits. The commission splits are way more favorable to the brokerage for low-earning agents, plus by increasing the number of agents in the office, your monthly desk fee income also skyrockets, in this case by a whopping 260%.

There must be tremendous benefits that brokerages give to their agents for these big brokerage fees, right? Wrong. The primary benefits that an agent receives from a brokerage is somewhere to “hang” their license, a brand name to associate with, insurance coverage and broker oversight of their transactions. Agents remain responsible for their own marketing and lead generation, plus virtually all of their expenses.

Don’t believe me? Go around and interview to be a potential agent at numerous brokerages. Many have extremely low bars to entry and simply want an army of low-producing agents to fatten their brokerage income. Brokerages will try to attract armies of mediocre agents under the assumption that each mediocre agent has a network of friends and family willing to use them as a real estate agent each year. The mediocre agent ekes out a modest living via their personal network, and the brokerage takes home fat commission splits and fees. This is why the quality of agents remains strikingly low in our industry and is also a primary factor in why commission rates to sell your home remain so high.

The successful brokerages of the future will be companies who align themselves with the top-producing agents, not ones who gorge on the fee income generated by mediocre agents.

There are some popular real estate sites out there that are do not receive their listing data from the MLS, most notably sites like Zillow, Trulia, and Yahoo. Although there are a handful of cities where this does happen, such as Houston. Where do these sites get their information about homes for sale? There are a number of sources.

1. Home owners enter listings directly
2. Real estate agents enter their own listings
3. Real estate brokers send a feed of their listings to each site

As a technology guy, it would certainly be interesting if all of this MLS data about home listings was unlocked and freely available to software developers and the general public. There would be a wave of new websites and applications that could use it, and it would certainly help satisfy the consumer’s thirst for more and more real estate data. But will this happen? It is a complicated question with complicated and far-reaching answers. Let’s take a look at both sides of the debate and what may or may not happen in the coming years.

Who owns MLS data?

The MLS is first and foremost a “cooperative marketing agreement” between real estate brokers. No single agent has a broad enough reach to satisfy the selection of homes required by buyers, and no single agent has broad enough marketing to advertise your listing to all potential buyers. By combining all the listings, it makes for a compelling home shopping experience for everyone. The MLS agreement basically says that I agree to show your listings if you agree to show mine, plus a bunch of stuff about how agents get compensated in the process.

Because the MLS is designed to drive transactions through real estate brokers, these brokers maintain “ownership” of their listing data. The logic here is that by maintaining the best source of homes for sale, real estate agents become the best place to go when it is time to buy a house. Because their entire business is built upon this, real estate brokerages are wildly protective of this data, and in most cases do not allow it to be published on other non-MLS sites. This protectionism is not only for individual listings, but is also for a number of property details even on their own websites. Often things like price history, sales history, or even the address are hidden from public view with the hope that you will call a real estate agent who has the magical keys to this data. We don’t agree with this protectionism, and feel that consumer demand for information should take precedence over driving customers to a particular real estate brokerage. Many MLS systems in the US take these policies to a downright silly extent hiding details like listing address until you register with the website, hiding the entire listing until you register, or hiding the listing for only agents to see. A real estate agent’s primary duty is to act in the best interests of their buyer or seller, and quite frankly we think that by restricting data access, real estate companies are putting their own best interests ahead of the consumers they are supposed to represent.

It is important to note, there are a few data fields that should remain “agent confidential”. Information about how to access the home, whether it is vacant, or times that the homeowner will be away are clearly not meant for public consumption. However, we fail to see how restrictions on other details such as price history, past sales, selling commission, etc. are in the best interests of the real estate consumer.

It is also important to note that most MLS are run by private entities, not state or local government. Some are run by real estate companies, others are run by a local association of Realtors, and yet others are owned and operated by their broker membership. (Our Northwest MLS is broker-owned and operated, and is not affiliated with the NAR.) Many of these MLS are for-profit ventures, so not only do their members have a vested interest in protecting the data, the MLS itself doesn’t want to lose their grip on the data, lest they lose their revenue source.

The MLS will go away

What will it take for the MLS stranglehold on real estate listings to go away? There needs to be a viable alternative for home buyers and sellers that does not rely on MLS data. There are two components of this. First, the replacement sites must drive huge numbers of visitors. Without a huge base of home buyers, no seller in their right mind would rely on such a public listing service to sell their home. There are some interesting viable sites that may grow into this role, such as Zillow, Trulia, or potentially even Google. While their visitor traffic is substantial today, it still doesn’t exceed the pull of the thousands of real estate broker sites that rely on MLS data. Second, a listing site must be seen as a reliable data source. Consumers want assurance that a house they see for sale online is actually for sale, and a house that they see as sold is actually sold. There are issues of data quality with MLS websites today, with agents who try to game the system, fudge on property details, or are just lazy about updating their listings. However, there are fairly stringent rules in place for MLS members to gain some level of reliability and accuracy to listing data. Non-MLS listing sites suffer from much larger data quality issues today. A quick perusal of “public” listing sites will show you a listing that sold a year ago still being shown as “for sale”, or the most prevalent problem, which is that a large chunk of homes that are for sale are not even listed on the site at all.

The MLS is here to stay

The other side of this debate says that the MLS system of distributing listing data will remain intact. Real estate brokerages will not willingly give up their control of this data, and there are strong political forces in the industry that will resist changes to how MLS data is distributed. Data quality issues remain if the listing database is controlled by the general public, and these issues are not easily overcome. Lastly, in the face of online data, there remains a clear role for real estate agents to facilitate what is a messy and complicated transaction process. As shepherds of a real estate transaction, these agents are in the best position publish listing data, and their current compensation model relies on MLS participation to guarantee their income. That will be a difficult dynamic to change.

Where are we headed?

All of these local MLS systems are at risk of losing relevancy as more and more real estate data is placed online in. The thousands of local real estate agent websites are also losing relevancy as certain big websites gain huge market share for real estate search. There is clearly consolidation taking place where home buyers use only the biggest, most impressive websites to search for homes, even if their agent is not affiliated with that website. There is also consolidation occurring at the local MLS level, with various MLS organizations combining to cover larger and larger geographic areas. We’ve seen that happening in Washington, and I know that California MLS systems are doing the same. In the case of one of the most progressive MLS organizations, the Houston Association of Realtors (HAR) has actually created a public website highlighting all of their listings, doing away with the need for each individual brokerage to maintain a search website.

The debate over the future of MLS data will ultimately decided by consumers. Consumers will vote with their mouse clicks on how they prefer to search for homes, and the real estate industry will eventually follow. The changes will evolve slowly, as there are many factors in place that resist these changes, but brokerages of the future will not be able to ignore non-MLS websites that attract huge numbers of home shoppers. I personally believe that real estate agents will retain their role as the primary source of listing data, and they will ultimately publish their listings through a variety of MLS and non-MLS channels. However, many real estate agents will abandon efforts to drive home shoppers to search for homes on their websites, and will instead be servicing consumers who prefer a small number of popular, data-rich real estate websites.

Where do you think MLS data is headed in the future?

What is an “IDX feed” and why does it matter to you as a home seller? IDX stands for “Internet Data eXchange”. It is the technology that real estate brokers use to distribute your listings to other brokers. If you list your property with Broker A, that broker lists your property in their local Multiple Listing Service (MLS) database. The MLS sends out your listings via IDX feed to all other brokers on the local MLS. This is why your listing instantly appears on websites for Broker B, Broker C, Broker D, etc.

The agent in Indianapolis had a website where IDX listing data was being displayed and was being indexed by Google and other search engines. If you searched on Google, any listing in the agent’s IDX feed was appearing in search results, along with details about each property.

The controversy erupted when the local Board of REALTORS categorized Google and other search engines as “web scrapers”. Web scrapers are sites that copy content from other websites in an attempt to generate web traffic and advertising revenues from content that is not their own. They claimed that Google was a “web scraper” and forced this agent to prevent Google from indexing data from the MLS feed.

It may seem like a small technical issue, but home sellers should care a lot about this. It is a policy decision in Indianapolis that will potentially have far-reaching effects nationally. When representing a seller, our primary job is to look out for the best interests of the seller and maximize the marketing exposure for their listings, ultimately reaching the most potential buyers. Search engines like Google are a primary mechanism that home buyers are using to search for information. As a listing agent, I want to make sure that homes reach the broadest possible audience. If this means appearing on my competitors website, of course that is OK. If this means that Google allows a buyer to find my listing on my competitors website, even better!

Brokers with the NAR have implemented this policy to “protect their MLS data”. The idea is that listing agents should be able to “control” their listing data and where it gets advertised. The primary motivation behind this is that they want the clients that a listing generates to come to them, not their competitors. They also want to hold back information from the web so that buyers are forced to call an agent for their “expertise”. This obviously runs counter to the best interests of sellers, which is to provide the maximum market exposure for their listings.

The world has changed and consumers expect to find what they need on the web. It seems that there are many real estate brokers and NAR members who are clinging to “pre-web” notions of their role as information keepers. It looked like the NAR was going to revise this policy at their mid-year meeting, but the issue was referred back to committee for further consideration in November. Here’s hoping that the NAR and its members come to their senses. Home sellers expect their listings to appear everywhere in today’s online world, and antiquated policies from the NAR should not prevent this from happening.

The other day we were working with a listing agent on the purchase of a new construction home for our buyer. When we informed her that we are sharing some of our commissions with our buyer in the form of a rebate, she said “Shame on you! Why would you do something so stupid? It is agents like you who are undermining our profession and making it difficult for the rest of us to make a living.” In a recent conversation with a former colleague, one of our agents was called a profanity and told that we are “hurtful to other agents and hurtful to the real estate industry”.

While I realize that commission rates are a contentious issue in our industry, I fail to understand why other agents would need to use profanities or belittle us to argue their position. From our perspective, we simply want the ability to set our own fees based on what we think it takes to provide service and turn a profit. We are able to set our commissions with home sellers directly, but when our client is a home buyer, our compensation has already been set by the home seller in their listing agreement. If we think that the compensation we receive is too high, we simply use a rebate to reduce our compensation and bring it in line with what we would like to charge. We’d prefer that we didn’t have to give a rebate, but until buyers are able to set the compensation for their buyer’s agent, we are stuck. Greg Swann from the Bloodhoundblog has been rallying agents to support this idea of the “divorced real estate commission”, which puts the decision of buyer’s agent compensation in the hands of the buyer and seller’s agent compensation in the hands of the seller, as it should be.

No one faults a consumer for shopping for the lowest insurance rates, cheapest stock trading fees or lower banking fees. We believe that the same sort of competition should exist in the real estate industry and fail to see how this sort of competition can be “hurtful” to other real estate agents. We were founded on the belief that we could provide full-service real estate brokerage for less than what traditional companies charge. It remains to be seen if we are successful, and we will tweak our business model based on results and customer feedback. We also remain committed to professional interaction with other agents, despite the controversy of our business model. We are certainly open to debate about our business model, but wish that the debate could remain professional and not degenerate into name-calling, profanities and berating.

First, a disclaimer. Our company believes in paying our agents a salary + bonus. The bonus is based on things like our company profitability, agent performance and client satisfaction ratings. Unlike our company, most other brokers pay a straight commission. If you don’t sell a home, you don’t get paid.

So what makes for a successful agent? Here are the top attributes that I have seen.

1. Marketing and personal network - Highly successful agents have a strong referral network and established marketing program to bring customers in the door.
2. Customer service – Great customer service from the agent makes for happy customers who then refer their friends, families and co-workers.
3. Market knowledge – Knowledge of the local real estate market and recent trends is the sort of expertise you are paying for when you hire an agent. Market knowledge makes for a better negotiator and many times will get you a better deal.
4. Persistence & drive – Closing real estate transactions is a volatile business with lots of ups and downs. One month you’ll close 5 deals and the next month you’ll have 3 deals evaporate on you. A successful agent does need to be able to stay positive through these ups & downs.

I don’t believe that any of these attributes require an agent to be paid only commissions. It is true that an agent who is paid only a commission has a very strong motivation to close deals, and that motivation may improve their negotiation skills or customer service. However, there is a downside to working with agents who desperately need to close that next deal. Some agents will be motivated to close a deal to get paid that month, rather than be motivated to look out for your best interests. Professional agents know to avoid this conflict of interest, but there are plenty out there who are focused on closing a deal before focusing on their clients.

When I talk about salaried agents, the most common response from other agents is “The best agents can make far more money on straight commission, so naturally anyone taking a salary must not be a great agent.” When you calculate all of the expenses involved, the number of agents who make large amounts of money is very, very small. The vast majority of agents make a modest living, even if they are great agents. Many agents also love the rewards of helping people buy and sell homes, but hate not knowing where the next paycheck is coming from.

Our company’s compensation plan tries to address the need for a stable income via a salary, and then rewards our agents for individual and company performance to keep them motivated. There are a number of benefits that we see as well.

1. Focus on the deal – We have a centralized marketing department so agents get to focus 100% of their time on doing what they like to do best, which is closing deals.
2. Consistency – Having agents be employees allows us to offer a consistent service level, which is nearly impossible to maintain with an office of independent contractors.
3. Teamwork – Our agents are motivated (and rewarded) to work as a team. This improves our customer service levels and allows agents to better manage their work-life balance.

When choosing a real estate agent, don’t be afraid to have a frank conversation about how they are compensated. A professional agent will gladly tell you why they choose to be on commission or why they choose to take a salary. No matter what their compensation arrangement, stay focused on what matters the most, which is their customer service skills and market knowledge.

Controversy about our business model will be inevitable, and we welcome the debate since it will ultimately benefit consumers. However, we don’t want the debate to get in the way of the most important part of our business, which is helping folks buy and sell their homes. Despite our philosophical differences, we want to be a valued and respected company in the local real estate market. We wanted to share our commitments to the real estate industry.

1. Our clients come first – Our obligation to our clients always comes first. We will relentlessly protect the interests of our clients and will be tough but fair negotiators on their behalf.
2. Our agents are experienced professionals – We strive to hire experienced, professional agents. Your experience working with a findwell agent on the other side of a transaction will be the same or better than working with other professional agents in your market.  
3. We do our part of the work  -  Our business model does not involve passing agent responsibility to the other agent or to our clients. We get paid our commission to do our half of the work in a transaction.
4. Communication is essential – Communication is what makes for smooth transactions. We strive to be strong communicators throughout a transaction. 
5. We respond to feedback – Agent feedback on listings is an important part of the business. We seek feedback from agents who show our listings, and we return the favor when listing agents call us about our showings.
6. We value teamwork with agents – Closing a transaction is time consuming and requires the cooperation of both agents. If there is a scheduling conflict and we need to show your buyers one of our listings, we are happy to do so. We hope that you will return the favor when we have an occasional conflict and need a showing to occur.
7. Open and respectful – At times, our debates with the real estate industry will be heated. We will be open and honest in our arguments but will always be respectful of those who we are debating.

I take these commitments seriously and require our agents to do the same. If you work with us on a transaction and feel we are not upholding our commitments, I haven’t done my job and I want to hear from you.

Recently I attended a meeting to talk about the strategic direction of our local Multiple Listing Service (MLS). Participants at the meeting were Seattle-area designated brokers. A designated broker is the person ultimately responsible for the transactions and oversight of all agents in a real estate office. Oftentimes that person is also an owner of the brokerage and has been in the business for decades. There were about 100 designated brokers in the room, so we had a fairly strong representation of local brokerages in the room.

Part of our discussion centered around how the MLS makes information available to both agents and the general public. Historically agents were the “keepers of real estate information”. Prior to the Internet, that was certainly true, and a great deal of the value that agents provided was attributable to their access to information that wasn’t accessible to consumers. There have been two major technology waves that now put all of that information in the hands of consumers. The first was when listings appeared online in the 90′s and allowed consumers to directly search for homes that are on the market. The second wave was a series of startup companies like Zillow who have made the vast amount of publicly-available real estate records consumable by the general public. Now it is quite easy for consumers to search for homes online, find out data about previous sales, understand neighborhood trends, and even find out the size of mortgages currently on a particular property.

In this particular meeting, I was advocating for the MLS to make even more information available to the public. I was surprised at the backlash and anger it raised in the room when I voiced this comment. Here are some verbatim comments from that day:

• “If we are going to have any control of our customers, we as brokers have to control the data that they see.” – Broker A
• “Doctors and lawyers do not have a publicly accessible database for their proprietary information (i.e. LexisNexis), so why should we as real estate brokers allow the public to access our data?” – Broker B
• “Information is power. I need to maintain this power to serve my customers.” – Broker C
• “With websites like Zillow and Redfin taking away my edge as a broker, I need the proprietary information in the MLS to maintain my edge in this market.” – Broker D

What??? I was stunned that this way of thinking is still prevalent in real estate brokerages. From our perspective, the days of real estate agents hoarding information are over. Online companies will continue their march forward, and more and more data will be freely available to consumers whether real estate agents want it disclosed or not. There is a huge hunger for this data, and allowing easy access makes it that much simpler for consumers to buy and sell homes.

I understand the motivation of brokers. Brokers want to maintain some control of the data so that consumers continue to call them and engage them during the real estate purchase process. We certainly want consumers to call us and use us as a trusted advisor. However, I think that the role of agents is changing rapidly, and many brokers are slow to recognize it. Buying and selling real estate remains complex, and there will always be a role for agents. We simply believe that the role as information provider is rapidly diminishing and agents will need to compete on service and knowledge going forward.

Some of the items on the list are wishful thinking and will likely never come true. Others are already in the process of changing. Allow us to be idealistic for a moment. We would love to hear if you agree (or disagree).

1. Sellers pay the selling agent commission and buyers pay the buyer’s agent commission. – This makes complete sense, doesn’t it? But historically sellers have paid one large commission to the selling agent, who splits it in half with the buyer’s agent. The result is that buyers get to use the services of their agent, and end up feeling that they are not paying anything for the service. In a perfect world, the seller pays his agent and the buyer pays her agent. That allows for open competition on commissions for both the buying and selling side of the transaction, which is the way it should be structured. However, the likelihood of this changing is slim. It has been a long-established business practice to have the seller pay all of the commissions, and changing it will fundamentally alter the relationship between buyers and buyers’ agents. It is easy to see that this would put downward pressure on buyers’ agent commissions, so many agents will not willingly want it changed.
2. Real estate data is made available freely to consumers, always – Historically, real estate agents have held on to key pieces of data and restricted what can be shown on MLS listings. This is an easy method to force consumers to contact real estate agents. In the age of the Internet, this no longer makes sense. Our customers should never have to call us if they want to find out a sales history for a property, how many days a property has been on the market, or what day a property has an open house. There is only one data point that should be kept private, which is information that would compromise the security of a home seller. (e.g., security system instructions or times when the owner/seller are not at home) Our local MLS has been making progress here, and certainly the pressure will continue as other sites like Zillow and Trulia continue to push out more and more data that used to be the exclusive realm of the real estate agent.
3. Higher education requirements for real estate agents – It is no secret that the bar to becoming a real estate agent is low. In the state of Washington, you are required to have 60 hours of education and pass an exam. In contrast, it takes 600 hours of training to become a manicurist, 1000 hours of training to become a barber and 1600 hours to become a cosmetologist. Keeping the bar to entry this low leaves us with too many agents, a lack of experienced agents, and too many agents fighting for too few commission dollars. Washington has made some progress recently by increasing educational requirements to 90 hours for a first time agent. This is a good start, but we would like to see even higher requirements. 
4. A single, unified online listing database – Real estate brokers and agents waste a lot of money recreating property search features over and over and over again. Both full service and discount brokerages will likely disagree with me here, as most want to create a web search feature that differentiates them from competitors. From a consumer’s perspective, this does not make sense. Wouldn’t it be ideal if there was a single, really awesome website where all brokers put their listings and you could easily search? The MLS databases already exist to enable this to happen, and the MLS organizations would be logical candidates to host such a site. However, the MLS is controlled by brokers who want to direct traffic to their own sites. My contention is that brokers should compete on service, market knowledge, and price, not on their ability to create a fancy search website.
5. Transparency in the mortgage industry - Throughout my years of real estate investing, I have had mortgage brokers attempt to rip me off on numerous occasions. I have caught it countless times on my client’s HUD statements as well. Mortgages and mortgage pricing are complex and confusing to most people, but I fail to understand why the industry cannot adopt simple consumer-friendly policies. There should never be an opportunity to slam a buyer into a higher interest rate at the last moment (and pocket the proceeds).  If the buyer requests a rate lock, the broker should lock the rate and provide written confirmation. If the borrower does not need more cash to close the loan, the loan is sold at par with no Yield Spread Premium (YSP). If the borrower needs additional cash, the YSP is accurately disclosed and the buyer is made aware of the loan pricing matrix to see how the interest rate has changed to reflect the additional cash received from the lender. Lastly, and most importantly, the mortgage broker discloses how they are paid, and there is no opportunity to randomly change this. Seems simple, doesn’t it? Being a mortgage broker is a lot of work and they deserve to be paid for that work. I am simply advocating for tougher consumer protections to be in place.

What changes would you like to see in the real estate industry?