There is a lot of talk about new real estate business models, with rebate or discount brokering getting the most attention because of Redfin’s high media profile. Are there business models in other industries that could be applied to real estate? We wonder.
Would consumers buy a Real Estate Policy, modeled after an insurance policy, where, for an annual premium, their real estate needs would be met? It might keep clients loyal to a brokerage since once a deal is done, the client is gone. Or would they get the policy, do the deal, cancel, and leave anyway? Would it be a harder sell because the benefit is delayed or would the consumer see long term value? If the premium was low enough, consumers might go for it. But then it becomes a numbers game. And you still have to pay agents…geez, my head is starting to spin.
The broker might have to give the policyholder some more value when they are between deals (it could be years) —homeowners coverage, whatever. Any thoughts? Or should this be tossed on the scrap heap?
Common Real Estate Business Models Today
Could it compete with any of the present real estate business models?
1. Full Service “Traditional” Broker. Compensation is a negotiable commission computed on the gross sales price. Custom and practice has traditional brokers negotiating from the 6% commission (now averaging about 5% based on NAR’s recent reports)
2. Full Service Discount Broker. Same a 1. except the fee is reduced by up to 3% against the going rate of the full service brokers in the local market.
3. Rebate Broker. The broker rebates a portion of the broker’s paid commission to the client. Services may or may not be reduced. Rebates to consumers are illegal in some states.
4. Fee for Service or “Flat Fee” Broker. Fees are paid based on a sliding scale of services, ranging from mere listing in the local MLS (about $500) to showings, offer and contract negotiation.
Related Post:
2010: A Real Estate Odyssey, our futuristic vision of a real estate office serving up REM.
Further Reading:
Competition in the Real Estate Brokerage Industry (A Report by the Federal Trade Commission (FTC) and U.S. Dept. of Justice, April 2007)
A Critical Asssessment of the Standard, Traditional, Residential Real Estate Broker Commission Rate Structure (AEI-Brookings Joint Center for Regulatory Studies by Mark S. Nadel, October 2006)
Technorati Tags: Real estate broker, real estate commissions, real estate business models, FTC, DOJ
The new ACRE™ Designation for Accredited Consultant in Real Estate is just getting going. It combines some aspects of all four of the models you discuss, plus hourly rates and retainers.
The consumer site is http://myreconsultants.com, while the designation site is http://www.acrecourse.com. Who knows what the future will look like?
Hi Jim,
Interesting. Our futuristic post was based on the premise that a mix of all models would give consumers choice, depending on their particular needs and desires at any given time.
http://tinyurl.com/3c3uwo
I will check ACRE. Thanks for the heads up Jim.
Hi sellsius,
I am on the ACRE Council and serve as one of the educators coaching agents on the implementation of consulting into their business. I also created The Consulting Times at http://theconsultingtimes.com that has both a consumer and real estate professional edition. It is great to have Jim on board as an ACRE too.
BTW, have I missed your time table for the tour stop in DC? I know it is around July 4th … anyone planning a meetup yet? My offer of the great pot roast and raiding my wine cellar is still on the table! Come to think about it, that sounds more like a winter treat!
Also, I am planning to be in SF for Inman and don’t want to miss the blogger portion, especially the beer party.
Hi Merv
We will be celebrating the Fourth in Washington DC. We don’t have a meet-up yet, so if you can round up a few chaps we can spend some time together.
The dinner invitation sounds great. We are overnighting in Cherry Hill Park in College Park, MD.
SF will be great. We will be clinking beer bottles (or wine glasses)