I would like to know what everybody thinks about buyer rebates in real estate. I just exchanged links with somebody on REW and it mentioned a 1.5% buyer rebate. This is very puzzling to me and I'm having trouble understanding the benefits, both long and short-term.

Here is AlcanRealty's reply from my other thread. I decided to move it to a new thread and get REW opinions because nobody would see it on a link exchange thread.


alcanrealty

I've studied all sorts of businesses from Standard Oil to Wal-Mart and hundreds of others. They all have a common denominator: give customers what they want at the lowest price you can while still operating profitably with the highest level of customer service you can give.

The business people I really admire and try to model are the ones who didn't have a short-term bone in their body. I know we're not going to make a killing on any given deal. That's fine. I'm not interested in the short-term. I'm interested in long-term, low margin, high volume, repeatable, predictable business.

Standard Oil, despite what their legacy may be (and it's not a fair one), sold their products at a price so low, the government eventually came after them and we got anti-trust laws. Wal-Mart had a credo to never make more than 30% on anything they retailed. Like these two businesses – and I pick them because they’re obvious – real estate brokerage is a retail business and it’s a commodity business – not of product but service. The other thing to note is fragmentation. When Standard Oil got started, there wasn’t a market in the United States (or the world for that matter) that was more highly fragmented than oil. There were thousands upon thousands of oil producers and refiners. Anybody and everybody entered the business. What allowed them to achieve such massive success was their ability to operate at insanely low margins (low-cost structure) and sell their product cheaply. The railroad rebates helped but that’s another story. When Wal-Mart entered into retailing, that industry too was highly fragmented. There were a few big players, but for the most part it was fragmented. What helped Wal-Mart go from a small rural Arkansas dime-shop to one of the most successful companies in history? Low-cost structure, low-price, recognition of what customers really wanted and excellent customer service.

The point I’m trying to make here is, real estate is a wildly fragmented industry. Thousands and thousands of tiny players – which I’m one of for sure. I don’t want to be a tiny player forever. It’s not enough for me. So I had to ask myself, how do I grow and the answer to me is emulating the successful business models of those who have come from very similar market conditions.

To the average consumer of real estate services, there's absolutely no difference between Re/Max, Coldwell Banker, etc. You and I are "just real estate agents." Can you tell me the difference between Tropicana and Minute Maid? I doubt it. If you’re a consumer of orange juice, it’s “just orange juice.” However, I bet you can tell me when you go to the grocery store what makes you buy one orange juice over another: price. It’s the only tool of differentiation I can count on.

I know what a lot of agents say and in very, very rare cases, it works. That is, “I offer my clients superior service and I deserve to make 3% when I represent someone.” That may be true, but you’re stuck at the mercy of your previous clients willingness to refer their friends to you. To me, there’s no control in that and without a reasonable amount of control no business succeeds. Nordstroms is the classic example of leveraging superior customer service as a differentiation mechanism (and thus justification for charging higher prices). This just doesn’t work in real estate. The reason for this is public perception of our industry. On a small scale this approach *might* work. On a large scale in this industry, you’re doomed.

In any business perceived as a commodity by the public, price will always win. Always. That's why I compete on price. Fragmented market, commodity, low-cost structure, low-price product/service.

Joel


Do you agree or disagree with this logic? This should be a good thread.

__________________
View Port Orange Homes
Daytona Beach Condos For Sale
Daytona Beach Real Estate

I've seen many real estate websites that point out buyer rebates on their home page. Others mention it in the buyer section. When I'm not working with enough buyers at any point in time (referrals running dry, slow market, etc.), I have offered rebates to get a complete stranger a reason to continue working with me over another complete stranger out there. I do not advertise these rebates because I only use them when necessary.

I usually do it when I find out a buyer is serious and wants to buy now (and I have the time). Maybe I showed them a listing of mine that they didn't like and I want to continue working with them. Again, it depends on the situation and to me it is similar to giving one seller one commission rate and reducing that rate for another seller for whatever reason.

__________________
Southwest Chicago Suburbs Real Estate is an affordable area with close access to downtown Chicago. Money Magazine says that Orland Park real estate is one of the best places to live in the U.S. Next door you can find Tinley Park homes for sale and get Orland Park amenities at a more affordable price.

I make a point of not linking to discounters. If they have to do that to make it in this business it's not someone that I want a visitor to end up visiting or worse using.

I understand discounts to sellers, but how do you discount something to a buyer if they weren't paying for anything? Sounds more like a bribe!

It's not a discount but a rebate of co-op commission...and yes, the buyer is in fact paying it through the sale price. The buyer ultimately pays for everything. I hate when buyer agents tell buyers it's a free service paid by the seller.

There's a company here called Redfin (just expanded to the bay area) that is rebating 2/3 of the selling commission. They do not work with the buyer until the buyer is ready to submit and offer. I've been tracking their sales and it seems to be catching on with buyers, though they readily admit it's a niche service.

My company is a full-service 6% company, but I've been losing out to discounters and I'm being slowly brainwashed to the other side. Afterall, 1.5 or 2% of something, is a whole lot more than 0% of nothing.

And, regarding Joel's analogy about orange juice...I make my decision on taste and whether is 100% vs. concentrate, not on price.

__________________
Experience Seattle Real Estate and learn more about Seattle Condos and Lofts.

Our area is rife with gimmicks, incentives and what have you. It's a very competitive market here (probably everywhere at the moment).

We see everything from "Sell your house in 30 days or it's free", to "Cash back to Buyers" to "Name your commission rate".

From what I have been able to judge, they don't seem to make a significant difference to the market. However, they do make a difference to the customer and hence to my business (which is good) in the following respect:

"Sell your house in 30 days or it's free" - This one is interesting. The outcome seems to be that the listing agent will make absolutely nothing on it, and the listing commission is usually so low, no one will show it. Because the listing agent will make nothing on, they pretty much can't market the property.

"Cash back to buyer" - When buyers see this it is usually attached to an overpriced listing, and usually overpriced by the amount of the cash offering (figures). The "Cash back" is usually about 2-3% and I tell the potential buyers, we can ask for that on any offer. Whether we get it or not, is quite another story.

"Name your commission" - Interestingly enough, this one draws the most sellers. Unfortunately, the properties rarely sell and they either usually list with a name company or try and FSBO it. Many of the offices in our area, won't even show a home if the commission is less than 5%.

So what is the result of all these gimmicks? More business for us.

We give exceptional customer service to our customers and clients. We outline our customer service to our customers and clients at the beginning to point out how we differ. It works!

While the above mentioned methodology in the initial thread may seem like it is founded on the principles of success, I have to doubt the logisitics of that success.

I do agree that we are a long term business and should market our services accordingly. However, comparing the business models of Walmart and Standard Oil seems like an apple juice and orange juice comparison.

Instead, I would look at comparing a small independents business model with that of say Century 21, ReMax or any of the other major RE Corporations. How did they become so successful?

I have worked for both independent brokers as well as franchise brokers. The most significant difference I have seen in my business is, working with a franchised office, I have an incredible amount of free resources, training and marketing products at my disposal. Not to mention the change in attitude and approach that occurs when dealing with customers. I have never had to justify or clarify what company I am with and never do I hear - "Hmm, I've never heard of you are you a new company?" from any potential prospect.

So, basically my answer is no, I do not agree with this methodolgy. We will continue to rely on our customer service setting us apart from our competition and continue to market our named brand servicing.

Being associated with a discount service in my opinion, gives the wrong impression to the prospects I want to target.

In our area we do not have Buyers and Sellers agents, but instead 99 % of the agents are transaction agents (which I have my own problems with but so be it).

__________________
Jessie: Panama City Beach Real Estate, Panama City Real Estate and Panama City Beach Condos

Very well said Jennifer..

The only way to differentiate yourself in the real estate business and build long-term relationships is to provide knowledge and service that is greater than your competitions..

Offering a buyer a 1.5% rebate does not build a long-term relationship..

__________________
View Port Orange Homes
Daytona Beach Condos For Sale
Daytona Beach Real Estate

Agree 100 %.

__________________
Fort Lauderdale Real Estate | Fort Lauderdale Condo | Fort Lauderdale MLS