The race to the bottom is about to begin in the real estate industry

So-called “discount brokerages” like mine have been frowned upon by the industry. I cannot tell you how often I was told that fateful phrase, “You are bad for the industry.”

The whole concept of charging a lower fee to list more homes has always been taboo. We were told we were devaluing ourselves; we should know our worth and other such things. The industry is now realizing that business is a race — and we are running a very different race.

On the one hand, you have an entire industry filled with brokerages running the race to appeal to the agent. On the other hand, there are a select few companies, like mine, that firmly believe we should be racing to appeal to the public, and if you win that race, then the agents will follow. 

What agents are looking for in a brokerage

I am a firm believer that almost every agent who moves brokerages only does so to make more money. For some, that means leads or training, but for the majority of agents, that means a lower cap or better commission splits. They simply think if they can do the same number of deals with better broker splits, they can make more money.

Those agents believe they could save the money that they used to pay their broker and use it to purchase more leads and make more money that way. Just today, I saw multiple posts in different real estate social media channels asking what the best place to buy leads is. 

You see, those same brokers and agents that accused us of being in a race to the bottom are running a completely different race to the bottom. The race that they ran was to see who could recruit agents the fastest.

Who has the best value proposition for the agent?

Some brokerages chose to run that race by offering plush offices, free technology and tons of expensive training platforms. Other brokerages chose to run that race by taking almost nothing from a real estate agent whenever they closed a deal.

You might not be shocked to realize that the companies taking lower splits with more freebies for the real estate agent are the ones that seem to be winning this race. This arms race has led to total war between brokerages, and the public has been left out of the equation.  

Just this morning I received a recruiting email from a 100 percent brokerage saying, “At our brokerage, it’s all about the agent.” The email goes on to state that I am put first and it’s all about me, the agent, and everything they do for me.

What’s good for clients is good for agents

What would it look like if you ran a brokerage that was all about the client? Would that actually be better for the agents? What does it say about our industry that everyone is all in on maximizing savings and value to the agent but savings for our clients is so taboo?

Could that be why we are under such scrutiny? Now, with lawsuits being waged and incredible penalties being levied against the industry, the public is starting to have their day finally. 

You see, companies like mine have been racing to appeal to the consumer, not the agent. The same technology that is used by countless companies to run a more efficient company and offer a better split can be used in a different way. That savings can be used to charge the public a lower fee to get agents listing houses faster and generating more business by way of a most affordable value proposition.

We believe that if you get the consumer, the agent will follow. We believe that all real estate coaching can be summed up to the simple phrase “list houses faster.” What is the best way to do this? Well, obviously, if you have a better value proposition for the public that solves that problem.

When we switched from our first brokerage our split went from 50/50 to 90/10, and we did the unthinkable. We cut our listing fee in half and went from flunking out of the industry to top producers.

Competition and disruption are good for the industry

The Department of Justice is seeking to reopen its settlement with NAR in an effort to encourage more competition in the real estate industry, which will likely put downward pressure on commissions. It seems that every day another brokerage is distancing itself from NAR, which further disrupts the solidarity of the industry.I feel that’s a good thing.

Our responsibility should be to our fiduciary the client, not to the industry. I believe the more we seek solidarity with the wants and needs of our clients, the better and happier we will be as agents. The real question is, can these companies that cut margins razor thin to win the race for more agents make ends meet if their agents have to compete with lower fees to win over the public?

It makes more sense to charge less money to list homes and use those listings to generate buyer leads than pay a middleman to give you buyer leads in the hope of one day listing homes. Why is it morally wrong to charge the consumer less money but morally right to give a referral company 40 percent or more for a referral?

We fully realize that listing homes, even at a low fee, will generate more revenue per hour and even more future revenue than spending weeks or months working with buyers on evenings and weekends, even if they do pay you a higher fee. 

We realized that scaling an agent up to handle 20, 30 or even 40 active listings is a lot easier to do than managing even five very active buyers. Systems and processes can be leveraged to manage a lot of listing inventory, but managing even five families who need you when they get off work or on the weekends is an impossible task.

This is further compounded when you have a family of your own who expects you to be at a Little League game or family functions. Also, let’s not forget, you can put in untold hours of work, and they finally elect not to buy or their deal falls apart. Despite all of this, a large section of our industry pays huge amounts of money and referral fees to invest countless hours on buyers that might never pan out. 

Using a lower fee listing model to expand your business makes so much sense on so many levels. Practically every company that you interact with has some sort of loss leader that they use either seasonally or continually to generate happy customers and continually expand their sphere.

One of the most famous loss leaders is Costco’s rotisserie chicken which has retained its $4.99 price since the year 2000. In 2015, on an earnings call, the CFO of Costco admitted they lose somewhere between $30 million and $40 million per year selling rotisserie chickens, yet even with our inflation issues the price is still $4.99. There must be some logic behind this right?

All of these things are common sense to most entrepreneurs. Losing $3 for each chicken sold is a great idea as long as you are making more than that from their visit. According to the Harvard Business Review, research over the past two decades has revealed that simply asking your customers what they want and what makes them happy makes them three times as likely to remain a loyal customer.

If the average American sold the average home, $430,000, and paid 6 percent or $25,818 to do it, would we be shocked if they gave the feedback that they wish it didn’t cost quite so much? Would anyone dare ask the question, “Do you wish it were more affordable?”

Real estate coaches have been pushing you to work harder, and lead companies are selling your leads back to you. Coaches and lead selling companies are relying on your inability to think outside the box. The biggest threat to both of them is an industry that is open, competitive and embracing change.  

The more we as an industry are content to do the same thing for the same fee and not compete on price, the harder it becomes to generate business and the easier a target we are for law firms and the Department of Justice. It’s time we stop worrying about how the industry feels about us and start doing what every other company in the world does: Offer more value to our clients through great service as well as pricing. 

Grant Clayton is the founder and CEO of 1 Percent Lists. Connect with him on Facebook and LinkedIn.