Brad Inman, founder of the industry’s leading source for real estate news, just published his predictions for 2020. If he’s on the mark, major changes are on the horizon for agents and consumers. “iBuyer market share will surge,” Inman predicts. “iBuyer will represent 50 percent of all sales in major U.S. markets by the end of the year.” Listen to today’s State of the Market podcast for our take on this prediction and others in Inman’s article, including one regarding further decline in real estate commissions.
Listen to today’s show and learn:
- New courses and content coming to Rebus University [1:54]
- Industry predictions from Brad Inman [3:47]
- Signs pointing to a major market boom [4:47]
- Compass likely to go public in 2020 [11:06]
- Possible partners for Realogy’s iBuyer program [15:05]
- Aaron’s experience selling through Opendoor [16:33]
- iBuyer market share to surge to 50% of all sales in major markets [24:30]
- Commission rates to drop due to digital middlemen [34:34]
- How to break through your goals.
- Plus so much more.
Related Links and Resources:
- Grow Your Real Estate Profits with Our Agent Success Toolbox
- Get Tribe of Millionaires by Pat Hiban and David Osborn for FREE
- Get 6 Steps to 7 Figures by Pat Hiban for FREE
- “An NAR name change, retirements and a big IPO: My 2020 predictions” by Brad Inman
Thanks for Rocking Out
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Read the Full Interview
Pat: All right, Rockstar Nation. Time for a state of the market with my cohost, Mr. Aaron Amuchastegui. Aaron, What’s going on buddy?
Aaron Amuchastegui: Hey, what’s up man? I cannot wait to talk about this stuff today. We hit the end of the year. The real estate market and the real estate news are going to be a ton of fun.
Pat: Talking about real estate news. Aaron, let’s start out with some real estate news about Real Estate Rockstars in Rebus University. Talk to me about this, dude.
Aaron: Pat and I have been talking for a long time about how we could start to work together and do more stuff. Like we mentioned last time I was on here. I love everything real estate with our different businesses and we are super excited now that our other company, Padhawk, padhawk.com that creates real estate software to help real estate agents get leads, get listings has now emerged with Real Estate Rockstars in Rebus University as the official platform.
Over the next year, or even over the next few weeks, you are going to start to see some additional hosts coming on. Trying to add on new topics. We are going to be trying to share more about different software and training opportunities. If you haven’t signed on to Rebus yet, for Rebus University, we are adding more classes, more course work. Trying to really take everything that Pat has done so far. Pour gas on it and really add fuel to the fire.
Pat: That’s awesome and I’m excited. I know Paul Morris has hosted a couple of episodes soon to come. Yourself have, I know few of our other past guests. Adam Roche, Matt O’Neill from Matt O’Neill Real Estate Company. All coming on as hosts soon, right?
Aaron: Yes, we’ve got so many guys. You had previously interviewed them. People loved their interviews on there. They did so good and they’ve come on over the next few weeks and help us fill in guest hosts, try to see each of their niches, and see really what the listeners want to hear. We are excited about all the feedback we are going to hear on there. Yes, Adam Roche, Matt O’Neill, Paul Morris. Ian is going to be doing some, I’m doing a few of them. We are really having a lot of fun with it to try to see what people want to hear.
Pat: Oh, well. Exciting stuff, but let’s get onto some news. Some real estate agent, real estate commission, real estate industry news. What do you want to talk about first today, Aaron?
Aaron: One of the fun articles you and I have been pushing back and forth to each other was the fun exciting predictions from campus. Sorry, not from campus, from Inman. Brad Inman came in to give the big predictions of 2020. The top of his title says, “NAR Name Change, Retirement’s Big IPO.” Let’s start talking about that, Pat, as we jump into taking those predictions. As I was reading them, I had to remind myself, “These are just predictions. They haven’t happened yet.” These are the fun predictions, what do you think about it?
Pat: Look, if anybody knows, if anybody is, how do you say, qualified to make predictions, I think Brad Inman is. He runs the largest real estate newspaper out there, Inman News. He’s read probably more articles about more of this stuff than anybody I know. Just as the chief of that company. Anyways, let’s talk about this list. The first thing on his list is there will be a booming real estate housing market. He sights ABCs, like a third grade can understand. The way that I learn is, A, low-interest rates. B, a growing economy. A good economy, very low unemployment, everybody’s got more money than they did a year ago. And, C, an expanding housing inventory. A lot of people would debate C. Let’s talk about this.
Aaron: When he says booming housing market, I think there is a lot of different ways people could say booming housing market. I think booming housing market means lots of sales, prices continue to go up. I believe in this prediction, I agree in this prediction, but I think there is going to be outliers. Whether it’s the entry-level, or there is not very much low-income housing out there right now. A lot of people that need housing are just completely priced out of their market. They are going to be going to apartments no matter what.
Pat: I don’t know what expanding means. That’s my point. I think we can agree that low-interest rates, yes. We can agree growing economy. Those are facts, right? Those are facts. The expanding housing inventory though, why would Bernie Sanders come out and say, he is going to do a 25% tax on house flippers, on the profit on house flippers? What is the reason behind that? The sole reason behind that, Aaron?
Aaron: He says expanding housing inventory. What does that mean?
Pat: Why would Bernie say that? What’s the reason? You are not getting me. What’s the reason?
Aaron: Just in order to prevent sales. To slow down flippers.
Pat: To slow down because it’s not affordable.
Pat: The poor people can’t buy houses because the flippers like you are making these houses too expensive and they are not affordable. That’s why he wants to tax flippers. There is a lot of people that are agreeing with Bernie Sanders and saying, “Yes, there’s not enough affordable housing, there is not enough houses to buy. There is more people going into rentals. The real estate market is not expanding.” Especially for first-time buyers, it’s contracting and that’s why Bernie Sanders came out and said it. Does that make sense?
Aaron: That totally makes sense. House flippers get a bad name for sure. Being able to say, “Hey, we are going to tax this extra.” It is so less people want to flip houses. Maybe there will be less competition at the person buying the fixer because house flippers will come in and maybe they are able to pay more than the first time home buyer because they could see the opportunity and do more with it. If that happens, it would definitely slow down flippers. Slow down business completely and crisis would have to drop.
Pat: I guess if you are a real estate agent and you work with first-time buyers and you work with flippers, you get paid the same commission on both. I guess that would be expanding. It would be. I guess maybe I’m short-sighted and thinking, well, just because there is not enough affordable houses for buyers, it really means there is affordable houses for them, but their dogs. I don’t know, maybe it just means that they are getting beat by flippers. What do you think?
Aaron: Well, I also think flippers traditionally are going to use the same real estate agent. That real estate agent is usually going to have to list for only one point instead of two and half points in order to do it. They have given them so much volume and things like that. I think as far as total commissions out there that can be grabbed, agents are going to get more commissions as a whole if it’s not through flippers or big flipping companies and things like that. More the one or two offs. I could see that making an impact as well.
Pat: Yes, I guess when people can read a million articles about how there is a potential for a housing shortage. Really, it would be a potential for livable housing. [laughs]
Pat: There is plenty of housing, look at Chicago. The streets are lining with vacant houses [laughs] in the areas. Baltimore too. You would call that housing, but it’s not livable.
Aaron: Yes, I’ll never forget the first time I walked down the street in Jackson, Mississippi. There was just hundreds of vacant houses on either side. Yes, there are houses where people want to move to. So many people are moving from California to Phoenix, and California to Austin, Texas. There is not necessarily a shortage in California anymore but now there is going to be a shortage in those areas where people are flying into.
Aaron: [laughs] Yes, talk about a bold specific prediction. I think the idea is anybody that’s going to go big in the real estate space needs to find somebody from Zillow or that’s done it before. I think with Airbnb IPO, it has shown everyone that there’s no real estate technology out there and as they get bit, they can go in. I can see it being Compass, this definitely sounds like inside information. There’s probably a handful of companies that could do it. I mean, what does Compass do? Have you used the site? Have you seen what they do?
Pat: I’m going to be honest with you. I mean, I don’t know. It’s so ambiguous.
Aaron: It looks like realtor.com. It looks like the same website as realtor.com but maybe exclusive listing and stuff like that.
Pat: I mean, I’m sure if I got a Compass agent on here, they could break it down like a third-grader can understand. We encourage one to reach out to us and I think I’ve had a few on here before but we really haven’t asked to break down their technology. I don’t know, it always seems like a big idea when they say, “Okay, this company is going to announce it’s going public.” As if there’s no other public real estate companies but what people have to understand is if you buy and sell stocks, you can look on the New York Stock Exchange and buy Remax today. It’s been public forever. You can buy eXp Real Estate, same thing. It’s a public company, right? I think some of the hype is it’s just that, right? It’s just hype. Well, what’s the difference in it than a company that already is public? Most of the real estate companies are public.
Aaron: Yes, well, a company going public is very different than a company like Airbnb going public. Airbnb is a real estate technology that wasn’t based on agents and people. It’s a tech, it’s a real estate tech only, and that it becomes a–
Aaron: Yes, it’s become a juggernaut. So comparing those two and saying, “Hey, because Airbnb did good, now Compass is going to file.” Well, why would he pick Compass over anyone else but I know more people will go public this year, I just don’t know how big.
Pat: He loves Compass. I mean, he talked about Compass a lot but– I don’t know. I mean, obviously, there’s something behind the prediction.
Aaron: If this one gets exactly right, somebody’s going to be asking him if he bought that stock early and what did he know because that’s it. It’s a very–
Pat: [laughs] You probably can’t.
Aaron: It’s very specific.
Pat: Well, I mean, again, you’re assuming it’s going to do well. Look at Uber and Lyft, they came out, plummeted. Again, it’s hype. It’s IPO. What’s the big deal? Well, eXp is public. You don’t see people being like, “Oh my God, hurry up.” And same thing with Remax. Remax has been going. Same thing with Realogy and Warren Buffet and his companies. All that stuff’s public. Anyways, it’s interesting. It’s news, let’s move on. Let’s talk about number three. He’s got here Realogy’s iBuyer Program.
Again, talking about public companies. They owned Better Homes and Gardens, they owned Century 21, they owned Coldwell Banker, they owned ERA and they owned Sotheby’s. This is a big operator. They are expanding their tech called RealSure. Basically, he’s saying that the RealSure which is their iBuyer, I’ll buy your home for cash, is going to partner with Zillow or Opendoor. Tell me about this.
Aaron: There are so many iBuyers out there, right? There’s no shortage of iBuyer companies out there. Zillow is fairly new at it but Opendoor, I’ve sold a lot of houses to Opendoor. I think with a lot of these two, a lot of these companies came out swinging at the beginning, they made a lot of offers. They bought some houses, they sold some houses and they’ve learned a lot. In different places–
Pat: Let me slow this down, Aaron. You said you sold a bunch of houses to Opendoor, what happened? What was it like?
Aaron: Yes, I would–
Pat: You were happy with the prices?
Aaron: Yes, the first five or six I sold to them I was very happy with that. I would buy them as foreclosures, I would fix them, I would sell to them and pretty quickly, I was able to make 75% of the profit I was going to make by selling it straight to them, and they were a cash buyer, so I didn’t have to worry about 90-day flip rules. I got to see like, “Hey, selling this in a couple weeks.” They were a good buyer.
They would go do an inspection, they would have about $1,000 where the repairs come up but they would close. The first ones I did, it worked out really really well and all they did was go put a ‘for sale’ sign in the yard and go realistic for the price that I was planning to sell it for, and not a huge markup. They would put just little markups in there. More recently, their offers haven’t been as good and a lot of the staff that they have in the Austin area, their office is much smaller there now.
I think they learned a lot, maybe they’ve gotten a little bit more selective on their staff. I haven’t been able to sell them anything in a few months but I think one of the ideas with that is because there are so many iBuyers, it’s going to make a lot of sense for these big companies that have these giant real estate companies instead of starting their own iBuyer. It makes a lot more sense to merge with the ones that are out there to be able to do something with their leads and I think Opendoor is probably ideal for that. I mean, they’ve raised a bunch of money but I’ve seen them just doing less deals than they were when they started.
Pat: Part of the deal with the RealSure platform currently is not so much ‘I’ll buy your house but I’ll make you non-contingent on your move up’, right? The way I’m going to make you non-contingent on your move up is I’m going to give you a letter that says you’re going to say that you’re a cash buyer, buying your move up house and I’m going to give you that via a bridge loan. Then I’m going to charge you 2% on your bridge loan on the house that you’re buying.
Aaron: Take that as I’m getting release my house for sale and go make an offer to somebody else and what these guys are saying is, “Hey, we’re going to give you a loan on the existing house that you’re at, so that way you don’t have to sell your house first. It does it in the right order. People, they don’t have to sell their house then move, they can actually make an offer with this company– [crosstalk]
Pat: They got competing offers and they’re like, “Man, I can’t compete because I got all my equities in my primary resident.” So RealSure says, “We’re going to pretend like your cash buyer and you’re going to be able to write an offer that says ‘I’m cash’ so that you beat out the seven other offers.”
Aaron: Right. Well, that’s some of the news that we saw too, is there’s new companies coming out there doing the same thing.
Pat: Yes, Tim Hyoe has the one called Homeward. They just got $25 million in funding which is a lot of money to do the same thing. Well, here’s the thing, let me be devil’s advocate for a minute. Okay, I get the premise. I get the premise that part of our iBuyer program is, “Hey, you know what, don’t sell your house short, don’t give away your houses yet. Let me make you a non-contingent. You buy this other house and then you could sell your house at market value.”
It’s part of that process and the way we’re going to do this is we’re going to give you a letter that says you’re a cash buyer, even though you’re not a cash buyer. We’re going to buy the house for you, and then you pay us like Homeward’s company. Homeward, the startup charge is 1.9%. They actually buy the house, and then when you sell your actual house, you buy it from them. They promise not to sell it to anybody else.
Aaron: It’s like getting to take it off the market. You’re saying, “Hey, take this off the market so it’s mine, then I can sell mine.” It’s definitely a need. That just goes to show how many giant companies are starting to invest in real estate right now because when we started flipping, we needed 10% or 20% per house. These companies are saying, “Hey, there’s a 3% or 4% margin here that we could do.” It’s the same. It’s similar.
Pat: It’s a margin enough though. Let me just go back to Homeward, 1.9%. I know in Maryland, the transfer taxes are 2%. 1% to the buyer, 1% to the seller, usually, roughly. If Homeward’s charging 1.9, then that leaves 0.9%, and you got other closing costs. You got to pay the title company, you got to pay things. There’s not much left for profit when Homeward or RealSure buys the house for your cash, and then you buy back again. I just don’t know if the margins are– I guess maybe they’re just using some investor money just to lose money at first, maybe you think, or whatever, and then eventually, there’ll be 3% or 4% or 5%. You know what I mean? It seems to me like there’s not enough profit in there. Talk to me about this, sir.
Aaron: A lot of technology companies, their values aren’t based on profit. They’re based on potential. Like, Facebook was worth a gazillion dollars before they had ever made any money because they saw the potential, it was losing money like crazy. Its value kept going up because of its reach because they knew that one day when they turned on that profit center, it was going to be hugely profitable.
That’s what we’ve seen now. It took several years for them to turn it on and then they turned it on. I think that a lot of these iBuyers are doing it. I read an article somewhere that was like, some of the first properties that Zillow and Opendoor and those guys bought, had lost a ton of money. But they were still celebrating it because it was like, hey, this guy clicked and said, “Buy my house.” We bought it, and we fixed it, and we sold it so we showed that that could be done. Starting with, is 1.9 enough? I can’t imagine how 1.9 is enough, unless there’s a whole [crosstalk].
Pat: What do you think the margins are for? Clearly, we found that there’s two ways to do this. You buy the house for the person, who wants to buy it, so they’re non-contingent, or you buy their house, which is what you did, five or six times. You buy your house and then you’re non-contingent because you got an offer on your house. Both ways work. What is the margin? Do you think that these iBuyer companies are making, or do you think they’re all losing their ass?
Aaron: It’s funny, most of them are growing, but I think maybe now they’re starting to get more profitable as they come up with the systems in place. You got to think too, if you’re an individual house flipper and you’re going to go out and spend $200,000 on a house, you’re hoping to make 10 to $20,000 on that because you’re going to have that experience for three or four months. The bigger money gets, the more they look at annualized return instead of per house. A big fund is going to tell you, hey, for your $200,000 investment, we’re going to give you 8% per year as your return, which isn’t very much. They’re only trying to make $1,500 a month.
Once they get the systems in place where it actually operates like a fund, where if it’s 1.9% and their average hold time is 60 days or something like that, you could look at that and say, “That’s a 12% annual return and there’s room for that.” But that requires systems. I think when they start, they all lose their ass, and then as they get better systems and they start to tighten up their overhead and things like that, they can become profitable. But so far, I don’t know who’s the most profitable yet. I think still, they’re trying to prove out like, hey, this is a system that could someday be profitable.
Pat: That leads to this other prediction here. It says, iBuyer market share will surge. Let me tell you that– Let me read this to you. Again, talking about the same stuff we’ve just been talking to, iBuyer will represent 50% of all sales in major US markets by the end of the year. 50%, every successful agent and broker will offer an instant offer solution on their own or in partnership with another company.
Aaron: 50% is bold. Right. But I don’t know. I think everybody is. You have more and more sites that are coming out there that’s going to say, “Hey, we’ll make you an offer right now.” The way he says it, is some version of iBuying that says, “Hey, I’ll make you an offer now.” At a brokerage level, these big companies, at a high level on Keller Williams, those on their main website they’ll have an opportunity for, “We’ll make you an offer or we’ll list it.” Whereas before it was just a catchy thing that would set people apart. I think everybody out there is going to offer some version. I don’t know. I have a tough time thinking that 50% of them will have an iBuyer version, like Opendoor or like Zillow, where you get a true offer and–
Pat: Like a real one. You’re saying all be marketing like a bait and switch? Oh yes, we have one, here’s what it is. But you don’t really want that. You’ll make more money if you work with me and put it on the regular multiple lists and do open houses and stuff. Is that what you’re saying?
Aaron: I have received so many letters from agents just for the house that say, “Hey, we’ll buy your house for $100,000 or we’ll list it for you for 200,000. It’ll take that. Whichever one you want.”
Pat: You’re saying that this 50% number may be true, but where you’re disagreeing is you’re saying that 90% of those 50% don’t really want to buy their house. They’re just giving them lip service.
Aaron: Yes, or don’t really have the ability. It takes a lot of effort. Our businesses have tried it and done okay with it. But it takes a lot of effort to actually deliver an offer quickly, be able to deliver an offer that you can close on without it being some form of a bait and switch. It’s a hard business. 10% will be able to do it successfully, or actually put their money where their mouth is and close on that.
Pat: I just wonder if then because so many of them coming out and because every company is opening their own version of it, if they’ll start competing if the margins start shrinking just because they’re going to Keller Williams, and they’ll get an offer for $210, and then they’ll go to RE/MAX, and they’ll get an offer for $211, and then they’ll go to Compass and get an offer for $212, or then they’ll go to Zillow and get one for $213. Is that–
Aaron: It’s going to happen. We put signs in all of our yards that says, “I’ll buy your home.” We’re not an iBuyer, but we’ll tell people, “Hey, we’re fixing this,” and they’re like, “Let us make you an offer.” Anyone that calls us, they send us the offer from Opendoor and Zillow like, “Hey, can you match this? Can you do it?” They’re naturally competing them. People are naturally having them compete. One funny twist that we talked about it last time is, people won’t be able to wholesale anymore. People won’t be able to do pocket listings off-market listings. I think a big version of iBuyers is that they’re making an offer, and then they resell.
Pat: Slow this down. Slow it down. Why?
Aaron: A lot of the people that are making the offers, they’ll make $100,000 offer, even Opendoor, but the smaller versions. Opendoor is closing with their cash, but in the smaller versions, they make an offer, you agree to it, and then they send that contract out to somebody else, and say, “Hey, I got to sign up for $100,000. Do you want to pay me $110?” The NAR list ruling a couple weeks ago was you can no longer do pocket listings like that. I think that’ll affect the iBuyer a little bit.
Pat: I see what you mean because we talked about that, but let’s think about this. The consumer has not listed with an agent. That NAR thing was really for agents. It was, I think for agents to abide by. The consumer that doesn’t have a license. If this consumer wants to interview five iBuyer companies.
Aaron: I think the consumer gets to do whatever they want with that. I think my point was some of the people making those offers are the guys that aren’t going to be able to close it themselves anyway. They make the offer to tie it up and then wholesale it to somebody else. That person making the offer– There might be [crosstalk].
Pat: I can’t imagine how fast and efficient it’s going to be when you have a company like Opendoor competing against a company like eXp or KW, or whatever. You know what I mean? The brokerage has got a ton of bureaucracy probably in the system that the Opendoor doesn’t have. Like you said, they’re not going to be in a position to make a quick decision, a strong decision really fast, or maybe they will. I don’t know. What do you think?
Aaron: Maybe that prediction is somebody’s going to create one website that goes and gets the offers from Opendoor. [crosstalk]
Pat: There is one. There’s a guy that came on, and I wish I remembered it, but I don’t. He has that thing. He’ll actually go out. He’ll do the work for you. His software will do the work for you. You’re the consumer, you go to his software. It goes out and goes to Aaron, and it goes to all these iBuyers. It gets five offers and gives you all five.
Aaron: That’s the technology that– That is proof that the margin for those iBuyers is going to go down on the actual purchase. The only thing that’s going to make them profitable is that they also get their operations if they cut those operation costs now that they know how it all works. Those are the perfect businesses for mergers as well. All those different iBuyers can merge into one. They get to cut their overhead down to one and do 10 times made transaction.
Pat: All right. The last one that I think is worthy to talk about, and again, you could beat a dead horse with this, but nonetheless, it’s worth mentioning. He says, “A squeeze on commission rates.” Again, predicted for 10 years, but probably it hasn’t happened. It’s always slow to go down. I’ve been into 35 years, and I’ve seen commissions compressed but extremely slow. I was saying, “All of a sudden, there’s going to be a squeeze.”
There’s been a squeeze on him for a long time, but maybe he’s saying that the straw that breaks the camel’s back, he’s saying, “Realtors will not be disintermediated.” Meaning, they’re still going to be needed, “But the squeeze on commission rates will accelerate as too many digital middlemen,” and I’m going to have you define that, “Too many digital middlemen continue to get their hands in the pie.” Talk to me about this, Aaron.
Aaron: Something that you said that I hadn’t even thought of, you talked about how slow they’ve actually come down because part of me thinks there’s been a battle on commissions forever. As an investor, that’s always the first thing that investors would say like, “What are you paying commission?” “Well, my brother’s an agent, let’s pay him instead.” There’s been that squeeze for a certain percentage of the market forever, but when you think that how long it’s taken– When my grandma was first listing houses for us, she talked about, “Oh, we used to charge 6%, and we could get both sides, and now it’s five,” but really, you’re right. It’s down to maybe it’s an average of [crosstalk].
Pat: There’s no real boldness where someone’s like, “I’ll give you 500 bucks.” What? That’s it. [laughs] There’s just no obnoxious negotiating change that I’ve seen. It’s always very slow. Anyways, go ahead.
Aaron: Yes, it’s too slow.
Pat: The digital middlemen. What’s he talking about?
Aaron: I think it’s even just the technology that’s out there, the digital middlemen, that’s like realtor.com. You can go on realtor.com. You can go on zillow.com. You can go and unread, then you go on all these sites. Now the consumer is educating themselves a lot more. You used to have to call your agent, and say, “I want a house with a pool of 3,000 square feet,” and your agent would have to send you this sheet. They did all the work, and they would show it to you, and they would do that, but now the consumer says, “I’m the one that told them which house to show me. I should be able to pay less commission because of it.” There is an argument with that.
Part of that argument makes sense, but the actual deal and the negotiation is where the agents still have the ability to earn their keep, to do the negotiation to say, “Hey, you are going to offer a full price for this, but here’s the comps. Let’s offer a little bit less.” When we see iBuyers, I guess it goes hand in hand. If half of the deals or iBuyer deals, well, then commissions will get cut down. We see lots of flat rate listing companies. We see them out there. I think it’s still going to be a small percentage of the market. People that aren’t really, really good, transactions and they’re selling a lot of houses, I could see that the rate’s going down.
I think it’ll just challenge agents to work harder to earn their part of that commission to show why they’re– I had a sale that most of the time, when I hire an agent, I want to say, “Hey, I’m giving you 10 different listings. These things are turnkey. We know exactly what it’s going to sell for. It’s going to be a VA buyer. You’re going to have very little work. I want to pay you 1% as a commission fee.”
A lot of times that happens, but I recently did a deal up in Portland, Oregon, where it was similar. I was jaded to the idea that my agent’s not going to be able to help me do that much. We had an offer for $650,000 and I’d had the house for so long. I was ready to get rid of it. He said, “No, I’m going to do this.” He negotiated, and we ended up getting multiple offers and highest and best. We sold it for $30,000 or $40,000 more than I was ready to accept on it because he did his job as an agent. It reinspired me to realize like, “No, agents that do a good job and earn that are worth their commission and then some.”
Pat: What I think he’s talking about here is, the same strategy that you’ve used to negotiate commissions for yourself, and that you don’t have time for the BS and the sales pitch or whatever, and you’re just like, “Look, dude, there’s 12 agents that I can choose from. I’m calling you. You want 10 listings or not?” The Oreo outsourcers, like Fannie Mae, Freddie Mac and stuff like that do the same thing. They’re like, “Dude, I’m going to give you 20 listings, 50 listings a year, but this is all I’m going to pay you. If you don’t want it, I’ll give it to somebody else.” Most agents are like, “Okay, yes, I’ll take that deal.”
So it’s the same thing, but the digital middlemen are like online things where you could go in and you could find out, you can interview five agents online without physically meeting them. And they got to put, “Oh, I’ll sell your house for 375 and I’ll charge you this much commission, and I’ll spend this much in an advertising budget and whatever.” That’s kind of a middleman.
In the past what’s happened is, I want to interview three agents and then you get emotionally caught up in it. They sell you on why they’re worth their commission and then because it’s a human being to human being interaction, the commissions tend to higher because you’re sold and its hard to say no up close but with digital middlemen, it could like Redfin or whatever, “Oh, I could do this company for this or this company for this. I don’t need to meet anybody, just fill out the form and they’re going to come out and put a lockbox on.”
Aaron: On the listing side, we see that. As buyers, I was thinking more like “Hey, the realtor.com.” There’s a company in Texas that we use or they charge seven bucks a day. We upload our pictures and they list it in there and they’re the agent on there. I think there’s going to be–
Pat: Wait a minute, they’re a listing company that will list your house for seven bucks a day?
Aaron: Yes. They’ll take the professional pictures.
Pat: [laughs] I’ve never heard of this.
Aaron: They will upload it. They charge $7 a day for the listing and so you’ve had that house 90 days, you end up paying 600 bucks for the commission.
Pat: That’s fascinating.
Aaron: There’s more and more of those out there. Really, it’s the job to get it on the MLS for you. I put on Facebook once. I said, “Hey, I’ve got five houses I need to list in Sacramento, does anyone want to do it for one point listing fee?” Within an hour, I had 50 messages and I was like, “Yes.” That’s the other version of a middleman.
Pat: It’s the exact same thing. You know what I mean, the digital middleman was Facebook. I don’t want to meet you there. I don’t want to talk about it. I really don’t want to get caught up in it emotionally and then it takes the ability for the agent to build a relationship out of the transaction and causes what Brad is saying here, a squeeze on commissions.
Aaron: I think there probably would be more examples of squeezing because of those digital middlemen that are out there but I don’t know if it’s going to be any more of a dramatic of a shift than what we’ve seen prior.
Pat: He said, “There’s too many of them.” Basically, the squeeze on commission rate will accelerate too many digital middlemen and also he said, “Get their hands on the pie.” I think he’s talking about Opcity and realtor.com and all these other companies, Zillow that are taking part of the commission, taking referral fees. You’re taking referral fees, that’s a piece of the pie.
Aaron: So much technology coming into real estate, there’s so many transactional type things and fees that come with that technology too that agents have to pay it, somebody has to pay it.
Pat: Aaron, we’re out of time and out of news. I appreciate you coming on the day. This had been a blast. I will see you for the next state of the market.
Aaron: I cannot wait. Thanks, everybody. Bye.