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I Bet I Can Win A Race To The Bottom!

Do you want to race to the bottom? I’ll bet you I can win.

With the coming of the Internet and the ability to sell things on line the cost of sales has dropped dramatically. If a product can be sold in a completely digital format then once the initial setup costs have been covered the marginal cost of every additional products sold is essentially zero.

Time and service don’t qualify as goods that can be sold digitally. Time is a short supply and service requires time, energy, knowledge and extra dollars for every marginal amount of service delivered.

Seth Godin recognizes this and makes it one of the primary themes in his recent book Lynchpin. He recommends that people make themselves valuable by becoming indispensible, ergo the title – Linchpin: Are You Indispensable? A Linchpin prospers because he or she doesn’t compete on the basis of price or because they are a commodity.

What if you don’t want to compete on service and quality? That leaves price, and whenever you compete on price you find yourself in a race to bottom. You can drop your price but someone can always charge less for the same product, especially when the marginal cost of that product is zero and the barrier to entry into the market is low.

That’s where we stand with a simple real estate multiple listing. If all we’re talking about is the listing itself, it really is a widget. One is pretty much the same as the other, and where they differ isn’t dependent on the service quality of the realtor.

Of course, someone is already doing this. They’ve been doing it for quite a while. I ran across them while doing some SEO work. I was looking where I ranked in Yahho partway down the page I saw the name of one of my sales people as well as my company name.

I clicked the link on that way and found someone who sells listing services 0.5% of the sales price. To give you an idea of that would be, a $500,000 listing would cost $2500, while a $200,000 listing would cost $1,000.

My company name and my sales person’s name came up in an objection handling part of the website. We’ve all heard the common objection to a discount listing: no real estate agents will show it, or the listing will be blackballed. I’m on a list of brokerages that has sold discount listings.

The guy is not doing anything wrong in listing my information. He is simply reporting the truth, and I don’t have any kind of problem with that.

There is also has an FAQ page, and one of the questions is whether you can list your property with him the second time if it doesn’t sell during the original listing. The answer is no, unless you make a meaningful price reduction.

The reason for this is simple, and the answer is wise. He only gets paid the 0.5% when a succesful sale occurs. He also claims that most listings will sell within the original listing period if they are properly priced. He doesn’t want to keep giving the same service time and time and time again to a seller who isn’t serious.

I don’t disagree with that position. Generally speaking price is critical to successful sale, and a serious seller is more likely to sell than someone who isn’t serious.

He also provides examples of past listings that he’s taken that didn’t sell, and he shows what happened with them subsequently. Sometimes they list at the same or higher prices with regular realtors and sometimes they sell for less with regular realtors, but the message is the same: price sharp.

I’m constrained by the realtors code of ethics from criticising another CREA member, so I want to be very clear: I don’t have a problem with this realtor. He’s selling a product that the market wants (to one degree or another), and nothing stops me from competing with him. He’s a fellow member of CREA, and claims to have sold listings on this basis for years – I should be grateful that he provides the Competition Bureau with living proof that there isn’t a one size fits all service.

So, I’m going to compete with him. I will offer listing services for 0.5%, with the understanding that its an online business, and that no agency services are offered. I’ll do it differently from him on some levels, however. I’ll sell this service on the basis of price, but I won’t imply that its a cheaper service, because its not – its less service for a lower price, pure and simple.

I’ll also encourage other realtors to cooperate fully with the sellers, and I’ll spend some time explaining why its advantageous to them, and why it isn’t deleterious to them.

When I first got into this business back in the 80s I, like everybody else back then, used to work FSBOs in an attempt to get listings. There were various approaches, but one was based on helping the FSBO for free, with the understanding that he was unlikely to sell, and with the goal of building a relationship with him so that when the time came for him to list, he’d list with you. You’d provide him with signs, feature sheets, comparables, etc., mostly to program him to tell other realtors that, if he was unable to sell, he already had someone he’d use. Not the best business strategy in the world for an established agent, but for a newbie with a slim client list and poor prospects it didn’t look as bad. If the guy sold, no real loss – he wasn’t going to list with you on day 1 anyway. If he didn’t sell you had a better chance at getting the listing. (BTW, agency was way less developed in those days. The system has to be updated in that regard).

I’ve listed real estate on a discount basis for people before, and some have been successful. I’m happy about that. But I also realize that offering a one size fits all discount package is short sighted. Agents work together to organize real estate. If I list properties on a discount basis while writing offers for buyers at full pull splits I’m free riding. If I let lots and lots of sellers face off against agents who owe them no agency duties then, over the long run, sellers will tend to suffer and buyers will prosper (a pro will generally get the best of an amateur). And, if I let a non-represented seller access the MLS and then deal with a non-realtor buyer, it will only be a matter of time until a professional buyer takes advantage of an amateur seller (through non-removal of subjects, re-negotiation or any number of other tactics that professional realtors effectively prohibit).

So, I’m going to race to the bottom, but since my deepest discount package will be effectively a loss leader without the loss, and since I won’t depend on the income it generates to keep the lights on, I think I’ll be able to win the race.

Recap: list on the MLS for 0.5%. Listing access only. No agency. Sell your property yourself, do the work of the listing agent, and possibly the work of the buyer’s agent, and if you do, earn yourself thousands of dollars, tax free!

7 Responses to “I Bet I Can Win A Race To The Bottom!”

  1. Alexcanuck says:

    I thought you had a standing offer of $250 flat fee? Although that was on the now-disappeared blog… Convenient?
    Anyway, that’s not competing in the race to the bottom, there is a website offering a listing for $110! Now THAT is gold-medal bottom-feeding.

    And this is the real me, despite sounding a bit like the troll. I just want to keep you honest, and it is rare indeed you give an opening like this!

  2. Rob says:

    $250 flat fee was to be paid up front. I’ve actually raised the price on that to $500, which is a little better 🙂 I’ve had some takers and some leavers. Demand for that sort of package is not as high as some might think.

    The .05% is paid only upon successful sale. You may pay more, but you risk less.

    Not one package replacing the other, but two different price structures for the same service.

    Nothing but choice for the consumer around here!

  3. Rob says:

    BTW, for gravatars to work you have to be signed in. Sometimes it looks like you’re signed in, because your PC auto fills your first name, but without the email tag the gravatar system can’t find your gravatar, which is why some of my replies have the big blue G instead of my smiling mug.

    Translation: get an avatar at gravatar!

  4. Alexcanuck says:

    Rob: You might like this.
    What is the result of a race to the bottom between two hyper-competitive pilots?

  5. math games says:

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