All Forum Posts by: James Kerson

@Henry Clark That’s the million-dollar question. Here goes:

Step 1: Obtain broker license in Michigan. I’ve got one in Ohio and meet Michigan’s experience requirements. The Michigan Bureau of Professional Licensing confirms that the some but perhaps not all of the Ohio coursework meets Michigan’s educational requirement, but if not, no big deal, I’ll take the additional hours. Then I’d sit for the Michigan exam.

Step 2: Form a Michigan Real Estate Broker Company (aka, a brokerage) per the MI Bureau of Professional Licensing’s requirements.

Step 3: Draft written listing and transaction management procedures and source and integrate necessary software programs.

Step 4: Form exclusive relationships with a local title agency and mortgage broker. The key is to bundle buyer agency services with title/mortgage services. To minimize friction, we want as many buyers of our listings as possible to use our buyer agents. One stumbling block of another full(ish)-service discount broker, Homie, was that it paid market-standard (2.5-3%) buyer agent commissions. It only took $3,000-$5,000 in commission from sellers. This reduced the net commission expense to seller from 5-6% to 3.5-4% - a good start, but not so much that it differentiated Homie from competitors. A gross commission of 0.6% has sex appeal, but it can’t include the direct and indirect costs of listing, plus buyer commission, plus bundling title/mortgage services, plus a reasonable profit margin. Probably the listing commission exclusive of buyer-agent commissions and bundled title/mortgage fees is more like 0.75% to 1%.

Step 5: Settle on how to address the problems/opportunities of working with buyer agents. We cannot pay buyer agents anything close to market-standard commissions, lest we go the way of Homie. Preferably, buyers would directly bear the cost of their representation. Buyers would fall into three categories:

1. Unrepresented buyers: a tiny minority, and they pose no challenge.

2. Buyers represented by our company: A value proposition to buyer clients is that we would bundle the highly-commoditized title, closing and mortgage origination services with buyer-agency service if buyers use and directly compensate our agents. Most mortgages permit rolling closing costs other than buyer RE commissions into the mortgage principal. Buyers could pay for the direct costs of buyer agent time with fees charged per property visit, plus a la carte for assistance drafting offers, transaction management, etc. This is risky, but shifts the burden of paying the buyer agent from seller to buyer, and encourages buyers to avoid tire-kicking.

3. Buyers represented by agents of other brokerages: another challenge. We can’t differentiate ourselves on price if we pay full buyer commissions, but a substantial proportion of the buyer pool will be represented by agents from other brokerages. I’m thinking of a flat referral fee, maybe $1,000 or $2,000 to a buyer agent to reduce the risk of them steering their clients away from our listings.

Step 5: hire listing agents and buyer agents. 

Listing agents would not drive their own pipelines; they would be advisors, high-quality customer service reps assigned to clients. Instead of valuing sales skills among listing agents, we would seek agents who might be sales-allergic but knowledgeable about real estate transactions and empathic. The personality type I have in mind is that of an excellent Progressive Insurance CSR. They would not spend time or their own money developing individual brands.

After a lot of back-and-forth on and off BP, I acknowledge the need for buyer agents, certainly to help buyers understand the closing process and the PSA, but also for the mechanical act of conducting tours. Unlicensed door-openers are basically unworkable, and unsupervised buyer tours would be unpalatable to most sellers. 

Step 6: Launch brand, website, SEO, blogs, any marketing I can do to drive in-bound listing client traffic. 

This is not an exhaustive business plan, obviously.

Well, boys, either you’ll never hear of me, or you can buy me a beer sometime when you do - though if and when you do, I’ll pick up the check.

@Steve K. I was talking about the listing side in my last few posts. The buyer side is a different (and more complex) animal. 

Ohio Real Estate Broker (active) here. Mostly a multifamily manager/owner, but bought and sold 15+ flips as principal. (Full disclosure: almost always I used an agent.)

@Steve K. I anticipate consultation time (10 hours on the listing side) would be a key feature of my offering. But my agents wouldn’t be prospecting for listings. Their only roles would be consultation and transaction management, done remotely, with no or almost no in-person meetings. Commissions mostly compensate agents for their prospecting success and not for client service. The actual client service of a listing is $40-60/hour work, not $200-300/hour work. With $60 hour and 10 hours worked per listing, plus $250 for photos, the direct costs of marketing a listing (again, assuming no or almost no drivetime) would be quite low - maybe $850/listing.

@Steve K. I think we’re talking past each other. Of course a la carte, tech-enabled DIY transaction management services exist, and have existed for a while. I’m not really proposing that. I’m proposing full-service brokerage, but slashing rates on the assumption that a brokerage can deliver 90%+ of the bundled full-service brokerage offering for 10% of the standard cost. 

The automobile existed for decades before Henry Ford produced the Model T. He was a clever man, but benefited from excellent timing. Established, mostly-German automotive technology coincided with the development of large-scale mass production techniques and a manure-pollution crisis in burgeoning U.S. cities to create massive demand for his product. I’m no Henry Ford, but I see an imminent convergence of regulatory pressure, existing tech, and the GenAI to bring all the existing tech together to make the full-service brokerage offering much cheaper and faster.

To carry the automotive analogy further, there will still be horses and still be Lamborghinis, but most residential transactions will be vastly faster, cheaper, and more standardized in 10 years than today.

@Cheng Xu You understand completely. We should talk!

@Steve K. Yes, agents upload listings. But how much is the function of uploading the listing to the MLS worth? What is the cost of the photos? What is the cost of the time to draft the listing description? All of these functions are necessary; they are simply too expensive relative to their value.

My blanket response to you and Jay Hinrichs is that real estate brokers and agents add value. They just add it inefficiently and expensively. There used to be legions of stockbrokers, and then in 1975, the SEC cracked down on commission-fixing. That didn’t kill the business, but it made possible the growth of discount stock brokers, who now dominate retail trading. Many stockbrokers became “financial advisers,” and say what one might about them, the best ones are both personal financial coaches and multi-product experts (securities, annuities, insurance, etc.). 

@JD Martin You understand me correctly. I believe that the residential real estate brokerage industry should be a tiny fraction of its current size, with far fewer agents and total commission dollars paid. It would not be a terribly profitable industry, and a few large players (hopefully including my NewCo) would dominate the space. It would be volume-dependent. The trade-off that I don’t accept is that service would suffer. Service would change, though, as the successful experiences of early-adopter customers would demonstrate the utility and superiority of NewCo. (I remember when my dad bought some books from Amazon.com in 1996 or 1997; he wasn’t a pioneer, but he was a fairly early adopter, and immediately recognized the consumer value that Amazon brought.) 

Anyway, to build a massive discount real estate brokerage is my dream of the moment. I really appreciate the comments, which are exceedingly useful as my idea develops.

I should re-iterate that real estate agents shouldn’t and wouldn’t disappear. They should become like current-day travel agents: far fewer than pre-Priceline, but well-compensated for arranging high-dollar, complex trips.

@JD Martin There are legal and practical factors militating in favor of keeping guided tours, no question. Why who opens doors should be regulated is dubious, but it is in most states. That is a sop to buyer agents in one regard, but in another, it means that licensees spend a lot of time driving around and opening doors. Having bought 15+ houses and condos and toured many dozens more, this always seemed like a waste of the agent’s time, with only an arguable security benefit to sellers. But I’m not insensitive to the security issue: I wouldn’t want unvetted, unaccompanied strangers walking through my home. 

Litigation is always a business risk, especially in a business facing the general public. Fear of litigation can be an excuse for persisting in doing things the way they have always been done, though. It certainly could be an honest excuse, but it’s an excuse. When an owner or broker policy is facially fair and uniformly applied, it usually meets the smell test. The disparate impact standard is a wrinkle, but I imagine that will end next year. (Calling any real estate lawyers to comment.)

Assuming one could live with the litigation risk, I would propose three options for buyer prospects to tour listings: 

1) A buyer’s agent from another brokerage could schedule a tour OpenDoor-style, but with no compensation offered from the listing agent or seller 

2) If the buyer has no agent from another brokerage, a buyer’s agent from mine could accompany the prospect and open the door for a fee ($25-50) 

3) if a prospect insists on touring alone, for scheduling reasons or any other, the prospect would have to show proof of funds/lender pre-approval and pass a background check (this last part could pose challenges)

Totally agreed. How much time and money (direct cost, not overhead) does this cost the listing agent for an average listing? One agent said 30 hours. What do you think?