Real estate agent Connee Tumbarello was getting dressed for her son’s wedding a few years back when the phone rang. It was a client, urgently requesting to be shown a property.
“I said I’m so sorry, but I have to be at the church,” Tumbarello recalls explaining to him. The client took this news with demonstrable annoyance, and responded that he would find somebody else to show the house.
“I have to admit it bothered me through the whole wedding,” Tumbarello recalls. “Frankly, I deserved that commission.”
Tumbarello says the story is illustrative of the daily existence of many real estate agents: either working all the time, or at least being on call.
It’s not a new predicament for the realty business. But the things that agents do to earn a living are an integral part of what some observers have termed “the real estate revolution.”
This dawning revolution, if it’s genuine, is taking conflicting forms, both of which involve consumers yelling “Jump!” and agents responding, “How high?”
On one hand, industry analysts foresee a realty business where well-informed consumers demand that their agents, armed to the teeth with technology, provide a wealth of services and information, all in an instant and for not a penny more than the agents are already being paid.
At the same time, others foresee the same well-informed consumers being willing to find an increasing amount of this information on their own, via the Internet. And, they argue, if the agent is doing proportionately less work, shouldn’t he or she be entitled to less commission?
In either case, the realty business should brace itself for more pressure from consumers, according to some who have analyzed where the business is heading–which many insist is toward all things technological.
At the root of this supposed revolution is the Internet, which has broken the industry’s decades-old exclusive hold on listings. Internet access to various kinds of listings has made it less necessary for consumers to knock on agents’ doors first in order to get a deal rolling, though at the moment most still do it that way.
Futurists say that the opportunities to do this electronically are multiplying, with deals originating with mortgage lenders or even non-real estate businesses (such as airline frequent-flyer programs) instead of real estate agents.
Economist John Tuccillo calls these “gateways” to transactions.
“Whoever stands first in line with a priority claim will win,” says the former chief economist for the National Association of Realtors.
In this case, with agents handling less of a given sale, Tuccillo suggests that how they are paid inevitably will change. He sees fee-for-service arrangements instead of commissions based on percentage of sale price.
For example, if agents advertised a property in four publications once a week, they would charge the client an amount for that. If they showed the house to prospective buyers 31 times, they might charge a certain fee, times 31. Being present for the home inspector’s visit would net another charge.
All of this would be in lieu of the current compensation practice–typically, 3 to 6 percent of the sales price, no matter how much marketing has transpired,
But if this is the battlefield of the revolution, it is being fought by a minuscule army: Companies that work this way are few and far between.
One of them is Easter & Easter Realtors in Austin, Texas, where broker Bob Easter offers services both on an a la carte basis or on a traditional commission.
“We give them a flat fee and we give them an hourly fee after we exceed so many hours. It’s the greatest equalizer there is,” Easter explains. “You have those customers who call you every 15 minutes. As long as they understand that we charge $150 an hour after a certain point, it stops those phone calls real quick.”
The real estate community at large has not been thrilled with his presence, Easter says.
“Their first reaction is always, `My God, what are you trying to do to us?’ No. 2 is, `We are not going to show your properties.’ No. 3 is, `I guess this is a trend that we are going to have to deal with.’ “
In Chicago, agent support for the concept seems to be nearly nil.
“I have to say I see it coming, though it certainly isn’t something that Realtors want to talk about a lot,” says one North Side agent who asked not to be identified because the subject is taboo, as it challenges the status quo.
“In this business, nobody is ever supposed to be unhappy, business is always supposed to be great, and clients are never jerks.
“I see real value to (Easter’s) system,” the agent says. “We do too much for free. Real estate agents don’t have any concrete idea of how much every transaction costs them. Even I have never stopped to figure it out.”
That seems to be a minority point of view. A more typical response comes from Joanne Gross, who runs her own agency on the Northwest Side.
“I just don’t see it becoming a flat-fee business,” says Gross. “I think you have to give people an incentive to work.”
Gross and others say that the concept of such fees got some discussion, and little else, from colleagues a few years ago when Illinois enacted buyer-agency legislation. But she sees some change in attitudes about commissions in general.
“Commission is an issue with everyone lately, especially when you bring in offers,” Gross said. “You find that people are looking to us first (to make concessions in order to get a deal to go through). If there is no flexibility on either side, they look at us, the agents, and say, `Well, what are you willing to do?’ I see it a lot more now than I did 19 years ago.”
Gross says she has seen “a definite downturn” in the percentage of a typical commission.
“When I started it was 7 percent. Now it’s usually about 5 percent,” though she cautions that the amount varies widely, depending on traditional practices in different towns or even neighborhoods, and that commissions are almost always split between listing and selling agent.
Nonetheless, in the Chicago area, any such changes have occurred glacially. Easter, the a la carte broker in Texas, says that’s not surprising: “The largest cities change last because of the power of the larger brokerage firms. They hold the lid on.”
Elsewhere, a few agencies have begun to offer some marketing services to For-Sale-By-Owner (FSBO) clients, largely in reaction to the controversial real estate Web sites that welcome FSBO listings alongside agents’ more traditional listings.
Costco Wholesale, a leading discount retailer, is testing plans to offer discounted real estate services from kiosks in its stores. The company, which has 258 stores in 27 states, will collect referral fees from agencies and will discount real estate commissions, title insurance, escrow, home warranties and loan fees.
Ryland Homes, a national building firm that already has a mortgage-lending arm, is setting up a real estate agency in California with two purposes: to help its new-home clients sell their current homes and to capitalize on chance to sell something to house-shoppers while they have them on the premises, looking at the model homes, according to published news reports.
Most agents work under one of various split-commission arrangements with their brokerages. A 1996 NAR survey found that only 2 percent of agents currently earn straight salaries.
The survey found that 76 percent of respondents said they didn’t want any change in pay structure; the remainder wanted a different kind of commission.
Nonetheless, somebody out there appears to be interested in the big change: Last year, in an Ohio Association of Realtors survey of members, 72 percent of respondents said they’d prefer flat fees.
“We hear all the time that the reason people leave the profession is that they don’t like the unevenness of the income,” according to Janice Johnston, a spokesman for the Ohio Association of Realtors. “There is a 37 percent attrition rate annually,”
NAR figures indicate that the high-rolling, Cadillac-driving image that many consumers associate with realty is far from the reality. In 1996, the median income of real estate license-holders was $26,600.
“The average agent in this country closes three or four deals in a year because there are so many people in this business,” according to Tom Hathaway, president of the Buyers Agent Inc. in Memphis, a franchiser of exclusive buyer-representative agencies.
“Real estate is like a Third World country. You’ve got the upper class and you’ve got the lower classes. You’ve got the people who are in this for a living, and they make good money. They represent less than 10 percent of the people. The other 90 percent are in this only for a few years because they can’t make a living.
“There’s not as much real estate out there as one would think.”
And, apparently, not as many real estate agents, either.
“We are seeing probably a steady erosion of 3 percent per year in the number of licensees, and about 2 percent per year in the NAR,” according to economist Tuccillo, who still works as a consultant to the group, which claims to have about 750,000 members.
The organization also estimates that 65 percent of its members logged more than 40 hours a week in 1996, with 16 percent of them working 60 hours or more.
Connee Tumbarello is all too familiar with those numbers, citing the phone conversation on the day of her son’s wedding as being not atypical of demands in the business.
After giving a lot of thought to burnout rates she was seeing, the past president of the Northwest Association of Realtors began surveying the group’s members on their views about a so-called “blue law” to prohibit real estate transactions on Sundays.
“This was originally brought up by the Peoria Association of Realtors,” Tumbarello said. “A lot of people thought it wasn’t a good idea. I took a survey of my own association.”
About 60 percent of her membership favored such a restriction, she said. But a subsequent call-in survey by a local newspaper found that 60 percent of consumers said they were against it.
The Illinois Association of Realtors is currently tabulating a statewide survey of its members and should have results sometime this month, a spokesman said.
The possible ban has been submitted to the committee reviewing the revision of the Illinois real estate licensing laws and will be discussed in December, Tumbarello said. If enacted it probably would be the first such real estate restriction in the nation.
Johnston of the Ohio Realtors says that although she doubts that the profession as a whole would stand for such a law, there is, nonetheless, “kind of an underground movement afoot. Some of the Realtors would like to standardize their profession a little more. For that to happen, it would have to be that Realtors would become salaried. You can earn a healthy income on commission, but you have to be willing to work your butt off.”
She sees a few scattered indications of unrest.
“We’re hearing from the East and West Coasts that some agents are asking for $500 from their listers, saying that if you pay me this money upfront, then I will go ahead and charge you X amount of commission,” to get sellers who are genuinely serious.
“An agent might take a listing and if it doesn’t sell, they may have spent $1,000 in marketing costs, developing brochures, etc.,” she said.
“That’s a huge cost. Business costs are going up across the board. The threshhold for getting into real estate has gone up exponentially.”
