Changing the Way Real Estate Is Sold -The End of 6% Fees

The year I bought my first home, my wife and I were living in the basement of a friend's house in California. Our friend, who was retired, decided that he was going to move to a senior living community and wanted to know if we would like to buy his home.

Having no idea if we even could, we asked another good friend of ours who was a real estate agent about it. She put us in contact with a lender and the rest is history. We bought our home with no money down and began remodeling it. Two or three years later, we found out our home was worth way more than what we paid for it! Woohoo! It felt like we hit the jackpot in Vegas.

This was our first home we bought in Benicia, CA
We called our Realtor friend and asked her to help us figure out what we would net if we sold the home. But when I reviewed the net-sheet she worked up, I felt like someone punched me in the stomach. Having never sold a home before, I didn’t realize how the seller pays for all the real estate fees and what the typical costs were. I was even more floored once I learned my agent was only getting half of what we were paying.

I felt like if we were going to pay all that money to sell the home, I’d rather our friend get the money than someone we didn’t know. We ended up deciding to keep the house, the fees associated with selling the home were high enough that it changed our minds about selling. Little did I know at the time, but the lesson I learned that day would change the course of my life. More on that in a minute.

Fast forward to today. I’ve been a real estate broker for well over a decade. I’ve written 2 books on real estate and I’ve been a top selling agent in my marketplace for the last 8 years.  

Things are going good, but starting in 2017 I’m going rogue. I’m going to totally flip my real estate business on its head and attempt to change the way real estate is sold.  

Seems rash, I know, but I see the real estate industry beginning to break at the seams. It may take another 10 years to fully unravel, but it will happen.  So I’m going to run an experiment in 2017, and attempt to sell homes an entirely different way than what is always done in the real estate industry.

Do you remember Borders bookstores? Do you remember when people made their travel plans through a travel agent? Do you even take Taxis anymore? Industries change, some quicker than others.

The traditional 6% (3% to the listing agent, 3% to the buyer’s agent) real estate fees have been around for 100 years. Some agents charge something different than that, but the vast majority of Realtors charge sellers 6% or something close to it. That’s what I’ve always charged in my career as a real estate agent, and for good reason. I know that when a seller picks me over another agent who is charging the same fee, that I will net my client more money. A lot more. In other words, I make sure I earn my fee and make sure that hiring me is always a good investment.

My New Mission

But like I said before, I’m about to go rogue and offer homeowners a new way to sell their homes in Idaho. Starting in 2017, I will give homeowners the option to sell their home through my Consultant Based Approach, which I have specifically designed to help them save thousands, often tens of thousands of dollars, on their real estate agent fees.

I’ll be offering the same services that already help my clients net tens of thousands of dollars more when they hire me over other agents in the area. (I explain in detail how I do this in my two books The Value-Driven Approach to Selling Real Estate and Agent Entrepreneurs.) I’ve even trademarked my documented method of selling homes called the “Listing Triangle” because it works so well when I have sellers who are willing to follow the plan we suggest for them.

The net savings homeowners should gain from selling their home through our documented approach, combined with the savings from my new consultant based fee structure, can have a compounding effect, equalling awesome results when someone sells their home.

For example, I just meet with a friend who wants sell their home this spring. I walked them through my recommended plan to help them get the highest price for their home, with which they were completely on board and ready to move forward. The top end for their home is about $289,000. I then shared with them that my new plans to offer sellers the option of a completely different fee structure, and laid out two examples for them: the traditional based fee structure vs the consultative based fee structure. They saw immediately that they would save between $3,000 - $8,000 in real estate fees choosing the consultant based approach.

Let’s address the obvious question? 

Why would I charge so much less, while offering the same services, when I’m already a very successful real estate agent?

The answer is twofold.  

Number 1: I consider myself a pretty savvy businessman, in-part because I’m a tenacious learner. I stay humble about it because I don’t pretend to know everything and I still have a lot to learn. However, I’m always looking at trends and shifts in the market. I do this on a much broader level than most and what I’m seeing is that the traditional model of selling homes in America is going to be seriously tested over the next decade.

The real estate industry has been tested before, and the traditional fee structure model has always won the war. But just like the music industry, the travel industry, the book publishing industry, taxi unions, new technology and shifts in consumer demand have proven they can turn an industry upside down. I’m already seeing the traditional model of selling homes beginning to shift in areas outside of the U.S.
Rather than waiting for change to be forced upon me at some point in the future, I want to get in front of it right now, which will ultimately put me in a dominate situation compared to my competitors. In other words, I’m playing the long game. I don’t want a thriving business for the next 3-5 years, I want a thriving business for the next 10-20 years.

Number 2: Here’s the second main reason WHY I am doing this.
(Note: it’s just me adopting this approach, not my whole brokerage, as most agents can’t absorb the risk of such a large cut on their income, and I don’t blame them. We all have to put food on the table and pay our bills. Every person in business has a right to charge what they want to charge for their services. It’s their business and their choice.)

I’m doing this because I’ve never really liked the traditional method of charging a set percentage of the sale price when a home sells.  

Remember my story when I first learned about how real estate fees were paid when a home is sold? That experience planted the seeds for me eventually getting my real estate license. Not so I could make those same fees other agents were making selling homes, rather, my initial reason for getting my real estate license was so I could avoid having to pay so much in real estate fees. I had started buying and selling investment properties and I figured being licensed would give me resources and knowledge to find other great investment properties.  

So even from the beginning of my career in real estate, I wrestled with how real estate fees were paid. Of course, agents who are very good at their job will earn their fee. But as we all know with real estate agents, homeowners don’t always get what they pay for. There are so many people having horrible experiences with the real estate agent they’ve hired to sell their home, yet those agents charge the same amount for their services as I do. Which has always bothered me.

There are over 5,000 agents in my marketplace where I work in Boise Idaho, nationally there is well over a million agents. Another way of saying that is you are in the minority if you don’t have at least one relative that is a licensed agent. The reason there are so many Realtors is because it is so easy to get your license, which has lead to a nationwide problem of having too many inexperienced, unprofessional, and unsupervised agents doing less than stellar services for homeowners, but with most of them still charging the same 6%.  This trend plus new technologies are slowly leading the demise of the traditional model of selling homes in the U.S.

Sales VS. Consultative Culture
Therefore, I want to attempt to change the way real estate is sold or at least give homeowners more options and add more transparency in the process of selling homes. I believe the process of selling homes should move away from traditional SALES culture, into more of a CONSULTATIVE culture.   

Do you look at your accountant as a salesman?

Probably not. Why is that?  

The difference is that you pay your accountant for his or her advice so that you can avoid spending more on taxes than you should. You pay your accountant to handle important tasks that you don’t want to do and/or don’t want the responsibility of screwing up which can lead to trouble with the IRS.

Do Accountants, Doctors or Attorney's, give you a sales presentation before you hire them?  None that I know.  They give you a consultation.  In most real estate offices around the country they teach Sales Scripts to agents to sell you on why you should hire them. They also practice scripts to get homeowners to lower their price. These Sales Scripts work, which is why they use them.  The problem of course is this breeds a sales culture rather than a consultative culture.

I despise using scripts, and have never recommend them to the agents I train. The first real estate office I spoke with when I initially got my license was a very large national company that should remain nameless at this point in this story, required that new agents spend dedicated hours each week learning and practicing scripts.  I couldn’t believe it. I was sure the scripts worked but that was not what I signed up for when I decided to start my own real estate business.

Scripts are used solely to sell, rather than to advise and consult.  Scripts are needed when you can’t think for yourself or provide advice.  

What if you found out that doctor had practiced sales scripts to get you pay for higher price medicine than you needed so he could benefit from it personally?  Yikes, right?  The thought of it is unsettling to me.  I know I wouldn’t trust anything else the doctor told me.

What if we paid accountants based on a percentage of the total you paid in taxes?
Suddenly it seems like a conflict of interest.
You might wonder how important it is for your accountant to save you money and to have your best interests in mind. In that situation you would still have honest and effective accountants, but you would also have others that weren’t. I know I would have a harder time trusting advice from an accountant under those circumstances.

A similar “conflict of interest” exists in real estate. How do you know you can trust the advice you are getting from an agent when they pressure you to lower your price. Is it good advice or is it because they are just focused on getting a quick commission?  

Why Change the Real Estate Fee Structure:
If the fee the Realtor makes is NOT based on the sales price, then I feel you could trust the advice of the real estate agent at a much higher level. It becomes more Consultative based, just like it is with your accountant.

Others have attempted to remove the sales price from the real estate fee structure (using a flat fee or some kind) but ultimately failed because they also reduced the services they offered to sellers and provided limited or even non-existent consultative support throughout the process. I studied these agents and brokerages and it clear to see they all had the wrong approach and sellers often lost thousands and endured many more months on the market rather than saving money.

In 2017 I will be implementing my Consultant Based Approach, but at the same time I will continue to offer the traditional model as well. I want to give home sellers options. My new approach will likely not appeal to everyone, but I believe it will to most. I already have one client who has opted for the new approach, and he said it was a “no-brainer.”

This is an experiment and one that I take very seriously.   I don’t know yet how it will be received, but I plan on reporting back on what I discover and learn along the way.  If you ever want to learn more about my new approach or get my thoughts about the state of the local housing market, reach out anytime.

I am so excited about this new year, this consultant based approach is one that I have wanted to try since I started my real estate career, and since today is my birthday, I figure why not go out with this year with a bang. I can’t wait to get started with it.

Here’s to the New Year, I hope you all have an amazing 2017!


Mike Turner