There is a creed in real estate.
Don’t lower fees. Don’t say fees are too high. Don’t negotiate fees. Don’t even mention fees.
I find this fee paranoia a bit of a joke. “Price” after all is one of the marketing “Four P’s” and deciding on where to pitch your price is a legitimate and essential element of any marketing plan.
In every other industry the price of goods and services will be an item on the agenda of just about every sales and marketing meeting. Naturally, every business is always trying to get the best possible price. But then every business opportunity will be evaluated on its merit and margins will often be shaved to close a deal. Sometimes a business will be submit a price lower than their competitors. Sometimes their competitors will be lower. It’s just competition and part of what business is all about.
But then in other industries everyone is constantly looking for ways to lower their costs.
So what is this thing about fees in real estate? Why is there no business incentive to look at costs? I’m not talking about buying cheap photocopier paper or having everyone bring their own toilet paper. That’s not going to make a difference. I’m talking about the biggest item in the profit and loss account, the cost of labour. Nobody has tackled that. But that’s where the real cost savings are.
Once this nut is cracked a company will be able to comfortably offer lower fees. But, hey, that’s not an honourable way to compete. Remember the unwritten rule. Remember the “f” word. Competing on fees is like using witchcraft and anyone who competes on fees is likely to get stoned by an angry mob. The swarm of protecting gnomes will be out pointing bony fingers at the perpetrators.
So nobody bothers. It’s too ugly and if they rationalise their decision, they can convince themselves there is no need.
Don’t get me wrong. I do understand why people prefer fees to remain high. Our business is commission based and cutting fees is cutting wages. But what I don’t understand is why everyone doesn’t face up to the real problem.
I’ve said it before and I’ll say it again. The real problem is that just about every office in the country is over-staffed. There is not enough work for everyone and there are too many mouths to feed.
Over-staffed means inefficient. Inefficient means high costs and a need to charge high prices.
The crazy thing about all of this is that the whole industry is inefficient. Everyone is the same. We have inefficient offices competing with equally inefficient offices. That’s why they band together when someone uses lower fees to compete. They see it as unfair or outside the unwritten code.
Of course the way the industry operates has been held together by the old Act, the REINZ and the big brands who have acted like a kind of cartel and done every thing possible to keep competition away from fees. You have to hand it to them, it worked. The big boys have sat back and issued as many franchises as they liked and encouraged those franchises to engage an army of salespeople to walk the streets promoting their brands and talking up fees.
But that’s the old world. Inefficiency and high costs. In the new world there will be serious opportunities to gain market share by reducing costs and passing the savings on in lower fees while preserving margin and profit. Thanks to a decade or more of this inefficiency the opportunity is now huge.
So I put it to you that the problem is not fees, but costs. Fees are set at a certain level because that’s what is required for all of the salespeople in the industry to make a decent living doing their handful of sales a year.
But instead of directing their anger at brands that offer lower fees, everyone should be pointing a finger at their bosses who keep employing new salespeople and appointing new franchises.
In the end there are just too many people sharing the same small pie.
Right now everyone should calm down and take a deep breath. It’s time to start dealing with the real problem.
Because the clock is ticking and time is running out.
Posted by johnjet 
