Real Estate Customers Refuse To Pay For Better Service, Vote With Their Feet

The Real Estate Industry: The Dying Reliance On Real Estate Agents (FSBO) An Example Of Customers Thinking PRICE, Not Paying More For Service

continued…go back to read about other sectors where customers will not pay more for service

For most people, their largest lifetime purchase will be their home, and if when they sell the home, that will be the single largest sale of personal assets. Whether buying or selling a home, one thing is sure; there’s a lot riding on the process, and many things that can go wrong.

Traditionally, most homes have been sold via a realty agent, who gets paid when the home is successfully sold, typically a commission of 3%-6%, and sometimes higher. When agents are retained by both seller and buyer, each will get about half of the commission, although actual commissions are negotiable. Given that real estate agents, at least good ones, take a lot of the worry out of the process, and take on a number of tasks that home owners may not be willing to do, or equipped to do. In addition, there’s some indication that prices sold via agents may sell at higher prices than home sold by the owner, although that’s open to interpretation.

Given there is so much riding on the sale of a home, and that good agents do offer a lot in terms of customer service, you’d think that sellers would be happy paying the percentage of sale that they do. Except that it’s really significant money. Six percent of a $300,000 sale is $18,000 and that’s not chump change for most people.

Does the claim that customers will pay more for customer service apply to the real estate industry? In fact, customers have started “walking with their feet”, and have become much more willing to forgo the various benefits of using an agent in order to put the agent commision back in their own pockets. In Canada estimates are that between twenty to thirty percent of home sales are conducted “without brokers” (¬†Canadian Real Estate Association , MSN, wikipedia). In the Province of Quebec estimates jump to about fifty percent, while numbers coming from¬†National Association of Realtors suggest the American numbers are much lower with about 11% being sold without using an agent. The latter numbers have been open to some criticism about their accuracy.

Regardless there is a significant part of the population choosing to save money in realty fees. This industry is actually quite unique because the risks and stress that can be mitigated by paying an agent, and availing one self of the customer services they offer are so huge. But then again, the savings by going it alone are also huge. There are very few industries like this, but while the numbers aren’t quite so conclusive, it calls into question whether the “pay more for customer service “mantra applies to the selling of one’s home.

So, we’ve looked at three significant examples where customers place as much or MORE importance on price, and are refusing, via their behavior, to pay more for better service. Now, let’s look at the exceptions. Some industries have customers who do pay more for service, but in fact, it’s a minority.

Author: Robert Bacal

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