Two seemingly unrelated events happened in the past week, but actually they were a beginning and an end of a cycle that is beginning to feel a repetitive like that old movie “Groundhog Day...”
The first event was that a deep pocketed company that burst onto the flat fee real estate scene a few years back was in the news because the company was going down the tubes. This company had pledged to set the real estate world on fire and had raised millions of dollars from sophisticated investors for the effort. Their great idea was flat fee MLS listings, yes, but they were going to give listings away for free or nearly free. These brilliant guys were going to make money on “ancillary services” like title, mortgage, referrals, moving supplies, advertising, etcetera, etcetera, etcetera. They had raised millions of dollars for an advertising assault the likes of which the real estate world has never seen before. I'll admit it made me a tiny bit nervous, not because I believed their business would work, more that I thought they must have some secret thing that made the “smartest guys in the room” give them millions of dollars.
Back to the present: The news article about the current status of this company was quite sad, they had given up and sold to a couple of the investors. Those investors were making so little money that they moved the company “offices” into a self storage company rental mailbox. The news story had a picture of the self storage facility, with the high fences and worn “we sell boxes” sign that was slightly off balance in the window.
The second event was that a new guy has come into flat fee MLS listings business, using this same company's recipe for “success.” He doesn't appear to have millionaire investors, but he had clearly been working to get his name out there during the November and December slow time in real estate. He's offering nearly free listings, and is “planning to offer the service in 10 more states in 2011.” We just had a potential customer ask us if we would match this guy's almost free price.
We had to tell this potential customer that we don't match “going out of business” or liquidation sale prices, because that is clearly what this guy is doing. Will he last a few more months? I doubt it. Sellers who list with almost free services must realize the risk they are taking.
Having been in the flat fee MLS listing business since 1998, we have seen a recurring cycle that goes like this:
New real estate company makes big splash with their nearly free flat fee MLS listing.
New company finds plenty of sellers to list with them, all seems well at first.
New company's employee or employees are overwhelmed, stress levels increase, responsiveness decreases.
New company's sellers start complaining that company doesn't respond and never answers their phone.
Company finally goes incommunicado, even the MLS can't reach them.
Buyers, sellers, and buyer agents encounter voicemail boxes that are full, sometimes the email starts bouncing.
New company's sellers try to get their listings canceled, but the company that doesn't/can't receive their voicemails or emails doesn't/can't cancel listings.
New company's sellers try complaining to the MLS to get their listings received, but the MLS must follow a lengthy due process to remove a company's listings.
New company's sellers can't list with other brokers, can't change their listing. Anger and great frustration ensues.
Meanwhile, the new company's website continues to sell their service and take payments.
New company's sellers call us, agreeing to pay for our service if we can fix their frozen old listing.
Attorneys get involved, situation gets ugly.
At long last, MLS completes its due process requirement and the sellers are free to list with a different company.
Sellers don't receive refunds, more attorneys get interested at first but soon scatter, saying “you can't get blood out of a turnip” and “we can win the lawsuit but won't be able to collect any money.”
Better Business Bureau rating nosedives when customer complaints finally stack up, it goes from B to C to F... Unfortunately, BBB complaints take awhile to stick, they give the company lots of time to respond.
In a few months, a great new company comes along with the $199 listing, such an unbelievable deal...
[Repeat cycle]
It is worth mentioning that this cycle applies to businesses that provide a straightforward flat fee MLS listing. We have some companies that offer what I call “shady” listing services last much longer, although I don't think any have made it past the 4 year mark. By “shady” listing services, I mean listing for a flat fee but using the listings as a way to earn buyer agent commissions (not forwarding the leads to the seller, as we do). Other shady technique include large listing cancellation fees, not allowing cancellation, forcing a seller to use the company's full commission service if they don't want to do flat fee, and so on.
This is just one more reminder of the importance of checking out the brokerage background before signing up, and putting substantial value on a broker with a long track record. A flat fee seller will save thousands, but the ones who try to save the last nickel by signing up with a new, un-vetted company often get burned. Why take the risk?