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Join today’s discussion about how we can compete against a barrage of pressures affecting the real estate industry. We discuss where to focus attention and how to back a value proposition.
reThink Real Estate Podcast Transcription
Audio length 33:09
RTRE 59 – Fighting the Commoditization of Real Estate[music] [Chris] Welcome to re:Think Real Estate, your educational and hopefully entertaining source for all things real estate, business, news and tech. [Christian]: I am Christian Harris in Seattle, Washington. [Nathan]: Hi, I am Nathan White in Columbus, Ohio. [Chris]: And I am Chris Lazarus in Atlanta, Georgia. Thanks for tuning in. [music] [Chris]: Hey everybody and welcome back to re:Think Real Estate. Nate is sick as a dog, so it’s just me and Christian today. Christian how’re you doing? [Christian]: I’m doing pretty good, how are you? [Chris]: I’m wonderful thank you so much for asking. So we’re sitting here just talking and trying to figure out what the hell are we gonna talk about today, because nothing is just peeking our interest. But, you know what, we did get off into a little bit of a tangent about the commoditization of real estate and what we think real estate agents are gonna have to do in order to really pick up and continue to charge a premium service for what they’re doing over the next, you know, a few years. So Christian why don’t you let us know your thoughts on the matter and we’ll just start the conversation. [Christian]: Sure, I mean my, you know, initial thought on the matter and I have been thinking about it for years. And part of the reason I started my own brokerage is to have a little more leeway and, you know, how I did things and service I provide. But I think it’s really…it seems to be a pretty polarizing issue for agents. The topic of compensation. Right. So there’s…we all know there’s a lot of, you know, new players on the markets with, you know, Redfin obviously being one of the big ones and then, you know, Opendoor and, you know, there’s all these other…other ones that essentially are commoditizing the process where they’re using tech to make it more efficient. Also trying to make it a better client experience to varying degrees of success.
You know, if they figure it out…if they figure it out like, you know, Amazon’s figured it out, you know, like the traditional brokerage models in a world of hurt. But luckily right now, you know, typically if, you know, you’re…you’re able to hire someone to for a discounted commission that experience is lacking. So there’s still plenty of room for us to provide, you know, a more traditional compensation while being able to provide more service if your client’s into that. But, you know, I think there’s always going to be, you know, people who want to feed no matter what the experience or the end result they just want to, you know, save some money or they think they’re, you know, they’re pretty handy. And so they can do it themselves. But I think for a lot of us there’s room to really double down on the experience we provide, the level of service, the complimentary things that that will pay for and take care of, you know, that sort of stuff.
But I think where you get into kind of some more controversial aspects is where is the market going, you know, with…with our compensation structure, you know. And I think it really hurts us as industry and as agents and brokerages if we just have a defensive posture of protection. Because you’re basically saying, you know, “I don’t care what consumers want, I don’t care what technology and the changing market is dictating I deserve blah blah blah.” And I think that’s sticking your head in the sand.[Chris]: That’s why realtors are where we are. I mean, you know, they did the same thing on data. Right. “We’re not gonna…This is our data. This doesn’t belong to the public. The public they shouldn’t have this. It’s ours.” And now Zillow is there and Zillow has a great relationship with the consumer because they gave the data to the consumer. So I think yeah it’s…you got to think about this stuff. Right. There’s, you know, auto manufacturers make a variety of different cars at different budgets. Yeah, real estate is not a one-size-fits-all business. It shouldn’t be. The commission is always negotiable and I think it’s negotiable for a reason. I think it’s negotiable because we’re able to tailor what we’re doing to what the client needs. If somebody goes in and says “I charge this on every single deal and I do all of this on every single deal”. Right if they charge, you know, one price to do an amazing marketing job and then they’ve got this little rinky-dink house that’s coming along that doesn’t need it all, because the price alone is gonna sell the house, why would they charge the same rate for all the same marketing, when the house does need it. So I mean… [Christian]: It’s dependable on your rates and on your service yeah. [Chris]: Yeah and I think that there’s there’s a lack of transparency there in the industry. I think that the… that that’s an area right there that I just pointed out, that there’s gonna be some changes in in transparency and how brokerages operate over the next, you know, few decades. We’re see…we’ve already seen the transparency happen on the…the data being shared. But we…it’s still very opaque on the pricing. [Christian]: Yeah and, you know, and I think that transparencies is were I’m really passionate. Like we all kind of understand that there’s, you know, a range of compensation structure and services provided, and…and whatnot. But I think the real key is for us as agents and brokers is to think about it from the client’s perspective. Put ourselves in client’s show. [Chris]: How dare you. [Christian]: And our, you know, the commission rate you think you deserve and start putting yourself in…in their position. I…I didn’t…I remember when I was sitting down, you know, I did it with one of my friends who’s, you know, VP of yeah this tech company. And, you know, I was kind of picking his brain but what his real estate experience was like. And, you know, he said some pretty harsh things, but I couldn’t argue with him. You know, he’s basically like, you know “Hey let’s look at the hourly rates that, you know, agents make, you know, if they’re making, you know, this amount of money on a half million dollar home sale that’s like, you know, five hundred dollars an hour, you know, literally”. You know, if…if you said, you know, he kind of broke it down by…OK let’s say…let’s say you spend a week working on, you know, a listing. Not including, you know, that the cost you incurred or whatever. Like that’s…that’s a lot of money. And I’m like I can’t…I can’t really argue with that. Like, you know, so you better…you better be earning that or figure out to be more affective and efficient way of doing it, you know.
And I think that transparency is huge because agents may be on the face of it will argue and have their, you know, defences for why they think they deserve that compensation and won’t reduce…won’t reduce it. But at the end of the day, you know, you get behind closed doors and agents will talk about your main job is to prospect. Is to find new clients. Find new leads. Now the reason we have to charge so much is because you…you have to make a living, you know, doing so few transactions that so has to be at this high dollar amounts to have basically you’re charging your paying clients all that time that’s unbuildable that you’re trying to get new clients.[Chris]: I don’t know about that. I think it can be…you can look at scales. Right so if…if an agent’s making, you know, a hundred percent of their commission and paying a flat fee then yeah. Their job is to prospect. But you could…you could take all that responsibility off of the agent and you could have a brokerage that’s just doing a higher split. And they’ve got somebody that all they’re doing is setting appointments for that agent. In which case the agent job is now…the agents job is no longer the prospect. The agents job is to go out and sell homes. So it’s…it it’s up and… [Christian]: All you’ve done is… [Chris]: It’s up to us who we will pick. Because you can take the same transaction, you could take these same structure, the same brokerage and you can make it work in like 20 different ways. There’s…there’s multiple ways to skin a cat. But the…the end result is that the agent has their own practice. It’s just like a doctor, right. The…they are the Rainmaker. They’re the producer. People come to see the doctor because it’s a practice. Right. Not the doctor, it doesn’t exist. So you’ve got to build that over time. And frankly because of the size of our transactions and the scope of our transactions you can’t you can’t expect us to handle a volume of, you know, low transactions to be able to give a high quality service. Because it requires a lot of attention to detail, a lot of hand-holding, a lot of nurturing, a lot of expectation setting. And…and it’s not just once the property is listed. Because yeah once the property is listed, it’s pretty easy. You…you get the contract and sometimes it’s hard. Sometimes it’s not. But you you’re always getting that…Some…some properties are gonna be the 16 hours some are gonna be like a hundred hours. Some are gonna be multiple years that you’re working on selling them. And there’s…there’s a ton of expenses that go into that so I just don’t know. [Christian]: Let’s see and I understand that. I mean I understand all the arguments, you know, I’ve…I’ve heard it all and I probably used some of them, you know, at one point time. But the fact of there’s so many different kind of models and, you know, whether or not the brokerage provides leads and different splint stuff like that doesn’t matter. Because the model still the same. Like the time and money and energy to produce that lead is still in the system. It’s still baked in. Right. [Chris]: But that’s the process in every business. [Christian]: [crosstalk] [Chris]: That’s the same thing in every single business. [Christian]: You know when I go buy a car I’m not paying $14,000 for it to the salesperson. You know, I’m not paying… [Chris]: No but you’re probably paying about 3% of the car value. [Christian]: If I went…If I went to a doctor and the doctors like, you know, “Hey your…your half hour doctor’s visits was, you know, ten thousand dollars.” I’m like “What the hell.” He’s like “Well you understand I got my cost and got this and insurance and this and that.” [Chris]: No but your half hour doctor’s visit easily could be six hundred. [Christian]: OK but I’m saying [laughter] we can’t lay high cost for the time spent and he explains to me all of his costs and how the industry works and this and that. And sooner I’m thinking “I don’t give a [censored] how broke it down in your practice.” [Chris]: Yeah well don’t explain it. This is my rate. [Christian]: But I’m saying that’s the…that’s the excuse that…that I get anytime I bring this up to other agents is “Well but I got this cost and the split and this and that”. And, you know what the consumer says “I don’t give a [censored]. I don’t care how you broke it and assist in this.” [Chris]: So…so…so… [Christian]: So I’m saying we can’t…we can’t basically say “hey this is just how it is. The industry is broken and I’ve got all these costs.” The consumer is thinking “I don’t care it shouldn’t cost me, you know, $500 an hour to hire an agent”. You know, somewhat my point there is we need to stop defending the industry and our compensation if their values not there. You know, like if you can’t, you know, have a compelling reason for like “Hey this two days I spent on your house and I got ten thousand dollars out of it”. You know, if a consumer, you know, is savvy and breaks that down you better have a good reason for, you know, why…why you’re charging so much. If, you know, if that value is not there, if the consumer doesn’t see the value otherwise, I think more and more the consumer is going to Redfin. And the Opendoors and they push a button to sell a house option. [Chris]: I think I see. I think I understand what you’re trying to get at. Which is it’s not that what we’re doing is not worth the value, but you’re saying agents are out there to their consumer in conversation trying to justify the costs associated with running their business and their rates. [Christian]: Sure I mean even my friend who makes his point he’s like “There’s value in an agent I just don’t think it’s as high as, you know, what…what some would say is, you know, kind of the going rate for…for hiring an agent.” So it’s not that there’s no value, it’s just that it’s…it’s kind of inflated especially in this day and age when technology should be making it more efficient and cheaper. Not, you know, not keeping it the same for last 30 years. [Chris]: But it’s not. Technology has improved drastically and agent productivity has decreased over the last thirty years. [Christian]: Right. And so that my point is basically, I think the writing’s on the wall that even for traditional brokerage models like you’re not gonna be able to defend your compensation model forever because technology is going to make you obsolete, you know. New models are going to make that a harder and harder to defend. Even if you go with the “I provide, you know, a Nordstrom experience or Rapala [phonetics] things inn”. And that’s guys the way I went, you know, because I don’t really have an answer for how to make it cheaper and provide a good experience, you know. If someone does great but, you know, so that’s…that’s the one route I went instead of the I’m competing for, you know, the one percent listings or whatever, the…the discounting of…quote to discounted listings, you know. [crosstalk] value but I don’t. [Chris]: Because we have a…we have a business line that is it’s basically marketing for first sale, buy owners. Gives them access to the MLS. And what we’ve found is that the…the properties there do on average sell for less. You know, when somebody…it’s supported by all the studies that you’ve ever read on commission’s in real estate. When one party realizes that the other party is saving money they try and take advantage of the other party. So if a seller’s coming in without an agent or if the buyers working with the seller and the seller has no agent, the sellers gonna try and get that property for less than the market value by about the equivalent that the seller would have ended up paying an agent in the first place. Because when…when one party is trying to save money the other party’s gonna take advantage of that and nobody ends up saving. Except maybe the party that takes advantage of it.
So it really doesn’t matter. The experience is ultimately key. If somebody feels like they’re getting the value and that’s important and I think you’re right that we need to make sure that we understand our value proposition. I can’t tell you how many real estate agents I’ve ever talked to and said, you know, what…what makes you stand out. You know, if I was talking to them about sending a referral their way or something like that and they’re in a different market, I did that once for…for my admin. When I was looking for an agent in Orlando to send to them. So that they could sell their house. I went through nine agents, nine of them. All of them very reputable, very highly visible in the community, before I got to one that could literally tell me “This is why I’m the best and this is why you need to hire me.” Everybody else they were…they were spewing. I had somebody say “What do you mean?”
Tell me what do I mean when I asked them why I should send business to them. Like come on, I had other people there was somebody at Exit Realty and they’d they just kind of spewed like their…their brokerage model and the tools and techniques that they had. You know, the…the agent that ended up just really impressing me her name was Dallas and she’s out of Orlando spectacular. Now I’ll send business to her again because my agents had or the…my admins parents had an amazing experience. She came in, she did everything she said she was gonna do and no big deal. But agents don’t know what their value proposition is.
And to your point we don’t need to be hung up on that number. Whatever…whatever the number is that we charge we need to make sure that accordingly for what our clients need, and then we need to make sure that we are letting them feel like they’re getting value there because if, you know…I could go in and charge a million dollars and if I asked enough people I’m sure I’ll get one sucker to sign on to it, but that’s just a numbers game.[Christian]: Sure well when it comes to the whole idea about your value proposition you…again you need a, you know, to do our job well you need to put yourself in that consumers place, you know. Because I’ve heard so many agents, you know, say “Well my value is this.” And I’m like “You’re, you know, that’s what your broker tells you to say. Your consumer doesn’t give a [censored] about that quote value” You know, like they don’t care that you have an idea X home search site. Why don’t you, you know, come up with a value that the consumer is willing to pay for not something that you tell them “Hey this is a value you better value it”. You know. [Chris]: I want to know things that I can’t find out on my own. If I’m a consumer like if there’s something that I can’t find out or there’s something I don’t know, that’s where my value…that’s where I’m gonna find value and hiring a professional. I do not clean my own teeth, you know. I’m…I’m not a dentist, I’m gonna go…and I’m not gonna run my own x-rays. You’re not gonna see me diagnosing my own medical diseases. It just like Nate said on the last episode. He called up a dentist who said “How should I pull out my teeth with the pliers or Visegrad [phonetics]”. And he goes “What?” And he goes “Well why are you listing your house for sale by owner?” And immediately…and now he has the listing that I thought that was brilliant. But it just comes down to making sure that 1-we know what we’re doing and where we’re providing the value that they need. And 2- that we are being better than the average bear. Right.
We want to make sure that when we’re meeting with people if we’re charging that premium, if we are going in and making a good bit of money on a property we need it to be worth it.[Christian]: Right. No exactly I mean bottom line, you know, we need to be thinking about it from the consumers point of view and be flexible on what that conversation is , what the value is, you know, we’re bringing what the services are. You know, don’t get stuck in kind of the navel-gazing or whatever the saying is, you know. We’re basically we’re just kind of inward looking and, you know, all we can see is our industry talking points, you know. Don’t get stuck on defending your compensation at all cost if your client doesn’t…doesn’t see the value there. You don’t either move on to clients that do see the value or change. You know, be willing to adjust that compensation. [Chris]: Definitely so we’re about halfway through the episode today and we’re gonna go ahead and do a real estate bonus thought. Christian I want to get your ideas on some of these because these are actually some new household products that just came on the market. So I don’t know if you guys have it out there but we have a grocery store here called Sprouts. It’s owned by Whole Foods. It’s like a Trader Joe’s meets Whole Foods. And I think that that’s who’s making these. But it’s Pencils by Sprout. They get…so there’s these pencils and then when they get too short you actually stick them up right into a pot and there’s seeds in them. There…so there’s like plant seeds embedded in the pencil. So when the pencil gets too short and you can’t use it anymore you just stick it in a pot and water it. And it starts growing things. [Christian]: It’s interesting. Not something I would buy but OK [laughter]. [Chris]: I mean hey it’s like you can have your little pencil in the kitchen and then when you’re done with it you stick it in a little pot and maybe grow some basil or cherry tomatoes or a mint or something like that. They come in all different…different like styles of pencil. [crosstalk] Yeah I mean…let’s see what else do we get? We have a…there’s…they’re now making the LED light bulbs that flicker like flames. So I don’t know if you’ve seen those. But now they’re…they’re coming in LED NITOR. N-I-T-O-R I think. Is…they make a flip…flicker flame effect LED light bulb. So you can…if you’ve got outside electric lanterns you can put in a flame style now and they’re LED and they’re low power saving.
Have you seen the disposable plungers?[Christian]: No. What do you like flush it down the toilet we’ve done using it? [Chris]: All right. No I think you throw them away. But… [Christian]: OK. [Chris]: Do you remember a long time ago they had that…it was like that plastic wrap but you would like push the seal around the end edge. So you could take like plastic wrap and put it over a canister and instead of like it wouldn’t go. [Christian]: Yeah. [Chris]: You push it and it would like bind together. [Christian]: OK sure. [Chris]: Well apparently that wasn’t really healthy but they’ve got it’s like a giant piece of saran wrap and it’s got stickers around the edge and you put the sticker on the edge of the toilet so it covers the whole bowl. And then you just kind of push down on it creating the seal. And yeah that…creating…it’s a disposable plunger. So when you’re done with it you throw it away. [Christian]: OK so it turns the whole toilet into a plunger. OK. [Chris]: Yeah. Yeah it makes the…the whole seal it’s like turning the…the toilet into a giant balloon and you’re just pushing down to create… [Christian]: OK. That could be a great practical joke on someone. Just put that down. [Chris]: Oh yeah just put it down and then shut the seat and see what happens. [Christian]: Just wait for him to try to take number two. [laughter] [Chris]: Yeah or number one with the little kid, you know, I mean there’s…there’s no safety there. I don’t know hopefully it’s not clear because if it’s clear then yeah. [Christian]: But just make sure you do that joke at your friend’s house. [Chris]: Yeah don’t…don’t do it at my place. Definitely don’t do it in my office. [laughter] So yeah that’s this week’s bonus thoughts. Everybody if you have any ideas of things that you want to hear on the show please make sure you let us know. Go to our rtrepodcast.com. sign up for the newsletter. Hit the contact form. Let us know what you think and what you want to hear about. If there’s something cool that you think we should talk about just shoot us an email or let us know in the contact us form on the page. But please make sure you subscribe. Give us a five star review on iTunes. We really need it. We’re desperately in need of them. Now… [Christian]: Please listen. [Chris]: Please, please listen. Please like us. No but getting back to what we’re talking about which was the…the industry creating value for our clients and making sure that we’re not going to overboard and we’re looking at things at a consumer’s perspective. So Christian I’ll let you continue on with…with what you were talking about there with making the consumer step it into their shoes. So how do you step into the consumer shoes? [Christian]: [laughter] See organize my thoughts. I might to edit out some of this… [Chris]: This will be edited, highly edited, highly alcoholic, highly flammable. [Christian]: OK I mean I’m trying to think about like everything…anything else I haven’t already kind of… [Chris]: How do you know what the consumer wants? [Christian]: I mean I think that comes with experience. I mean the key to put yourself in the consumer shoes it’s thinking “OK if…” Try to…try to forget that you’re an agent in the industry. It’s all easier to do if you’re new which I think is kind of what gave me the edge, you know, when I got into this. But try to say “OK if I was buying a house or if I was selling a house what would I want? What would, you know, what would I want my agent to be able to do for me? What would my expectations be? What I’d be willing to pay for and what? would I expect him to turn from that?”
Now I think a lot of…it’s usually the more savvy clients I have this pushback, you know, on the commission or on these specifics of the marking marketing and analytics and what I’m actually doing for them. And I think that’s great. I mean those are usually the best people I enjoy working with because, you know, they keep you on your toes and they keep you…keep you honest, you know. Like if those are people that you don’t like working with you, maybe should re-evaluate exactly what your value is. If they’re kind of calling you on, you know, what you’re charging and what you’re providing for that that fee…On and on I mean that’s just kind of how I try to approach things which can be challenging because it kind of goes against a good chunk of industry which tends to maybe stay there for the consumer and the experience and client stuff. But they, you know, tend to kind of take their talking points from the NAR and their brokerage and, you know, kind of defending the industry as opposed to defending being and doing its best and what is required.[Chris]: Being the little soldier or worker bee. [Christian]: Yeah well it’s tough to do because I mean a lot of that kind of stuff you don’t necessarily see. You know, it’s more in the subconscious level like “I have been doing this for 10 years or 20 years” and than that’s just how it’s always been done. Like if…if an answer to, you know, a question is “Well that’s just how it’s always been done” like you need to stop right there and re-evaluate. Like that’s never good answer for anything. [Chris]: It really isn’t. So I think that’s a good idea is try and imagine what you would like as a consumer. And…and if you’ve been in real estate for a while, you know, imagine what you would like as a consumer in another big purchase. Right. Imagine what you would like as a consumer if you were looking for a financial adviser or some…you were looking to purchase a boat. Or I don’t…I don’t know. Something that you have no idea where you’re getting into. But then another thing I think you could do is ask. Talk to your consumers. Go back to your client and survey them. Say “Did you think the service that I provided was worth the value that you paid?” And if you get a lot of yeses then you got something to build on.
There’s…there’s a lot of leadership books and one of the biggest things that I’ve seen be a reoccurring thing is, you know, if you’re trying to figure out your why and I think Simon Sinek [phonetics] is good at this. Simon Sinek says “If you’re trying to figure out your why, you should go to some really close friends, somebody that’s not afraid to give you an honest answer. And say “Why are you friends with me?”” And Simon does that and it’s really weird and it’s really awkward. But…I’ve never done it. But if if you’re having trouble, you know, you can go and ask somebody because that is gonna give you a starting point for what your purpose is. Because if…if somebody tells you, you’re caring or this or that of the other or “You know what, I really hate you but, you know, you’re…you’re just kind of sticking around there so I just let you be a part of my life.” Yeah I mean it’s gonna give you an idea of where you are and who you are and what people think about you.
So you’ve got to find somebody that you trust. If it’s a past client, if it’s a friend of yours go and talk to them and just say “Hey look what did I do well? What didn’t I do well? Was it worth it? Do you think that I saved you the money that, you know, do you think I got you more money than I was worth on the property? Do you think that I saved you the time and headache of you trying to figure everything out on your own?” And then go from there.[Christian]: Yeah I mean that’s what I did when I first got into real estate, you know, I basically went to my friends that I knew had, you know, owned houses and like, you know “How did you find your agent? What do you like about them? What didn’t you like about them?” You know, you start seeing these themes, you know, of who… [Chris]: Wait you actually did the market research? [Christian]: Yeah. [Chris]: I didn’t know real estate agents did market research. [Christian]: Well I mean I knew from the get-go that like you’ve got to stand out. I mean there’s so many agents like you. You can’t just do your job and, you know, expect that to be enough. I mean maybe it is because there’s a job… [Chris]: Can I quote you on that? That’s…”You can’t just do your job and expect that to be enough.” That’s good. [Christian]: Yeah I…I agree. And then to make sure that I don’t fall into, you know, kind of the trap that I’m, you know, railing against with agents. You know, we, you know, always do like, you know, kind of as part of the initial buyer or seller consultation ask them “What do you expect from me? Like what are your past experience is like?” You know “What was good? What was bad?” You know, to kind of gauge, you know, like what…what maybe some of the tough points might be or how we can make it a better experience for them. And then after the transaction, you know, follow-up survey of like “Did we do everything that’s your hoping? Did we exceed your expectations? You know, to make sure they’re like if we did drop the ball or something happened like we can we can fix that. And, you know, move forward so it doesn’t happen again. [Chris]: Yeah well I think that that’s definitely a good…good strategy making sure that you’re…you’re asking for feedback. Talking to the consumer. Finding out what they want. And that…that could be different in every market. Because if…if I’m here in Atlanta and I’m talking about, you know, what…what value I can bring to a seller, you know, it may be different, Christian, what you’re going to get in in Seattle, you know. A seller in Seattle may want a free bag of coffee with every purchase whereas in Atlanta they may want some Krispy Kreme Doughnuts. I don’t know. But it’s just a matter of making sure that we understand our audience and that we know what we’re doing and why we’re worth what we are. And, you know, for anybody that doesn’t know if you’re worth what you are just reach out to us. I’m sure we’ll be happy to have that conversation and help you get bit down to…down to the grass roots of it. And see, you know, exactly where your value proposition lies for your clients.
Christian any final thoughts for the for today’s episode?[Christian]: Think for yourself and think from the clients’ perspective. That’s my thoughts. [Chris]: Think for yourself. Alright thank you so much for tuning in to this week’s episode of re:Think Real Estate. It’s great having you here. We miss you Nate. We hope you’re feeling better and we will see you next week. [music] [Chris]: Thanks for tuning in this week’s episode of the re:Think Real Estate Podcast. We would love to hear your feedback so please leave us a review on iTunes. Our music is curtesy of Dan Koch K-O-C-H, whose music can be explored and licensed for use at dankoch.net. Thank you Dan. Please like, share and follow. You can find us on Facebook at Facebook.com/rethinkpodcast. Thank you so much for tuning in everyone and have a great week. [music]