Extreme Makeover - Real Estate Edition – Part II – Breaking the Cycle

Hi Jack,

I have already begun the process of making the "change." I have put together a pricing list, although I'm not sure of how to price our services. I'm thinking about leaving my traditional brokerage and start out on my own with my own domain and website.

I'd love to include non-traditional services, but wouldn't we be stepping out into dangerous territory as far as liability is concerned?

Just looking for other opinions...

Lisa Goranson

Broker/Associate - e-PRO

Chicago, IL

773-322-8224

Traditionally, agents work very hard (for nothing), either with a buyer purchasing from another agent, the property expiring through the MLS, or cancelling the contract. This is an iffy profession.

Where did we come up with the "realtors will do it for free" mentality anyway? We'll soon be paring our profession and fellow associates out of business in an effort to work harder for less, just to simply get the contract. This practice makes no sense whatsoever.

Hi Lisa, and Welcome,

This platform is new to me, so I am taking a little longer to respond than I will in the future. In fact, this is the third time I am truing to post this response.

I am happy to hear that you are moving in the consulting direction. I have heard from several brokers and agents who tell me that they have "backed into" their pricing schema. They started with what their desired income was, then divided into that the number of hours they would work. This gave them their per-hour fee. I am not a fan of this method.

We have taken a more complex approach. We start by determining what our services are - activity by activity. Next we determine the level of skill needed for each activity. We then price each skill level on an hourly basis. We next determine (from our experience) how long a task will take. This gives us an idea of the price for each activity.

We use a spreadsheet system to bid and track each client's hours.

You also mentioned some concern about an increase in liability by moving away from traditional services. I think the opposite is true. In traditional business, we offer something we call "full service" for a percentage of the sales price. The meaning of "full service" is vague, varied and confusing.

What we do is come to a service agreement with our client. We determine together just exactly what services they are asking for. We provide those services as agreed. It seems to me that this is far more defensible than trying to get the court to agree on what our services SHOULD include when we promise something as nebulous as "full service."

This is a great question. What do others think about the liability issue?

Quoting Diana Russell:

Where did we come up with the "realtors will do it for free" mentality anyway? We'll soon be paring our profession and fellow associates out of business in an effort to work harder for less, just to simply get the contract. This practice makes no sense whatsoever.

Jack says: You hit the nail on the head. We value our service at $0.00 by offering it for free then we are surprised when consumers want us to take reduced commissions.

Hi everyone,

I really like the ACRE and bundled services concept. It opens negotiating on services and dollar allocation between the buyer, seller and brokerage.

As with all new programs, there are questions that come up. for instance; a relocation company wants 35% of the inhouse commission. With the ACRE concept, I would ask, "35% of what?" Thank you in advance for all responses.

Hi Diana,

Remember that consulting doesn't necessarily mean an hourly or flat fee - it can also include commissions. Having said that, clearly if you are being paid for your services plus a small profit, there is no "fat" to give out a referral fee.

Which brings us to the an incredible "aha" I had years ago regarding referral fees. Our ability to hand over up to 35% of our earnings to me broadcasts that there is extra money to give. I would question that - I have always believed that the commission system works because successful closed transactions make up for the many that don't. In other words, we need the extra dollars to pay us for our unpaid work which is why I have a problem with referral fees in general. Now, don't get me wrong - I'm not that pure: I've paid and been paid referral fees for years though I much more "picky" about what I accept.

But, as a concept, I think the existence of referral fees (shoot, we have whole industries that are fed by our willingness to pay them) should be phased out. The public isn't stupid: they know about referral fees and many consumers have told me that their existence leads them to believe:

a) that we're "overpaid" since we have so much money to give away

b) that are referrals can be colored by whom will pay us for the referral

Think about it: how confident would you feel about a doctor's referral for a specialist if you knew that they were getting a "kickback"? ACRE was founded on the concept of raising the bar on our industry's professionalism. As such, I think we need to emulate other service professionals who provide fiduciary or other educated counsel rather than continue to emulate other sales fields that work on commission.

Just my rambling thoughts,

Mollie

Jack Said:

Hi Tina and thanks for your post. You have hit upon the most difficult part of this transition - what if we have to operate the old way or lose to someone who will?

I was talking with a friend this morning and we centered on the fact that this transition will be evolutionary - not revolutionary. We can hardly flip a switch that will change things overnight. If we try, consumers will not even be prepared and will likely return to what is comfortable.

This does not mean, however, that we should sit back and wait for someone else to make things change. They need to change right now. The traditional method is broken and outside forces are circling. As an example, are any of us aware what Redfin is telling their customers? They tell them that they will go on tour with them under certain circumstances. Or. . . you can tour the homes during open house! This is directly from their website:

The Details: Redfin Home Tours
Tours last two hours each, and you can see up to 6 homes per tour.

You can go on 4 home tours without paying any money up-front. Here's how:

• Your first 2 home tours are free.
• Your 3rd and 4th tours reduce your Redfin refund by $250 each for a full tour, or $125 for a single-home tour.
• After your 4th tour, tours cost $250 in advance; or $125 to see a single home

When they first started, Redfin actually suggested that buyers have other agents show them homes then come to Redfin to write the deal and Redfin will give you a rebate. I personally would not like to be a tour guide so a Redfin agent can get paid!

On the listing side, I wonder what percentage of CMA requests are for reasons other than wanting to list their home with you. How many are for insurance purposes, tax abatement, curiousity?

I do not suggest that you just say NO to a request for info. T his is a perfect opportunity for business - real business - if you are willing and able to use it to your advantage. Try this scenario: Seller calls you and wants a FREE Property Valuation (everyone offers that, don't they?). Instead of just doing it and faxing it to them, what if you took the consulting approach.

"Sure, Ms Client. I will be more than happy to help. I am open at 4:00 this afternoon. Would that fit your schedule?" The client will likely wonder why you asked about their schedule - just do it and fax it t me, OK? "I will be happy to, Ms Client. But first, I am going to need some information from you and I would like to have you here when we go through the data. Would 4:00 work?"

Now, they assume you are going to work for free. If they are at all sincere, they will usually meet with you. This is the perfect time to introduce your concept and begin the relationship building process. At the office, you can start by telling Ms Client that most free property valuations are worth little or nothing. Tell her that agents go into them thinking "if I am too low, she will not like me and will go with another agent who inflates the price." As a result, most free CMAs are on the high to the very high side. So, in this light, free is worth exactly what you paid for it.

On the other hand, if they want an accurate and real report, all they need to do is engage your services for a very small fee and you will give them what they paid for - an honest and objective evaluation. "Remember, Ms. Client, I am not depending on a listing to make an income. I am simply being paid fairly for my services. In the event you do want to list with me down the road, I will credit everything that you may have paid to that point."

Now that is professional!

Judi, you are amazing.

I wonder how many of us have been afraid to ask our currently traditional broker if they might entertain a little change in the revenue model for consulting purposes.

Judi spells it out so well.