Extreme Makeover - Real Estate Edition - Part III - Getting Business

Jack,

I have a question: how does a real estate consultant and his/her broker work together?

When a consultant sets their fee structure, do they plan to share the fees they receive for services that don't result in a transaction with the broker?

If not, then would their upfront fee include only their part, with the broker's split paid at closing?

Thanks,

Kathleen

Kathleen,

In the discussions I've had on this subject with other agents performing coinsulting services, the arrangement is identical to whatever the arrangement would be if there WERE a "traditional" transaction. If the agent is on a 70/30 split with the broker, and they charge a $1000 (for example) for, a battery of services, the broker would get $300, the agent $700.

All payments are passed through the broker, just as they are with any transaction...it makes no difference whether this is an "up front fee", a "commission at close", payment for services as they happen...whatever.

Judi,

Thanks for the insight. I can see how that would work. I can also appreciate your frustration with people confusing services and method of payment!

And, of course, it brings up more questions.

If an agent did something totally outside the realm of a transaction, like the example Jack gave of representing the homeowner to their lender in an effort to renegotiate their mortgage. Would that have a broker split?

Second, if an agent identified different services bundles - some that would add up to a standard commission, and some not - how does that work? Would the agent review and get the broker's agreement on their packages, and the broker would accept whatever the split was? Or, is it normally done by reviewing each transaction individually?

Thanks again!

Kathleen

Great answer from JudiB.
I would also add that you will need to have an up-front agreement with your broker as to whether the broker will even allow you to operate as a consultant. Many will not yet see this as a business model they want to adopt. There are several reasons I have heard as to why they do not allow consulting.

Some will feel thay they might have all of the liability and only a fraction of regular fees (wrong but this needs deeper discussion). Others might feel that things are working fine for now so why upset the applecart. Still others are resistant to the new model altogether.

A face-to-face will give you the answer in a hurry. If your broker does not support the model, you have three choices:

1. Get a new broker

2. Invest the time needed to help your broker "see the light"

3. Stay put with the old model.

Of course, I am not a fan of number 3.

Best

Jack

Kathleen Allardyce said,

If an agent did something totally outside the realm of a transaction, like the example Jack gave of representing the homeowner to their lender in an effort to renegotiate their mortgage. Would that have a broker split?

Second, if an agent identified different services bundles - some that would add up to a standard commission, and some not - how does that work? Would the agent review and get the broker's agreement on their packages, and the broker would accept whatever the split was? Or, is it normally done by reviewing each transaction individually?

Jack says:

If you read your broker/salesperson contract (assuming Illinois has them) you might find that the split applies to any and all earned revenue. I know it does out here.

As to the last question, it all comes down to your broker and what he/she will support. Again, I feel a face-to-face is wise in these situations. This will clear the air once and for all.

Best,

Jack

Jack

Thanks Jack!

Unless I'm interpreting this wrong, I'm a bit amazed that brokers have problems with this model.

For any payment made up front, that means revenue for services performed, not only for the agent, but for the broker as well. I would think that would really be an advantage - an opportunity for actually being compensated for services rendered even if a transaction didn't result.

Strange.

Kathleen

Real Estate Marketing Services
www.BuildRealEstateResults.com
www.BRERBlog.com

Jack is absolutely right...whether there's a transaction or not...if you are performing real estate services, fees are passed through the brokerage.

Kathleen, I think raw fear and protectionism is at the root of most (though not all) broker resistence to Consulting. Part of that fear stems from the notion that "if consumers could just pay a minimum for services, rather than committing to a "full commission", brokers would lose all that commission revenue." The reality is, and we see this played out over and over around the country, that the consumer quite often, even when they are faced with viable choices that "could" save them even significant amounts of money, generally still opt to pay by commission at close. Why? Because of RISK. Commission at close means the agent bears all the risk...they're spending their time and their money to market property & service the consumer with the possibility of never getting it back.

The way for the consumer to save money is for them to bear some of that risk themselves by paying the agent for their time, tools, and talents. Many, maybe most, consumers, are still resistant to that. In other words, one of the biggest reasons for broker fears simply does not hold water.

And regardless of how high commission go, they are still high risk! I've never understood why we, as an industry, have been so willing to disrespect ourselves and our work by telling the consumer they don't have to pay for it....ALL of it.

JudiB

Jack and JudiB,
I am quite interested in the consultant approach. I still refer to myself as new in the business, having only been doing this 3 years now. I like the idea of getting paid for doing the work. My question to the both of you, and to the others, will this model work in a more rural area? Or is it a predominately metro thing?
I work in upstate NY, in a very suburban/ rural area - we have 700+ agents in our board. And probably only a 100 or so truly active agents. Working in an area that is about a 60 mile radius, population around 60,000. We are definitely trailing the rest of the country- very few agents have a personal site, no electronic keys and my broker doesn't even have IDX on the company site. She honestly doesn't think that the internet will impact business that much- saying that real estate is a belly to belly business. I was the first agent to use a laptop, and one of 2 that have an air card.
So my question is- in an area where print ads are still mandatory and no one else is doing this- will consulting work? I can see the benefits, but will this approach work with less tech savy/ tech dependent clients/customers etc.? I appreciate any feedback you can give me. Thanks Kris

Kris said,

I am quite interested in the consultant approach. I still refer to myself as new in the business, having only been doing this 3 years now. I like the idea of getting paid for doing the work. My question to the both of you, and to the others, will this model work in a more rural area? Or is it a predominately metro thing?

Jack Says:

Hmmm. I love this media - I get t hear from folks all over who have very different situations than others. We all get to gain in the process. Thanks Kris.

Now, to answer. I am not one who looks on the transition from traditional business to a consulting model lightly. I know only too well that is is a difficult, at best, transition for all of us - urban or rural, big broker or small, progressive market or conservative. All the same in terms of the degree of difficulty in making the change. Why? Because this is in total contrast to how we have operated for some 100 years!

Imagine going back forty or fifty years and needing to visit the doctor. I recall only too well being home with an illness and the doctor would visit my home (our family doctor, by the way, who took care of all our ills). Came to our house! That is the way it was back then. We had family doctors who made house calls. It was never discussed as being the right or wrong way to do it - it just was what it was.

Now fast-forward to today. I visit my medical group and see my "primary care" physician. He looks me over, listens to my complaints then refers me to the specialists in the group for very specific things: ENT, Dermatology, and more, depending on my illness.

How did we get from the country doctor to the specialist? When did we change from house calls to office visits? Now, I am certain to hear from some whose doctors are still general practice and who may even make house calls. That is, I think, the exception to the rule.

The changes were not sudden and dramatic. I recall suddenly realizing that doctors no longer came to the house. No major announced change - just subtle evolution.

Apply this to our situation then. Assume that we will not be met with cheering throngs if we suddenly tell all that we get it and everyone else is wrong. Time to change everybody! I suspect we would become the target of the week in some circles.

I advocate a steady, measured approach to change. I would start out with letting my market know that they now have choices. We will still do things the way we always have, but now the consumer can choose to have a different experience. We will offer them transparency through our needs analysis that is designed to tell us all the best way we can work together. If they prefer the traditional path, we are thrilled to do that for them.

Will this work in your market? Yes. Will it be an overnight change? No. Is it a little daunting? Yes. But is it the right thing to do for both consumers and our industry alike? You decide.

Best to all

Jack