Isn't Consulting just Discounting in Disguise?

So now that you have had a couple of days to wonder what the heck I was talking about in this posting. . . what are your thoughts about the differences between real estate consulting and discount brokerage?

Jack

Jack,

Discount brokerage compensation is dependent upon completion of the transaction very much like traditional brokerage.

Real Estate consulting is dependent upon the agent convincing the client that his or her opinion is worth something!

Your thoughts?

Sandy

Quoting Sandra Zuidema:

Discount brokerage compensation is dependent upon completion of the transaction very much like traditional brokerage.

Real Estate consulting is dependent upon the agent convincing the client that his or her opinion is worth something!

Your thoughts?

My thoughts:

Sandy, I could almost agree with you but for a few things. First, Consulting and traditional alike both depend on convincing the client that your opinion (and also your ability and work ethic) are worth something. Otherwise they will not hire you. In Discount Brokerage, they are just worth a little less than what others might be worth.

Now, don't get the idea that I am saying a discounter is worth less than others. It is the discounter himself/herself who is making that call. I have stated and will continue the thought that we are worth no more than what people pay for our service - at the very lowest price we charge. We set our own value by the fee we are willing to work for.

Also, it is important to note that consultants will also work under the traditional, contingent on close, percentage-of-sales-price model we are so familiar with. The big difference here is that it is the client's choice how we work for them.

Consulting is not just about fee for service. It is about client choice.We are paid a full and fair price for everything we do.

Other's thoughts?

Copyright © Jack Harper, 2008, All Rights Reserved

Jack,

I follow your point but don't see why clear lines could not be drawn when distinguishing between consulting and traditional agent duties. As I see it the value in consulting is the agents expertise in real estate providing a motivation and goal for the client.

The client now has an objective and can achieve his/her goal in any form they like.

I believe that agents who represent Buyers and Sellers through the process provide this service to their clients and consider consulting as part of their duties of a full service agent.

Consultants, on the other hand, are utilized for a portion of the transaction. The client, as you mentioned, has a choice to use the consultant as the procuring cause agent.

I would think with so many people searching the internet for properties that a real estate consultant would be necessary to focus the potential Buyer.

Back to you.

Sandy

First, just wanted to say I'd made a huge post just before this one about the "Tale of Two Fishmarkets" which I'd saved as a "draft"..didn't realise when I ultimately "submitted" it, it stayed a draft. So if this post looks somewhat "out of context", my apologies. It follows as the last of several here, sorry for disjointed look, but...in the meantime....

Sandy, let's talk about your comment "I believe that agents who represent Buyers and Sellers through the process provide this service to their clients and consider consulting as part of their duties of a full service agent."

I fully understand what you're saying here. I've always considered my "approach" as being much less "salesy" and more "consultant" in nature. But we are all human. Think about the CMAs you've done (for free, in hopes of winning that listing....and yes, I understand you don't always "want them" anyway). When you present to a prospective seller, how might YOUR OWN PERCEPTIONS of what the market would bear for their home be jaded by your wanting to "please" the seller or simply by your "optimism", wanting to believe something that was aligned with the seller's desires. Much as seller's may need HONEST PERSPECTIVES...and many even will say "of course I want you to tell me the truth about how much you think my house is worth", how many listings have you lost over the years because you WERE honest....but someone else listed the house (too high!), eventually dropping the price to where it would sell.

I'm not saying that every agent who lists a house higher than it should be listed is being dishonest, either!!! What I am saying is that it's human nature to "see things" in a way that doesn't conflict with our own self interest.

But what if, instead, we were to say say "Mr and Mrs Seller .... I know that every day of the week there are agents offering to give you their "free" CMA, which is basically an elaborate "opinion of value" supported by some market data. Let me ask you a question. In WHICH case do YOU believe you'd get the MOST OBJECTIVE opinion of a property's value ... when the person providing it is being fairly compensated for their time, knowledge, and expertise, or when the person providing it is being told basically "if I like what you tell me, I'll let you list my house and you have the POTENTIAL of getting paid; if I don't like what you tell me....well, thanks but no thanks, you get nothing?" This isn't rocket science ... what it is is basic economics.

Sandy, you also said "Consultants, on the other hand, are utilized for a portion of the transaction."

Of course that CAN be the case. As a consultant you CAN offer a variety of "limited " services. For example, you could offer to buyers and sellers alike the flexibility to "do their own thing" when searching for properties or marketing their property...but when their is the POTENTIAL of a transaction, you step into the picture to research, advise, and put the transaction together and monitor and troubleshoot through to closing.

What MOST consumers don't understand about our business is that the "brokering" ... the getting together of a buyer and seller ... is just a PART of our job. Where, IMO, the real rubber meets the road and where a good agents has his or her greatest value is in understanding the terms that go into a contract and the IMPLICATIONS of those terms on their "client"; being able to sift through the wheat and shaft. Consumer's have a tendancy to focus on "price". But there's a difference between "price" and "cost". If you ask most sellers if they'd accept a full price offer, generally they'd say yes without batting an eyelash. But what if you added "buyer is 0 down, wants a 5% credit at close, has a house to sell which is not yet on the market, yada yada yada...." Well, all of a sudden all those nasty other 'terms of the contract' have made "full price" not so appealing in this case after all.

But the reality is, as a consultant, you have the FLEXIBILITY to offer portions of what would be included in a "traditional" service offering, or you could offer the very same thing. If, after discussing the choices the consumer has, the risks and costs of each choice, the consumer and the agent both decide they would like to work together on a "percent of sale, paid at close" basis, so be it. But the bottom line is that THEY HAD OTHER OPTIONS TO CONSIDER AS WELL. The agent didn't offer just a "one size fits all" approach. And if you've ever tried "one size fits all' of anything, you fully understand it really doesn't!!!!

And lastly, Sandy, I love this "I would think with so many people searching the internet for properties that a real estate consultant would be necessary to focus the potential Buyer."

Oh, how right you are! You may or may not be familiary with Mollie Wasserman's (again, the founder of ACRE) "Real Estate Internet Warning", but it says "Despite advertising claims to the contrary, the internet is NOT an experienced Real Estate Professional. It cannot consult, counsel, advise, have knowledge of local laws and market conditions, make judgments, own the result, or most importantly, understand your individual goals and needs and care about you as a Client. Furthermore, while the internet can provide information, it cannot interpret it. To obtain an accurate assessment of any data you're receiving online, please contact us."

We are deluged on the internet with DATA. But as anyone who's ever searched the web for information about anything knows, finding what's relevant, finding what's accurate, finding what's usable for your particular needs is a whole different matter. And with their being SO MUCH DATA, (just out of curiosity, I plugged "hair care" into Google...there were 30,700,000 resulting items) the consumer is discovering more and more that they need a FLESH AND BLOOD HUMAN BEING to help them determine which information is useful to them and then KNOW HOW TO APPLY IT! !

Wow! JudiB has been busy this morning! What a wealth of information and knowledge here. Almost too much to absorb, but worth the time to understand. So Sandy, it will do a lot of good to read and reread her messages.

I like a little different analogy. Now, we need to have some form of benchmark when we refer to the following types of brokerages:

Traditional

Consultant

Discount

I like to think of traditional as those who provide what is usually called "full service brokerage." Now, keep in mind that I do not subscribe to t he theory that there really is anything like this that one could clearly define. The very term "full service" is vague and not clearly definable. One broker might include warranties, transaction management, closing services, marketing and more. Another might not include any of these services. It too depends on the location. Some states to not permit agents and brokers to perform closing services.But suffice to say that for our discussion we are speaking about a brokerage that performs a substantial set of services that could be considered to be "standard" in their given market. They provide these services under a contingent on close, percentage-of-sales-price basis. They do it all but only get paid if the sale closes escrow.

Discount also carries a multitude of styles and definitions. So let's use a model that has been discussed all over the world as being akin to discount brokerage: the Limited Service Discount Broker, or LSDB. This usually refers t the MLS-only brokers who put a property on the MLS for a fixed fee.

Note, there is a similarity between these two models. That similarity is the lack of choice. Consumers go with a traditional broker and must usually be willing to accept their service, no matter what that service includes (and they usually are not very clear n this). Clients will go with a discounter and also only get what service they include for their fee (and they are always very clear on this). But, there is no choice after you elect to sign up with them.

Consulting, on the opposite side of the street, is all about choice, as Judi points out so well. The consumer is first educated about all of the available services, their descriptions, inclusions and costs. The educated consumer can then choose what services they want. They know going in what they are getting and what is costs.

So here is my simplified analogy:

When I think about discount services, it reminds me of trying to sell a classic car. Now these cars are not the run-of-the-mill. They are special and can always use some skill and care to sell effectively. You would be wise to have this car showroom ready before trying to market it, as this can be a very emotional purchase.

Now, one dealer in particular offers to clean, tune and detail the car. He then puts it in his classic car showroom and proceeds to market it aggressively via his website. He also has a list of interested buyers from all over to whom he sends much information about your consignment car. This is like the full-service broker. All of the work is done. It is likely that this dealer will charge a hefty premium for this service if, and when the car is sold. But he is only paid if and when the sale happens.

Another dealer, knowing that you have invested a great deal of time, money and care into making this vehicle showroom ready on your own offers to market and promote your car via his web and print services. He also makes financing available for prospective buyers. This is like the consultant - only providing and only charging for your selected services. At some point, the dealer might suggest some additions and modifications to make your car easier to sell. You can agree to let him do them, or not. You get to decide. Note that this dealer will be paid for the showroom space, advertising, and whatever you elect to have him do - regardless of whether the car sells or not. This is like the consultant.

Finally, there is one who promises to market your classic car for a flat and discounted fee of $800. What does he do for the cash? Put it on a car lot, with lots of advertising and foot traffic? Promote it in the paper or online? Show it at an auction?

None of the above. He drives it to an empty lot, puts a "For Sale" sign in the window, and walks away. Your money is wasted. That's what you got for your "discount."

Jack

Copyright © Jack Harper, 2008, All Rights Reserved

Jack -

Excellent analogy!

I think on thing that is confusing to many (including many of us within ACRE) is one of terminology. Way back before I even heard of ACRE, I subscribed to the Joe Stumpf/Brian Buffini philosophy of real estate consulting.

There is very little difference in "consulting" in the traditional model and the ACRE model - as far as determining basic clients goals and needs. The primary difference is that ACRE takes the consulting concept a couple more steps:

• offer choices in the services the client receives to accomplish his/her goals
• offer choices in how the client pays for those services

In the "traditional" model, it is a "one-size-fits-all" world! This is what I do, this is what I charge. You don't pay anything until we close, if we close. I take all the risk.

In the ACRE model, the "traditional commission" is an option, but not the only option. If a client wants to share the risk and pay for services rendered, they can save money; but they have to assume some of the risk.

ACRE is not about limited service, it is about choices. Choices in services and how services are paid.

Betty