Fee for Services Myths

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Feb 18, 2009 9:08:14 AM

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An article on the Inman News Service this morning, written by Kelle Sparta discusses the relative merits of developing a business model in which you simply start charging for each service that you provide. It also leads to charging an up-front retainer fee for buyers and sellers.

Now, I am really oversimplifying here, so you might want to read the article for yourselves if you are an Inman subscriber. What I want to point out, though, is that there is some logic here and there can also be a lot of problems raised in just going after a fee-for-services approach.

First problem: I have not researched other states yet, but I know that California only allows reatiner fees to be collected under very strict conditions. You must first submit the contract to the state for their approval, then you must abide by it to the letter, otherwise you can get into some serious hot water. This is seen as an attempt to stem the flood of mortgage scammers out there.

Next problem: How do you convince a buyer to pay you for showings on a per-showing basis. Doesn't this reward the agent who shows the bad houses first?

There are many more problems, but these are a start.

Should we be paid for our hard work and skills? I think we should. But is it really wise to forego our current business model to make a complete shift to another one? I don't think so. And if we do, is fee-for-services really the best approach? You decide.

I feel strongly that we should adapt - not morph. In adapting, we take what works, add to it what might enhance our business, work with it, make modifications then lock it in. In this sense, I favor an adaptation that adds client choices to the mix. We can educate clients about what it is we can do for them, and usually do for them, in a typical transaction. We help them understand how much time and skill every task usually takes. This is a great way to justify our value proposition, isn't it?

We can then be open to any discussions the client initiates that would indicate that they would like a different relationship - say a serious discussion on fee discounting or any hint that they might want to be deeply involved in the activities. We have probably all had those clients who hinted at FSBO, or that they might be happier with a company that rebates them commissions based on the work that the client will do.

Now we can be flexible. We can be secure in knowing that the client is educated on the risks and skills involved in every task - secure because we educated them! If the client chooses to work on a non-traditional agreement, we can be flexible enough to make that happen.

So, now, I would like to hear from you. What do you feel about making a major move into what is called "fee-for-services" vs adapting and becoming flexible through a client-education, informed choice model?

Jack H

REISkills.com - Brian Gibbons

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Feb 18, 2009 9:22:48 AM

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Hi Jack:

Thanks for the book, and I want to pose a question:

If most buyers can not get a NEW 1st mortgage but could have an easier time getting a REFINANCE and...

If most lenders would look at lease options, seller carry backs - Wraps, or a land contrracts - installment sales as a REFINANCE after 12 months,

if these creative solutions are REAL SELLER solutions for this crazy market, how could the Real Estate Consulting approach work?

We REIs have used these techniques for over 50 years, and in commercial real estate probably since the Mayflower.

I'd appreciate your thoughts on this.

And Again,

Great book!

Brian Gibbons, http://REIEntrepreneur.com/blog/

THE NC LAND MAN ,E-PRO,GRI,CRS

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Feb 18, 2009 9:36:42 AM

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Jack ,

I could not agree with you more about the million poor starving residential agents practicing in 2009.

I gave up that game in 1990 and jumped into the land business where there is little competition and that is still true.

Where I left the pack of good old boys selling land , I did my first website in 1991 called landinvestment.net and have utilized everything possible involving technology since.

I have always charged 10% and still do. I utilize every conventional approach known to promote LEARN ABOUT LAND and it works.

2009 and beyond will be nothing but opportunity in land .I specialize in the Raleigh-Durham-Reseach Triangle MSA of North Carolina where people are coming in droves.

I pay hefty referral fees as land is a very lucrative game to play.

Bob Atkinson ePro , GRI,CRS, Instructor

Edited by THE NC LAND MAN ,E-PRO,GRI,CRS on Feb 27, 2009 10:22:51 AM

Jack Harper

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Feb 18, 2009 10:01:59 AM

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Quoting REISkills.com - Brian Gibbons:

Hi Jack:

Thanks for the book, and I want to pose a question:

If most buyers can not get a NEW 1st mortgage but could have an easier time getting a REFINANCE and...

If most lenders would look at lease options, seller carry backs - Wraps, or a land contrracts - installment sales as a REFINANCE after 12 months,

if these creative solutions are REAL SELLER solutions for this crazy market, how could the Real Estate Consulting approach work?

We REIs have used these techniques for over 50 years, and in commercial real estate probably since the Mayflower.

I'd appreciate your thoughts on this.

And Again,

Great book!

Brian Gibbons, http://REIEntrepreneur.com/blog/

Thanks for the great questions and the feedback on my latest book.

If we are talking about pure hourly consulting for residential, then the approach does have merit - no matter what the ,market conditions are. Here are a few examples:

1. Sellers with little or no equity can ill afford a full-service agent. Of course, this ignore the hundreds of thousands of short sales out there. But for those who will bring money to the table to close on a breakeven basis, then hiring a professional on a limited basis could be a solution.

2. In a very real sense, all consumers - buyers and sellers alike - are very nervous right about now. This even includes some fairly savvy investors. "Will prices drop more? Will rates drop more? Is this a good investment? I heard so much about "creative financing" gettting us into this mess. . . why would I want to try creative financing (such as what you might be suggesting) now?" Of course, I am certain that you are very well skilled at making your clients feel comfortable with your plan, but that probably does not represent a majority of buyers in my area. For those folks, we can probably find them an FHA vehicle to financing or seller carry, or . . . And we can do this on a fee basis.

3. FSBOS are still out there - we can help them

4. Buyer-equivalent to FSBOS are becoming more visible these days - we can help them.

Now, there are many more ways to practice "fee-for-service" opportunities available today, but that is not what I call consulting. In my definition, consulting is operating on a transparent basis to educate clients to the degree that they can then make informed choices about their relationships with professionals. This can include full service under traditional fee structures, hourly, bundled services and more. The key is that it is the client's choice after we have educated them.

WHat are other's thoughts?

JH

THE NC LAND MAN ,E-PRO,GRI,CRS

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Feb 27, 2009 10:19:12 AM

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Jack,

I agree with all of your points but one thing will never change in this game and that is getting as many listings as you can and putting up for sale signs with your website on it .

The old saying " if you don't list you will not exist" and "old agents never die they just become listless".

Bob

REISkills.com - Brian Gibbons

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Mar 4, 2009 12:38:06 PM

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Quoting Jack Harper:

Quoting REISkills.com - Brian Gibbons:

Hi Jack:

Thanks for the book, and I want to pose a question:

If most buyers can not get a NEW 1st mortgage but could have an easier time getting a REFINANCE and...

If most lenders would look at lease options, seller carry backs - Wraps, or a land contrracts - installment sales as a REFINANCE after 12 months,

if these creative solutions are REAL SELLER solutions for this crazy market, how could the Real Estate Consulting approach work?

We REIs have used these techniques for over 50 years, and in commercial real estate probably since the Mayflower.

I'd appreciate your thoughts on this.

And Again,

Great book!

Brian Gibbons, http://REIEntrepreneur.com/blog/

Thanks for the great questions and the feedback on my latest book.

If we are talking about pure hourly consulting for residential, then the approach does have merit - no matter what the ,market conditions are. Here are a few examples:

1. Sellers with little or no equity can ill afford a full-service agent. Of course, this ignore the hundreds of thousands of short sales out there. But for those who will bring money to the table to close on a breakeven basis, then hiring a professional on a limited basis could be a solution.

2. In a very real sense, all consumers - buyers and sellers alike - are very nervous right about now. This even includes some fairly savvy investors. "Will prices drop more? Will rates drop more? Is this a good investment? I heard so much about "creative financing" gettting us into this mess. . . why would I want to try creative financing (such as what you might be suggesting) now?" Of course, I am certain that you are very well skilled at making your clients feel comfortable with your plan, but that probably does not represent a majority of buyers in my area. For those folks, we can probably find them an FHA vehicle to financing or seller carry, or . . . And we can do this on a fee basis.

3. FSBOS are still out there - we can help them

4. Buyer-equivalent to FSBOS are becoming more visible these days - we can help them.

Now, there are many more ways to practice "fee-for-service" opportunities available today, but that is not what I call consulting. In my definition, consulting is operating on a transparent basis to educate clients to the degree that they can then make informed choices about their relationships with professionals. This can include full service under traditional fee structures, hourly, bundled services and more. The key is that it is the client's choice after we have educated them.

WHat are other's thoughts?

JH

----------------------------------------------

Hi Jack:

Buyers can not get financing right now, and unless you are a bank offering financing, and "consulting" is not going to create mortgages and sales for sellers.

In many states a land contract is a powerful tool. So are lease options and seller carrybacks and Wraps - AITDs.

I think the NAR is conditioning people that these tools as "flawed" and "dangerous".

All of these tools make it difficult for the 6% model to flourish. And that is the most probably the NAR's "probable" position why these tools are not suitable for sellers, in ANY market.

And, if you are skilled in these soilutions for sellers, you can many times (perhaps not California) have the PITI payment covered for the seller in the form of a market lease payment and extra option payment, and create a win win for buyer - seller, tying the "future sasles price to a new appraisal in the future.

All the best Jack,

Brian

PS http://www.time.com/time/specials/packages/article/0,28804,1877351_1877350_1877336,00.html 25 People to Blame for the Financial Crisis

I dont think you will find any Creative Financing mom and pop businesses.

And Warren Buffet wrote this about "prudent financial underwriting for residential mortgages."

http://www.marketwatch.com/news/story/buffett-says-manufactured-home-debacle-foretold/story.aspx?guid={3CF33D43-7ED9-4110-8196-8742807C763D}&print=true&dist=printMidSection

Jack Harper

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Mar 10, 2009 8:51:51 AM

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Brian says:

Buyers can not get financing right now, and unless you are a bank offering financing, and "consulting" is not going to create mortgages and sales for sellers.

Jack replies:

Brian, I don't know what your market realities are, but I am hearing quite a different story and I am seeing a different reality in my own market. While it is true that marginal buyers are not getting loans very often, qualified buyers are no problem here in my area.

What is the reality in other's markets? Are you getting loans closed for quality buyers, or is it still a closed market for you?

JackH

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