RealTown's RealTalk

Hi All,

I recently posed the foillowing to my Consulting Group here on RealTown and I was hoping to get some feedback from you all:

------

As I sit here this morning, I come to the end of three days worth of study and introspection - an attempt to come to some solution for the agents who want to add consulting to their business plan but happen to work under a broker/owner who is not ready for this model.

Being a broker/owner myself, I have a clear understanding of the possible reasons for this hesitation: liability, loss of income (perceived), loss of focus, accounting nightmares, management burdens. I also have a strong understanding, based on more than 25 years experience, that we in residential real estate have a solid sense of "that's the way we always did it." We almost live in a world based on the "if it isn't broken, don't fix it" mantra.

As a producing agent, however, I have a countering sense that tells me I should be doing business that way I believe it should be done, so maybe I need a broker/owner who "get's it."

I want to tell you that neither of these positions is wrong, and neither is completely right.

I have come to the tentative conclusion that we, as a team (broker and agent) need to work toward some solution that works for both. Such a solution would be based on mutual open-mindedness and a committment to the objective of reaching a mutually beneficial working agreement.

I also feel strongly that we have come to the jumping off place - where the paradigm is truly shifting. We can no longer put this change off. Our old business model of contingent commissions based on a percentage of the sales price will not work much longer. Consumers will not stand for such a vague agreement. We must begin movement toward a new business relationship based on mutual benefit and total transparency. I personally feel the consulting model is the right one. (read my book to see if you agree).

So now I need your input. Have you tried to implement some of these principles? Is your Broker/Owner not allowing this to happen? Are you a broker/Owner who has concerns about this movement? Let's examine this. What is going on in your world? How do you see this playing out?

JackH

 

It may not be just the brokerage that is the problem.
We have some licence laws that state that the commission must be a flat fee,
or a percentage.
No room for a consulting fee - although I know that some REALTORS do that
as a separate contract.
Do your state laws permit consulting fees?
Merv.
**********
Mervin Burgard, Q.C.
203-219 Oxford Street West
London, Ontario, Canada N6H 1S5
phone: 519-679-9900
fax: 519-679-8546
e-mail: mburgard@ody.ca
**********
Please consider the environment before printing.

11/12/2008 @ 4:58 PM HST

>>

Jack Harper (snip):

I also feel strongly that we have come to the jumping off place - where the paradigm is truly shifting. We can no longer put this change off. Our old business model of contingent commissions based on a percentage of the sales price will not work much longer. Consumers will not stand for such a vague agreement. We must begin movement toward a new business relationship based on mutual benefit and total transparency. I personally feel the consulting model is the right one. (read my book to see if you agree).

So now I need your input. Have you tried to implement some of these principles? Is your Broker/Owner not allowing this to happen? Are you a broker/Owner who has concerns about this movement? Let's examine this. What is going on in your world? How do you see this playing out?

<<

I am a broker/owner. For several years we have offered clients the choice of a percentage of the sales price or an hourly fee. We let the client decide, they check the box. To date, no one has selected the hourly; everyone has selected the percentage. If your belief holds true, in the future clients will start selecting the hourly box.

With Warmest Aloha,

In answer to Merv's question on state by state laws -

Pennsylvania only allows the Broker of Record to "hold themselves" (advertise) that they are a real estate consultant. Salespersons and Broker -Associates cannot. In fact, the state has fined a few people over the years for advertising this way.

Of course, as one of the original colonies, some of our laws go back the the day William Penn stepped off a boat at the Delaware River landing and said "Ben Franklin will be here in 120 years. I don't want him to be a consultant."

11/13/2008 @ 1:22 AM HST

>>

JudiB (snip):

...one thing I've learned is that it's not uncommon for people to choose the commission model over the alternatives (though we offer other alternatives besides hourly rate..."shared risk" being one, and various menu of services being another.) What's nice, however, is that, in discussing their OPTIONS with them, they more clearly understand EXACTLY WHAT THEY ARE PAYING FOR WHEN THEY DO PAY BY COMMISSION....they are paying to DEFER RISK.

<<

I'm not sure if you're suggesting that my clients choose because they don't understand their options. If so, I can assure you that my clients are well informed and make their decision based upon what they feel best meet their needs. I not only discuss in detail the choices I offer, I also encourage them to interview agents with flat rate models and other types of models before making a final decision. 

Ruth Gabbard writes:

I'm not sure if you're suggesting that my clients choose because they don't understand their options. If so, I can assure you that my clients are well informed and make their decision based upon what they feel best meet their needs. I not only discuss in detail the choices I offer, I also encourage them to interview agents with flat rate models and other types of models before making a final decision. 
>>
(JB) By offering them choices, and in so doing give them a clear understanding of those choices, there is a transparency to what we do that they hadn't seen before! While part of what they pay for when hiring an agent is all the "task management", the real bulk of our fee is because WE ARE CARRYING ALL OF THE RISK. Those sellers who have low risk-tolerance will likely always opt to pay by commission.
<<
(RUTH)Yes, for some, having "low risk-tolerance" may be the reason. But ultimately I believe what matters most is that the client believes they are getting "value" for what they pay, no matter what that model is.   

Ruth...
Actually my remarks and added emphasis was NOT about your model (from your posts on RT, I've always been under the impression that you have operated "ahead of the curve" for our business.)   What I was trying to emphasize was that there are many ways to service the consumer (the ways you work are some of them) and that the broker owners who FEAR that if consumers are offered alternatives to commission, they will by and large choose those alternatives, need to be aware of what happens in the "real world" ONCE THE CONSUMERS UNDERSTAND.  

You and I agree this is all about transparency, and, as you said "value" for what they pay.  And the more we have options to offer (and are discussing those options and the costs involved in providing them) the more the consumer will understand the commission structure and how it may benefit them.

My apologies if my post sounded as though I was "responding to" your comment.  My intent was to "expand upon it".  I know you "get it"!  Unfortunately, there are many in our industry who don't....and I think it's important that we encourage everyone to think more "out of the box".  Then, of course, there is the hurdle to deal with in changing state licensing laws to permit licensees to provide services that the consumers need and have alternative ways to pay for them.

JudiB

Ruth says:
 

I am a broker/owner. For several years we have offered clients the choice of a percentage of the sales price or an hourly fee. We let the client decide, they check the box. To date, no one has selected the hourly; everyone has selected the percentage. If your belief holds true, in the future clients will start selecting the hourly box.

Jack says:

This sounds like the exact model. You are practicing consulting, in my mind. Now, I am not certain things will change immediately in your market, because I do not know your market like you do. What I do know is this: A convergence of several factors which include listing availability, online valuation, online marketing resources (Craigslist, IDX and more), online financing (yes, it will soon be back) makes it very attractive for the average consumer to become much more involved in the real estate process - buying and selling - than ever before.

I feel strongly that this plays a role in the reduction in average gross commission percentages, discounting and MLS-For-A-Few-Bucks providers who come and go with the tide. I also believe that our traditional model which I will define as contingent commission based on percentage of sales price, leaves much to be desired by the consumer. Often they, as JudiB points out, do not really understand our process or what they are paying for. This lack of transparency is further compounded by the lack of standards in our industry. Full service to me might be very different from full service to you, yet the consumer pays a similar percentage for each one.

Yes, I think we will all see a significant increase in those offering service on a menu basis as well as those opting to work under such a relationship with their agent.

I will invite anyone interested in this to visit our Consulting Group here http://www.realtown.com/Jack15/groups/real-estate-consulting.

Best

JackH

Rich Hudson
Director of PR/Marketing
InternetCrusade
(619) 283-7302 Ext. 602
Rich@InternetCrusade.com

11/14/2008 @ 1:45 AM HST

>>

JudiB (snip)

My apologies if my post sounded as though I was "responding to" your comment.  My intent was to "expand upon it".  I know you "get it"!  Unfortunately, there are many in our industry who don't....and I think it's important that we encourage everyone to think more "out of the box".  Then, of course, there is the hurdle to deal with in changing state licensing laws to permit licensees to provide services that the consumers need and have alternative ways to pay for them.

<<

JudiB, no apology necessary. :-) I just wanted to be clear to everyone that ours is not a casual "check the box" without full disclosure. I am anal about my clients understanding what they are doing. Not only is it explained in person, it is also in our Buyer (or Seller) Guides and also in our contracts.

 >>

JackH (snip):

This sounds like the exact model. You are practicing consulting, in my mind. Now, I am not certain things will change immediately in your market, because I do not know your market like you do. What I do know is this: A convergence of several factors which include listing availability, online valuation, online marketing resources (Craigslist, IDX and more), online financing (yes, it will soon be back) makes it very attractive for the average consumer to become much more involved in the real estate process - buying and selling - than ever before.

>>

Jack, I think you're right. It's interesting that the ACRE model has just come into place recently. I started my real estate practice in 1987 and had a hard time with the concept that I was a "salesman". Fortunately, early in my career, I had a manager (thank you Bob Cook) who saw how I treated my clients and helped me to understand that I was "counseling" my clients. That concept changed the whole direction for me.

Also early in my career, former NAR Pres Bill Chee was one of my managers. He taught the concept of viewing each client as being worth at least $50K of personal income over a lifetime. At the time, I thought it a bit crass, but later learned to understand what he meant. Today $50K isn't much, but the concept still holds true.

<<  

JackH (snip)

I feel strongly that this plays a role in the reduction in average gross commission percentages, discounting and MLS-For-A-Few-Bucks providers who come and go with the tide. I also believe that our traditional model which I will define as contingent commission based on percentage of sales price, leaves much to be desired by the consumer. Often they, as JudiB points out, do not really understand our process or what they are paying for. This lack of transparency is further compounded by the lack of standards in our industry. Full service to me might be very different from full service to you, yet the consumer pays a similar percentage for each one.

>>

"Often they, as JudiB points out, do not really understand our process or what they are paying for." 

Yes, I think that's exactly the point and I think we are to blame, myself included. Somehow we're taught to make it look easy and not burden our clients with all the details...after all, we don't want to sound like we're complaining. Many years ago I changed that concept for myself and started letting my clients know how hard I work for them. By helping my clients understand, I rarely get the "will you lower your commission" question and I never get the  "you didn't earn your commission" comment.

A recent case-in-point that could be the stereotype view that our" job is easy" and we get "paid too much":

A client contacted me about purchasing a home, but said he wasn't in a hurry. I put him on our MLS auto-notification of listings that met his specs. A few weeks later, he asked me to submit an offer; we met to view the property and submitted an offer; the offer was accepted, we opened escrow, got the loan approved, and closed in about two and a half weeks. The commission I was paid was in excess of $20K.

The client did not ask about "reducing the commission" or comment about "not earning the commission". Instead he asked if he could submit a testimonial. I told him I appreciated it, but it wasn't necessary. He did it anyway.