Welcome to the New RealTown! Submit Feedback
Member Login | Join RealTown
The Real Estate Network
RealTown  Community  RealTalk  Agency-Brokerage  Consulting Model (aka Fee-for-Services) and the Broker Owner

RealTown's RealTalk

Back

Bookmark and Share   Create New Discussion Digest Archive

 Consulting Model (aka Fee-for-Services) and the Broker Owner

Created by: Jack Harper, Licensed Real Estate Broker,  CA

Date: Nov 12, 2008, Number of Replies: 23


View Profile

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

 

To Top Reply

Merv Burgard Real Estate Attorney

Date: Nov 12, 2008

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.

To Top Reply

Jack Harper Licensed Real Estate Broker,  CA

Date: Nov 12, 2008

Merv states correctly:

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?

Jack Replies:

This is a good point, although not always completely correct even though professionals think it is in their states. Yes, there are some restrictions in certain states. In fact, the Department of Justice, via their very lengthy and possibly misdirected investigation into the alleged anti-competitive nature of the industry provided a high level look into the state's regulations pertaining to minimum service requirements.

The details can be found on the web at http://www.usdoj.gov/atr/public/real_estate/states_map.htm .

As an example, I had one agent write to me this week to tell me that they were prohibited from performing unless a closing was involved. She was in the state of Indiana. I can point you to a company in Indiana that makes no bones about their ala carte offering - that is even their company name! Their web site states that they offer ala carte "fee for service which allow the consumer to choose, and pay for, just those professional services they want and need without sacrificing the quality of service they receive." So, someone is operating under an incorrect assumption.

Yes, some states are tight on whether you can perform services on an hourly or bundled basis, but a trip to the web can usually get that answer. Also, some states do not allow retainer fees or up-front fees. Another concern might be the question of when and how an agency relationship is triggered.

Another, perhaps more significant question arises when you set out to define what an agent can and cannot do in the course of their work for a client. Probably one of the most significant problems comes when the agent performs outside the scope of their license. For example: I can perform a CMA for free for a prospect, but if I charge for it am I actually creating what might be considered to be an appraisal - for which I am not specifically licensed? Same goes with legal and financial advice. But, I suspect, the company that endorses fee-for-service and creates a set of guidelines surrounding that and manages to that guideline would be OK. At this point, I would add that your company legal folks should be the ones to make that decision - I am not an attorney.

In California, we are allowed to price on a fee-for-service basis. Many other states also allow this.

What is it like in your location?

JackH

To Top Reply

Ruth Gabbard Licensed Real Estate Broker,  Honolulu,  HI

Date: Nov 12, 2008

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,

Ruth A. Gabbard (R), CRB, CRS, SRES, PB
Gabbard Hawaii Properties | Honolulu, Hawaii
808-534-1850 | 877-ALOHA HI (256-4244) Toll Free
Listserv E-mail: realtalk@hawaii-properties.info

 
To Top Reply

Judi Bryan Licensed Real Estate Broker,  Carol Stream,  IL

Date: Nov 13, 2008

Having trouble viewing this message? Please visit: http://www.realtown.com/community/RealTalk/view/00DC4I

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.

Ruth A. Gabbard
----------------------------
Ruth -

Since becoming involved with ACRE (Mollie Wasserman's "Accredited Consultant in Real Estate" program), 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. 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.

JudiB
Serving the West/Northwest Suburbs of Chicago for 25 years!
For Information on Real Estate Consulting and/or the ACRE� Consulting program, visit....
ACRE� Accredited Consultant in Real Estate RealTown Seal of Approval
To Top Reply

Fred Pickard Licensed Real Estate Broker,  Palmyra,  PA

Date: Nov 13, 2008

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."

To Top Reply

Ruth Gabbard Licensed Real Estate Broker,  Honolulu,  HI

Date: Nov 13, 2008

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. 

>>
 
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.
 
<<
 
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.   
 
 
With Warmest Aloha,
 
Ruth A. Gabbard (R), CRB, CRS, SRES, PB
Gabbard Hawaii Properties | Honolulu, Hawaii
808-534-1850 | 877-ALOHA HI (256-4244) Toll Free
Listserv E-mail: realtalk@hawaii-properties.info
To Top Reply

Judi Bryan Licensed Real Estate Broker,  Carol Stream,  IL

Date: Nov 13, 2008

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

To Top Reply

Jolita Wagoner Licensed Real Estate Broker,  Palm Coast,  FL

Date: Nov 13, 2008

Believe it or not - I too am considering this model. I know it is in the cards for our future business and our survival (a lot of meetings I have attended point to this).
Alas, my broker too is against working against a traditional model of "full service only" and with that, I am considering starting my own business next year. (The only reason I need to wait is my current listings will not come with me when I leave and I hate to leave customers I have nurtured to an unknown element known as "House Listing".
Jolita
Jolita Wagoner Realtor(R), GRI, ePRO, TRC

Instructor
Giumenta School of Real Estate
Director, Flagler County Association of Realtors 2008






Get the Moviefone Toolbar. Showtimes, theaters, movie news & more!
To Top Reply

Jack Harper Licensed Real Estate Broker,  CA

Date: Nov 13, 2008

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

To Top Reply

Rich Hudson Information Technology,  San Diego,  CA

Date: Nov 13, 2008

Since becoming involved with ACRE (Mollie Wasserman's "Accredited Consultant in Real Estate" program), 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. 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.

JudiB
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Just a note that the ACRE course is one of our RealTown Approved Vendors. Good stuff to assist you in the current marketplace. Check them out at http://ACREcourse.RealTown.com.

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

To Top Reply

Yvette Chisholm Licensed Real Estate Broker,  Rockville,  MD

Date: Nov 13, 2008

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.

Yes, that is true MANY states have that rule. If only, the agents paid attention.

Some states also require that you name the complete name of the brokerage and the office phone number….but, alas, if only, the agents paid attention.

Yvette Chisholm

Associate Broker, MD, DC, VA

Long & Foster Real Estate, Inc.

Broker Office: 301-548-9700

To Top Reply

Ruth Gabbard Licensed Real Estate Broker,  Honolulu,  HI

Date: Nov 14, 2008

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.


With Warmest Aloha,
 
Ruth A. Gabbard (R), CRB, CRS, SRES, PB
Gabbard Hawaii Properties | Honolulu, Hawaii
808-534-1850 | 877-ALOHA HI (256-4244) Toll Free
Listserv E-mail: realtalk@hawaii-properties.info
To Top Reply

Rick Snow Licensed Real Estate Broker,  El Paso,  TX

Date: Nov 14, 2008

We have a company here in El Paso that was a very competitive independant brokerage for many years. Last year they decided to join a fee for service business model franchise. They would put your home in the MLS for a flat (pretty low) fee, but then everything else was an add on service. Want a lockbox? $100. Want flyers? $100 (I use the dollar amounts as an example only).
 
Their production is down 48% over last year. There may be many factors involved here. Many of their agents left when they switched.
 
I believe there is a market for fee for service, but I also think that many consumers prefer the contingent fee based model. When you compare a REALTOR's fee for working on a contingency basis to an attorney's, the consumer gets a hell of a deal.
 


--
Rick Snow
Broker/Owner
One Realty El Paso
www.ricksnow.com
rick@ricksnow.com
 
To Top Reply

Judi Bryan Licensed Real Estate Broker,  Carol Stream,  IL

Date: Nov 14, 2008

Having trouble viewing this message? Please visit: http://www.realtown.com/community/RealTalk/view/00DC4I
Rick Snow writes
I believe there is a market for fee for service, but I also think that many consumers prefer the contingent fee based model. When you compare a REALTOR's fee for working on a contingency basis to an attorney's, the consumer gets a hell of a deal.
-----------------------------------
I'm not sure where the subject of this string became Consulting (aka fee for service)...if it was original, I certainly missed that part. At any rate, I think it is VERY IMPORTANT TO UNDERSTAND that CONSULTING is most DEFINITELY NOT a synonym for "fee for service", and anyone thinking otherwise is MISSING THE POINT. Consulting is a mindset....not a fee structure.
Consulting is, at its core, about CHOICES and about TRANSPARENCY. Could ONE of those choices include fees for particular services? Absolutely. Just a "commission paid at the close of escrow" can be one of those choices. Or how about "shared risk" where a consumer might be able to reduce their total fee by paying up front or over time (perhaps in monthly installments, or upon completion of certain tasks or bechmark periods). There are all sorts of variables.
I do agree, however, that consumers OFTEN decide they'd rather defer the risk by agreeing to pay by commission after closing. Some have neither the funds nor the stomach for paying fees up front (though having spoken with many FSBOs who had paid thousands of dollars up front to folks like BuyOwner.com with no guarantees, it became abundantly clear that SOME most definitely are willing to carry that risk themselves).

JudiB
Serving the West/Northwest Suburbs of Chicago for 25 years!

For Detailed Autoresponder Information on Real Estate Consulting and/or the ACRE� Consulting program
Simply email ACRE_RT@HomesLady.com - details will be sent to you promptly
To register for the ACRE Consulting Course, visit....
ACRE� Accredited Consultant in Real Estate RealTown Seal of Approval
To Top Reply
Word of the Day Ask the Experts Question of the Day
  • Point2
  • realEseller
  • RIS Media
  • Market Leader
  • Top Producer
  • realPING
  • Express Copy
  • T-ReX Global
  • Listing Domains
  • CareerWebSchool
  • Client Choice Realty
  • InternetCrusade.com
  • Allison James
  • Visual Tours
  • Learn about e-PRO(r)
  • iHouse Websites
MyOnlineNeighborhood RealtySoft