RealTown's RealTalk

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.

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

 

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
 

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

Ruth in Honolulu says:

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.

Jack Replies:

Just to set the record, I am not a representative of nor do I endorse any designations at this point, including but not limited to ACRE. I work with and for many Realtor® clients who wish to understand and implement consulting practices into their current business. As an independent, I am careful to only endorse when there is a clear choice for ALL clients. If there are more than one choice for any scenarios, I prefer to help the client keep an open mind. This is not to say that I am not a supporter - just not an endorser.

Regarding Bill Chee - I was fortunate to be in the room when he, As NAR President, made his now infamous "lion over the hill" speech. Bill was way ahead of the curve at the time. I also have a few friends from your area who did and may still work for Locations. I thought I knew a bit about the Islands, until Saul introduced me to Malasadas. My digestion will never be the same.

Aloha

JackH

Rick says:

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.

Jack replies:

All due respect to that company, but this is not an example of Consulting - it is an example of DISCOUNT BROKERAGE and, even worse, has been legislated away in many states so far with more to follow. We can call these the MLS-only bunch. In their plan, they charge a very low entry fee for listing the property on the MLS then they add-on sell or walk away with your money.

Here is the difference:

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. (this is like our contingent commission)

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.

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."

JackH

Copyright ® 2008 Jack Harper - All Rights Reserved

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.

 

Jack Replies:

Well, Judi, I appreciate your point of view and I can see where you might want to take that approach.

Although I agree that the term "fee-for-service" does not define real estate consulting, I disagree that it is not a part of the consulting model. Yes, it is a mindset. Yes, it is all about transparency and client choice (read my book for details) but I think we can get so finite in our definitions that we cause much more confusion than we remove.

Getting paid for services that the client selects, from a list of available services is what we commonly think of as fee for services.

 

In consulting - at least in my definition - the consultant presents to the client a list of all of the services that he/she usually performs on behalf of clients. The consultant then goes to lengths to explain these services so that the client has a clear understanding of what his options are. Armed with this knowledge and guided by the consultant, the client then makes decisions - which services do I want to pay this agent to perform, which services will I perform myself and which services do I deem to be unnecessary? Let's call this the "informed decision process."

Once the client selects the options, he then enters into an agreement with the agent for these services. Payment for these can be on an hourly, bundled or even contingent percentage basis - again it is the client's choice. Of course, the agent must be willing to offer these choices. In this scenario, it actually is a fee for services arrangement.

The problem arises for some in the consulting world when we try to use certain phrases that might conjure up other arrangements in people's minds. In the case of JudiB's reply, Rick had already equated the phrase "fee for service" with the MLS-only bunch. This can cause some defensiveness from the consulting world.

 

On the other hand, if we spend all of our time telling folks what consulting is not (not fee for service, not discounnt brokerage, not traditional, not, not, not) we will likely never get to the point where everyone understands what it really is. One of the major sticking points that I have with certain of the consulting groups is just this - they take a defensive approach to the model Too much time is spent on what consulting is not. You cannot implement a mindset. You can only adopt one then implement a plan around that.

 

One of the things I like about Judi's comments is that they usually do reflect a positive underscore of what consulting is all about.

 

JackH

 

 

 

Editor's Note
When I was a kid, lychee was hard to get...and there was nothing sweeter than ripe lychee right off the tree.Saul

Judi Bryan posts:

 

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.

 

Jack responds:

 

Well, Judi, I can see where you are coming from and why you probably feel it is impportant to make a distinction. I feel that this is a case of semantics. Rick incorrectly assumed that fee for service equated to the abhorent flat fee MLS-only bunch, where you might see a "bait and switch" approach.

First, let's define what fee-for-service means. In the common definition, it refers to offering specific real estate services to clients for pre-determined fees. Note, I did not say flat fees and I did not say hourly fees. I said fees.

 

To try to say that fee for service does not define consulting, I would have to agree. To imply that fee for service is not a part of consulting is, in my mind, misleading and can cause more confusion than it removes. I feel we need to spend less energy on semantics and more on concepts.

Consulting is not a mindset. Consulting requires a mindset. You cannot implement a mindset. You can adopt one then implement a plan around it. Consulting requires that there be a willing and able consultant and a willing and able client. In the real estate model, it begins with transparency. The consultant lists then explains all of the available services, as well as an open door to allow for some services that are not yet part of his offering. These services are explained to the client to the degree that the client undersrtands them

Next, the client decides, with guidance from the consultant, which services he wants the agent to perform on his behalf, which the client will perform and which the client deems to be unnecessary. Let's call this the informed decision process.

Through this process, the client may select services that are hourly, flat fee, bundled and/or contingent and a percentage of a sale. In this light and by way of true definition, this is clearly a fee-for-service model. It is not flat fee for service. hourly fee for service, bundled fee for service - it is just fee for service as selected by the client. It's all about choice - client choice.

 

Now, there exists an amount of defensiveness in the consulting community, based on a myriad of misunderstandings about what the model is. Many think  "oh, that is discount brokerage"when they hear about consulting. Others think "oh, that is the flat fee mls-only bunch." It is none of the above, although it might include some of this - based on client choice.

 

Consulting is, as I have stated many times here, the following:

 

Explaining the available services to the client, and the associated costs and options, in such a way that the client has a full understanding. Then the consultant allows the client to select which services and under which pricing strategy they wish to work with the agent. An agreement is drawn and executed. It is informed decision based on total transparency.

Frankly, this very issue is a major sticking point for me when dealing with certain of the consulting groups. Way too much time and energy is spent defending what consulting is not: Not fee for service, Not flat fee, Not discount brokerage, Not Not Not. . . What is needed is more focus on what consulting is. What is needed is a clear understanding that it can be one option among many. The client can elect to have a traditional relationship (most will for now), or a relationship based on specific tasks selected after informed clients make informed decisions.

One of the things I like about your posts, Judi, is that you have a passion for consulting. Your passion usually leads to some great information. Hope that this is not too confrontational, I just feel we need to stop tripping over semantics and spend more time on helping all to understand what consulting is.

 

Best

JackH