Club Chaos Agents - All Things Hollish, Wacked, and Jacked

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How many other professionals work on contingency ALL THE TIME? A sincere look at the real estate business model

Before I begin, I would like to point out that this post may stir up a hornet's nest of activity and comments, or it could generate a lot of unity and agreement.  Since it deals with money and how we are compensated as Realtors and brokers, I am expecting the former.  Nonetheless, this is something that I have been thinking about a lot over the past decade or so, and I wanted to get it off my chest now.  Please understand that I am in no way about to suggest any type of commission fixing or anything else that could be construed as harmful to consumers or in violation of the Sherman Antitrust Act.

I have been selling homes full-time in the Austin area since January of 1997, and I have made a good living doing this.  Of course, there have been ups and downs (2008 was a notable down year, frankly), but overall I have enjoyed this business.  In fact, the only time that I can say that I honestly wonder if I'm doing the right thing is when I lose a client whom I have met with in person a few times.  Thankfully, this has become much more rare for me over the years, but it still happens sometimes.

Is there anything that can be done to prevent this? 

Most people would say, "No", but I wonder if we shouldn't take a look at how we are paid in this business. 

I don't claim to have the solution to this problem in hand yet, but I do know that I don't like working on contingency with EVERY client and on EVERY deal.  It may be a clumsy analogy, but let's consider a couple of other professions, shall we?  No attorney would work in this way for every case.  Also, no doctor would treat you for free on the off chance that you will inherit some money or perhaps secure a retroactive insurance policy to cover their expenses.

If we want to be considered professionals in this industry, maybe the time has come to be paid accordingly. 

But Jason, you may be saying to yourself, there are plenty of professions that are straight commission in nature, right?  In a word, yes, but their sales cycle is typically much shorter than our own.  If I am selling cars, or major appliances, or even insurance, I probably don't have to meet with the client multiple times over a period of months to accomplish my objectives. 

For other "wine and dine" salespeople, they are likely making a lot more than the average Realtor (current median income: $35,522).  Couple this with no health insurance and it seems that we haven't done a very effective job of taking care of ourselves as an industry.  Additionally, I don't think we have done a good job of educating consumers about how we are actually compensated in the first place!

So, what should we do differently?

What about these ideas that we can garner from other industries?

  • Collect a deposit upfront for expenses and credit this back to the buyer at closing - if they walk away, you don't actually LOSE money, you just break even or make a very modest profit.  Home builders do this right now!
  • Collect 1/2 of the commission upfront and the remainder at closing - every reputable contractor that I know works this way, from web designers to roofers
  • Work for a flat hourly rate commensurate with experience and bearing in mind what the market can tolerate/stand.  Or, maybe the client gets an agreed-upon number of hours, after which they must pay a bit more to have your time.  I KNOW that this particular option  is not as exciting or feasible, but this post is really meant to get people thinking and talking about this topic

If we are truly independent contractors, what is to keep the average broker from changing his/her individual business models?  In my opinion, there are two things to prevent this from happening on a broad scale - fear of change and fear of repercussions from our colleagues.

Very few people enjoy change and many fear the unknown.  However, if you are a success in real estate, you are probably not one of those people!  If you took the leap and got into this business full-time at some point, you are more fearless than you realize.  It's a big decision to be self-employed.

What about fear of how you will be perceived?  This is something that I used to cope with personally, until one day I realized that I really only care about how God, my family, and my very close friends think of me.  Am I running around offending people all over town?  I certainly hope not!  However, I am about as laid-back and easy to get along with as they come, so I really don't get bent out of shape anymore if someone doesn't like me.  It happens.

Speaking for myself and ONLY myself, I would probably be willing/able to accept less money per transaction if I knew that I would be paid something for each and every client that I work with during the course of a year.  I know that last sentence is not the type of thing that typically wins any friends, but it is my sincere opinion. 

I would be interested in hearing your thoughts.

Thanks for reading! 

     

 My RSS feed is http://activerain.com/jasoncrouch/rss.

 

 

 

If you're looking for a home in the Austin area, you can also visit my primary website at www.austintexashomes.com.  Thanks!

Comment balloon 130 commentsJason Crouch • March 09 2009 11:21PM

Comments

Just HAD to be first on THE Jason Crouch's post!  Honestly, I think you're on to something--and I say we nominate you NAR's President OR we form our own alliace--JCR instead of the NAR (Jason Crouch REALTORS)!  Seriously, where IS the common sense in our business?  Now that listings are lingering a bit longer, some considerably longer, we spend far more time and money on them.  An upfront fee or 1/2 of the 'estimated' commission would be a way to go to keep our expenses in check.  The only problem that I see with that is paying an agent 1/2 and then the agent doesn't do the agent's job and then doesn't have the funds to pay back if the seller fires say agent!  Could be a quicksand scene!

Great, thought-provoking post Jason!

Debe in Charlotte

Posted by Debe Maxwell, CRS, The right Charlotte REALTOR! (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) over 11 years ago

Nice signature.........

If you look into European real estate, you will see that people do pay an upfront fee to work with a buyer's agent as one hire an attorney.  I don't know how to bring that culture to the US.

Posted by TIM MONCRIEF, Over 2,000 homes sold….. (Tim Monciref) over 11 years ago

HeeHee!  YES!  You've got my VOTE too!  (funny that you should write petition while I was writing about a ballot with YOUR name on it)! 

Have a great Tuesday Jason!

Debe in Charlotte

Posted by Debe Maxwell, CRS, The right Charlotte REALTOR! (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) over 11 years ago

Okay, now my second comment looks like I've lost my mind!  Oh, that's right, I'm a REALTOR--perhaps I HAVE!

Debe in Charlotte

Posted by Debe Maxwell, CRS, The right Charlotte REALTOR! (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) over 11 years ago

Debe - I guess I think one of the most reasonable solutions would be to get "normal" expenses and a little extra upfront for time spent, then collect the remainder at closing.  Just my two cents on this topic.  As for NAR, it's interesting that you mentioned that, because I was actually thinking about getting more involved somehow.

Tim - That seems like a reasonable model to me.  As licensed professionals, we should be able to collect fees for our time and effort.

Posted by Jason Crouch, Broker - Austin Texas Real Estate (512-796-7653) (Austin Texas Homes, LLC) over 11 years ago

Debe - Whoops!  I removed my first comment because MINE looked odd.  :) 

Posted by Jason Crouch, Broker - Austin Texas Real Estate (512-796-7653) (Austin Texas Homes, LLC) over 11 years ago

Jason, I want to sign the petition, too... LOL   Very thought provoking post.  I think I'm going to park here and see how the discuss develops.  

 

Posted by Connie Betz, Top Omaha Realtor - Omaha Homes for Sale (Berkshire Hathaway HomeServices Ambassador Real Estate) over 11 years ago

Jason, I think business models continue to evolve and probably will still more over the next five years. Redfin in the Seattle area had some kind of salary agent plan. I've never understoon while NAR doesn't have pooled medical coverage as an offering. Look how many members they have.

Posted by Gary Woltal, Assoc. Broker Realtor SFR Dallas Ft. Worth (Keller Williams Realty) over 11 years ago

Jason - I have worked in this industry for over 30 years now...15 of those as a real estate agent and actually over 15 years in escrow.  My first few years in real estate, I worked as a buyer's agent only using a buyer broker agreement and charging up front fees that were credited back in escrow.  This works very well with investors...my experience was that it confused first time homebuyers, but that was over 10 years ago, so maybe our first time homebuyers now are more sophisticated.   I think you're on to something!  Keep up the great work!

Posted by Lori Mode, Real Estate Made Simple (The Mode Real Estate Group) over 11 years ago

Jason,

Interesting.

You have my vote.

Would be nice to actually get paid for services rendered. 

Posted by Linda Lipscomb, 731-695-1118, Lexington TN Homes (Linda Lipscomb RE/MAX Lexington Henderson County TN) over 11 years ago

Well I have a very strong opinion on this as a flat fee broker.  We do not market our service as anything close to full service and make it a point to make that very clear up front, but we still are not warmly welcomed in many real estate circles because of our alternative business model.  To me it's the whole point of being an independent entreprenuer.  More than anything I'm just glad to see posts like this that raise the question as to what we can be doing differently.  All kidding aside, as an industry we will HAVE to think differently from here on out. 

Posted by Florida Private Golf Communities, Finding Home Never Felt Better! (Golf Life Properties, LLC) over 11 years ago

Love the power of groups and how brainstorming can let us see more options. I'm just going to say this Jason, this will be a very interesting post, and I would have loved to charge a fee for my tour bus last summer. Thanks!

Posted by Mary Douglas, REALTOR, Red Feather Lakes, Colorado (United Country Ponderosa Realty, Red Feather Lakes, Colorado) over 11 years ago

Jason, You might want to take a look at Mollie Wasserman's  book Ripping the Roof Off Real Estate

and ACRE  http://www.theconsultingtimes.com/agent/archives/commissions/ 

Posted by Margaret Rome Baltimore 410-530-2400, Sell Your Home With Margaret Rome ( HomeRome Realty 410-530-2400) over 11 years ago

I have been compensated in gold dubloons and Sweet Tarts for years now.  The beauty of managing our own businesses is that we can roll in any manner we choose.  I think this market has everyone thinking of ways they can tweek fee structuring to allow for more consistent return.  I am going to start holding either weekly raffles or games of full contact musical chairs featuring my current clients as the participants.  Loser pays for that week's service.  Close a transaction and you get it credited back at COE.  Stiff me and I keep the winnings and the Polaroids.

Posted by Paul Slaybaugh, Scottsdale, AZ Real Estate (Realty Executives) over 11 years ago

Personally I think it would be great to know that I was getting a paycheck after chasing my tail, with buyers who have no problem deciding after I've invested hours and hours into helping finding their dream home... that it's just not the right time to purchase! 

I think it would help both the agents in the business as well as the buyers in the market.

Posted by Julie Ferenzi, Julie Ferenzi (john greene Realtor) over 11 years ago

You currently have 20 readers on your blog right now according to your widget.  That is crazy!

Posted by Paul Slaybaugh, Scottsdale, AZ Real Estate (Realty Executives) over 11 years ago

I like the service model of an upfront deposit against expenses for listing expenses such as advertising, signage, dedicated single site websites, tech fees, etc. similar to a personal injury attorney taking a case on a contingent fee basis and requiring a deposit for filing fees, medical records, depositions, etc.   Similarly, I like the idea of a split fee agreement based on an hourly rate for home search services with this fee credited against the offerred co-brokerage commission paid by seller.  No sale - no additional fee.  Both of these items would cause the buyer and seller to take a more reasonable approaches - pricing and showing readiness for the seller and more defined search for the buyer.

Posted by Ryan Shaughnessy, Broker/Attorney - Your Lafayette Square Real Estate Partner (PREA Signature Realty - www.preasignaturerealty.com) over 11 years ago

Jason - I've put some thought into this before as well.  We all know that there are various models which exist today and customers have choices.  The question I keep asking myself is, "why don't I offer more choices?"  I don't have an answer other than I haven't put it together.  However, I see no reason why I (or anyone) couldn't explain risk to a potential client and then offer rates based on who assumes the risk.  I see this working better with sellers than buyers, but it could be a start.

Posted by Erik Hitzelberger, Louisville - Middletown Real Estate (RE/MAX Alliance - Louisville REALTOR-Luxury Homes) over 11 years ago

I know there has been a lot of talk about this on Inman News, but I would not trade the current model of compensation for any other model myself.  I do wish that our trade had access to reasonable cost health insurance and higher barriers to entry, but otherwise I think our real estate model is close to perfect.  It is the entrepreneur's model of owning your own business.  You pay your expenses, but have unlimited opportunity. 

Posted by Gail Robinson, CRS, GRI, e-PRO Fairfield County, CT (William Raveis Real Estate) over 11 years ago

As I mentioned on a Broker Bryant post 6 or so months ago, the whole charging X% doesn't make any sense to me, nor does it make sense to me why Buyers agents can't get their own compensation paid by their client.  I already charge a very decent retainer up front on all listings and will continue to do so.  I've found that charging an upfront retainer prevents a lot of problems with clients and cements the commitment.

I'm not a discounter and I don't charge X% either.  My business model is completely service based and my income depends on my performance - the way it should be.

Posted by Jessica Horton Jessica Horton Realty, Jessica Horton: I'm not #1... You Are! (Jessica Horton - Jessica Horton & Associates) over 11 years ago

I am a mortgage broker and I have thought about charging an application fee anywhere from $35 to $395. My broker told me I could do it as long as it was clear that it was an application fee and that it was non-refundable..... I like it so far. My issue is possibly losing a client to the broker down the street who doesn't charge and I think I am getting to the point where I would wish those clients upon my competition. It seems like it is making more and more sense with every keystroke.

Thanks.

 

Hans Bruhner, CMPS

First Priority Financial

 

Posted by Hans Bruhner, Sonoma County Home Loans (First Priority Financial) over 11 years ago

Jason - This is very interesting.  As I have been doing more short sales and educating myself on how Realtors are doing them across country I am noticing that many are charging an upfront fee on the short sale.  Now I realize short sales are more time consuming with fiinancial review, paperwork, the whole deal, but then they are also billing a mitigation fee on the Final HUD.  The total avaerage charge is $550.00 up front and $995.00 at close.  This is in addition to the commission paid.  Not sure if this could be a possible opening for Realtors to discuss something similar for traditional listings but it sure makes for interesting conversation.  Understood that short sales are a very different transaction (and many put these fees under a legal heading). But at least it is something that is close to what you are discussing.

Posted by Kym Wright (Prudential California Realty) over 11 years ago

The model is there. We just need to have the courage to use it. Contingent fees mean we have confidence the listing will sell -- if we don't and the client just wants to "give it a try," don't do it for free.

Posted by Ann Heitland, Retired from Flagstaff Real Estate Sales (Retired from RE/MAX Peak Properties) over 11 years ago

Hi,

As a non real estate person ... basically a potential buyer ... what advantage would such an arrangement as described above hold for Me?

 

I think that's probably the first question you have to answer to make an idea like this work. 

 

If I'm understanding the article correctly, basically you're saying that as I buyer, if I see a few houses, (or even go further, and make an offer on one) but then decide not to buy anything, I might still be out a good chunk of money? (half of commision up front sounds like it could be a substatial amount)

 

If that's case, it sounds like you might have to do a fair bit of "selling" just to find clients.

 

... and what happens if another agent is still willing to work just for commissions?  Would that be against the rules?

 

Just a few thoughts from an outside perspective ... hope it helps,

Todd

 

 

Posted by Todd over 11 years ago

I think an upfront fee would soon lead us to discover something about who was serious about working with us and who wasn't.  That said, it might be tough for some clients who are simply stretched in their first purchase or with short sale sellers.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 11 years ago

Hi Jason, I definitely believe that there is room for improvement in the current compensation model.  I'm going to noodle on this one for a while and I will get back to you! 

Posted by Steve Shatsky over 11 years ago

Jason,

Good post..good brainstorming. I agree with Gary business models do constantly evolve and there is definitely room for improvement!

Posted by Dorie Dillard CRS GRI ABR, Serving Buyers & Sellers in NW Austin Real Estate (Coldwell Banker United Realtors® ~ 512.750.6899) over 11 years ago

Jason, I have heard talk of this on the mortgage broker side for the last year. There are quite a few people that think that it will be the way of the Mortgage Professional. As far as the loan side, the average commission is 1% and the hourly fee would probably work out close to that. There may be some "easy" loans that go a little faster and some "tough" loans that take more hours to put together, but it should average out in the long run.

For mortgage brokers, it would entail making sure that you have a trust account and the correct bond. In WA state, the DFI states that in circumstances where a loan does not close at all or does not close on the terms and conditions agreed upon by the borrower and the mortgage broker that "A mortgage broker may charge a fee, and may bring a suit for collection of the fee, not to exceed three hundred dollars, for services rendered, for the preparation of documents, or for the transfer of documents in the borrower's file which were prepared for, or paid for by, the borrower if: 

(a) The mortgage broker has obtained a written commitment from a lender on the same terms and conditions agreed upon by the borrower and the mortgage broker; and

(b) The borrower fails to close on a loan through no fault of the mortgage broker; and

(c) The fee is not otherwise prohibited by the Truth in Lending Act.

Until the MB Commission changes the rules, WA mortgage brokers are not at liberty to collect more than $300 if the loan does not close which may or may not cover the loan officer's/broker's time value. I guess, for now, something is better than nothing.

Personally, I still do not charge my clients (mortgage brokers and loan officers) a fee if the loan does not close. I figure if they are not getting paid, why should I. I do have some clients though that still compensate me for my time because they choose to, though those are the exception rather than the rule.

Posted by Libby Cousins, Contract Mortgage Processor, licensed in WA (Extraordinary Processing) over 11 years ago

Jason - We could charge an hourly rate or a flat fee for tasks like 1) a Broker's Price Opinion, 2) Obtaining Well Logs, 3) obtaining copies of permits, 4) obtaining Certificate of Occupancy, 5) Checking FEMA Maps for Flood Zones, 6) Checking Dept of Geology & Mineral Industries for Maps depicting the geology of an area, 7) Checking to see if there has been insurance claims, 8) Checking to see if there are pending zoning changes or new permits for new bldgs or remodeling existing buildings, etc. Just to name a few specific tasks that are part of a transaction.

Posted by George Bennett, Inactive Principal Broker, GRI (Inactive) over 11 years ago

Jason,

I recently spoke to a gentleman that called me from Active Rain. He specializes in Commercial Real Estate and demands a monthly retainer to continue his search for his clients. At the closing table either all or a large portion of the up front money is credited towards the compensation.

I was really impressed with his fortitude and self image. He exuded his value and I can see why people would pay him to find the good deals.

I have thought of this so many times. I, as many have, spent many a mile and gas and time and effort for time after time just to see the clients change their minds and move a different direction.

Ish, we shouldn't have to work this way. Possibly this is why everyone feels as if we gouge them at the closing table. If we didn't take some compensation at some point I guess we would simply all be volunteers! And, starving.

Now they want to tax us per mile? Yea, that's going to go over well with people expecting us to drive them all over timbucktoo.... ha. I enjoyed your thought provoking post. If you come up with a workable model please share! Take care,

Deb

Posted by Deb Brooks (Brooks Prime Properties Wichita Falls Texas) over 11 years ago

Todd,

 All professionals work on retainers , we close a sale to get paid but many times we walk a whole week and buyers changes their mind...  now that means that I took time away from something else that I could be doing to make money and you didn't buy so now my family doesn't eat  this week right , the buyer broker agreement has a line for retainer that can be credited back at closing . That is the way professionals are doing their work and are confident that  they are doing the best job they can do for you.  there is a lot of stress from the model of work for free  and then client doesn't buy.... and yes short sales are a lot of work so that part should be compensates separate.

Posted by Elena Martinovici, Associate Broker- Phoenix , Arizona (MY HOME GROUP 602-321-1273) over 11 years ago
Jason- I think the business model will change in the next 5 years. What shocks me is the incompetency of NAR...how is it possible that realtors have not been offered a group health benefit. It's an industry embarassment.
Posted by Kent Anderson, from Schweitzer to the Lake (Coldwell Banker Resort Realty, Sandpoint, Idaho) over 11 years ago

Jason,

The idea has been tossed around the industry for quite some time and deserves a closer look. 

The healthy response to your topic alone tells us it's in the front of the industry's mind.

Here are a couple of things that may be worth considering:

1.) Does it increase the value of what the customer is receiving?

2.) Does it predict the needs of the customer?

3.) Will the industry see an increase in quality of service?

4.) Does it fill a need for consumers that is currently not being met?

Have an outstanding day!

Ray

Posted by Coldwell Banker Camelot Realty, Homes for Sale Mount Dora Realtor (Coldwell Banker Camelot Realty) over 11 years ago

I am relatively new to the business and I have been pondering the same questions. I was thinking a retainer fee upfront. But if when other agents keep to the same old way of business why would a client pay it?

Posted by Doug Aaserude, Broker (Inactive until May. 2009) over 11 years ago

That can be a powerful buyer agency. .sign here and give me a check payable to:

Posted by Fernando Herboso - Broker for Maxus Realty Group, 301-246-0001 Serving Maryland, DC and Northern VA (Maxus Realty Group - Broker 301-246-0001) over 11 years ago

Jason, there is a growing organization of real estate professionals asking the same. It's called ACRE® - Accredited Consultant in Real Estate, which we began in 2006. The question however goes beyond simple compensation, it's what our role today is with the consumer.

As I said in a recent post on our blog: If We Want to be Respected as Advisors, We Need to Stop Being Paid Like Salespeople, "The problem dates back to the mid 90's when our boards and associations started asking us to shift from a sales role (move the product) to a fiduciary role (represent the client). While they asked us to change our role with the client, they failed to examine our traditional compensation model which by it's very nature sets up an inherent conflict of interest: how in the world can you act as a fiduciary and give truly objective counsel when you are being paid contingent on the client's actions that you're advising them on?"

Don't worry about stirring up a hornet's nest. I'm a charter member of the "Hornet's Nest Stirrers" as I've been practicing consulting from the beginning of my real estate career. A thought for all of us to ponder:

"It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change." - Charles Darwin 

Mollie Wasserman

Founder: ACRE® -The Accredited Consultant in Real Estate Course and Coaching Program

Author: Ripping the Roof off Real Estate - How a Multi-Billion Dollar Industry Came to Have an Identity Crisis

Posted by Mollie Wasserman (Your Move Made Simple) over 11 years ago

Hey Jason.  I really think that we should start to charge a retainer fee but the reception by the public will be fierce and it will take some time to get accepted.  Think the time has come though.  Enough driving around for nothing and advertising for free.

Posted by Paddy (Patricia) Pizappi, Real Estate Associate Broker Hudson Valley NY (Better Homes and Gardens Rand Realty) over 11 years ago

interesting posts and some very interesting comments - thanks for starting the conversation

Posted by Randall Sandin, 843-209-9667 - Search for Charleston SC Real Estate (Carolina One Real Estate) over 11 years ago

Jason, I'm basically parking here, but changing the model will be difficult at best.  As Todd stated, if you do, you have to 'sell' the client on your services vs. agent B, who may not be charging at all.  Not impossible, but...

Mollie is dead-on, too.  We are paid as salespeople but are required to be psuedo-attorneys (and last I checked, attorneys don't work on commission).

Posted by Roger Johnson, Realtor - Hickory NC Real Estate (Hickory Real Estate Group) over 11 years ago

Jason, I have been saying this for years! We give away too much of ourselves in the process of our job! Compensation should begin at first commitment of buyers or sellers. For one instance I think we should be compensated for market analysis! Then the sellers would think twice about interviewing 13 agents because they want to be sure. Bottom line price sells houses! Sorry, I got out of control there!

I love the Darwin quote, the only constant is change and we realtors have seen enormous change in the last few years!

Posted by Caren Wallace, Portland Caren Real Estate (Premier Property Group LLC) over 11 years ago

I think Todd hit it on the head from a consumers prospective. It would take a major move byReal Estate agents across America to make this work. I'm for it myself as I get tired of all of a sudden the client just looses interest. Im out 20 hours of hard work!

Posted by Chip Jefferson (Gibbs Realty and Auction Company) over 11 years ago

Jason...

The problem is that WE have made the problem for ourselves, and we have reinforced the public perception that we are willing to work for free. I don't see this changing soon, as there are still plenty that are willing to take the chance, but I for one, am weary of the current situation and would like to see a change!

Posted by Richard Weisser, Richard Weisser Retired Real Estate Professional (Richard Weisser Realty) over 11 years ago

The only way to make this work would be collusion, because if just one agent tries it most people will move on to another agent if told they need to make a deposit up front.

 

Posted by J. Philip Faranda, Broker-Owner (J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY) over 11 years ago

Jason, we were just discussing this yesterday as I got a phone call from a prospect someone thinking about making a move to Raleigh.  They are going to be in town and would like to see the area and homes.  The will be here for one week.  Am I available?  Oh - I forgot to mention they don't plan to move here until maybe 2011?????   geezzzzzz

Posted by Lee & Pamela St. Peter, Making Connections to Success in Real Estate (Berkshire Hathaway HomeServices YSU Realty: (919) 645-2522) over 11 years ago

Hey Jason - We have to really love what we do and enjoy meeting and helping people or else we are completely nuts!  Change the model?  Interesting.  I suppose when the government takes over the real estate business, we'll get a changed model - we'll work for free and Uncle Sam will make the commission.  They're already doing that with our taxes!  Oh well!

Mary

Posted by Bruce & Mary Smith, REALTORS, Savannah Lakes Village McCormick SC (Savannah Lakes Homes) over 11 years ago

Jason, we do charge a retainer when we work with clients wanting to lease. It is not much but basically so they stay committed to us. You would be surprised how many walk away and do it on their own.

Since rentals in our area take as much time, same contracts, only now we pull credit and do more work, it is not worth our time if they are not comfortable paying the small amount we charge.

At least we will not be used and then they go back to the hotel,find a apt or house and we have spent all day driving them around etc...

Posted by Missy Caulk, Savvy Realtor - Ann Arbor Real Estate (Missy Caulk TEAM) over 11 years ago

In these uncertain times, having some sort of "guaranteed" income seems a lot more appealing than it used to, BUT something we must consider is that a big part of the reason our fees are what they are is because we take an enormous risk when we take on business and we ARE compensated for that risk. If we eliminated some or all of that risk, our fees absolutely must be lower. As entrepreneurs, most of us, deep inside, like the challenge and even the risk. It's just not as fun as it used to be when the risks we're taking are paying off as sweetly as they used to.

I have A LOT of issues with the way we are paid, from the consumer's perspective, but from our own - I believe that in most cases we'd prefer the higher fee generated from taking the higher risk versus a much lower fee earned by taking less risk.

I've considered offering my sellers the choice of a low upfront fee versus the traditional model and was pretty soundly shot down from all sides.

Great post!

Posted by Jennifer Allan-Hagedorn, Author of Sell with Soul (Sell with Soul) over 11 years ago

We put forward a similar model to what you suggest when selling property at auction.  It is common to charge up front for all of the marketing fees, plus commission that gets paid at the end.

When we take on a client, that client is interviewed to determine if expectations are realistic.  If so, we accept the client but know that expectations and situations change.  We also know that the market changes.  On auction day the seller, depending on the terms set forth in the service contract, may have the right to reject the high bid.  If they do so, the marketing expenses are not refunded.

The value proposition for the client is that they are going to get professional services that they can not provide to themselves.  In exchange the service provider is risking not making a profit, but not risking a financial loss.  The seller and service provider are on the same level and the seller, having put out some money for expenses, is somewhat committed.

Posted by Rich Kruse (Gryphon USA, Ltd.) over 11 years ago

Hi Jason this topic is something I have thought a lot about as well, especially, wehn spending a lot of time with buyers and then they disappear or lose interest. We have talked a lot about this in our market center in Miami as well.

I believe that an up-front fee can be charged, but not before a thorough buyer consultation, which is typically held in an office or conference room and includes a healthy amount of rapport building and enough questions to uncover the buyer's or seller's needs. The consultation is similar to one you would expect from an attorney, doctor, contractor and other professionals befroe undertaking a project or new client.

If done properly, we as the real estate professional or consultant, have created a lot of value in the minds of our potential clients by taking a very consultative approach. At this point we can request a commitment from our buyers in the form of an exclusive buyer brokerage agreement, which protects us to a degree from circumvention. Many times when we do not request a consultation from our potential buyers, we set ourselves up for problems-not that they don't arise anyway.

Then, it is really up to the individual agent to determine if they want to charge a retainer or deposit up-front to "test" their buyers' level of commitment. Other tests include signing the written "loyalty" agreement or at the very least the agency agreement required by law in Florida and a verbal commitment from the buyers.

When dealing with potential buyers from other countries, they expect to pay an up-front fee, deposit or retainer, however, they also expect to often pay the commissions, so it is important to clarify everything early in the relationship.

Overall, I believe that it is the individual agent's responsibility to treat his or her business like a business, and in doing so, he or she can expect to receive the same level of professionalism, respect and value from our future clients.

Posted by Michael Sahlman, e-PRO - Miami Beach Florida Luxury Homes (www.HomesForVIPs.com - Keller Williams Realty) over 11 years ago

I don't know how your cross that threshold without having a myriad of others joining you.   You know?  I'm thinking to myself that you'd always have a group fighting you to compete with you, but if you're truly referral based, it may be sometihhg to think of.

Posted by Larry Bettag, Vice-President of National Production (Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001) over 11 years ago

Great post and conversations on the subject.  We need change, health benefits and it is definitely time for NAR to step up to the plate.  I'll be glad to sign a petition...if you are starting one!!!

Posted by Rebecca Gaujot, Realtor®, Lewisburg WV, the go to agent for all real estate (Vision Quest Realty) over 11 years ago

I would probably be willing/able to accept less money per transaction if I knew that I would be paid something for each and every client that I work with during the course of a year.

Jason - this statement sums it all up; each buyer and seller would have to be willing to pay a little rather than a few consumers paying all. Currently, the commission structure is based on risk vs reward; all or nothing. To me, the latter model justifies one's commission entirely. Until all consumers are willing to contribute, regardless of outcome, then I can't see the commission structure being abolished. Furthermore, the commission structure encourages results from the broker/agent.

Posted by Steve Graham (Inactive) over 11 years ago

Jason-  If only this was the way it was!  I love my career in Real Estate.  What I don't love is working for free.  Sometimes it takes months and months to educated that buyer or get that home sold.  It is no fault of the particular agent - it is just the way things work.  

You are so right that we should be paid up front - something.  A retainer.  Sadly; there will always be those who will work on a contingency basis.  These are the same ones who cut their commission so low; that the seller wonders why the heck their is no money for marketing?!  Someone will always want to do it cheaper.

Of course; I don't see a lot of Doctors or CPA's or lawyers advertising; Free or discounted service.  Then again - would you want to go to a CPA who has to work for 1/2 price?

Posted by James Downing - Metro DC Houses Team REALTORS®, CRS, GRI, ABR,MRP, MilRes, When Looking to Buy or Sell - Make the Right Move (Real Living | At Home) over 11 years ago

Wow, Jason.  You have certainly tipped off on a subject that gives cause for not only discussion, but review.

I believe that we are not compensated appropriately in the current model.  It's very one-sided with all the risk placed on the agent/broker. 

A couple of years ago I did an unofficial 'survey' with some agents I worked with.  I used their sales from the first 9 months of the year, figured out the commission splits, added in some 'ballpark' expense figures and came up with a very disturbing picture.  We were all working for less than minimum wage.

I would be willing to bet that not one of our clients - not ONE - would be willing to work for less than minimum wage.  Especially when it can take 2 weeks to 2 years to get the money.

Yet there are still those that think we make oodles of money and live high on the hog.

It is time for a change.  If you figure out a way to broach this and encourage change industry-wide, please let all of us know.  I'm sure the support for the effort would be overwhelming.

 

Posted by Carol Smith (Casmi Photography) over 11 years ago

Jason,

Good post!

Bill

Posted by William J. Archambault, Jr. (The Real Estate Investment Institute ) over 11 years ago

Jason - I feel your pain - I agree that something needs to be done!

 

Posted by Sharon Richards (Kirsten Realty Tampa Florida) over 11 years ago

Jason,

Retainers are something that I think agents should take a serious look at.

If a client is not willing to pay a retainer, I think that could say something.  It is certainly a way to make your time much more effective with those who choose to work with you.

Posted by Mark MacKenzie over 11 years ago

I get $295 up front from sellers and buyers. I refund it at closing, have done this since 1997. I am a flat fee company with full service.

Sellers

$2995 no MLS includes full service from our office.

$295. plus X % includes MLS. Limited service

 

$1495 plus X% full service includes MLS

Buyer

$295 will be put toward escrows at closing. Unlimited listings sent via e-mail. (Buyers Broker agreement states that they will pay an additional $995 if they by a home and we don't get paid. This is worded so if whether they buy FSBO, or through another agent and the agent doesn't pay us like short sales etc.

 

Posted by Charles Stallions, 800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl. (Charles Stallions Real Estate Services ) over 11 years ago

Jason, I think this really is the elephant in the room right now.  As is reflected in many of the comments above, obviously it's a subject on many of our minds.  It is an issue not likely to fix itself or go away on its own . . . it will take positive action. 

There are two sides to this issue that have to be reconciled, making it tough to accomplish . . . one is the agent side (not getting paid for work performed, or at least having to wait a long time to be compensated for time and money invested), and the other is the consumer side (possibly paying for something not used or aaccomplished at all).

Many of the comments above focus on the concerns and frustrations we have as agents, but it is important to keep the consumer in mind as well.  I'm sure they would love to see less of their money go to commissions, but are also likely to be resistant to forking out money -- even less of it -- for an uncertain outcome or experience.

I have played around with a variety of "non-traditional" scenarios (complete with outlines, spreadsheets, the works), but I still think the biggest hurdle is less coming up with a workable business plan as getting consumers and the real estate community to embrace -- and cooperate with -- any substantially different alternative models.

However, the best way to start that change is exactly as you have done, by fostering discussion . . .

Thanks!

Posted by Trent Cluley over 11 years ago

Sound's great and would welcome the change but with another agent willing to work for FREE, don't see how this could happen.

Posted by Norma Brandsberg (Marks Realty Co. Inc., Lynchburg, VA, 540-586-9496) over 11 years ago

Norma, it's a matter of educating the consumer that when someone works for FREE, it's worth exactly that.

We have a video series for Real Estate Professionals called "Stop Working for FREE! Introduction to Real Estate Consulting."

Stop working for free

It's been very well received - in fact many of our ACRE's have their brokers and managers watch it. I'd be interested in this group's opinion of the series.

Mollie

Posted by Mollie Wasserman (Your Move Made Simple) over 11 years ago
Jason - ( sorry I couldn't get the login page to work on AR ). Thanks for stiring the hornets nest, you are so good at it..lol ! Although I agree something needs to change in Real Estate I can honestly say : Upfront fees right now are not the answer. My last firm started doing this and the responses were quit ugly. In this economy everyone is holding their wallets. Although it WAS a great company consumers are use to " vintage" Real Estate. When you throw something knew at them they fear it. With businesses closing daily they often wonder if you will be taking their money and closing too. There is a lot of uncertainty out there right now. As Agents we knew the risk's going into our career. Now, more than even it is time to really look at the homes we are listing and the prices of where they will be listed at...we can no longer waste our own time with over-priced listings. Buyers especially need to be educated on the importance of signing BA's. This is to protect them ! I think right now this is the time to honestly restructure our own business model. Work smarter not harder. I have had many buyers do drive by's and always get BA's signed. It let's you know who is serious and who is not. If sellers are not realistic I refer them. Period...so, in essence I am not working for free. If we are to change Real Estate than everyone would have to get on board or there will always be retainer fee guy/gal vs free guy/gal.
Posted by Melissa Grant over 11 years ago

I came across this blog today on the subject of retainer fee's collected at the time of listing. 

http://www.loremagazine.com/go/?blog_id=31. 

It seems many are thinking of changing their business model to include an upfront fee.

 

Posted by Florida Private Golf Communities, Finding Home Never Felt Better! (Golf Life Properties, LLC) over 11 years ago

This is a little different than what Jason is talking abotut because my experience is working with investor buyers but there is NO QUESTION that you're setting yourself up for being walked over if you are purely a contingency agent. 

We charge our investor buyers a deposit (refundable on purchase of a property) and we have a "preferred buyers group" that we get a monthly retainer from (in exchange for their receiving first shot at deals their agents find)

Jason's FIRST question is the right one - what other professionals work exclusively on contingency?  Don't be a sap!

Posted by Frazier Oleary (National Association of Real Estate Agent-Investors) over 11 years ago

Jason , I have never asked but would strongly consider having a buyer write me a check for $1000.00 before i even start to work for them and they will get the credit when they buy. This should be a standard for all agents, NO more agents working for buyer for free!

Posted by Sonny Kwan, 206-819-8228 (Quantum Group Commercial - Residential - Lease Seattle, WA ) over 11 years ago

Hi Jason.

No way.

I love the upside of owning my own business.  The risk comes along with that...

Thanks for writing.

Ken

Posted by Ken Tracy, Helping clients buy and sell since 2005 (Coldwell Banker Residential) over 11 years ago

Hi!

I'm not a Realtor, but a one-time and future consumer of services. For me, the beauty of Jason's proposal is in the question Mollie posed: "how in the world can you act as a fiduciary and give truly objective counsel when you are being paid contingent on the client's actions that you're advising them on?"

I've always been a tad suspicious of that model. No matter how ethical and honorable a Realtor is, it seems the system is set up to work against those intentions. Particulary when the system also pays professionals on a "feast or famine" basis. Good week, lots of sales, steak. Slow week, too many lookers, well, kids, the mac and cheese is on sale.

I would gladly pay an upfront fee that would help me feel more secure in knowing I was getting objective counsel from someone with less of a financial motive. I'm also wondering if such a system would help reduce the size of the next housing bubble by taking away a reason to push commissions - and, thus, sales prices - as high as possible.

As for driving away potential buyers, eventually people would learn to pencil it in as a part of doing business. And if someone can't afford it, maybe the right answer is for a Realtor to say, come back in a few months when you have the financing in order to do it the right way and help insure that you're able to stay in your home. Here are some brochures on how you can do that.

Naive? Perhaps. Like I said, I'm on the outside looking in here.

 

Posted by 9to5to9 over 11 years ago

Collect a deposit upfront for expenses and credit this back to the buyer at closing - if they walk away, you don't actually LOSE money, you just break even or make a very modest profit.  Home builders do this right now!

Hi Jason,

That's the beauty of real estate.  You can run your business any way you want!  Consumers will decide if your business model is attractive to them.

I see you as a real estate consultant.  Because REALTORS® have such a wide range of experience and capability, collecting an upfront deposit would not work for every agent, but it's an idea that could work very well for you. 

P.S.  The compensation problem is directly related to over-capacity.  Suppy and demand works in every industry.  There are simply too many agents.  That part of the equation is out of your hands.

Posted by Bruce Brockmeier, Coached By Crouch (Internet Marketing Consultant to REALTORS®) over 11 years ago

We all seem to doubt the change could happen... but think about the 80/20 rule. In real estate we know that rule is more like 90/10... 10% of us out there are the true professionals in this industry. I believe it only takes that 10% to make the changes we want to see in our industry.

ACRE has a a great program going. Its a young group, but it has a dedicated following. Its a great place for any of us to start, at the very least we can benefit from the information they provide. We should keep their business model in the back of our minds as we move forward and change our model.

I think our other major limiting factor, or at least in Arizona is the current group of brokers. There is an age divide in today's industry and unfortunately, those of us in the Gen X crowd are looking for the change, but the current broker's won't rock the boat for fear of change and lawsuits. When we start seeing the Gen X break up the rank of broker's we'll start to see a shift.

In two month's I'll be opening my brokerage and the rules of the game are going to change. We are going to factor in a consulting model and as the brokerage grows we are going to look into holding regular educational seminar for home owners and buyers as a service, not a lead generation tool. I'm also looking at paying a minimum wage with bonuses and health benefits to retain the quality agents that are struggling to stay in the business. The change is coming and I think we need to stop letting that 90% of realtors hold the good 10% back.

Posted by Marcus Fleming (Flinsk Real Estate) over 11 years ago

Jason-

This is a subject that is very near and dear to my heart! Like a couple of other commenters, I am a part of the ACRE movement. Our fearless leader, Mollie Wassermann has put together an excellent series of videos entitled "Introduction to Consulting… for the Real Estate Professional." They are well worth your time!

A couple of comments on other's comments...

Carol said: The perception of the public is that we make "oodles" of money. Can they have any other perception? Look at the ads, billboards, etc. "Pick me I sold $5 million last year!" The consumer looks at that and thinks the agent made $5 million last year! Look at all the flashy, high priced cars! (Even within brokerages, what is stressed? It's not number of sales/sides; it's all the millions! Of course that's where the millions make a difference; not a public billboard.)

Steve said: The commission model encourages results by agents. Likewise, sharing the risk encourages results from consumers... On the seller side: making the home show ready, making the home available for showings, correct pricing, etc. On the buyer side: getting preapproved, narrowing down their options, doing their homework, etc.

And for those wondering how this could apply to buyers...

Quite honestly I've had a problem with this, too. But as I was reading this a recent personal experience came to mind that has my mind work going on this. Here's what happened:

I was try to decide whether to change blog platforms and combine my blog and static website. I came across someone who did a guest blog on a site I respect. I contacted the person via email with a general idea of what I was wanting and whether she might be able to help. Ultimately we had a short no-obligation phone consultation. Based on that consultation, she sent me a summary of what we discussed and a proposal with her up-front fee for one hour. I hired her and eagarly awaited her report.

A week later I got her report which was mostly on target and gave me a price estimate for her doing the work needed. The price actually seemed reasonable; but after a few emails back and forth, it was like we were on different planet! Because of this, I ultimately decided not to use her services. I don't begrudge that hour I paid for - she put in the time and she earned it.

How can I apply that apply to buyers? Some rambling thoughts here...

  • No obligation in-office consultation
  • Hourly up-front fee to see a couple houses (part of retainer)
  • Remainder of "retainer" due prior to showing any more house or writing an offer
  • Retainer given as credit at closing (non-refundable if no closing)

Todd asked the what's in it for me question...

A very good point! A possibility, based on seller paying commission - Todd's looking at houses for around $200,000 and say under the commission model the seller is paying 3% to the buyer broker. That's $6000. Should he care to share the risk - he could get "cash back" at closing, credit towards closing costs, credit towards principle, etc!

Sorry for the rambling here, but I am passionate about this model of giving the consumer  choices!

 

 

Posted by Betty Byrnes (F C Tucker/Tomlinson REALTORS) over 11 years ago

I love it. A small investment on the part of the buyer for a huge investment from us. Also I think when a seller lists a home, they sould have to have an appraisal done before listing it on any MLS service. It should be with the sellers disclosure when ask for.

Posted by Terry Miller, Miller Homes Group and Tyler Apartment Locator (Miller Homes Group) over 11 years ago

Jason, I sure LOVE the way I get paid when it works, but as with all agents, hate it when it doesn't, lol.   I'm all for using Paul Slaybaughs ideas :)

This ACRE that everyone is mentioning is something I think I will look into.  I can gladly charge sellers up front, but would feel so uncomfortable asking a buyer to pay me a retainer.  Crazy, isn't it? 

Posted by Elizabeth Cooper-Golden, Huntsville AL MLS (Huntsville Alabama Real Estate, (@ Homes Realty Group)) over 11 years ago

Jason.  I love love love this idea!    A buyer is willing to put down the earnest money without a qualm why not a retainer that will be given back to them at closing.  I think it is all in the way we present it.   It could be a rider to the buyers representation agreement.  I do think the pioneers who will start enacting this will get some flak but all pioneers do.   On the positive side we are currently in a market that just might motivate some of our brothers and sisters to take up this cause.     Do we have any representation in NAR and in my case TAR looking into this I am also going to look into ACRE.

Posted by Andrea Curtis United Country Premier Properties Certified Military Relocation Professional, U C INTERNATIONAL DIRECTOR OF MILITARY PROPERTIES (United CountryPremier Properties) over 11 years ago

I am not a realtor.  But I am a homeowner and a landlord.  I also write on ehow.com and spend hours on twitter.  In other words just an average non-realtor person.

Great article Jason & lots of food for thought for realtors. I see that it would benefit US if changes were made to pay structure. GREATLY benefit clients too.

Keep up the great posts!!!

Alrady

aka twitter id: Alrady40

Posted by ALRADY over 11 years ago

Great post.  This is something I thought about before becoming a Realtor.  Some professions have a retainer fee, and others charge/bill for hours of service.  And comparing a Realtor to car or appliance sales person is not a fair analogy.  For me selling a refrigerator took very little of my time.  If the person/couple were just looking I did not have to invest hours of my time.  Move onto the next customer and go from there.  Real estate that's another animal altogether.  :)  Love the post, always like the ones that get everyone talking.

Posted by Michele Ott over 11 years ago

I like the deposit up front idea because even if you have a signed agreement, sometimes the client will bail on you. For instance, I once had a buyer whom I chauffered around for 2 days, took to the emergency room when a mosquito bite swelled, bought lunch, etc and after she returned to CA she called the builder and cancelled her contract on the house and never returned my calls. Even though we had a signed rep agreement if she returned and bought a house through someone else, there would be no way for me to know.

Posted by Robin Scott, Broker, CRS, ABR, SRS, REALTOR® - Austin Texas (Robin Scott, REALTOR®) over 11 years ago

You've given us great pause for thought. Interesting blog. We are independent entrepreneurs and can only exact change when we set forth to do so. I support your notions. Congrats on the feature! Cheers,

Posted by Amy Zender over 11 years ago

I've actually had an idea for a hybrid compensation model that I have quickly talked about with my broker.  I'll be writing about it soon... but I think there is another reason for sellers to pony up a little at the front.

Skin in the game.

Posted by Lane Bailey, Realtor & Car Guy (Century 21 Results Realty) over 11 years ago

Hi Jason,  Thanks for your candid views.  Here are a few of my own:

1. Some of us got into this business because, if done right, can be very lucrative.

2. Some bring excellent sales skills to the transaction/industry and expect to be paid on a commensurate level.

3. Some of us realize that not all agents are created equal.  Personally, I don't want to be paid according to what the  average agent earns.  The whole point to being a straight commission sales person is that I am paid ( generally speaking here ) in direct proportion to my sales skills.

Posted by Bill Gillhespy, Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos (16 Sunview Blvd) over 11 years ago

Hi Jason,  Thanks for your candid views.  Here are a few of my own:

1. Some of us got into this business because, if done right, can be very lucrative.

2. Some bring excellent sales skills to the transaction/industry and expect to be paid on a commensurate level.

3. Some of us realize that not all agents are created equal.  Personally, I don't want to be paid according to what the  average agent earns.  The whole point to being a straight commission sales person is that I am paid ( generally speaking here ) in direct proportion to my sales skills.

Posted by Bill Gillhespy, Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos (16 Sunview Blvd) over 11 years ago

I don't think you are far off point at all.  Broker Bryant has spoken on this a time or two and I honestly feel all commission and no upfront fees are strange.  I wrote a post last year on this, directed toward consumers actually,

"Should you pay the cost to be the boss of your real estate sale or purchase".  I don't like to add links on someone else's blog as a self promoter.  Can easily be found if want to.

 

Nice discussion Jason.

Posted by Rebecca Levinson, Real Estate Marketing and Online Advertising Consultant (Real Skillz-Clear Marketing for Your Real Estate Vision) over 11 years ago

Those are good ideas to ponder. I work with a lot of buyers that dont have a ton of money. I really dont lose buyers (that I dont wish to), so when do I start collect a fee up front...I think I will at some point.

Posted by Chuck Carstensen, Minnesota Real Estate Expert (RE/MAX Results) over 11 years ago

Jason, I love this take on the whole commission in general.  I would be willing to take less to be able to get something in whole.  I am full time at this and I do spend a lot of time with my clients and being compensated accordingly is important.  If only they knew that we are less of a glorified tour guide and more of a true professional who takes this career very seriously.  Dang, I am sorry, I wasn't able to catch your show today, had to run out and show homes... hopefully the next one.  Have a good one.

Posted by Kim Sellers, Lake Arrowhead Realtor - BRE#01412099 - Lake Arrow (Lake Arrowhead, CA Coldwell Banker) over 11 years ago

Touche, Jason.  If I could get paid for all the buyers that didn't buy, couldn't make up their minds, didn't have the motivation, waited too long, looked at too many properties, and were just plain flaky, I would be well ahead.  But who will lead the charge?

Posted by Margaret Goss, Chicago's North Shore & Winnetka Real Estate (Baird & Warner Real Estate) over 11 years ago

Jason, I started charging an upfront fee on short sale listings about 2 months ago. When I first started no one thought I would get it. Now it's just second nature. The sellers have no issue with it at all. I also charge retainers to buyers. This is proving a little more difficult but I'm working on it. Neither the upfront fee or the retainer is refundable although the retainer will be applied towards my compensation as per our BBA. 

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 11 years ago

Hi Jason,

If I were only able to earn the average $35,000 per year, I'd either want to change the business model or exit the business. Who can live on $35K, with all the expenses and risk of this business? But having put in my time, and created a profitable niche for my company, I'd lose money by working for fixed fees. It's the upside in this business that attracts me - and my upside is far far greater with a commission based income. Thanks, but I think I'll keep it that way.

Posted by Tim Bradley, Commercial Real Estate Expert in Jackson Hole, WY (Contour Investment Properties) over 11 years ago

I have written to the CAR about some of this and have argued with them that we first have to get "professional" in this industry. We are still looked upon as just slightly better than a car sales person. We are not service oriented enough. Thta should be taken care of by increasing the barrier to entry to become a Realtor in the first place.

But secondly, there is a "buyers" agreement, and there should be a sellers agreement too, where we can clearly express we will want to be reimbursed for all costs ( at least), when there is no transcation that closes.  But if I do that, there are too many realtors who will make an argument they provide the same service with no costs attached. We need to ALL do the same. When is that going to happen?

Posted by Antoine over 11 years ago

I've thought about alternative compensation models myself. I think 2 key points in regard to an upfront/retainer fee are

1) There are many bad agents out there who will collect the fee and not earn it (give our industry another neg)

2) Most of the time if we are working with someone who is not serious about buying or selling it is our own fault (poor counseling or listening skills)

Posted by Susan Milner, Cape Coral Real Estate Broker, FloridaFutureAgents (Florida Future Realty, Inc.) over 11 years ago

We are paid as salespeople but are required to be psuedo-attorneys (and last I checked, attorneys don't work on commission).

Actually, some attorneys do work on commission.  There are attorneys that are completely contingency-based, such as personal injury, class action, and disability attorneys.

It makes sense to charge an upfront fee on short sale listings.  I don't have the knowledge or expertise yet to do a short sale listing, but given the amount of work involved that's the only way I'd take on these type of listings. 

Posted by Gail Robinson, CRS, GRI, e-PRO Fairfield County, CT (William Raveis Real Estate) over 11 years ago

Jason,

I have been in real estate two years, and I wish we could charge buyers a $50 gas fee for all the driving around we have to do. Especially if they don;t buy!

Posted by Ann Cordes, Keller Williams Waco Tx over 11 years ago

 Jason,

I do appreciate your post and all the responses to it....certainly prompted new thoughts & ideas.

Not sure if you read it, but there was a post on here a couple of weeks ago, stating that a very recent Harris poll indicated that only 20% of those people questioned said they would completely trust the guidance of a Realtor. 20%!!!!! As one who takes my job very seriously, that saddens me greatly.

Having said that, I do work fulltime as a REALTOR and do not necessarily have a problem with those who instead work part-time.....that is, of course, unless they treat a part time job as something they can work at when they sorta kinda have some extra time. That dynamic does not work when those of us in the trenches everyday require the participation from another agent (translation: timely responses to voicemail/e-mail messages). Anything less than that is unacceptable....and the clients ultimately suffer.

I love what I do, but not enough to have people waste my time and work for free. I do like the idea of a retainer being collected up front, and either all or part to be credited back at closing. If we ever do go that route as an industry, we all need to find a way to step up to the plate and provide that top notch service we are charging for. Sign me up!

Happy Selling!

Edith

Posted by Edith Schreiber over 11 years ago

So very interesting and timely a topic... a few posts "touched" on the competency issue of REALTORS, (most here are probably skilled professionals) and I think this point/issue needs to be addressed fully in this discussion of compensation. One of my problems with NAR is that the REALTOR "designation" means absolutely nothing to consumers. They don't know the difference between a realtor and a non-realtor agent, nor should they, because any jack-leg who can pass a state test, and has $400 and four hours for the (joke-of-a-training) ethics class, can become a REALTOR.

So, I have unfortunately found that just as the 90/10 rule applies to productivity, so does it apply to those who are are competent vs. those who are incompetent. (Not necessarily the same pool, either.) Brokerages take on the nincompoops to get their potential percentages up, and don't train them, and they give the rest of us a bad name. I'm not the broker in my office, but I find myself educating and helping the newbies (or the lazy) in so many ways almost daily. For which, of course, I receive only thank you's and not a dime.

So it would seem that any new business model or fee structure that includes retainers or such would have to demonstrate skills and professionalism above the norm -- and provide real AND perceived value. I suspect that may be what ACRE is about and I will check this out as soon as I'm done with this post. That said, for those of us who take seriously our fiduciary duties, for those of us who can't imagine not knowing how to do the job and doing it not just well but with excellence, how do we set ourselves apart so that home buyers and sellers will be assured that they get what they pay for? And willing to pay it?

Posted by Charlene Blevins, GRI, SFR (Charlene Blevins Real Estate) over 11 years ago

Jason, this is a timely post for Pam and I.  We were just jilted by some clients after over a month of showing properties, preparing CMAs, etc.  For our time they tried to give us $500 which was more like a slap in the face - being the professionals we are we refused this.  Had some of what you suggest have been implemented, possibly they would not have done us that way.

Then today, Pam was trying to finalize an offer for one of our buyers with an FSBO who we had been out to take photos of their home, among other homes for our clients.  The owner decided that she could not afford the 3% even though she had agreed verbally with this.  Her comment was 'I know many realtors and you really don't earn that money anyway'  Fortunately our clients were not pleased with this and we are moving on - we were honest with our clients and would have presented an offer on their behalf, but that is not the point.  The point is that we are professionals and many of us take our profession seriously and put alot of time and effort into each cleint's needs.

Posted by Tim and Pam Cash, Real Estate Professionals - Clarksville TN (Crye-Leike (Sango)) over 11 years ago

Lots of great dialogue here!  I especially liked hearing from Todd, the non-real estate voice.  "What is the advantage to me?"  he asked.  I see his point.  If one agent charges an up-front fee to take buyers home shopping, and another does not...guess who will be taking the buyers around and eventually to the closing table? 

Of course, I LOVE the idea of getting paid 1/2 of the estimated commission up front.  Insurance would be nice, too, as I have to pay for my own.  I know some have their employed spouse cover them.  

Now the question we REALLY want the answer to...how many days 'til baby is due?? :)

Posted by Sonja Patterson, Texas Monthly 5-Star Realtor Recipient for the Hou (Keller Williams - BV) over 11 years ago

Hi Jason,

When I first got in the business of real estate, a fellow agent asked me why I was selling condos priced between 200k and 300k? This same agent explained to me that I do the same amount of work as her but she was getting three times the salary because of the commission scale.

That's when I discovered that the system is really broken. Of course there is going to be resistance to new business models but this is about what is fair to the consumer. Commission based pay is wrong, wrong wrong unless you can really justify the difference in pay.

As a consumer, I would demand to know why my agent is going to charge me 3x the amount for my sale than the my neighbor who has a home for much less on the market?

I think consumers are already demanding change by the increased amount of FSBOs that come every year. Agents that refuse to change are digging their own grave.

Matthew Benett

Posted by Matthew Bennett (Hawaii Connections Inc.) over 11 years ago

Hi Jason and the others who have responded here,

You are a prime candidate to be an ACRE, Accredited Consultant for Real Estate. This is a new designation (not yet approved by NAR), which instructs on how to use the consultant model to charge for our services. The idea here is that we get paid for what we do whether there is a closing or not.

Once you get the designation, there is a robust coaching list serve for how to do this. Personally, I have difficulty charging buyers, since there are so many buyers agents still working for free (getting paid at closing) so I have to do this too.

On the other hand, it's a great tool for working with expireds or FSBOs--people pay only for the services they use and usually up front.

Here's a link about the designation: http://www.acrealestate.info/

Judy Luna, Keller Williams Realty, Fayetteville Arkansas

Posted by Judy Luna, Technology with a Personal Touch (Keller Williams Market Pro Realty) over 11 years ago

Hey Jason,

Seems you've hit a nerve with the exuberant response.  I too am in agreement.  Given the reality of so many upside down in their mortgages and here we are with an antiquated, upside down business model.  Go figure.

Posted by Steve Miller (Gardens as Art) over 11 years ago

TO ALL: As expected, this post generated a bunch of comments and a lot of great discussion points.  I think some of the commenters clearly misunderstood my post, as I am not necessarily recommending that we work for ANY less commission.  One of the primary reasons that I got into this industry in the first place was the incredible earning potential involved.  I am just suggesting that we collect SOMETHING (even if it's only $250-500) for our work, time, gas, etc.

I am not a real estate hobbyist - this is my career and I take it seriously.  I am really good at what I do.  As such, I do feel that I could differentiate myself enough to convince my clients to pay a small fee/retainer to get started.  Can everyone do this?  Probably not.  Will others continue to work for free?  Absolutely no question - yes.  

I think I will probably foray into this type of arrangement with my clients in the upcoming months, just to test the waters.

To answer Todd's question above (consumer perspective), I think the primary benefit for buyers would be to solidify the representation and to have a bit more control over things, especially since there has been "consideration" paid to the agent. 

Posted by Jason Crouch, Broker - Austin Texas Real Estate (512-796-7653) (Austin Texas Homes, LLC) over 11 years ago

I forgot to mention above that I do intend to read the recommended book, and to look into the ACRE designation.  It was mentioned enough times here that it has peaked my curiosity.

Posted by Jason Crouch, Broker - Austin Texas Real Estate (512-796-7653) (Austin Texas Homes, LLC) over 11 years ago

I have heard of this for years and it seems to be just that - TALK!  I definitely think if Realtors got paid a amount up front for footing all the costs associated with marketing the property, a new awareness and respect would start to grow that we are a very hard working group of professionals that deserve not getting taken advantage of.  I have had alisting in which the sellers "expect" you to do things (of course you would do and is part of getting the listing SOLD) but don't think or realize )or maybe care) that it all takes, a lot of time and money to make it all come to fruition without major glitches.  This money comes out of my own pocket and guess what - I'm not a Bank nor do I get any of that federal stimulus billions.

I will sign anything that will make the Real Estate professional more solvent in up front costs and show all that we are educated, knowledgeable, honest and hardworking professionals. I certainly agree with "Antoine" that we need to make receiving a RE license a more arduous process and to make sure the Ethics Standards are upheld. But unfortunately, in every profession, there are good and bad and the good will rise to the top.  Those are the ones that clients will want to work with no matter if they have to pay a bit upfront or not.  It should all be in the bookkeeping just like an attorney billing their hours.

There is an obvious shift in the progressive way Real Estate is marketed today, why not a shift in the archaic way Realtors earn their pay?  If there ever is a petition that needs to be signed by all honest, hardworking Realtors, I will be there!  I will now go back and read everyones post - just had to chime in on this very important post.  Thank you Jason for bringing it to the forefront again.   

Posted by Terry, Realtor on Whidbey Island, WA over 11 years ago

One of the great things about this business is the incredibly low barrier to entry.  You don't have to have a ton of money (except cash reserves to live on) to spend on expensive machinery, hiring a huge office staff, or renting big office space.  That means that, if your current brokerage doesn't allow you to change your business model, you can always leave and do it the way you want to, like so many others do everyday across our country.  There is no petition needed and no mandate from NAR. 

You are the business owner and you make the decision as to how you are compensated.  If your business model is such that you get paid when the deal closes, you have to make the business decision when speaking with a potential client as to whether or not you will take the risk that you may not get paid since there is the possibility of that deal not happening.  For bearing the entire amount of that risk if you decide to work with that person, you get paid a "risk premium" for your services.  As I saw in some of the prior comments, there are some agents who absolutely love having that higher risk premium and are rewarded for the risk that they take on when the sale takes place.   

Our real estate business model in Charlotte shares that risk with the Seller, as our clients are willing to mitigate our risk premium with an upfront fee for their benefit of a lower commission when the house sells.  Some might label it as being a "Discount Broker", while I simply think of it as a different form of compensation where the risk premium is reduced by an upfront fee.  Note that we don't expect to get the same total amount of commission as if we were taking on the whole risk.  As a prior commenter stated, when an upfront fee is paid, naturally the backend commission will be reduced since the risk premium has been reduced.  While there are many Sellers who absolutely love our business model as they save a lot of money in comparison to using an agent who bears the entire risk of the sale, there are still many sellers who choose not to use our services because they don't want to have any risk.

There are many different business models out there.  You just have to decide what your tolerance for risk is and how you are going to convey your business model and services effectively to your prospective clients. 

Posted by Don Anthony, Charlotte & Triangle NC Discount Realtor (Don Anthony Realty ~ www.DonAnthonyRealty.com) over 11 years ago

Interesting thoughts.  I'm not sure how to make it better.  I can't wait until I get to the point where I can charge a retainer, I'm gonna do it, when I get busy enough and prove my value.

Posted by Mike Henderson, HUD Home Hub - 303-949-5848 (Your complete source for buying HUD homes) over 11 years ago

Great discussion generation.  Hopefully it will be in NAR's earpiece:-)  Average cost of a home sale in Fort Wayne is now 77K -- and it takes 4+ months to sell.  With car expenses and open house ads ($88) and marketing and paying 50% to a broker -- there isn't much left for an actual paycheck.  Thank God for my pension check and benefits and my "sugar daddy" husband:-)  Hopefully we will be able to resolve this in a fair way so that the consumer is well served and so that the realtor can make a reasonable living.

Posted by Gina Zimmerman, Fort Wayne Real Estate (North Eastern Group Realty) over 11 years ago

In response to Don Anthony Realty, above - this is exactly what I do - here's a link to my webpage that describes my commission options: http://www.charmingolddenver.com/HowMuchIChargetoSellaHome.ubr - My sellers usually choose the upfront fee option, although, as you mentioned, not all want any part of the risk. Please note - in Denver, we almost always pay out the same co-op regardless of the total listing charge - in other words - we do not split our fee 50/50 so the listing agent's total commission has no effect on the buyer agent co-op.

Posted by Jennifer Allan-Hagedorn, Author of Sell with Soul (Sell with Soul) over 11 years ago

Jason,

   This created more than enough conversation for all of us.  I just read more than have the posts.  I do agree with you though, that we should collect a fee for service provided.  If we charged a consultation fee upfront for buyers, it would definitely change the perception of Real Estate Agents.  If the fee were charged upfront for sellers as mentioned already, we would see many more motivated sellers to address issues concerning the sale of their home.  Many professionals charge a consultation fee for just speaking with them, and then move on from there.  Many of the professionals that charge fees, due have educational background behind them.  For instance, Lawyers, Doctors, and Accountants all have degress and pass rigorous examinations and test to be certified in their profession. This idea leads to another interesting question, which is should we as a profession have a higher standard for becoming a agent.

  Thanks for the great discussion topic.  Enjoyed it.

Scott

Posted by Scott Harrison (Sea Shore Realty) over 11 years ago

HEALTH INSURANCE   The National Federation of Independent Businesses has been fighting for 20 years to allow trade organizations like NAR to offer group health insurance like  large companies do but this has been blocked by the democrats who favor socialized medicine.

BROKERS  A discussion of compensation is incomplete without talking about Brokers who skim 30-50% off each transaction for doing next to nothing. Free phone, fax, the use of a conference room, a useless franchise web site & online training videos are not worth five figures a year. This compensation model dates back to when Brokers were more like a team feeding leads to agents.

80/20 RULE Once again see Brokers who are allowed to treat agents as sub contractors, leaving them with no costs and little to loose by flooding real estate with poorly trained part time low producers who do take a good sized % of the transactions on any MLS & account for consumers bad image of Realtors.

UP FRONT FEES  A good idea but a lot of first time buyers and low income buyers can barely come up with a down payment and closing costs.

COMMISSION AS A PERCENTAGE  A 3% commission on a $100K house is pretty low and probably too high on a $600K house.

Just a few thoughts from someone who has been self employed in multiple businesses for his entire life but only in Real Estate for a few years.

Posted by Joe Dallorso, Ocala Real Estate over 11 years ago

Its a round about discussion.  The good agents who jump thru hoops should be compensated accordingly.  My biggest pet peeve is the co broke who doesn't have a clue and you end up working both sides of the transaction.

Posted by DeAndrea "Dee Dee" Jones, The NorthernVARealEstateLady & DMVRealEstateChick (Home Buyers Marketing II, Inc.) over 11 years ago

Great discussion and the idea of upfront fees has merit. Bear in mind though a reality that in our litigious society people could sue if your fees aren't imposed across the board i.e. if they can allege perceived patterns of discrimination such as low income vs higher incomes, male vs female, ethnicity, etc.

I know it's a stretch but the U.S. Justice Dept. seems to have little else to do than tinker with this type of scenario with many citizens looking for judicial blackmail settlements. Does E & O even cover us on a compensation discrimmination issue? Check your policy.

Posted by Steve Ellis over 11 years ago

Has anyone actually been able to get people to do these things?

Posted by Robin Turner, Robin Turner (Happy House Real Estate) over 11 years ago

I'm interested, especially for sellers who insist on overpricing or for sellers who refuse to clean up the clutter and trash.  We spend money and time marketing it, but they have nothing invested.

Posted by Jen Bowman, Realtor - Anna Maria Island & Bradenton FL (Keller Williams on the Water) over 11 years ago

I'm not an agent but have worked as an assistant for our real estate brokerage 6 years and I see the frustration involved investing time and money out of pocket with little or no return on that investment. I have also seen a greater share of Associates who don't advertise, other than on the MLS, who close transactions quickly and earn my entire salary in one check. All on a standard commission split.

My thoughts on this... From a consumer stand-point, if someone is scrimping & saving to buy a home, they most likely will NOT pay any sort of retainer up front if they can find someone else who does not charge. It is the perception that they are saving money if they search themselves, driving around, using the internet and ads. Consumers have so many resources at their disposal to educate (or mis-inform) themselves between the media, friends, family, websites, etc., that they truly must be sold on you and the value you provide before they would consider any sort of retainer fee. Even if 95% of all Agents charged an upfront fee, the remaining 5% who don't require any skin in the game would probably see a huge upsurge in business from these do-it-yourselfers.

I could agree with Sellers paying a non-refundable transaction fee, which can be taken out at closing, to cover paperwork, coordination and even a pre-approved marketing plan, but if the listing period is drawn out, the Agent may have continued expenses over & above. Also, how would this apply to a distressed home? If the seller has made it to this stage, I imagine they would balk at any request for additional up-front fees. Anyone in that situation is bound to feel so much negativity and a request for $ they don't have might be just the thing to say the heck with it and let it go to foreclosure- thus losing the agent a potential sale and future referrals. And, if the property sells quickly, the seller may want those monies applied towards the commission or even refunded.

As for brokerage cuts, it goes back to the agents to ask themselves if they see the value that their current brokerage provides. Besides the standard tools, do they have confidence in the brand they are associating themselves with? What kind of umbrella of protection are they under? Education? Training? Support system? Not to be rude but really anyone licensed could practice just about anywhere- But, what works better for your clients and you- (Extreme Visual here) working from the trunk of your car like a 2 bit vacuum salesperson or having a professional office, tools & staff, legal protection, reduced liability, training/education for today/future issues, backed with a respected and well-known presence? Ask a client to compare the two images. Everyone needs to earn a living and stretch a penny into a dollar but beware of coming off as a cheap-skate money-grubbing (GASP) car-salesperson! Yes, I know I just threw down an insult. Just to illustrate a point so no harm, no foul, please.

Bottom line, the negative comments towards your brokerage fees, well, that's how clients will feel about YOU when you ask for those up-front fees. You don't like paying them and are trying to find discounts, short-cuts or a new commission structure. That same approach will wind up being applied towards you!

Okay, I read through those responses and all this was covered but I still felt the need to comment anyway... I hope that this just offers another perspective and someone can counter it with a great logical answer.

Posted by Anna-Lisa Lipka (RE/MAX Platinum Services) over 11 years ago

Just a quick comment on the health insurance comments - as someone who left the health insurance industry in pretty highly regulated states, I have some knowledge about the perils and pitfalls of Association Health Plans (of the type proposed by some of the bloggers here).  There are associations that get insurance as a group today - they have the following characteristics:

1)  Their members have discernable, common characteristics

2)  Not everyone can join - you need to work for companies that fall into the classifications of the group

3)  The group will take on a measure of risk through the premiums they pay, or in some states, they are willing to be self-insured.

The NAR, or other realtor groups, would appear to fail the first and second tests - the members are as diverse as the population at large and (most importantly) anyone with a real estate license can join.  In the insurance industry, this association would be known as a group of "air breathers" - very difficult to define the risk profile and come up with a rate.  In addition, they would be open to people with less than stellar health, which may ultimately make the premiums very high.  Insurers have lost millions on association health plans and thus shy away from associations that have less cohesive profiles. 

I appreciate the tendency of some to declare this some sort of political battle (Dems v Reps) but in fact it is all about risk management.  And sorry to muck up this really interesting blog on compensation with dull insurance stuff!

Posted by Michael Goodheim, Cash Flow Expert for Real Estate Pros (Commission Express of Western Washington) over 11 years ago

I am actually surprised to see how many comments agree with you that the current model needs to be changed. With this much support a change should be easy.  Maybe we need to ask ourselves what is really holding us back?  Is it the big brokerages who have very little invested in each agent yet reep huge rewards? 

Posted by Simon Mills (Mills Realty) over 11 years ago

i have often wondered about the industry esp having to be members of an assoc (to have access to MLS) which amounts to being in a union without the benefits of a union... naughty word, that. naughtier still to have nothing more in return than a huge lobby group.

now that less sales make it painful to keep up with membership, lockbox key fees, annual fees, plus the cost of actual business - advertising, insurance, gas, etc... perhaps realtors can unite.

what i did was move over to a small brokerage that allowed the things that major brokers don't... like reduced fees and breaking up services.

as an individual, you make those choices. as an industry, you have too many big cheeses to deal with, unless you pool together with stuff like some of you suggest.

gotta go pass an exam now for my new life as a returning college student. i'll sit this crisis out.

rgb

Posted by agent w/ license on hold for now over 11 years ago

Nobody can argue that there are not many sides to this issue.  As a relatively new agent, I for one, have had many of the same questions as others who have posted - how can a consumer really trust your guidance if his decisions impact your compensation, why should agents have to join an association to have full access to inventory, why shouldn't buyers and sellers who aren't serious use the services of an agent when it's free?

Real estate is a career with a relatively low cost of entry.  There is nothing wrong with this, but it doesn't mean that it should be easy to get a license.  Quite honestly, the licensing test is a joke in so many ways as is the continuing ed that is required.  Until this changes, I don't see the compensation model changing.

I am currently trying to decide the business model I will be using going forward and will be checking out the ACRE info.  Personally, I would like to see real estate agencies operating more along the lines of attorney's offices with partners than the pimp/prostitute model that we currently have where the more agents there are in the stable, the better for the pimp broker.  I'm not saying all brokers are like that, so please don't take offense if you operate differently.

Changes are needed, and I believe changes are coming.  It will take years for them to be implemented successfully across the board.  I encourage you all to make your voice heard in your local market and perhaps be a vanguard/pioneer in the effort.

Thanks, Jason, for the food for thought.

Posted by Heather Goodwin, GoodWin Team Realty (Licensed by the Louisiana Real Estate Commission) over 11 years ago

Frankly it seems to me that doctors & lawyers spend a lot more time in school than do real estate agents & probably, even though we would hate to admit it have a much higher level of public perception as true professionals.   I mean it's really rather easy & fast to sit through a few classes & have a real estate licence.  To me this seems to muddy the waters with an oversupply of agents that are constantly comming & going. The vast majority of agants at any given time are fairly new to the business.  Lets face it, real estate has a very high turn over rate that does not translate to a high level of public perception of value.  I grant you that many of us who have been in the business for many years may have obtained a level of knowlege that would qualify us to be called true professionals.  But as far as the public is concerned, how do they know, when practically every agent out their is proclaiming to be the best, #1, etc. etc. even if they just got their licence last month.  This is the hurdle we are faced with.  And it leaves us in a position to earn that perception from those we work with.  Unless the entry qualifications to aquire a lic. are made significantly more difficult, like in some parts of Europe, I think we will be faced with the system we have.  One thing that is good about it is that in a way it is pure capitalism, you make what you really earn, at least most of the time.  Observed from over 20 years in the trenches.

Posted by Anonymous over 11 years ago

Interesting that you bring this up, but I'm so glad you did!   I've been thinking about it for the past 11 years. Fear of clients not wanting to work with me is the primary reason why I have never attempted to charged an up front fee.  Especially when Realtors EVERYWHERE advertise that services are FREE.  Buyer Agency Services are FREE, CMA'a are FREE.  Absolutely EVERYTHING is FREE.  It's insane!!!  I don't know of any other "Professionals" that work for FREE and advertise it in BIG BOLD RED LETTERS.  There has been a lot of mumbling about this topic for quite some time now and I think it's time we stop mumbling and start testing the waters.

My first year in Real Estate... actually my first client taught me a lesson I will never forget.  The sad thing is I never did anything to change it.  I worked with this particular buyer client for about 3 months.  We became kinda sorta like friends.  I can't even count the number of houses I showed her.  Long story short, after being under contract for about 3 weeks, she made up with her estranged boyfriend and decided to move in with him.  She was a nurse and going to school for a Masters Degree.  I have no idea who gave her this information but what she did was quite clever.  Being that she was in school full-time, her student loans were in deferment.  To get out of the contract, she dropped out of school, called the student loan company to inform them so her payments would come out of deferment then notified the lender that her debt ratio was too high because of the student loan payment.  The lender wrote her one of those nice loan denial letters and she backed out of the contract.  I was blown away.  Then she had the nerve to demand that I fight for the return of her earnest money deposit because of the finance contingency.  This was going to be my first sale and was going so well, so I thought.  During this time, I began to think a lot about how Realtors are compensated and why we work for FREE.  Being new, I was pretty down about it and everyone including my broker told me..."Welcome to Real Estate".  It happens, get used to it, don't take it personal and a host of other condolences.  Now 11 years later after having had a pretty success and profitable career, I never stopped thinking about this client.  Wondering if and when the way we are compensated will ever change.

The confusing thing is, there has been a section in the Buyer Agency agreement for retainer fees since forever.  Zero has been placed on this line so often, it's like it's not even there.  Apparently at some point in time, it seemed like such a good idea it was placed on the form.  Oddly enough, several years ago, when I decided to try it out, my broker wouldn't allow it.  She said it would be bad for the firm for the word to get out that we charge buyers an upfront fee.

Now an independent broker working on my own, I've been considering trying it again.  After reading this posts, I definitely will.  It's worth a try, what's the worst that could happen.  Timing is everything and with the state of the market and the economy, I think it has greater potential to work in our favor.  Buyers are more savvy these days.  I truly believe they will "get it".  Perhaps embrace it and respect me for it.  It's always been confusing to me how consumers ever respected us in the first place or trusted us to assist them with the largest purchase of their lives all for free.  Think about it... if we are not confident enough in ourselves to ask for compensation for our services how could we be power negotiators that we advertise ourselves to be.  Not knocking any ones abilities.  But honestly, we work way too hard not to be compensated for our work.  I know my post is long.  This topic excites me so much I'm about to burst.  I'll let you know how it goes collecting retainer fees.

Posted by Dorie in Charlotte over 11 years ago

These posts really have been enlightening.....the last one I read prompted this follow up to my message yesterday.

For those who are ready willing and able to charge that upfront/retainer fee, I am on board in virtually every way....but it obviously has to be a consistent practice. 

I am curious how you plan to handle it if the Buyer client who simply does not have those extra funds laying around to pay up front, and then another Buyer who does have the ability IS charged.....I see potential problems if you are not 100% consistent.....even though not every buyer is financially equally able....??? I also fear that if one is not able to come up with the retainer and you do not choose to work with them (for any reason), I smell a discrimination lawsuit waiting in the wings.

Edith Schreiber - Coldwell Banker APEX - North Texas 

Posted by Edith Schreiber - REALTOR, ABR,e-PRO,CNS,RCC,CNHS over 11 years ago

Excellent point about possible Fair Housing violations.  I'll have to research that.  However, remember, there are no "standard or fixed" fees in real estate.  If we did that, we'll get accused of price fixing.  I believe the fee can be negotiated just as commission.  I can charge one seller 5 percent and one 4 and one 3.  Actually a variation of fees is supposedly required in our area.

Posted by Dorie in Charlotte over 11 years ago

If we are truly independent contractors, what is to keep the average broker from changing his/her individual business models?  In my opinion, there are two things to prevent this from happening on a broad scale - fear of change and fear of repercussions from our colleagues.

Jason....this is probably the biggest reason. but then as many people have said in the comments, it's how people perceive us. I'm all for it being harder for people to get a license. Think about it....this is one of the biggest purchases people make, and we can help them with just 75 hours of education? Hmmmm.

And then again, letting people know how we are compensated, and what our expenses are is very important. With all the education out there, many buyers still don't understand that we work for "free" till the closing table...and then...we ARE the last people at the closing table to get a check, and even then, it's not made out to us!

 

Posted by Thom Abbott, Midtown Atlanta GA Condos For Sale (MyMidtownMojo.com |770.713.1505 | Intown Atlanta GA Condo Living) over 11 years ago

Well, I can see charging variable fees with a seller, depending on the level of marketing & services you provide and they want.....that makes sense. 

With a Buyer, you really cannot vary the amount of services provided, once they have entered into an exclusive representation agreement with you.

I, too, am going to look into the ACRE® designation. Sounds like something I & my clients would benefit from.

The more I read, the more cans of worms are opened. I'm getting dizzy.....but I really do appreciate everyone sharing their thoughts. :0)

Happy Selling!

Edith 

Posted by Edith Schreiber - REALTOR, ABR,e-PRO,CNS,RCC,CNHS over 11 years ago

I wish I had the time to read more than the 20 plus comments I was able to get to.  I have an agent in the office who has from time to time charged an upfront retainer for listings.  Also - what most consumers don't understand when they complain about "how much" money agents make is that their fee at closing helps pay for our expenses on the homes that don't close.  If we could get that message communicated we would have an easier time changing the way agents and brokers are compensated.

Posted by Becky Brand (Shorewest Realtors) over 11 years ago

Jason,

I believe that charging a modest up-front fee and giving it BACK to the buyers at closing would separate the..."Lookieloos" from the serious buyers......

It is something I am going to be seriously thinking about.......

=-)

Posted by Alexander Harb, Dallas, Texas Real Estate Investing (Knights Investing) over 11 years ago

Don't get me started on how agents and loan officers give the farm away with their free advice!

We've trained the public to expect it, making it very difficult to buck the trend.

Posted by Loan Survivor Real Estate Financing Expert (Purchases, First Time Buyers, Pre-Approvals, Refinance) over 11 years ago

I have a very specialized niche working with innkeepers, owners of bed & breakfast inns and people who want to enter the industry. I've been doing it for 16 years. So, between time committed and experience gained, a name that's recognized in the innkeeping industry, and a very narrow specialty, I'm able to charge for just about EVERYTHING.

We charge to do a marketability assessment. We charge to take a listing (non-refundable retainer). We collect a commission (less retainer) when there's a sale. We collect retainers and consulting fees from buyers who need advice. We charge consulting fees for a myriad of jobs and services we do for our clients whether or not they are selling or buying.

The result? In 2008 over 60% of my company's income was from fees of one sort or another. I will NEVER AGAIN work for free. You have to be able to give real value to a client. But if you can, charging for what you know and what you do is a great way to work only with serious, qualified, committed clients.

Have a great day!

Peter Scherman, The B&B Team, Inn Consultants and Brokers

www.bbteam.com www.innkeepersresource.com (blog)

Posted by Peter Scherman over 11 years ago

I have often wondered how it came to be that most real estate agents work on contingency.  I've been looking, but haven't found anything historical that explains how this business model became the prevalent one.

I for one, feel there would be a lot more customer loyalty if buyers and sellers had to justify paying a fee up front and bear a share of the risk.

I have begun offering a flat fee listing service where the seller's side of the commission is paid in advance.  In exchange for paying in advance, the seller pays a reduced commission but also gets upgraded services.  I feel I can charge less because I know I will receive compensation on each listing, not just the ones that sell.

Sellers are typically concerned about how this will affect my motivation to sell their home, but I assure them I want their referrals and furthermore, the longer it takes to sell their home, the less money I make as I continue to advertise their property.  It seems like a win-win to me.

Posted by Jack Maxwell (Great Spring Real Estate) over 11 years ago

WOW Jason - you did stir up a hornets nest ;-) but I LOVE it.

 I'm a little late to this disussion due to health issues, but after reading ALL 128 POSTS, I noticed a trend I wanted to address.  I am an ACRE as well, but started charging upfront fees to buyers AND sellers over 10 yrs ago.  Mollie Wasserman and I met through another listserv years ago and realized we had consulting in common.

The trend I'm noticing the most out of all these posts is fear.

  • Will my Broker allow this? If not, move, start your own co. ACRE has a program to explain to Brokers how this will benefit their bottom line, so not to worry much on that level.
  • what if they say no and use another agent, argh! Lost opportunity, no money! I'll starve, not be able to pay the mortgage!  My answer to this is if they don't pay upfront, you are not proving your value (easily fixable) or they need more education on the benefits to you both, OR (and this is the most common reason) THEY ARE NOT SERIOUS OR MOTIVATED.
  • WHAT will my fellow agents think? (Do they pay your bills? Then don't worry about it)

I've been a real estate trainer/speaker/salesperson for 30 yrs now, I also actively participate on the ACRE coaching blog, and fear along with rejection are the two biggest reasons people don't want to do something.

I've always walked to the beat of a different drummer ;-) THE FASTEST WAY to get me to do something, is to tell me it can't be done, or I can't do it. 

When buyer agency first came out all my agent friends hated it, said it wouldn't work and started reeling off 101 reasons why it wouldn't work.  I thought of it as a challenge though, so the next buyer I worked with I got an upfront retainer and a BA signed agreement.  The look on my Brokers face was priceless. 

So being the same as Jason and loving to stir up a hornets nest, the next thing I did was start charging sellers an up front fee and doing consulting. 

This was YEARS ago, before home offices were the norm. I had my first child and not wanting to put him in daycare, I got my own pc, seperate phone line and a fax machine and told my Broker I was not going to be in the office quite as much. 

 HE WAS HYSTERICAL needless to say, and asked me "what if someone calls for you at the office?"  Wellll, I replied - what would you say if I was out getting a listing or showing houses to buyers? I'd give them your pager number was his reply.
GREAT I replied - now you can just give them my business phone and pager ;-)

I still remember all those years ago what he said next....(sit down before reading this)...

 

Paula Bean - YOU are ALWAYS trying to find a way to make more money by doing less work!

LOL - Now we

 have coaches and spend big bucks to learn how to do that.

2 things I'd like to say to all of you who mentioned they were 'thinking about consulting'.  I call it the NIKE slogan: JUST DO IT! Hardly any of us were successful right off the bat when we started selling real estate, and you'll just as likely get a few 'no thanks', but you'll get better as time goes on.

  That is why the ACRE program is so good, you have the brilliant brains of the many who've gone before you so you don't have to reinvent the wheel. 

 They also have post cards, scripts and dialogues, Webinars, etc.  If you've been thinking of doing this, then just jump in and do it. I use consulting with short sales, loan mods, and I get paid for consulting when it doesn't even involve selling a house. ie: Move or improve? Taxes, cma's to get rid of PMI.  Now that is all just gravy that you aren't getting right now.

Disclaimer:  I am not being paid for this endorsement

 

 

Posted by Paula Bean (A Premier Class Realty) over 11 years ago

btw - if anyone wants to learn more about consulting, ACRE has a free monthly newsletter. Just go to http://www.TheConsultingTimes.com and sign up. 

 

Posted by Paula Bean (A Premier Class Realty) over 11 years ago

I'm with you, Jason, and agree on all points. Wouldn't it be nice....

Posted by Kelsey Barklow, 423/948-9154 (Hurd Realty) over 11 years ago

Woot! 131 comments!

I'm even late(r) to the discussion, but appreciate + applaud your transparency + courage to bring this up. I've been serving REALTORS for over 12 years, and have never felt easy about our industry's willingness to work for free. I was delighted when some 8?, 9? years ago NC's Standard Buyer Agency Agreement included a blank for a retainer fee.

"Win some, lose some - it all evens out" is an easy philosophy to get sucked into, though. However, mayhaps we should all get sucked into "work smarter not harder."

Meanwhile, I'll reinforce to the 14,000 agents that are in my sphere that they *are* worth it! =)

 

Posted by Amy Champion (MetroTex Association of REALTORS) over 11 years ago

Participate