Entry by Matthew Johnson

Letter to Broker

  6 Comments

Hello I will be meeting with my broker to go over the ACRE program and to discuss if I can use a fee based payment method. His assistant asked that I draft a simple one page letter explaining what ACRE is and why we should change our way of doing busines. I have attached a copy of my letter below for review before I submit it to my broker, he is asking for it on Monday so any response before that would be great.

As you may know I recently got the Accredited Consultant of Real Estate (ACRE) designation. The main point of the course work was the idea of trying to avoid the conflict of interest that our fiduciary responsibility meets when our only compensated method is based on commissions that are only paid out with a given result. A few examples of this are, how can we truly try to negotiate the lowest price for a buyer when we get paid more for a higher sales price? How truthful would our CMA’s be if we knew the seller would only list their home if they could get a certain amount for it, or when home owners are seeking advice on weather to move or improve, even if subconsciously, we will lean towards encouraging them to move, and thus make commission.

How the course proposes we move from sales people to trusted professionals is my charging fees, where we are paid for our objective and fiduciary service. This way the consumer will know that we are keeping the task objective, because we will get paid even if they do not sell their home. The course recommends using the following payment options to give our clients the most choice, which is what a lot of them are looking for.

  1. Hourly pay- The client will be billed by the hour, much like a CPA or engineer.
  2. By task- The sellers and buyers would pick what tasks they would like us to do and we charge based on how long it should take, much like a mechanic, dentist, or doctor.
  3. Shared risk- This is a hybrid of fee based, and commission based, where the client will pay us a portion of our fee upfront and a larger amount at closing.
  4. Commission- If the client does not want to take the risk and save the money themselves; they can place all the risk on us, and pay us more in the form of a traditional commission.

 

The main benefits to our clients will be the objective advice that they will receive knowing that we do not need a sale to get paid; also they will be paid considerably less paying us by the hour or by fee than if they paid a commission. This method also allows the client more freedom to save money by doing functionality task, like taking photos, meeting appraisers, printing flyers, and other like tasks themselves and employing us for what they really need us for, fiduciary counsel. Also on the buyers side if we agree to get paid a wage that excess in commission can be taken off the buyers closing cost or credited to the loan saving the buyer money as well.

The benefits to us are many. Even though per transaction we will make less, overall we will make more, because we will always get paid for the work we do. How many times have you shown buyers house after house, wasting not only your gas but also your time, only for them to buy a FSBO and leave you high and dry? With this model not only will we be paid for our time, but our clients will become wed to us, because they have invested in us.

This method also opens up a whole new area of customers, homeowners. The homeowners who are not looking at selling their home have no one to turn to for advice on what improvements to make to their home, how much is their home worth for taxes and insurance, and other real estate related questions, that they may not feel comfortable asking us because they know the only way we get paid is by selling their home.

While I am no expert at this I am learning, and would like your support in this effort. The only thing that I ask is that you allow us to try this. Also as the current NWMLS forms do not tend to lead to this way of thought we will have to make an addendum to add to the listing and buyers agency agreements. I have found many examples and am willing to draft a sample for review and approval by legal; I just want your blessing to move ahead.

6 Comments

Hi Matt:

It's a wonderful letter.

You may want to add somewhere that consulting is not the cheap, bargain-basement outfits of the past that offered only functionary-type services for a fee. Rather consulting offers quality, transparent choices in obtaining the true value that only a real estate professional can provide: objective counsel, expertise and care. One of the biggest objections that I hear from brokers and managers is that consulting is somehow a cheap limited service that leaves the consumer exposed. It's important to stress that consulting offers the opportunity to FOCUS on the true fiduciary needs of the client.

You may also want to add to the end links where they can learn more about consulting if they wish. I believe one of the best links to point to is the "Intro To Consulting For Professionals" video. Another is the ACRE Course Site: http://www.ACREcourse.com.

Lastly, just a grammatical change: in the first paragraph of your letter, "weather" should be "whether".

While I'd love to get input from all ACREs, I'd particularly like to hear from ACRE Brokers on this letter: does this letter sound good to you? By helping Matt, you will be helping all of us with your input.

Matthew, you clearly have grasped what consulting is all about. Having practised this method for a number of years, I'll share a couple of observations with you:

1. I was pleasantly surprised to find that consumers seem to take ownership of their listing price when they have some skin in the game, i.e. have paid for a CMA or perhaps have paid an engagement fee at the signing of the listing. Benefit: the old tug of war is diminished or eliminated.

2. If the property hasn't sold within the initial listing period, sellers are less likely to let it die and re-list with a competitor. Akin to #1 above, they aren't so quick to blame the REALTOR. Benefit: fewer expiries.

3. As a consultant your advice is received with more credibility.

4. #3 above is particularly true in a buyer's agent scenario, because you are seen as a trusted advisor rather than a salesperson trying to sell something.

May I suggest you show your broker the video, "The Evolution of Real Estate" at

http://www.youtube.com/watch?v=7xypDSwCh30&feature=PlayList&p=AA94900A46DFEEB1&index=1

Good luck with your broker.

Ron

As a broker I applaud your efforts to implement the consulting model into your business and to get your broker on board. As a recent ACRE designee, I have added consulting compensation to my company's policies and procedures manual.
I think you have done a good job of explaining consulting in your letter and how you are working to change how you do business. May you be the one who turns the tide for your company.
I think that explaining the benefits for the consumer that result from this mode of doing business is s plus, I know that as a broker I appreciate any steps towards offering the broadest possible range of services to our customers and clients.
Best to you!
Jeani

I got approval to move on with the consulting business plan. My broker does warn that he does not think it will work and I will waist my time. His words, "I've only been in the business for 44 years, what do I know, but I think I would have been doing this if it worked." (paraphrased)So I am moving on creating addendums to add to the listing agreement and the buyers agency agreement. I will post them to the library once created for review and use.

I am a brand new ACRE® who has been pondering how to package the points I want to review with my broker. Thanks, Matthew, for posting your letter. It's just what I needed. Now, if I can only figure out where to find the ACRE® library! 

Bernadette, you can find the Library under Exchange Resources in the top navigation bar. You can also find the Get Up and Running Guide in the Library under "Guides".

This page contains a single entry by Matthew Johnson published on February 26, 2011 2:35 AM.

Negotiation to closing services for FSBOs was the previous entry in this blog.

Beyond Fee-For-Service Video is the next entry in this blog.

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