Entry by Merv Forney

Sharing Risk with a Seller

  18 Comments

How many times have we taken a listing at a great (or not so great) commission rate, spent many hours getting the listing set up, taking classy pictures, adding a virtual tour, getting the sign, lock box and fancy color brochures and running repeating ads in the local print media only to have a listing sit on the market too long because the seller is reluctant to get competitive on price, becomes impatient and then fires us and finds another agent? Yuk. All that expense (including your time) with absolutely no return. What really ticks me off is when the seller lists with the next agent at a price we were telling them to lower to in the first place!

Risk:

  • In the standard commission model the agent is taking all the risk.
  • If we were to be paid on time and materials, the client takes all the risk
  • Sharing risk - here's an alternative approach I used to get paid for what I do and at the same time share some risk with the seller:

I call it the "Shared Success Plan." Here's how it works:

  1. I price all the up front agreed upon setup and marketing from my fee schedule (usually $2,000 to $2,500, more with an abundance of print ads).
  2. Our listing agreement has a place for "retainer fee" to be paid up front and earned when paid (non-refundable). I use it to get an immediate check to pay for my time and expense.
  3. We agree on a coop broker commission. This will vary depending on area and market conditions.
  4. We agree on a "success fee." This is the fee that is due at closing when the property sells. It can be an agreed upon fixed amount or a commission.
  5. Add 1), 3) and 4) together to obtain the total broker fee for the listing agreement.

The advantage of this approach is obvious. Get paid for the services provided even if the seller cancels the listing agreement for whatever reason. Sellers tend to like it because it is risk sharing. There is one catch: If your marketing does not stand out above the crowd, it will be hard to convince a seller to fork over the money to you up front when another agent's marketing does stand out and they will take all the financial risk. This is extremely important!

The seller gets services, you get paid and the seller typically saves a bit of money on the sale. The consulting model is as flexible as your creativity. Let it loose. I am happy to take questions on specifics.

18 Comments

I really love the approach that Merv outlines because it makes for an easy transition from commission (all risk on agent) and fee (all risk on seller).

The other thing that I like about this approach is that it's familiar to the consumer: this is similar to how you pay for a contractor, painter or other home service provider - some upfront to cover materials and some labor and the balance at the end when you approve the job done

Lastly, this approach weds the seller to you - they're not going to likely fire you and hire someone else with no cause if they've already invested non-refundable money with you. It makes them much more likely to hone in on the real causes if their home doesn't sell.

Thanks for sharing Merv - I agree that there are a ton of different ways to apply this concept!

Mollie

Note: I originally posted this in 2007 and thought it was important enough to bring it up to date.

It continues to be an uphill battle for sellers to understand the fee for service model.  Recently I presented the option to a seller who is tight on equity.  They balked at paying anything upfront as a retainer fee as "all the other agents will take our listing for free."  Even showing them the cost savings when their home sold didn't sway them.  It reminded me once again how the  word "free" in real estate makes consumers think they are getting the best deal.

 

Happy to see the creativity flowing. I've been operating a "Flexible Fee" schedule for several years. It is outcome dependent and can reward the seller with huge savings based upon their participation. I use an excel spreadsheet and have broken down all price ranges with 4 different levels of sale (outcome) ranging from a 6.0% commission to savings of up to 40%: MLS sale, In-Office sale, Listing Agent sale, and Hybrid FSBO sale. Seller saves the most money if they locate the buyer. Also, I charge a nominal upfront fee to participate in the program. The higher the upfront fee, the harder it is to compete with other agents (as Merv states) that have good marketing and exposure programs in place. The motivation for the seller to pay upfront is driven by the opportunity for potential savings. The best thing about the spreadsheet is that it is proprietary and can be tweeked at any time. Anyone interested in a copy of my fee schedule, please contact me by email.

Hi Randy, I think the spread sheet is a great ideal. Could you please email me a copy of your fee schedule. My email is phy911@gmail.com.

Thanks, Phyllis Herrington Spokane Wa

Randy, I would love to have a copy. Thank you for sharing. My email is carolinaproperties@ymail.com. Pat Watson

Hi Randy,

Could you also email me a copy of your spreadsheet? alacarterealestate@comcast.net

Thanks, Larry Thomas

 

Randy, please add me to the list, glenn@nucazza.com thanks in advance,

glenn

Be careful about sharing fee schedules. Don't want to be a kill-joy but Randy, you may want to white out the actual fees you charge - I don't want ACRE to get in trouble with the competition police.

While sharing how one might structure something is one thing - sharing actual fees is kind of counter productive IMHO. It's like prescription medicine - what works for you might not work at all for someone who's market is different.

Can he write SAMPLE ONLY, on the schedule? 

Randy, I would love to see your spreadsheet -- even without the fees (as I'm sure my area is far different in price than yours) my email addy is cepetro1@gmail.com  Thanks so much!

Randy,

I like your concept very much. Could I join the list of requesters to email me the spreadsheet. Thanks.

steffy@talktosteffy.com

 

I have a shared risk plan in my toolbox, a wonderful tool for seller education as well as a reminder to me of my value.  I had one seller grab it up as it fit their needs, but most still choose the traditional plan.  Last spring I was contacted by a seller wanting me to list their property to fulfill a mortgage holder’s requirement of a 60 day listing prior to deed in lieu.  I appreciated the sellers blunt honesty, researched the property and mortgage,  presented a shared risk “itemized” plan designed to fit this seller’s specific needs.  Based on my first seller interview and subsequent research,  I did not offer another plan.  Sellers declined shared risk: other agents will do these items for free.   I watched the property go on the market and then cancel after 52 days in favor of a deed in lieu (per broker comments).   My heart smiled.  ACRE:  thanks for the mind set and access to the tools.

I think the shared risk plan will weed out the people who will waste our time.

Hi Randy,

 

Please send me your spread sheet to ronbrown@q.com.

 

Thanks

Barabara, was that the SmartPlan you used?

Since there are so many requests for my spreadsheet, Mollie suggested I post it in the Library. Unfortunately, because it is a spread sheet, my formulas will accompany. Please note that I am not suggesting the actual fees per my schedule, but the formulas that can help you establish your own fees for your marketplace. This is being submitted as a sample only and must be designed for your own use. It should be available shortly.

FLexible Fee Schedule successfully published in Library under: Rates, Fees & Commissions.

This page contains a single entry by Merv Forney published on August 19, 2011 6:45 AM.

How to Start? was the previous entry in this blog.

Time Docket is the next entry in this blog.

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