Entry by Jennifer Allan

"Time is Money" blog at Active Rain

  17 Comments

Those of you on Active Rain may have seen today's featured blog that went out as the headliner in the daily newsletter about, basically, an agent's frustration with how we're paid. I know we've all seen these posts before and the subsequent responses of "Yeah, but that's the way it is and it will never change," and so far, there's nothing really new in the blog itself, but I wanted to post my comment here because it's something I feel REALLY strongly about going forward here at ACRE!

Here's what I said...

In my last several years of actively practicing real estate, I offered my seller clients a choice in how to pay me... if they would "share the risk" with me by paying a $500 retainer fee upfront, I would reduce the amount of my commission by a factor much larger than that $500 expense. If they did not want to share the risk, I charged a "full" commission because I WAS taking on all the risk. The vast majority of my sellers choose to share the risk with me because they saw the value to THEM in the arrangement.

The thing is... we all talk about how "unfair" it is that we work on contingency; "everyone else gets paid but us" but we seem to forget that our paychecks are far larger than the appraiser's, the inspector's and probably even the attorney's. When you work by contingency, you can charge a much higher success fee, and many of us really LIKE that aspect of a real estate career.

"Everyone" also says that the system will never change to a non-contingent structure because the consumer won't hear of it. But if we created a model where we BOTH win and the consumer sees the benefit to THEM of paying non-contingently, they'll be willing to do it all day long. Problem is, most of these discussions center on how it would benefit the agent, so of course the consumer isn't going to care about that.

And of course, the other question... do we really WANT to give up all the fun and challenge of working for a contingent paycheck? When times are good, we love it. But when they're not-so-good, we're not-so-sure!

As some of you may know, I recently took over as the Chief Bottle Washer (that is, the one in charge) of ACRE (the Accredited Consultant in Real Estate program), so this is a topic very near and dear to my heart. Are we - and by "we" I mean both the real estate industry and the real estate consumer - READY to restructure the way real estate services are paid for? I believe "we" are... but it has to be a win/win for both parties.

17 Comments

Very well done!!

Thank you! I'm feeling rather eloquent today ;-]

Jennifer, the post is getting quite a lot of discussion going. However, I can't believe the negativity among our peers that it won't work. They seem to blame everyone else but themselves for not not giving it a try.

These posts are always like that, so I get bored with them quickly. And what I always see missing (as I say above) is any brainstorming on how to make a non-contingent structure appealing to the consumer. Of COURSE they're going to balk at it if there's nuthin' in it for them!

By the way, it's posts and commentary like this that confirm my decision that I'm not going to spend my life trying to change the industry. Let's just do our thing here - intelligently, competently, creatively and professionally - and let others who see things our way find us.

Jennifer, you are taking the right approach to this.

That reply was excellent, Jennifer.  Well done!  ACRE in a nutshell.

Thank you! It just seems obvious, doesn't it??? Maybe just to us above-average smart-pants folks ;-]

Jennifer,

Liked your post. It's so logical that in order for it to change, the consumer has to benefit. I'll see what the Active Rain comments are.

Regards

I had a great discussion on this topic with a banker during a networking meeting today.  He talked about introducing me to some contacts of his who were trying to decide whether to sell their home here and move to Florida or move to Florida and keep the home here.  I talked with him about ACRE and putting together a model that allows me to work with that client on an hourly paid basis, so that the client wouldn't think my answer would be self-serving.  As we discussed, even if it is in the client's best interest to move, they might always wonder if I just told them that because it's the only way I get paid.  The banker grasped that concept right away and thought it was great.

Very very nice. I reduce my commissions by $4 for each $1 that the client pays up front. On a recent listing of a six plex worth approx $400,000 I reduced the listing commission to 4.5% thus saving the client $6,000 and he paid me $1,500 up front, and got credit on the closing statement.  I kept 2% and gave the buyer broker 2.5% so at closing I got $8,000 less the $1,000 prepaid.  The owner did most of footwork such as opening doors for buyers and inspectors. I primarily handled the paperwork and negotiations and phone work.

Did the same concept with a buyer at a rebate for a commercial property. Gave him 50% of my commission when he was looking to buy a $500,000 commercial property and he gave me also $1,500 upfront when signing the buyer rep agreement. At closing I received 3% = $15,000 less a $7,500 rebate on closing statement and also less the prepaid $1,500 = $6,000 at closing.  The buyer drove to see most of the prospective properties and I looked at the final four.  I did not meet the inspectors nor went to the closing table. I reviewed the closing statements and inspections and did phone work and handled negotiations.  Seller had to come to the closing table with money.

Lester - this is GREAT information. I really like the formula...

I'm really enjoying these comments and ideas.  Sometimes I wonder if agents think it "won't work" due to lack of ideas.  Please keep them coming so we can re-do our thinking and work.  Thank you Jennifer and Lester for such bright ideas.  It's like that old song that says, "You have to give a little, take a little and let your poor heart break a little".  We have to re-do our thinking, roll up our sleeves and get to work.

Toni - I'm going to post a blog tomorrow on that very thing... I'll post a link here as well.

The more we talk about this (here and elsewhere) the more I realize that our 2012 push needs to be that WE BELIEVE consulting is good... not just for us but for our clients. Once WE BELIEVE that, the rest will fall into place.

But you don't just BELIEVE because you want to... you BELIEVE because it's true (in your opinion anyway).

Let's get there...

I'm in the position of trying to figure out the right way to handle things on a retainer or fee basis.  Due to the economics and area of where I live, an average sales price for a home is in the mid 80's and an average sales price for a commercial building is $100,000 when one sells (which is not often.)  Plus, having the median income at only $36,000 limits what type of fee I can command that people would be able to afford.  I've discussed this with my broker and she is all for it if I can get it, but being the only agent in town who is willing to try, she said I need to be prepared to see many people just say no thank you and move on to the next agent who is not going to require anything. 

I'm not the best person to address this, but I'll throw in a few thoughts.

First, if the average sales price in your area is $80,000, I have to assume that the cost of living is relatively low, too, right? Therefore, some of these numbers we're throwing around here ($500 retainer, etc.) wouldn't fit into your model, but that doesn't mean that you can't adjust the numbers to account for a different average price and cost of living.

When you list an $80,000 property, if you're charging about the same % as I would charge in Denver for a  $250,000 home, and you can make an okay living charging that, then it seems to me that you could simply adjust your retainer fee and risk-mitigation reward (e.g. a reduced commission) to better reflect the economy in your market.

Does this make sense?

And Carolyn - again - I don't want to see you leading with the attitude of "trying to get a retainer fee" but rather of offering reasonable, transparent choices to the consumer. We're not asking the consumer to Take it or Leave it, but rather giving them options on how they'd like to pay you. If they prefer a fully-contingent arrangement where you take all the risk, that will cost them more money because your risk must be accounted for. If they'd like to share the risk with you, it may cost them less money at the end of the day. You just have to structure it so that the choices you offer make sense to both parties and that you'd be satisfied with whatever the client chooses to do.

This page contains a single entry by Jennifer Allan published on January 13, 2012 9:39 AM.

Professional Consultant ??? was the previous entry in this blog.

Real estate consulting and property management is the next entry in this blog.

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