Entry by Carolyn Shipp

Can my Market Support Consulting?

  8 Comments

Here is where I am having some difficulty.  I'm trying to figure out if my market will/can support the consulting model.  Based on what I have been reading, it appears that agents who are using this model are able to charge what would be considered a sizable fee here. 

Statistics from the past 30 days are:

8 home sales:  4 sold for less than $45,000; 1 sold for $77,000; 1 sold for $110,000; 1 for $149,900 and the last for $220,000 (which was priced at $45.39 a square foot, it was almost 5000 sq. ft.)

The county did not have any multi-family or commercial sales and we had 1 land sale.

I've been trying to figure out a way to be able to charge consulting fees here, but based on our sales history, I'm worried that our market won't be able to support them. 

Our average family income is about $35,000 per year.  For those who inquire to purchase a home, we find that they either don't have the credit to qualify or the money to qualify.  Our average sale price per square foot is $44.70.  A very good agent can expect to sell one property every two months.

So, I guess out of all of this out loud thinking...how do I introduce the consulting method to people in a way that won't have them bolting out of their chairs to the next office.  Here is the bottom line thought process from clients and customers:  "I don't care what you have to do to find me a home...I don't care what you have to do to sell my home (I've actually had sellers say this to me)...I want it done and for the least amount that I would have to pay.  If I have to pay for it out of my pocket, I don't want to do it.  If I can pay for it on a credit card or roll it into the closing costs, then I'll do it."  It's almost if they only want to spend money if they don't "feel" it.

I realize this is all crazy...but it's something that I am trying to overcome and I know that I have hit a roadblock in thinking of a way to overcome these obstacles.  Any suggestions?  I don't have anyone around here that I can shoot these thoughts around with...

8 Comments

It does work in my practice, and our area is similar to yours in pricing. Average home sale is under $100,000. I sold one for $4000 last year and charged my buyer to represent him. Seriously.

I wonder if your Broker would be interested in using a credit card service?  Since you probably have to accept payment through your Broker, and not you, I would think she might do it, if you handle any fees associated with it?  Or, maybe she'll invest in it herself?

 

Erica, are you the only agent in your office or area that charges consulting fees?  My broker really thinks that people are not going to accept a fee being charged by me especially when no one else in the office or town is using (or has even heard) of this method. 

One of the reasons that I became involved with consulting is because I am very tired of working for nothing.  I have had several deals fall through last year because of buyers walking away or potential sellers calling me out to list a property and then while they are signing the listing papers, decide that they don't want to sell the home.  I realize that this has happened to many agents, but I got tired of it happening so much. 

How did people react to your presentation when you first approached consulting and how did you deal with the obstacles?

Carolyn,  I think one of the problems you are having with the consulting model is understanding how it should be used.  You shouldn't be trying to 'charge' consulting fees.  You should be using consulting as an alternative to traditional fee structure.  Moreover, by following a consulting model, you can actually earn MORE money, if it's presented correctly.

Like you and Erica, I'm in a market where the average sale is $100k or less.  Like you, often we are dealing with deals in the sub $50k range.  In ALL my contracts, be it listing contract or buyer agency, I list a MINIMUM fee of $1500.  If you are getting 3% or less on a 'normal' transaction, you see that this minimum fee kicks in at $50k or less.

I explain that this is the minimum commission/fee I can accept for my services AND be paid at closing.  I have never had a client balk on this as they want true full service agent.  If you really want to be paid upfront, you can further offer the client a 'discount' of the fee if they pay in full upfront.  For example: $1000.00

It really all depends on what you're trying to accomplish with the consulting model.  If you're looking for upfront money from listings, you're probably going to be disappointed.  I have offered a consulting fee based model since I got my ACRE designation, and I have yet to have a seller choose it.  In this area, in most cases, the 'discount' offered by paying some/all upfront isn't worth the risk to the seller.  That said, by presenting the option and explaining why commission is what it is, not only have I prevented in commission discount arguments, in some situations, the sellers have offered to pay MORE in commission.

Additionally, the consulting model is open to much more than just buying or selling.  By offering an hourly, or job-based, fee, you can to so much more than the 'standard' agent.  Have a client thinking of selling and wants to know the value/issues/repairs/etc of their property without a listing presentation?  There's a fee for that.  Someone wanting remodeling advice?  How to get the best bang for the buck?  There's a fee for that.  Should they refinance? Is there enough equity?  There's a fee for that.

Roger, let me second your comments. I often did not have clients who were doing traditional buying or selling who would go for alternative fees. However, this did not mean that I was not practicing consulting nor that providing choices was not a success. On the contrary, I captured far more business because I offered choices and like you, I totally avoided having my commission discounted.

People are looking for transparency. When they understand why commissions are what they are, they make the best choice. And if your commissions and fees are structured properly, you win either way.

Roger, thanks for the comments which I agree with (almost*) 100%. Having an actvity based fee schedule which shows a client your client "the cost of doing business" more often than not justifies a commision. "Transparency" is the key!!

* I actually had about 50% of my selling clients opt for what I call "shared risk." Half the list side fee in the first 60 days and the remaider at closing.

I think that you are not understanding how to present this to a buyer, or exactly how to use this model. I don't charge buyers who don't buy! I don't expect to get paid a fee for sellers who don't decide to list with me. That's not how this works.

Keep in mind each of us can set our own way we do business. Here is how this operates for ME, and to my knowledge NO OTHER FIRM in my area works this way. I use it in my marketing as a plus -- to state we operate differently. When people ask how, I explain.

Buyer calls and wants to see houses. I show them houses. I have them sign a BA agreement and in there is a FEE I charge. There is a minimum fee (in case I sell a cheap house) and on top of that minimum fee that I get from seller's broker, I charge my buyer a flat fee for my representation. This eliminates the looky loos from my business. Don't want to pay? Go next door. NEXT. I have more business than I can handle right now. I had a buyer today ask me why he didn't have to pay me MORE. I am not kidding. 

If a seller wants a CMA and to interview me, I don't charge him! If he later chooses not to list, that's fine. NEXT.

If a consumer calls in and wants a service (tell me what my house is worth so I can sell it to my brother, or tell me what I should offer my neighbor for that land) I tell him I will do this for x. He agrees. I prepare my report for him and hand him a bill. 

I do not charge BY HOUR for showings or listing appointments. You need to look at this from the consumer's view. What does the consumer need/perceive to be worth paying for? It's not opening doors. It's our BRAIN and ADVICE. 

If you think about it, a buyer who comes to me pays MORE than if he called another firm. Yet I have more buyers than I can handle. I actually interview my buyers and refer out the ones who don't fit my schedule or ones I think I won't work well with. 

I operate this as a business. And I come at it as a business mentality. My clients get that and know they will pay for my services. 

I believe in giving Clients a "choice".  I list out the traditional commissions, from 1% to 4% for my side of the work and under each percentage I list the work that I will do (much more than a typical agent does for the typical 3%) AND I also list a "flat fee" service and list each different task with a dollar amount.  Then, they have their own choice to decide if they want to pay a "flat fee" upfront (non-refundable) or wait and pay me a percentage, based on the choice that they selected.  That way, they get what they bargained for (literally) and when I do extra work (I ALWAYS do), they feel like they got a bargain and that my services were worth what they paid.  I'm also charging an upfront administration "fee" that is not refundable, but is applied towards the amount they will owe, when they select only a commission to pay at Closing.  To keep it advantageous for them to pay it (when others don't charge up front), I offer to discount their final Commission owed to me, at Closing.  That way, it's a win-win situation (I get paid something upfront and they get a rebate when they Close).  If they cancel or don't Close, I was at least paid a  minimal fee, to cover some of my expenses.  Maybe something like this will help you?  You have to always consider that people want more than they give, and they don't want to pay more, and they ALWAYS want a deal/bargain.  As with everything in life, if you don't give up something, you don't get anymore than minimum (typical commission agents).  If they pay up front, they benefit in the long run.  It's better than the rate they can get with a savings account!!!

This page contains a single entry by Carolyn Shipp published on March 5, 2012 2:08 PM.

How's Your Attraction Marketing was the previous entry in this blog.

"List on Realtor-com" flat fee under fire by NAR is the next entry in this blog.

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