Entry by Robert Whitney

Basic Question - How to Charge

  7 Comments

OK, I've read through some posts, time permitting, emailed back and forth to wonderful, helpful people in the group and tried to contribute my 2 cents worth.

Here's my basic questions:

1. If working with Sellers, are the options the traditional structure, flat fee and the hourly structure. If you explain to them that if you are using the traditional model, you will be acting as a salesperson and not as a consultant after telling them that is what the traditional structure is all about? What percentage of the normal fee structure is used for a flat fee? How do you convince them that after being paid, you will actually follow through and do the work promised?

For buyers, if they pay up-front a fee that would be less that the unofficial 3% fee for acting as a buyer's agent, do you rebate the 3 % commission to the buyer to cover their up-front fee and get additional commission off the price or in their pocket (is that legal?).

So many questions, so little time. I'm going in to talk to Prudential for the third time. The broker called me again today. I said I needed to describe my new business model to her, of which I know very little at this point.

I still want to go out on my own, but I don't know if the timing is right.

HELP

1. If working with Sellers, are the options the traditional structure, flat fee and the hourly structure. If you explain to them that if you are using the traditional model, you will be acting as a salesperson and not as a consultant after telling them that is what the traditional structure is all about? What percentage of the normal fee structure is used for a flat fee? How do you convince them that after being paid, you will actually follow through and do the work promised?

For buyers, if they pay up-front a fee that would be less that the unofficial 3% fee for acting as a buyer's agent, do you rebate the 3 % commission to the buyer to cover their up-front fee and get additional commission off the price or in their pocket (is that legal?).

So many questions, so little time. I'm going in to talk to Prudential for the third time. The broker called me again today. I said I needed to describe my new business model to her, of which I know very little at this point.

I still want to go out on my own, but I don't know if the timing is right.

HELP

7 Comments

Robert,

First, forget the "stupie" (or any other word) reference! The questions you are asking are among the biggest issues we ALL confront when embracing Consulting as a business model in real estate. I know a lot of people will weigh in on this, but I thought I'd plug in my few cents worth too. And second, wipe any reference from your mind that How you are paid or What you are paid has anything to do with whether you are performing Consulting Services. These are totally separate issues. Remember...Consulting is a MINDSET...NOT a fee structure!!!

You've started out right...reviewing historical posts and building on the various concepts discussed since our inception. You'll continue to add onto that. I know from personal experience that the tendancy is to want a tidy little package with all the "to do's" and "not to do's" neatly arranged for us to pick up and run with. The reality is it doesn't exist. Real estate laws vary from state to state or region to region. What is customary in my area my be totally alien in yours or vise versa. Not only that, we all have different strengths, different personalities, different levels of experience. So what might be a fantastic approach for one agent might belly flop for another. In other words, the most important element of your CONSULTING approach is "U"!!!! How much you charge for the services you offer is up to you.

Now, I think it's important to wrap your mind around the fact that Consulting is not the antithesis of using a "commissioned" approach. Consulting is about providing the consumer with OPTIONS; It's about giving them TRANSPARENCY so they understand not only what they are PAYING...but what they are PAYING FOR! Consulting provides you as well as the consumer a whole host of services and a variety of ways for which they can pay for them. It's not, in other words, "flat fee" or "hourly rate" versus "commission". As a matter of fact, many times a consumer will start off thinking they want to work with you on a "fee basis" paying for your time and services. As time goes on, and as they start to realize how much it's costing them to work that way, they often decide to move to the "commission" approach. Many agents provide terms whereby the client CAN convert to commission with whatever they've already paid getting credited back to them at closing.

What is DIFFERENT though is that the CONSUMER UNDERSTANDS. In the process of developing your approach with/for a prospective client, you'll be educating them on their options, which options might be best suited to help them achieve their objectives and why, what is involved in providing the tools and services for them, what the cost attached to those tools and services might be, etc. And whether you are working with a buyer or a seller or non-transaction consumer, the bottom line is that they become engaged in the process - they're the ones who ultimately make their choice on which option they want..

Regarding "convincing them" that you will follow through with what you promised to do...you do sign an agreement with them which spells out what you are to do and what the charge will be. And it's also important to remind them that this is exactly the same as hiring a financial planner, an accountant, an attorney, etc. We pay for their expertise...not a particular result. Wouldn't it be nice if we only had to pay the financial planner if their recommendations resulted in wonderful gains!

With regard to working with buyers and getting "up front" payments form them, how you handle this will depend on your broker and will depend on the laws with regard to rebates in your state. I'm in Illinois. Rebates to a party to a transaction are quite legal. If, for example, my buyer were to pay me an up-front fee, as you mentioned, and that amount was less than the coop commission offered and our agreement was that his up front fee was my total compensation for services to him, I would simply accept the coop fee at closing, take it to my broker and instruct my broker to cut the full check to the client as rebate. And even though the amount the client paid me may have been less than the commission offered, it was GUARANTEED income.

One thing you certainly might want to look into, particularly with regard to your questions about how to break down your fees and how to present this information to the consumer, I'd highly recommend looking into Merv's SmartPlan. It serves two purposes very well. (1) Helps you define what services you offer and what your charge is for those services, and (2) enables you to give a DYNAMIC presentation to your prospective client where by you can compare for them on the fly some various options, and how each option impacts their pocketbook. Though it's not a "necessary" step in establishing your offerings, it certainly helps to make sense of them!

Good luck, Robert! I'm anxious to see how others respond to your plea!

JudiB

Hi Judi,

Thank you so much for responding. It was a great help not only to benefit from the overall perspective of "consulting"; to the details that were offered regarding how to approach the financial areas of this new paradigm.

It will take "guts" to implement this new mindset, something that I look forward to implementing. This is a movement of forward thinking people that may get a few "arrows in the back"; but will sometime be looked upon as saving an industry that is now in turmoil. Unfortunately, some of us will be long gone when this realization strikes, but it is of no consequence, as it it what we can do for the future generations of our industry that ultimately matters. We are but a speck in the process of change.

Hey! Bring me another veeeeeeey dry martini with a twist of lemon. I'll stop here. With the writing, not the martini's.

Thanks again,

Robert -

GO for the guts! It will work!

Look at this email I just got today:

>>>Hi Paula, We need an evaluation of our property conducted - can you give us a call to discuss about this and what services you can provide and proposed cost please. Thanks, Chris & Maria

They also gave me their phone number, but it didn't work, as it is overseas 'somewhere" and they left a number out... I'm thinking they are in England (5 hrs difference from me) but who knows?.... so I emailed them back for more info.

Hang it there... once you adopt the consulting mindset, change your web site and your way of responding to people, it WILL work.

Good luck, and if you haven't signed up for the AcreGames ... this would be a good time to do so since it will take a lot of the time issues out of play ;-)

Another good suggestion I'll make if you really want to do this is to get Merv's smartplan... it works, people 'get it' and it will come in very handy!

;-) Paula Bean
Orlando, FL

OOPS!

Forgot to mention Robert, that if you are having 'BROKER issues' let me know... I can help you with that. I've spent 30 years (almost) working as a partner with Brokers, training agents, etc...

If you are on your 3rd go round of talks with Pru, email or call me, and I can help you .... I used to work with Pru, but 3 talks is a little much, you need more ammunition, because they don't 'get it' (and I can help there) or - failing that, you need to make a decision about moving. . .


;-) Paula Bean
Orlando, Fl
321-228-HOME
PAULABEAN@HOMEORLANDO.COM

Judi waxes elegantly on the subject and I could not have said it better! Here are links to a couple of articles I wrote some time ago that may help solidify the concepts:

Consulting is more than a fee schedule
A perspective on commissions

Also, I'll add one more bit to Judi's discussion about rebates:
1) Rebates of any kind are illegal in some states.
2) Rebates are legal in Virginia but they cannot be handled by the broker. They are credited against closing costs at settlement. Not an issue for sellers. BUT, for buyers the lender must be aware of the rebate before closing, approve it and the rebate cannot exceed the closing cost to the buyer.

Hope this helps. You are on the right track with implementation questions.
Regards,
Merv

PS: Judi's response is such a great nugget that I recommend she turn it into an article "From the Coaches"

I've been a bit preoccuppied with some personal issues Bob and didn't have a chance to respond but after reading JudiB's remarks, there's nothing more I could add. Except hang tough - you're on the right track.

I will beg to differ with you about how soon we will salvage the industry. I used to think it might not be in my lifetime (I actually wrote that in the preface of my book) but after seeing ACRE blossom over the last year, I think it may be much sooner. We'll see!

Mollie

Oh, and Robert...I don't recall how long you've been in Real Estate, but the comments you made about how long it will be before Consulting as an "industry standard" are EXACTLY the same as those made about Buyer Agency when it first erupted in the mid 90's. So much so that some brokers were refusing coops to anyone "representing" the buyer. And yes, buyer agents got those arrows in the back.

But, hey, you get the arrows when you're LEADING THE PACK! And just compare YOUR view to that of those behind you...course, maybe you've got a cuter behind than some of us! LOL

JudiB

This page contains a single entry by Robert Whitney published on February 18, 2008 7:25 PM.

Second Consult - Seller was the previous entry in this blog.

Hud Paper Trail - Rebate? is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.