Entry by Mollie Wasserman

What if Real Estate was Never Commission Based?


What If?Last month, there was a fascinating discussion in the post Discounts, Rebates, Allowances and More. In that thread, Merv made a comment that I fear got lost in the shuffle and needs to be amplified:

"What if our industry NEVER was commissioned based? Erase it from your mind. Maybe there is a bit more service to be provided on the higher priced property, maybe not. Lets say the services are the same. If you apply the fee for service model to both price points are we being paid fairly for our services in either case?"

One of the most common "push backs" regarding activity based pricing from practitioners is something along the lines of "Well, with a commission, I'd get paid $12k and with fees, I'll only be paid $6k. I'm not leaving $6k on the table..."

To this I could respond in a variety of ways:

  • IF the transaction closed
  • IF the client didn't walk away
  • IF I were putting in the same number of hours (NOT!)
  • IF I were blond, blue eyed and 20 pounds lighter...

We continue to get into the same argument of comparing apples and oranges. Commissions and Fees are different because one is contingent and one is not. When I first started developing fees years ago, I got into the same argument with myself. When involved with the sale of a high priced property (whether representing the buyer or seller), I would often feel the twinge of leaving money on the table. But, with lower priced properties, I came face to face with the fact that if I were paid fairly for my time and services, it would often greatly exceed what the comparable commission would pay me.

The reason I want to bring up this topic as a separate post is to shine some light on the question we all have when coming from the commission world and dipping our toes into pricing ourselves based on the time, services, expertise, and experience we bring to the table: in other words, our VALUE.

Here is the conclusion that I came to: when evaluating what to charge with non-contingent renumeration, it is vital that you pretend tht real estate services were never paid by commission. Wipe it out of your mind and start from scratch. Using the tools in the Business Practices Workbook or Merv's SmartPlan, or others, calculate what you should charge for a set of tasks, taking into consideration what your time is worth times how much time will be spent, plus out-of-pocket costs.

Then, once you have calculated what you would charge a consumer for your services, ask yourself a very simple question: "Am I being paid fairly (and in fact well) for the services, expertise, and experience that I'm providing?" If the answer is YES, then be happy. If the answer is NO, then go back to the drawing board and re-calculate what you're charging.

Don't get into the "coulda-shoulda-wouldas". If the consumer wants to pay for the services themselves, then give them a fair price for a finite collection of tasks and time based on what you are worth and know that if they go this route, you'll be paid very well for the job. If they want to pay by contingent commission, then make sure that you're charging enough to cover the high risks and infinite amount of time that you're agreeing to.

Doctors, accountants, and house painters charge what they're worth and the market will bear. Since they never had a precedent of charging contingent commissions, they don't beat themselves up with what they "could have earned" otherwise. Successful professionals get paid well for the services and time they devote to the job at hand.

I welcome your thoughts (and arguments).


EXCELLENT... just... excellent.

I'm in agreement with this. But we need to recognize how a large segment of the public view the real estate profession. On a public forum where RE commissions were being discussed, I compared the real estate commission to the attorneys contingency fee, as a comparison to the "method of payment" of commission vs pay by hour or services performed, and not as a comparison of actual fee amount.

Here is one response to my comment:

"It's funny 'Captain Bill' compares realtors fee's to attorney's fee's. In my state a 40 hour course is enough to become a realtor, about as much time as a burger flipper at McDonalds needs in training.

Let's be generous and pay the realtor $20 an hour (where else do you earn that after a 40 hour course!). This would come to a commission of less than 1/2% on a $200.000 house."

As long as this perception of our worth exists, it will be very difficult to change Buyers over to the concept of pay by hour or by activity. Especially when they are so accustomed to buyers agents working for them for free, and discounters willing to rebate 50% of their commission and still share all the risk with the client not sharing any of the financial risk.

I believe it's an easier job with sellers.


I suggest you read the entire thread at Discounts, Rebates, Allowances and More to understand the complete context of my statement. An important paragraph left out of Mollie's excellent post is:

When using a fee for service model against commission, many of us feel like we are leaving money on the table and find it almost impossible to do. This becomes a huge psychological conflict. Every person embracing a different fee model needs to resolve the internal conflict. If you can't, why ever think about offerring fee for service?

Thanks Merv for adding the additional comments you made. The context IS important.

Bill, I think it's important to educate buyers that an agent's services are NOT free to them. They are either bringing the cash to the table or they are paying an incredible amount of interest over a 30 year mortgage.

Something that we could point out to buyers that they clearly could understand: we don't roll the cost of their move into the price of a house. They pay for the moving truck and all the other costs associated with the move out of pocket. While certainly it is an expense, can you imagine offering them the ability to finance their moving costs by rolling it into their mortgage? It would certainly help them with cash flow in the short run, but imagine the costs in the long run by paying interest on their move for years to come?

The point is that moving expenses are not free! There is a time value of money and It's much less total cost to pay for the service out of pocket then finance it. It's no different with real estate services. 

Bill, The sellers side may be easier for you BUT it's not really where the big cost cutters of wasted time and elimination of risk occur.  Only the buyer can eliminate the risk for all parties in a real estate transaction.  Mollies point about Moving Companies is dead on point.  YOU NEED TO GET OUT OF COMMISSIONS AND INTO THE PROCESS OF REAL ESTATE AND NOT THE CLOSING.

Having recently "lost" a listing recently on a fee for service model I see the continued uphill battle to convince consumers of the long term value they receive ie cost savings.  The  home has now been on the market for 53 days and has had one price reduction (still priced above my suggested price).  They have lost the momentium of the market and what they would have paid me in an upfront fee was small in comparision to the 2 and going on 3 more mortgage payments they are making instead. 

Meanwhile every time I open another agent's website or blog that says FREE FREE FREE or REBATE REBATE REBATE I cringe.

Cindy, did you offer the fee model exclusively or did you offer it as one choice? If you offered it along with the traditional model, how did you lose the listing since you could still do the traditional route if that's what they wanted. Inquiring minds want to know!

Hello Cindy, You comment makes me believe that the listing was yours and you terminated the listing or your listing contract was only 53 days long and expired.  If you were making a listing presentation to acquire a new listing, then you did not lose a listing that you did not have.  You did save valuable time.  Possibly you could make some changes to your option menu of choices, which could offer a blend of traditional and "Fee for Help". Maybe a reduction of listing % commission in exchange for a small upfront startup fee?

I owned a set fee franchise in 2004 and loved it!! My clients loved it. I even charged up front fees and they understood why I was doing that. I never believed in the commission based approach. Getting the entire industry to change how it does business is an awesome task. But I truly believe we are on the right track. We need to keep the fight going. It will elevate, validate and preserve our integrity as real estate agents.

This page contains a single entry by Mollie Wasserman published on September 12, 2011 9:01 AM.

Don't Catch the Status Quo, Invent the Status Quo was the previous entry in this blog.

What's keeping "traditional brokerage companies" from joining us? is the next entry in this blog.

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