Entry by Stacy Erickson

Buyers Pay by the Hour? Two stories to share...


I have for several years now used a consulting approach with my clients, who are mostly referrals.  For sellers, I utilize Merv’s SmartSeller Plan in listing appointments.  First, we review which services will fit the needs of the seller and the property.  If it is a traditional sale, usually the sellers choose the shared risk plan or traditional commission for payment.  If it is a short sale, they pick the traditional commission plan.  I haven’t had any sellers choose to pay for services by the hour yet.  With buyers, I have gone through the SmartBuyer plan and use it in showing the value that I will bring to clients when working with them; however, I had not offered a choice in payment for buyers until recently.  I want to share my experience with two different buyers and the choice of being paid by the hour.

The first experience was not planned, but I had laid a foundation for what was to happen.  It was an out of state couple looking for a vacation home.  They were a referral from another client that I had sold a vacation home to last year.  I spent time on the phone with them before the visit and sent them information and sample properties.  When they came to town, I went over the SmartBuyer plan with them on our first meeting.  I really believe this helps clients understand and appreciate the value of services provided before, during and after a home tour.  We spent the equivalent of 1.5 full days together looking at and comparing neighborhoods, reviewing market statistics and viewing several homes.  Ultimately, they decided not to buy a home of their own.  They bought half interest in the home from the referral client I mentioned.  However, they called me, thanked me for my time and professionalism, apologized that they weren’t purchasing a home with me and asked for a BILL.  Yes, you read it correctly; they asked to pay me and to send them an invoice.  And they said, it better be at least $X,XXX.  Plus, they gave my name to two other friends interested in vacation homes.  How’s that for encouragement to give this a try with buyers?

Second experience…A consumer (not client) first called me last fall; he inquired about real estate consulting, specifically about paying by the hour.  I spent quite a bit of time explaining how I work with clients and the choices I could provide in working with him.  I would not however go into great detail (i.e., how much I charge) without meeting him in person first.  He wouldn’t commit to a face to face meeting.  I let it go and he sent me an email saying he had found another consultant to work with.  I wrote him back and wished him success.

About two weeks ago this same person called me back.  He said things did not work out with the other consultant and asked would I still be open to services paid by the hour.  I said I would be open to it but was very busy and would need to schedule time to meet face to face first.  No appointment was made.

He called me two days later; the other consultant told him that paying by the hour for our services in Arizona was illegal according to this realtor’s broker.  He said that he had called the Arizona Department of Real Estate (AZDRE) and they also told him that this was illegal.  I asked him who he spoke with because I would like to talk to them.  He didn’t remember, but it was the enforcement department.  I told him that I would make some calls and get back to him.  My first call was to our broker legal hotline.  I was told that it was not illegal to charge by the hour as long as the services provided were towards a buying or selling transaction.  This “as long as” qualification sited by the lawyer was news to me; but, in this particular instance, it was not my question at hand.  The legal hot line lawyer told me to contact the AZDRE to make sure that this was also their understanding and try to talk to the person that told this consumer that it was illegal to charge by the hour.  So, I then called the AZDRE.  The first person I spoke with was in enforcement – a legal aid that couldn’t or wouldn’t answer my question.  She was more concerned with getting this consumer’s contact information and my contact information and getting me to dispute resolution.  I told her there was no dispute, merely a question.  She advised me to prepare a formal statement of the “incident” and send it to dispute resolution.  I calmly explained that there was no dispute but that I would like to talk to someone.  She finally transferred me to the Dispute resolution department.  It was my lucky day as the phone was answered by the personality of the year.  I explained the situation and asked my question and was barked at saying that if it were him and as soon as I took his check, he would contact an attorney and have me sued.  He then, as fast and as monotone as he could, told me the state statutes I would need to comply with – still not answering my question.  To make this long story shorter, it was a negative experience to say the least.  I reviewed the statutes and thought to myself…I’m in compliance with this, but ultimately, this whole situation gives me a questionable feeling.  I called the consumer and said that I would need to seek legal counsel before going forward with any hourly arrangement.  But for now, I would be glad to offer him buyer representation service in a more traditional manner or with a shared risk type of fee schedule.  He didn’t seem interested in that.

On Friday the consumer called again and his message said that the AZDRE called him back and told him that paying a broker by the hour was NOT illegal.  Of course, the AZDRE did not call me back with the answer to my original question.

Does this sound confusing or what??

Today I spoke with an attorney about reviewing all of my consulting forms, consulting marketing materials, advertising, etc. for use here in Arizona.  Based on the first experience I shared with you, I definitely want to continue doing business this way, especially now with buyers.  Based on the second experience I shared with you, I definitely want to dot all my “i”s and cross all my “t”s before any advertising campaign to the general public about the choices.

My bottom line in sharing these stories are these…if the real estate departments as well as other brokers are providing mixed messages about doing things differently than the norm, what does the public think about paying by the hour - legal or illegal?  If you show your value and provide service that exceeds expectations, what does the public think about paying by the hour?  They may just surprise you like they did me and tell you that they want to send you a check for your time and expertise without ever buying or selling a home. 

Wishing all of us continued success!  


Fascinating stories Stacy! I think that in many states and provinces, it's less about illegality and more about bothering with something new so they pull out the "illegal" clause to shut it down. I think everyone needs to check out their local laws but your experiences are very instructive.

It truly blows me away that anyone would legislate against a consulting model in favor of the current one. Or, as Mollie says, even pretend to legislate against it. 

Love the first story. You obviously impressed them with your professionalism - if you'd just come across as a typical salesperson, they wouldn't have dreamed of offering to compensate you, probably. So, did you send them a bill? 

Great stories!!

It continues to amaze me the low ball tactics other agents/brokers will use to keep a client. Keep us informed of your legal review results.

PS: Stacy has been using the SmartPlan™ since 2008.

Hi Stacey, as a fellow AZ Realtor and Instructor, I would recommend copying our commissioner, Judy Lowe on your experience. She is very responsive, I have found and this doesn't sound typical of the customer service she espouses for her Dept. if nothing else, you might get some straight clarification by taking it to her. What I have found is that we have a lot of lawI which can be interpreted in multiple ways and each new administration has a different take on them. Good luck and I'd be happy to help in any way I can

Here's my quick opinion of the matter--We here in IL are transitioning to an All-Broker State all to protect the public. The state decision for this move was to guarantee the public was working with a licensees who could almost receit the statutes, believing anything less is unacceptable. 

It is very necessary to know exactly how you are allowed to receive compensation in the state of IL and I would assume most states. Here you can receive payment before, during and after as long as you are providing a service to clients or customers. Certain specific moneys received determined to be escrow money of course must be deposited into the broker's trust account or a third party trust account and all brokers must know how to identify what is or isn't escrow funds. 

Just know, it is getting tougher on the real estate professional for good reason and I would not be surprised that in a decade all licensees will be require to have at least attended law school or a two-four of higher education.

We may not be allowed to practice law but make no mistake you better understand how to apply it as a licensee. 

It seems ridiculous that a state real estate department would mandate how agents can be paid, but it is possible. A number of states have or had restrictions on giving consumers rebates. Part of the uphill nature of refoming how real estate is bought and sold is that most of the infrastructure (MLS's, state real estate commissions, etc.) has its origins within the brokerage industry and is structured to protect the industry's interests. Consumers really have had no one to advocate on their behalf, or at least no one who can compete politically with the industry.

Mollie, I think you are right about that.  I read our statutes and law book searching for reasons this could not be done before I ever started doing this and found nothing that prohibited it.  I was surprised however by the answer from the hotline attorney saying our services had to lead toward a buying or selling transaction.  This will be one of the several items for my attorney to answer for me.

Yes, Jennifer, I sent them the SmartBuyer plan with the Buyer Preparation and Home Tours sections completed as the invoice.

Joanne, thank you for the advice to contact the commissioner and your offer to help.

Merv, I hadn't given it a thought that this may have been a tactic by the broker/agent to keep this client.   

William, Our state department exists to protect the public not the agent.  I believe we need to be aware of the parameters in which we are to operate whether those parameters are covered by state statutes or state and federal laws or lender guidelines or our own ethical instincts and do the best we can while performing our fiduciary duties and earning a living. 

"...saying our services had to lead toward a buying or selling transaction."

On what planet does this make sense? I am so looking forward to what you find out. 

This page contains a single entry by Stacy Erickson published on March 20, 2012 2:20 AM.

Who Wants a Hundred Dollar Bill? was the previous entry in this blog.

Demise of Traditional Residential Real Estate Firms is the next entry in this blog.

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