Unbundling the Real Estate Transaction
Providing fee-based services as a real estate consultant
by Julie Garton-Good, DREI, GRI
As a broker of twenty-five years, I’ve always had a problem with how our industry is designed. We spend eons of time consulting with buyers and sellers-for free. We receive no up-front fees, even though we’re expected to expend hundreds of dollars per listing (our stock in trade, even though we have no control over it) just to make the phone ring (as well as appease the seller, even though he has no earthly idea what goes into a marketing campaign!) We then spend dozens of hours each month driving buyer prospects around educating them, often to have them purchase from someone else–oftentimes a for-sale-by-owner. And last, but certainly not least, there’s the concept of service — we service the seller, we service the buyer. We provide service at every turn, hoping that the consumer will see value in all this service and reward our efforts by selling or buying with us. Then, and only then, do we get paid.
Correct me if I’m wrong, but is it likely that Bill Gates or Mary Kay Ash would use our current real estate sales model to design a multi- billion dollar business empire? No, I don’t think so either.
SERVICE DOES NOT EQUATE RESULTS
I believe that too much service may be part of our industry’s problem. Think about it — that which is readily available and given freely is often discounted. And are there times when too much real estate service could actually break down communications with the consumer, causing us to move away from, instead of toward, results?
Let’s say that you’ve had a seller listed for four months with very few showings. You service the seller, ad nauseam, mailing ads to him, calling on a weekly basis — even holding a broker’s open. If you could just get an offer on the home, you think you could sell it to the owner. After all, you’re keeping him informed with copious service.
While all this is happening, the seller is thinking, “If that agent would just DO something to get this house sold! He keeps sending me all this mail, but I’ve yet to see even one offer.”
Extended into the future, the seller is likely to change companies, assuming that the first agent/company was incapable of achieving the seller’s desired result of selling the house.
True, sellers don’t really understand what we do. But perhaps part of our problem as professionals is that we haven’t prioritized the aspects, of our business that SHOW value. We’ve been “majoring in minors” as the phrase goes; and we’ve awakened to a brave, new world where cheaper, more flexible, online products are empowering consumers and replacing much of what we’ve previously done as real estate agents.
AGENTS GIVE SERVICE: CONSUMERS WANT RESULTS
One reason our current real estate model is irreparably broken is that we erroneously equate service with results. In today’s “one size no longer fits all” environment, this couldn’t be further from the truth! That shop-worn yard sign on the seller’s lawn does no good for the agent’s/company’s image. In fact, it screams that “we haven’t gotten the job done–but we’re servicing you to death in the meantime!”
You’re probably saying, “‘Julie, this is the way we’ve always helped people sell and buy real estate!” While it may be the old way, it ain’t the only way! What if we could throw out the non-productive activities (those that could be done by someone else, maybe even the seller) like showing the house, in exchange for concentrating on our professional, personal, high-level talents like negotiating and troubleshooting the sale? If you had an ironclad agreement with the seller, what would be the harm in having him show the property — (being the one to announce to potential buyers “this is the kitchen”.) especially if it could free you up to render higher-level, more personalized, more valuable skills — and get paid for them?
“What about the control issue?” you ask. Wouldn’t the seller and buyer find a sneaky way to get out of paying the fee once they got together? (I’d retort, “And they don’t now?) It’s been my experience that far fewer people haggle with professionals whose performance is incumbent upon a high-skill level (like a brain surgeon, or a CPA defending you against the IRS) especially when the skills can’t be duplicated by automation or technology. That professional has a much easier time getting paid and perfecting a niche as an invaluable, and necessary piece of the business puzzle in the new millennium.
OUR SKILL MODEL IS UPSIDE DOWN!
In fact, when you look at what we charge for (showing the house, servicing the seller, driving buyers around) it’s no wonder our industry is in a state of turmoil. If you turn the skill model upside down, we should be giving away what we’re perceived as charging for, and vice- versa! For example, instead of “throwing in” the negotiating and advocacy services and burying them deep in the added-value aspects of working with an agent, we should reframe them, prioritize them, and CHARGE for them! (Wow — what a novel concept — getting paid for our skills!) Contrarily, we should avoid, delegate, and/or reprioritize those activities (like showing property, driving buyers around, etc.) that could be performed by the seller, a licensed personal assistant, or a chauffeur. (When was the last time you saw your attorney escorting his client to court?) Then, and only then, will our skills be taken seriously and adequately compensated.
ONE SOLUTION: REINVENTING OURSELVES AS CONSULTANTS
WHAT CONSUMERS’ WANT AND DON’T WANT FROM US
Consumer Reality #1: Sellers don’t care about service. If working with an agent didn’t result in a successful sale (i.e. generate results) service was valueless.
Consumer Reality #2: Our skill model is upside down. When asked what segments of the agent’s skills/services were deemed most valuable to the consumer, 85% rated the CMA (Comparative Market Analysis) as the most vital tool—far overshadowing the obvious people-related, strengths of negotiating and counseling. The industry lesson is that we have not properly showcased the value of one-on-one skills to the consumer; in other words, that which is not differentiated or constantly visible is discounted (like late-night negotiating with a buyer.)
Consumer Reality #3: Consumers want what they want, when they want it and will gravitate to the most cost-effective source to obtain it. Why? Because our “one-size-fits-all” approach to working with sellers and buyers is archaic and won’t allow consumers to access various segments of help they need in a timely fashion. That’s why .com web start-ups are finding a receptive audience in real estate consumers and why for-sale-by-owners are burgeoning.
HOW DO WE START TO UNBUNDLE SERVICES?
The easiest target, fastest-growing target for unbundling services is also the most overlooked and under-serviced—FSBOs. The buoyant real estate market of the past several years has drawn us to more lucrative targets for listings and sales. But the prediction is that for-sale-by-owners will double in the next ten years to comprise as much as 40% of all properties for sale in the marketplace. That’s a statistic to pay attention to. And even if online services help FSBOs to lease signage, write ads, etc. there’s still money to be made offering those personalized services of negotiating, advocating, and troubleshooting the transaction.
DO THE MATH AS A REAL ESTATE CONSULTANT
Crank out your calculator. How many hours would it take to negotiate between the FSBO and a qualified buyer and monitor the sale to a successful closing? My research shows a median timeframe of ten hours for these tasks. What if the parties to the transaction were willing to pay you, say (for the purpose of example only) $150 per hour, capped at a maximum fee of $1,500? And what if they’d give you a $500 retainer against that fee? (passed through your broker’s escrow account, of course.) So on a 50/50 split with your broker, you’d gross $750 per FSBO transaction as a consultant. And if you closed just two of these assignments per month, that would be an extra $18,000 a year! Certainly nothing to sneeze at and a professional activity that mixes well with commissioned-sales business. (And don’t forget that satisfied FSBOs are an especially good source of recommending you to others. After all, they’ve won, so they’re willing to help you win.)
EASE IN WITH CONSULTANCY AS AN ALTERNATIVE CHOICE
Yes, most real estate markets are booming (but predicted to soften.) And, yes, it’s true, most of us would rather have a root canal than spend time hammering a FSBO to list. But what if in lieu of listing, a consumer would choose to actually pay us for services rendered? Would that be worth the effort?
Give it a try the next time you have the opportunity. Offer it to a FSBO as an option to a formal exclusive listing (after receiving the blessing of your broker, of course.) In my experience, you’ll receive one of two responses from the consumer: 1. “Read my lips, I want to sell my house myself.” Or, 2. “That’s interesting. It could be exactly what I need. How much will it cost?”
WHAT TO CHARGE & HOW TO DECIDE
Now for the question every one wants a panacea to—how much to charge. The answer? Ya gotta figure it out for yourself. (Not what you want to hear; but truly what you NEED to hear.) Why? Because one of the beautiful things about being a real estate consultant is determining the TRUE value of your expertise. We’ve long been slotted as “just another real estate agent, charging the same X percent.” Now (using much more than fee differentiation) we can niche our market by being the best at a certain task while being rewarded in proportion to our ability—much like the CPAs and attorneys you refer business to.
When deciding what to charge, you first must determine the:
1) skill level required to perform the service (broker, agent, licensed/unlicensed assistant?)
2) cost of any new training required to satisfactorily do the job;
3) per hour dollar-value of the person performing the task (allowing for a factor of “lost opportunity” time that could better be spent doing or developing other higher-paid opportunities); and
4) block of time it would customarily take to perform the unbundled activity (including a factor for additional administrative or clerical assistance, cost of supplies, technology required, and more.)
After performing this cost-analysis gyration, a broker/agent might find that it:
1) is unrealistic that a consumer would pay enough for the unbundled service to be profitable to the brokerage;
2) could work financially, but not with top producers; or
3) could make financial sense to begin the unbundling process with “troubleshooting-the-sale-services” for FSBOs, using existing administration personnel.
The alpha and omega is the principal broker. He/she not only makes decisions for the brokerage about whether unbundled services is a logical fit for the brokerage, but typically dictates the services offered and a range of fees for those services.
BOTTOM LINE: CONSUMERS WILL GET WHAT THEY WANT
The good news is that consumers want what they want and will compensate experts who provide it to them.
The bad news is that real estate consumers want what they want and will gravitate to professionals who provide it. And since the real estate industry is the last of the financial industries to unbundle services, it’s merely a matter of time before empowered consumers vote with their feet, and their wallets, in the move to unbundled, results-oriented, cost-effective real estate answers.
Julie Garton-Good, DREI, is an international speaker and author of five books on real estate, most recently “The Frugal HomeOwner’s Guide to Buying, Selling, and Improving Your Home.” The overview for her real estate consultant designation program, “Consumer-Certified Real Estate Consultant™” (C-CREC™) through the National Association of Real Estate Consultants® (NAREC®) can be found at www.juliegarton-good.com