Living a double business life? A tale of two seafood shops.

I find it fascinating that these discount and rebate firms can find agents, willing to cut their contingent commissions (while continuing to take all the risk, I might add), as long as they can "do it on the sly". But, I'm wondering how long these agents can keep their double life going. What happens when their "full paying" clients find out about the rebates they are handing out to others? Sounds like a two-tiered system: give rebates or cut your commissions to only those consumers who demand it, while continuing to charge whatever you can to consumers who are too "unenlightened" to ask for a break.

Folks, this is what a broken compensation system, out of step with the realities of today's real estate landscape, has wrought.

I'd like to tell you a tale of two Seafood Shops. Shop "A" displays only it's expensive seafood that they make the most profit on, like shrimp and lobster. They do carry more moderately priced fish like flounder or sole, but since they don't make quite as much money on these less expensive types of fish, they'd rather not display them, thinking that if the customer doesn't see the less expensive fish, they'll simply buy what's displayed.

Of course, every once in awhile, a customer will come up and ask the owner if they carry flounder or sole, and when asked, the owner will quickly glance around to make sure no one else is looking, and then bring out the less expensive fish from behind the counter, but the owner's policy is to keep the flounder and sole stashed away, out of sight, and he reasons, hopefully out of the customer's mind.

Now, note that Shop "A" still makes a very tidy profit when selling the less expensive fish, but just not as much as from the shrimp and lobster. But, there's one little problem with the owner's reasoning. Everyday many potential customers walk by his shop, look in the window and, only seeing shrimp and lobster when they had in mind to buy flounder and sole, just keep on walking to Shop "B".

Shop "B" has a very different philosophy: they display all the seafood that they carry, pricing each type of seafood as competitively as they can while still earning them a reasonable profit. If shrimp and lobster cost them more at the dock, they charge more, but they let the customer choose what seafood they want. What is interesting is that customers who come in, thinking that they want flounder or sole, often "trade up" to shrimp and lobster because when they are able to compare the options side by side, they can see that while the shrimp and lobster cost more, it's worth it to them.

At the same time, the shop almost never sees a shrimp or lobster customer come in, and once seeing less expensive fish, decide to "downgrade". On the contrary, upon seeing other choices, they become more content in their choice.

Today's Internet-savvy consumer, who has unprecedented access to data, is looking for two major things from a real estate professional and neither is satisfied by the double-life agents who offer discounts and rebates on the sly:

1) CHOICES in the services they can receive and how they can pay for them. If someone wants shrimp and lobster, they are not going to buy flounder just because it's offered side by side with more expensive seafood. But they will feel that they made the BEST choice, not the ONLY one. When given a choice in real estate, many consumers will choose a full-service package and often, will be more comfortable paying by commission. But, they will not try to beat down the agent on that commission because they understand that the "insurance policy" is why commissions have to be high compared to paying for the services themselves.

2) What my colleague and friend Merv Forney calls TRANSPARENCY. More than cost savings, what today's consumer wants is very simply, an understanding of what they are paying for when they pay for real estate services. When a real estate professional explains that commissions are higher than fees because the risk is borne by the agent, they understand and can make an informed choice, just like when they see all the different types of seafood laid out in the glass case at various prices, they can make a judgment as to which is the better value to them. What customers are saying loud and clear today is that they don't like it when the options are "hidden behind the counter".

Instead of offering rebates and discounts on the sly, why not price our services competitively and let the consumer choose between paying for the services and/or time itself or by commission which provides the services and an insurance policy? Some consumers will choose to pay for the services themselves, and if the practitioner has priced their services to earn them a reasonable profit, than the practitioner should be happy too.

And many consumers, once understanding that commissions pay for risk mitigation in addition to services, will continue to choose commissions. They just want choices and transparency - not double-life agents.