Must consulting fees go through my brokerage?

Hi AS:

Brokerages certainly have different arrangements, but whatever the arrangement you have with your broker, as a real estate licensee, all payments need to be made through your broker. Just as with a rental transaction, when fees can be quite small (here in Chicago, it's not uncommon for a coop fee to be just a few hundred dollars), those payments are still through the brokerage. It would seem that brokerages would look at some sort of modifications to "transaction fees" when the dollar fees are so small. And I don't know how you're charged E&O (whether a flat fee for each "transaction" or a percentage of a transaction, or an annual subscription, etc). Again that can vary widely.

Judi Bryan
ACRE® Council

Hi AS:

I'll also weigh in. Consulting as a model is a lot more than just one time fees. It's an approach to your business that gives the consumer clear choices based on their individual needs and capabilities both in the services you can provide as well as in how you can be paid. As such, a consumer may opt to pay for only an hour or two of counsel initially, but if approached correctly, that couple of hours is often a downpayment on much more business down the road.

As an example, an ACRE may be initially hired by a homeowner to discuss whether or not they should remodel or enlarge their home versus selling their smaller home and buying a larger one. In this "move versus improve" example, many homeowners would never opt to go to a real estate salesperson because they just don't believe that the salesperson could give them objective advice: one choice would provide payment for their work whereas the other one would not.

On the other hand, consumers are increasingly happy to hire a trained consultant and pay for their counsel because in doing so, they are assured of gettting truly objective advice since the consultant is being paid for their time and effort. And our ACREs often will sweeten it for the consumer by crediting any fees paid toward a future transaction if that's the direction the consumer goes. By offering the credit, the ACRE has pretty much cut out their competition if the homeowner decides to sell and buy: with the ACRE they have already established a relationship and they receive credit for monies already paid.

So, you can see that a $300 one time fee can't be looked at in a vacuum - it's not just that one time fee but the seeds it plants for future business.

Mollie Wasserman
ACRE® Council

Hi Mollie:

I bought your book by the way!

I understand the model and how it doesn't merely encompass a small real estate fee. But in this context, I needed to know what was the experience between an ACRE agent and their brokerage with regards to fees.

A few of my clients have asked me my professional opinion about whether to remodel their home or to move. As a matter of fact, I work with several agents whose clientele wouldn't hesitate to contact them about anything about their home, because it's happening today. So to say "never" seems a bit extreme. It's really based on the agent and their relationship with their client.

As much as I love the fee based model as a great option, it still doesn't make me any more objective than if I went full commission. Again, there's that trust factor. I think most of the ACRE agents still offer a commission based service right?

I think much argument can be made for either model, but in the end, I like the idea of offering it as an option.
Thanks for your time! When's the next book coming out? Or is it already out?

AS - Washington

Hi AS:

You said: "A few of my clients have asked me my professional opinion about whether to remodel their home or to move. As a matter of fact, I work with several agents whose clientele wouldn't hesitate to contact them about anything about their home, because it's happening today. So to say "never" seems a bit extreme. It's really based on the agent and their relationship with their client."

Point well taken - I have a habit of sometimes saying "always" and "never" and that's not good. Of course, if there is already a relationship of trust, the many consumers would not hesitate to contact the agent because they trust that they will give them good advice even if the advice does not result in their receiving a paycheck. However, I stand by my premise that when it comes to the public at large - if there is no relationship with an agent already established, they are not likely going to trust a salesperson who is paid only if a transaction happens, to truly give them objective advice.

The typical agent who has no training in providing responsible transparent choices to the consumer will never know how much business they lost because it is unknowable how many calls they didn't get because they did not offer a methedology that allowed them to get paid for their time and services and thus can offer true objectivity. Yes, commissions can certainly be offered as one choice but with folks that don't know you, the consumer is much more likely to trust your advice when you are getting paid for it rather than offering everything for free.

Have you considered joining the ACRE program? I think you will find many kindred spirits as well as a lot of ideas. Many of our most recent graduates are brokers themselves that are designing their entire offices to embrace the consulting model. I certainly don't have all the answers but know from the discussions on our Coaching Exchange that our industry is changing - much faster than I certainly thought only a year ago.

Mollie Wasserman
ACRE® Council

Hi AS:

I just wanted to add a thought...because clearly you "get it" about servicing your clients. One point I try to make when discussing consulting with people is that we are all human. I've always prided myself on putting my client's needs first. But there is a dynamic that I think it's easy for anyone, even the most honorable, ethical among us, to fall prey to ... it has to do with perception.

For example, client calls for an assessment, like move/remodel, for example. If agent recommends remodel they get nothing...if there is a move, they do business. Is there a "possibility" that the agent might "perceive" it would be in the client's best interest to move, when it may in fact not be. Now, I'm not talking about malice here...I'm simply talking about a bit of the "we see what we want to see" that is human nature. Add to that fact that the "remodel" due diligence might not actually get the full attention it deserves because the agent is not compensated for the time and talent they devote to the study. And of course there are situations where doing such a study will take only a minimum of effort....but there are other times when it requires a great deal of time and attention.

Frankly, particularly in the current economic climate where so much is at stake for the consumer (foreclosure, short sale, bankruptcy, etc.) it seems there is a greater need to reliable service. I have to believe that consumers will be getting wind of that sooner rather than later.

Judi Bryan
ACRE® Council

Hi AS,
Great questions. Let me weigh in. Yes, any fees earned would need to go through your brokerage. As Judi mentioned above, compensation arrangements will vary from broker to broker. With my brokerage for example, our agents pay a flat fee of $549 per transaction or 30%, whichever is lower. If a consulting fee of $300 is earned for example, then we would receive $90. If you're offering a fee based model, then you would need to discuss fees and splits with your broker for non-traditional transactions.

As an ACRE you enhance your value to your clients by acting as an advisor and a consultant, offering a unique and powerful approach and elevating your services by demonstrating your ability to adapt to your clients ever changing needs and expectations. (No I'm not trying to sell you, I just strongly believe in this approach as do my clients.)

When I found ACRE, I too was looking for different options to offer my clients. Once I started using it, the response was overwhelming. So much so, that we just built a business around it.

I actually only offer the fee based model to my clients. I can and sometimes do offer a traditional percentage of the transaction but once I've presented the consulting model, the large majority of my clients choose the consulting, fees paid for actual work performed approach. This is a familiar approach for the consumer. They're used to recieving and paying for services this way. It's very powerful when done correctly.

I start (and many ACRE's use this approach) with a Needs Analysis, then a formal service proposal and Smart Plan menu based pricing of Real Estate services. This allows us to first understand our clients unique needs, goals and objectives. We then customize a plan based on those needs, goals and the clients budget. In addition I offer multiple payment options for the client to choose from.

This is a great group and we're happy to answer any questions you have. I've been right where you are.

All the best,
Brent

Very interesting dialogue here, and as a long time consultant let me add my .02.

Each State has it's own rules about what they consider to be a real estate transaction. For example, in Florida anything that has to do with giving value ie: cma or writing a contract would be considered a real estate related transaction and compensation would have to go through the broker.

However, if I were asked my input on move, improve, remodel thats another story.

In addition to the State and Federal laws to be concerned with, each Broker has their own set of rules as well. My Broker does not charge a transaction fee, so any funds get split as normal. I don't worry so much about the small fees because in the long run, you are doing a service for a client that you will develop a long term relationship with and get referrals. Everything that goes around, comes around.

I think where each Broker, and many agents, get confused is when they charge a fee for a service and their Broker has a transaction fee, E&O fee, etc. In that situation I would simply add the extra fees onto my fee and explain it to the client. It is all about transparency.

In the long run, consulting is still a good option for many people who want to know choices. We had a big tax issue going on in my area that confused many people who couldn't figure out what to do.

I made a little money on counseling them as to their choices. Lot's of work, but to provide a service that many traditional agents working only by commission would not do because it doesn't involve a sale is where you differentiate yourself from the rest of the agents in your market.

I also do loan modifications for homeowners since Fannie Mae and Freddie Mac's new rules came into play, in addition to O'bama's home affordability program.

Homeowners COULD do their own loan mods, but it takes a lot of time, and knowledge. The banks won't offer any more than they have to either, so to hire a consultant who knows there are many ways to do loan mods, ie: forbearance, lowering interest rate to 2%, extending loan to 40 years, foregoing some payments, or all of the above is worth it to hire a consultant because we know the rules and we can negotiate with the banks, it's what we are good at. Agents who only work by commission when a sale takes place can not do this because there is no sale.

I also consult with homeowners to do short sales, I've consulted with the loss Mitigation departments to do short sales rather than commission and be paid just like the attorneys, appraisers, home inspectors, etc.

Real Estate is changing and in the near future those agents and Brokers who do not offer choices and options that a consultant CAN will become extinct, just like the dinosaurs who couldn't adapt to change.

I love Brents idea of only offering consulting, but then again, that limits choices - and it's a risk mitigation situation. I still have clients that want to do commission only, and that is fine by me, at least they had the choice and that is what I love about consulting, offering choices that fit a clients unique needs based on their particular situation.

Consultants are the movers and shakers of the industry. I started doing consulting over 10 yrs ago. I was also one of the first buyer agents when that became a big 'thing' and everyone said 'oh, nobody will EVER do that!' Well, now it is the norm.

There are those who lead, those who follow, and those who become extinct. You will see their resumes on Monster.com in the near future.