Recently in About commissions Category

...whether they are dealing with Health Care or Real Estate Services.

I was chatting with a friend of mine last week when he admitted that he had been without health insurance since he got out of college. Given that he's a real estate agent, that's not so surprising: as an independent contractor he's on his own regarding health insurance and many in our industry have simply taken their chances, especially when they are young and healthy like my friend Jack.

But as part of the approximately 15% of Americans who are uninsured, Jack has a window on a phenomenon that few of the rest of us ever see: what health services actually cost. You see, Jack was playing softball one Saturday a couple of weeks ago and sprained his ankle. As luck would have it, a member of the team was a physician and offered to take a look at the ankle at his office. After his ankle was wrapped up, Jack offered to pay him. 

But here's the interesting phenomenon: the doctor-teammate didn't have a clue as to what to charge him because he had no clue as to what his services were worth! As any doctor today will tell you: their charges are handled by insurance. And the truth is that if the good doctor had not been playing softball with him, Jack's lack of insurance would have dictated that he wouldn't be going to a doctor's office at all - rather he would have to go to the ER if he wanted his ankle looked at and the cost of his care at the ER would have been absorbed by the insured.

Meanwhile, most of us who have health insurance never ask a doctor what they charge because we don't pay for the lion's share of our care - insurance does, so we have been quietly oblivious until the last few years.

So, what does this have to do with real estate?

There has been a lot of discussion of late on real estate blogs regarding buyer agency and the plusses and minuses of working in a buyer agency-only firm (Exclusive Buyer Agency) versus practicing buyer agency in a brokerage that also includes seller agency.

The main theme around these threads is how to get the consumer to trust, and thus demand, their own representation. The proponents of Exclusive Buyer Agency argue that the problem of trust would be eliminated if the public could understand the advantages of having an entire office that just practices buyer agency. Practitioners of buyer agency in traditional brokerages (those that have both buyer and seller agents in the same firm) argue that with the advent of designated agency, practicing buyer agency in a traditional firm no longer presents a conflict of interest.

The problem with this discussion is that both sides miss the larger issue. The true disconnect for the buyer in understanding, and thus demanding, representation dates back to the mid 90's when our boards and associations started asking us to shift from a sales role (move the product) to a fiduciary role (represent the client). While they asked us to change our role with the client, they failed to examine our traditional compensation model which by it's very nature sets up an inherent conflict of interest: how in the world can you act as a fiduciary and give truly objective counsel when you are being paid contingent on the client's actions that you're advising them on?

Despite years of advertising by the National Association of Realtors® and an increasing number of required ethics courses, most recent polls continue to show real estate agents at the bottom of the consumer trust list behind insurance agents and barely beating out stockbrokers. When asked in the most recent Harris Poll "If you were getting professional help or advice from each of the following, how much would you trust them to give you advice which was best for you?", only 20% of respondents indicated that they trusted the advice of real estate agents completely.

But why in the world should this surprise us? As long as we insist on being paid exclusively by commission, what we are asking the consumer to believe is that we can provide objective counsel that is in THEIR best interest when our compensation is wholly dependent on an outcome that we're advising them on!

Recently on the ACRE® Coaching Exchange, our coaching platform for ACRE® graduates, we had a very interesting discussion about where our value today lies as agents. It seems that in the tough market that we are working in, many agents are competing for listings by charging less than the competition and requiring less commitment in the way of an exclusive agency contracts with buyers.

This is so sad because you can never compete on price and stay in business. No matter how low you go, there will always be some desperate soul who will charge less. And when you don't require a commitment from those you work with, you only underscore that your time, experience, and expertise has no value.

In my book Ripping the Roof off Real Estate, I talk about the difference between a commodity, which can and should be shopped by price and a service where the quality, level of expertise, talent or experience makes a big difference in the outcome. When an agent or brokerage competes on price, they reinforce the perception by the public that agents are all the same, a commodity, and therefore they should be shopped by price. However, when a real estate professional understands and articulates their value, the consumer will beat a path to their door and the competition will be left in the dust.

A few years back when I was teaching "Introduction to Real Estate Consulting" at boards and associations, it was common for agents, brokers, and managers who didn't understand consulting to dismiss it as "discounting". This type of comment was always amusing to me because in fact, I developed my consulting model as an antidote to discounting.

Over the last year or so, as the market has softened in many areas, newer agents who found making money so easy just a few years ago are getting out of the industry. Agents who remain are being told to "get back to the basics". The problem is that "the basics" have dramatically changed in the last few years. Gone are the days when cold calling, sending out postcards, spending your valuable time at open houses, working floor time, etc. actually worked.

In the article, "Discount Brokerages Band Together" Matt Carter of Inman News wrote that Virginia-based RebateReps.com helps agents who want to dabble in discounting without alienating full-commission customers, or work for a discount broker full time. "Most Realtors® don't want to advertise themselves as rebate agents because it cannibalizes their other business," said RebateReps founder and owner Daniel Rubén Odio-Páez. "RebateReps connects buyers to local agents who are willing to rebate part of their commission but don't necessarily want to advertise that fact." Odio said. "RebateReps allows agents to have their full-service brokerage and to service our (discount commission) leads."

One of the ACRE® Grads on our Graduate Coaching Exchange recently posted the following: "I have been talking up this whole consulting idea within my office and the other agents are so critical, suggesting that I am advocating limited service brokerage. And while I am saying no way, I am having trouble defending my position. HELP!"

Note: Republished from the Northern Virginia Real Estate Guide

October 17, 2006

The traditional commission model has no relationship to effort and expense across a wide spectrum of property types, markets and price ranges. We (Pam and I) began using consumer Choice models when I established our relationship with RE/MAX on August 1, 2004. We have accumulated significant experience with different approaches and what works and what doesn't; the pitfalls, potholes, roadblocks and agent/broker scourge as well as documented successes. This stuff works! I believe it IS the future for the real professionals in this business.