Professional Edition Blog

Getting Back to the Basics When the Basics have Changed

2008-06-03T13:06:21Z

If you are out in the market trying to make a living in real estate, I don't need to tell you that our industry continues to go through tremendous changes that are challenging our most basic of real estate practices and assumptions:

Revolutionary growth in technology which continues to transform our industry.

A huge consumer backlash that, contrary to conventional wisdom, is not just challenging our commissions but challenging our very value as professionals.

A growing bewilderment by both the consumer and ourselves over what exactly our role as real estate professionals today is supposed to be.

Yet, in the midst of all of this, when we clearly need some new direction, it seems like all we're getting is the same old advice from the same pundits that have been around forever saying the same things like:
]]> "It's time to get back to basics."

"The market will recover and be like it was."

"Just use the market downtime to sharpen your traditional sales skills and when the market comes back, you'll be ready."

Deep down we know that this traditional advice just doesn't fit our current realities anymore. But, let's be honest. We like hearing it. It's comforting. It's familiar. It's sort of like a broken-in pair of shoes - when we put them on, our feet can just naturally settle in to where they are comfortable. Unfortunately, those shoes won't get us to where we need to be today! Now, it is true that real estate works in cycles, the housing market will come back as will business, but it will increasingly be a very different type of business. And this business will be going only to those practitioners who are trained and ready.

It's time to take our industry back. And as difficult as it is to stretch our comfort zone, it's time to break in a new pair of shoes. In our business, that new pair of shoes is Real Estate Consulting.

The consulting model is built on a very simple principle: that of elevating the role of the real estate professional to one of a true fiduciary, enabling real estate professionals to provide, not what consumers needed thirty, forty, or fifty years ago when typewriters, dial phones, and Polaroid cameras ruled, but what consumers need TODAY in a world of laptops, cell phones, digital cameras and the Internet.

Some in our industry have told me that they find the ideas behind the consulting model strange and controversial. I find this response to be very curious since it's not as if consulting is unheard of in the larger business world. In fact, most professionals, such as CPA's, financial planners, and attorneys, professionals who need to be able to provide objective, fiduciary counsel that is in the best interest of the client, usually provide choices in the services they offer and they are usually paid by a non-contingent fee.

By the way, "non-contingent fee" is a fancy and rather high-brow way to say these people actually get paid for their work! Imagine that!

Of course, to us REALTORS®, actually getting PAID for one's work is a rather foreign concept. We have a hard time with the idea because, after all, real estate has always been a sales profession, paid by commission. We're not supposed to get paid for our expertise, experience and time - just closed transactions, right? But, when I hear these "absolute truths", I'm reminded of so many other "absolute truths" that have been expressed over the years. For instance:

In 1899, Charles Duell who was then the director of the US Patent office declared: "Everything that CAN be invented HAS been invented."

In 1927, H. M. Warner of Warner Brothers, when confronted with a new-fangled thing called the "Talkies" growled: "Who the hell wants to hear actors talk?'

In 1943, IBM Chairman Thomas Watson surmised "I think there is a world market for maybe five computers".

In 1962 when rejecting the Beatles, Decca Recording Company stated "We don't like their sound, and besides, everyone knows that guitar music is on the way out."

And in 1981, no less than Microsoft Chairman Bill Gates famously stated that: "640K ought to be enough for anybody".

There's no two ways about it, change is a very difficult. And changing an entire industry from one where real estate salespeople are paid to move product to one where real estate consultants are paid to provide vital counsel, guidance and representation is certainly a challenge. But if we want to survive and prosper we MUST take the lead. We need to recognize where our industry is headed and proactively embrace practices that work in our favor as well as that of the public we serve. Otherwise, changes will be dictated by enterprises that seek to diminish our value and commoditize the consumer.

Hockey great Wayne Gretzky was asked once why he was so great. Interestingly, he didn't comment about his speed on the ice, the way he handled the puck, or even how he took his shot. He simply responded: "I go to where the puck is going to be, not where it currently is".

There is no doubt that consulting is where our industry is going to be. In fact many of us believe that it's already here. The consumer is demanding transparent, quality choices in the real estate services they receive and how they can pay for them. The only question is: are you prepared to offer what the consumer is demanding? Let's be clear: being prepared does NOT mean simply calling ourselves a "Consultant" or putting the title "Consultant" on our business card because it sounds better. That's just words and the consumer can see right through that.

Being prepared means developing the tools to provide today's consumer with what they need, and, more importantly, what they are willing (and even anxious) to pay for. Because stubbornly refusing to provide choices doesn't mean the consumer will do without. It simply means they will go elsewhere.

What Politics can Teach our Industry about Confronting Change

2008-02-07T20:40:06Z

The Republican primary in the state of Michigan was held this past January and the way that the two leading candidates approached this primary provides a fascinating primer on how real estate will fare in the next few years, depending on our reaction to the systemic changes that confront us.

]]> Like much of the real estate industry, Michigan is in the doldrums, to put it mildly. In fact, many economists have describes Michigan as having been caught in a "one state recession" for quite some time now. Leading up to the primary, the two leading candidates took very different approaches in campaigning for votes.

Candidate #1 campaigned as the savior of the traditional auto industry while being critical of new fuel efficiency standards signed into law: "If you vote for me, when I get to Washington I'll make sure that the auto industry is not broken by these new standards but rather is provided the funding to get their jobs back".

Candidate #2 took a much different tack, confronting the systemic changes facing the auto industry head-on by telling voters the truth: "My friends, I regret to tell you that your old jobs are not coming back. The global economy is here to stay. But if we prepare, we can bring new and much better jobs to Michigan and to the rest of America. But know this: we will not thrive continuing the same-old, same-old. To compete successfully in the new order, we must prepare workers to seize the new opportunities."

It's interesting that we are now watching most of the "pundits" in the real estate industry, like Candidate #1, preach the same old traditional line: "It's time to get back to basics" you hear from the same writers and seminar speakers that have been around forever, preaching the same gospel for decades: "Don't worry about the current downturn. Real estate works in cycles. While things are slow just sharpen your traditional sales skills and when things come back, you'll be ready."

Sorry folks. Like Candidate #2 I believe in telling it like it is. So here goes: while it is certainly true that real estate works in cycles, the ills that face our industry will not be cured when the current down cycle turns up again. That's because there has been a fundamental systemic change: it's called technology. Prior to the Internet, real estate agents were in demand primarily as information providers. The traditional model worked for many years when agents were the sole gatekeepers of property data: if a seller wanted their home on the MLS or a buyer wanted to see what was available, they needed to go through an agent to do so. And since the agent was the only way to get to this data, the traditional sales model, which limited its offerings to a one-size-fits-all (not!) package, payable only by commission was accepted by the consumer as the only avenue to get the services they needed.

However, with the proliferation of property search, valuation, and listing sites, and almost universal access to the MLS that we have now, the traditional model has broken down. The industry is fighting an uphill battle for control of property information, and for its very livelihood. But, in the age of the Internet, this is a battle that will certainly be lost. In fact, it's been lost already only the vast majority of the industry refuses to see it. An upturn in the real estate cycle will not change the fact that the consumer no longer wants to pay big bucks for access they can get on their own.

But, it's not all doom and gloom - far from it! Remember Candidate #2 also said that if we prepare, we can have much better jobs by seizing new opportunities. And in the Internet age, those opportunities in real estate lie in a new model called consulting.

You see, unlike a real estate salesperson who may call themselves a "consultant" but is really a salesperson in practice, a trained consultant is in high demand because their role is not that of a gatekeeper of the MLS, but rather someone who's job is to take the property information so widely available, and make sense of it all. Rather than trying to compete with technology in performing functionary-type activities that the consumer can do themselves if they choose, a real estate consultant gets paid for the know-how that can only come from years of experience.

Consulting is the future because as a consultant, it doesn't matter who has access to data; the value lies not in the data itself, but in the interpretation of that data. As a trained consultant, the agent is no longer paid to provide information but to interpret it. And that's something that the Internet can never do.

So, my friends, I regret to tell you that your old jobs are not coming back. The Internet-savvy consumer is here to stay. But if you prepare, you can thrive because in the world of real estate consulting, you can get paid for your expertise, not for your access. And instead of working for free in hopes of bagging a commission for an outcome that you can't control, you can get paid for your time and your work. ALL of your work - not just the deals that close!

Tough Times = Newest Quick Fix

2007-11-29T13:20:34Z

I've noticed that during the last few months of every year, agent list-serves and forums begin popping with posts regarding the newest and greatest software, tools, and must-have cool gadgets to buy for their businesses. This crazy rush to purchase the newest and greatest is in full swing by the NAR® (National Association of Realtors®) Convention in November and only seems to slow down when the realities of holiday shopping hit home - usually when the bills begin arriving in January.

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And even this year, despite the slow market in much of the country, there seems to be no slowdown in our quest to obtain the newest and greatest. Let's face it - a lot of us are trade-show and gadget junkies. Think about it: how many of the 1,119,000 iPhones sold in the US as of October, 2007 were bought by people who REALLY needed a new phone? Or did we convince ourselves that the iPhone and other cool tools and gadgets would really bring us the new business that we so desperately need. After all, you have to spend money to make money, right?

May I suggest that our problem might be that we're always looking for the quick fix? With our business purchases, don't we tend to go "a mile wide (as in the quantity of what we purchase) but only an inch deep (as in what we actually utilize)?" We go to NAR® and get all excited about a nifty new piece of software or a set of glossy postcards that we saw demonstrated. They look fantastic. And we buy and buy, because when times are slow and business is tough to come by, the more we search for the magic bullet.

But then we get home and the aura wears off. The software that looked really cool at NAR® loses a little of it's glitter as we read through the instructions and realize that it takes a little work to get it up and running. We realize that it takes self-discipline to set up a drip system for the post cards. So the software that we spent good money on never gets installed and the cards never get mailed. And we're off to look for the next magic bullet.

Isn't this kind of like how we react whenever we hear of the newest diet? "Eat everything you want, lay around like a slug and still lose weight!" you hear. Deep down you know that no one gets a new body without working at it, but you so want to believe the claims...

As I write this, there are no less than 38 agents who have signed up for our ACRE™ (Accredited Consultant in Real Estate™) Course and Coaching Program in the last year, paid good money for it (when it's certainly not that plentiful) but have never bothered to actually take the course! And even though the ACRE™ program includes one full year of coaching, there are almost twice that many who have completed the course but have never taken the time to implement anything such as setting up their hourly worth or fees so they could actually practice consulting and start making money with it. Yet, our ACRE™ grads that get coached and put the work in to "set up their toolbox" are making thousands of dollars of income that they never would have had.

So, why in the world would agents who are crying poverty, drop serious money on a program and either not start it, or take the course but not implement the tools into their business? It totally blows me away until I get off my high horse and remember all the stuff I have bought over the years with great intentions that landed on a shelf.

Maybe for the New Year we should all start thinking about going "an inch wide and a mile deep". In other words, buy less, commit to less, but do it for all it's worth. My beloved late grandmother used to always say to me "Mollie, if it's worth doing, it's worth doing well". So, maybe the lesson for all of us is before we buy the newest and greatest thing to pump up our businesses, that we look at what we've already invested in and see it through.

In the Internet Age LESS IS MORE

2007-09-26T13:56:33Z

Last week, in "Broker proposes new real estate marketing platform: Universal MLS", Inman News Writer Glenn Roberts discussed a "Universal MLS" that is the brainchild of Colorado real estate broker Creed Smith, a specialist in bank-owned foreclosure properties. A real estate broker since 1987 who has a master's degree in marketing, Smith said his vision for a new breed of MLS is based on his belief that real estate agents and brokers will inevitably play a lesser role in real estate transactions as Web-based services become increasingly popular with consumers.

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Smith is quoted as saying "I'm absolutely sure that the way we sell real estate is going to change," Smith said. "I foresee that there's going to be a division between what brokers do and what the Internet can do for buyers and sellers. I think the Internet is going to be the central marketing tool in creating specialized services for buyers and sellers. I think they're going to be able to find each other without a broker."

He went on to say that he expects that real estate professionals of the future will focus more on handling the paperwork related to the transaction, such as purchase offers and disclosure documents.

I am amazed that Mr. Smith could have such an interesting concept in theory, yet present it in such a way to make most in our industry recoil in horror. It's not that I disagree with his premise that major changes are afoot in real estate: the MLS, as we know it, is terminal. Whether you believe that our MLS's sold us out or it's just the natural consequence of the free flow of information in the Internet age, the MLS, as THE place for property information is ending. As much as traditionalists may dislike the thought, there is simply no question that buyers and sellers, armed with information that they got WITHOUT going through an agent, will find each other more and more. Many sellers who have time will do their own marketing activities and buyers will do more of their own house hunting without us.

My problem with Smith is how he frames his argument and his apparent lack of understanding of what the Internet CANNOT do. He not only does a disservice to agents in cheapening their role, but, in pitching the wonders of the Internet as a matchmaking device without any acknowledgement of the importance of fiduciary counsel and care, he leaves the consumer increasingly vulnerable. A home is, to most people, their greatest financial asset. Buying or selling a home is not the same as selling clothes at a yard sale and without expert assistance, consumers "going it alone" more often than not, fail in their attempts to buy or sell for the greatest value.

What about taking the same concept and framing it differently? I would say instead that in the future, real estate professionals will be providing an "elevated role" of being the objective advisor and making some sense of what the mounds of data actually means - something the Internet can NEVER do! As Krystal Kraft, a real estate broker for The Berkshire Group Realtors in Denver was quoted as saying: "What we need is more time to help the consumer understand and digest all the information that is available to them. Information is not the problem, lack of knowledge and understanding is the issue."

If playing a "lesser role" means that agents aren't running around putting lock boxes on doors or waiting at the seller's house to meet the appraiser or the fire department so the smoke detectors can be checked, then I say AMEN. If a buyer, using the Internet can do drive-bys to narrow down their search, so that the agent can then step in, use their expertise to help them decide on a final choice, and guide them through a successful closed transaction, then is the agent truly playing a "lesser role"?

What so many in our industry are missing is that "less is more". Does a doctor feel cheated that someone in their office makes the patient appointments? Does an attorney get upset because his/her paralegal is performing some of the tasks that don't require their level of education or years of experience? Honestly, is the doctor's time better spent examining their patient or making appointments? Similarly, is the attorney's time better spent advising their client or performing purely functionary tasks? So, why can't we in the real estate industry wrap our heads around the concept of letting the consumer harness the power of the Internet to gather the data while we take the role of making sense of what it all means? It's not the number of hours that you put in - it's the level of work you are doing in those hours and being well paid for it. Instead of installing signs and playing tour guide, why not spend our time advising, negotiating, and trouble shooting?

Likewise, no real estate professional wants to look at their future role as simply "doing the paperwork". But what if this role was reframed as one where, once the buyer and seller have found each other that this is the time that they need us most? Because rather than simply "doing the paperwork", we are in fact providing the vital "contract to close". This is not semantics - it's a true reflection of where our value is. Any good agent knows that finding a buyer for the seller or a house for the buyer is the easy part - getting the transaction to a successful and profitable close is where the rubber meets the road.

Changes are indeed afoot and the continued emergence of new models only point out what is becoming as clear as day to anyone who will pull their head out of the sand: that in as little as five years from now, the people earning a living in our business will overwhelmingly be consultants who are paid for their expertise and counsel, not salespeople who are paid to move product. Change is not something that should be feared - it is in fact inevitable and necessary. After all, there was a time when the horse and buggy was our major means of transportation but someone came up with the automobile and thought that it just might work better!

The growth of technology offers doom and gloom for our industry if we sit back and let our role be disintermediated. However, it offers great opportunities if we use its growth to concentrate on what only we, as professionals, can do. It's an exciting future for those who embrace it because rather than being paid for our access, real estate professionals can be paid for their time, knowledge, and the expertise that can only come from years of experience.

Is real estate consulting discounting?

2007-09-05T17:33:16Z

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.

]]> Commissions are, by their design, built on "high risk-high reward". In fact, the reason that commissions are a relatively expensive way for consumers to pay for real estate services is that the lion's share of what the consumer is paying for is risk mitigation. Discounting has nothing to do with what percentage is being charged (there is no such thing as a set commission). Rather, discounting is when an agent or brokerage agrees to continue to carry all the risks inherent in being paid on contingency, but simply agrees to less reward. That lower reward means that they have no cushion to cover them when other transactions don't happen. That's why I believe that discounting is a bad deal for our industry.

Consulting on the other hand, takes a very different approach: it offers transparent choices to the consumer in the services they can receive and how they can pay for them. A real estate consultant can lay out the cost of their various services and give the consumer a choice in paying for the services themselves (the way we pay most service providers) or pay for the risk mitigation that a traditional commission provides, but they MUST understand that they will pay a premium for that "insurance policy".

More recently, we sometimes hear from our colleagues that consulting is just "fee-for-service". Certainly, practicing real estate from a consulting model does entail offering fee options, but the consulting model encompasses so much more that. If you think of consulting as simply providing "fee-for-service" options to sellers, you're missing the boat on what consulting is all about. You're also missing out on a whole lot of extra income!

Consulting is a whole new approach to your business. It's having the "tools in your toolbox" to offer the consumer quality choices that pay you fairly for the expertise and years of experience that you bring to the table. It's knowing your value and having the confidence to walk away from clients who will sap your energy and not provide a good return on your investment. Consulting is about knowing what you are worth and settling for nothing less. What we teach in the ACRE™ (Accredited Consultant in Real Estate) Course and Coaching Program is not so much about setting up a fee schedule, as it is looking at your business AS a business and helping you articulate your value to the consumer.

In his recent article Consulting Is More Than a Fee Schedule, ACRE™ Coach Merv Forney said: "If the only thing we change about our business is implementing a different way to charge clients for real estate services, we have missed the point. I truly believe that when you can differentiate yourself from the crowd as a true professional consultant and can articulate the value you bring to a client, your fees become of secondary importance."

New Income Opportunities for Real Estate Consultants

While sellers today are often the most vocal in demanding choices, they are not the only consumers who could benefit from flexibility in the types of real estate services provided and how they can be paid for. What follows is just a FEW of the additional business opportunities that our ACRE™ grads are discovering:

BUYERS: Some of our ACRE™ grads are offering buyers the option of paying a base service fee and then paying them by the hour. Any monies saved from the offered co-broke can be then credited to the buyer at closing. This gives the buyer the opportunity to save money by using their consultant's time wisely, yet, unlike rebates where the agent has to work just as hard but get paid less, this option allows ACRE™'s to get paid very well for the time they put into the transaction. It also provides the added benefit of making the buyer aware of the value of our time.

INVESTORS: The investor is a prime niche-market for consulting. Some investors like to do a lot of their own "scouting around" and some like to have their agent do that for them. Being able to offer an hourly rate as an alternative way to be compensated gives ACRE™'s a tremendous advantage over the competition that only offers commissions. While investors usually BUY with agents, they often "go-it-alone" when selling. Consulting options give them great incentive to get help on both ends.

HOMEOWNERS: Homeowners are the "orphans" in real estate. Because agents traditionally only get paid for closed transactions, we don't tend to work with homeowners unless or until they decide to buy or sell. But homeowners definitely need real estate information and guidance...from staying up to date on the value of their property, appraisal/tax issues, refinancing, or "move versus improve" decisions.

With the lack of choices being offered by the traditional real estate industry, third party companies, both online and off, have stepped into the breech, providing information and services with questionable accuracy, quality, and expertise. As an ACRE™, the sky is the limit on the variety of services you can offer today's homeowner. And better than that, you have a way to get paid for it! And homeowner are more and more appreciating the opportunity to garner counsel on the real estate market and because they are paying for it, they can be assured that the counsel they are receiving is truly objective.

RELOCATION: Relocation clients are a wonderful niche for consulting. Instead of getting a commissioned salesperson who will oversell them because they are trying to get paid for their time, an ACRE™ can offer an hourly option. It's a win-win because if the client ends up buying in the area of the ACRE™ they worked with, the fee can be reimbursed to the relocation company from the offered co-broke. And if they don't buy in the area, the ACRE™ is still being paid!

FOR SALE BY OWNERS: ANYONE who owns a property and wants to sell it, is in fact, a "For Sale By Owner." It's just a matter of how much professional assistance they want and need. The term "For Sale By Owner" (FSBO) came about because of how our industry historically has been structured, basically, all or nothing.

As ACRE™'s we can offer choices that will allow the do-it-yourself consumer to get the services they need. And if (more likely, when) they get tired of playing real estate agent, you have already built a relationship of service and trust. To further "cement" their business many ACRE™'s are offering their FSBO clients a full or partial credit of monies already paid if they decide to list their home (something they would never get from the online FSBO companies).

There's another dynamic at play: in the traditional commission model, the FSBO thinks of an agent as someone who is waiting for them to fail. The consultant, on the other hand, is viewed by the FSBO as a professional who is there to help them succeed, whether that ultimately means a little help or a lot. They are given an opportunity to have a professional step in for just the services that they want and need. And the ACRE™ can get paid for the expertise, and time that they provide.

So, if you're thinking that real estate consulting is a fancy name for discounting or just a "fee-for-service" gimmick, think again. Today's Internet- savvy consumer is demanding quality, transparent choices that give them real value for their money. Real estate consulting provides those choices while compensating the hard-working professional for the enormous value they provide.

Are real estate agents commodities?

2007-08-26T14:29:35Z

In the 1995 movie, The American President, there is a scene where President Andrew Shepherd, played by Michael Douglas, is in a heated discussion with his domestic policy advisor, Lewis Rothschild, played by Michael J. Fox, about the President's falling poll numbers.

In this scene Rothschild pleads: "People want leadership, Mr. President, and in the absence of genuine leadership, they'll listen to anyone who steps up to the microphone. They want leadership. They're so thirsty for it they'll crawl through the desert toward a mirage, and when they discover there's no water, they'll drink the sand."

To which President Shepherd responds: "People don't drink the sand because they're thirsty, Lewis. They drink the sand because they don't know the difference."

]]> Let me rephrase this exchange as it applies to today's real estate consumer:

Today's consumer clearly wants choices in the real estate services they can receive and how they can pay for them. They are so hungry for choices that in their absence from professionals, they will listen to anyone who says that they offer the same services for less. But when they find out that the "same services for less" promise is just a mirage, it only serves to harden their belief that agents are all the same and not worth much at that.

In an environment where online portals are popping up almost daily, promising something for almost nothing, and Internet-savvy consumers who often believe that the Internet can replace an agent, real estate services with little or no professional guidance attached are increasingly being purchased. But overwhelmingly, consumers aren't buying these pared-down services because they want cheaper. They're buying these services because they don't know the difference.

In my book, Ripping the Roof off Real Estate, I note that the first thing that smart consumers do when shopping for a product or service is determine whether it's a commodity, which can and should be shopped by price, or a service professional whose quality of work, level of expertise, talent, or years of experience make a big difference in the outcome.

A good example of a commodity would be Brand X socks that are sold in a package of three pairs and available in a variety of outlets. Whether one buys this package of Brand X socks at the fanciest department store or at the cheapest discounter, the package of socks is the same. It's a commodity, and therefore, a smart consumer will shop it by price.

Now let's contrast that with the following scenario: suppose you just found out you won the lottery. After you finished your initial celebration and polished off some champagne, my guess is the next day you would go out and hire yourself the best tax attorney you could get your hands on. And you would know that they were the best, because they wouldn't come cheap. But you'd gladly pay their hefty fee because you would know that whatever they charged would be greatly eclipsed by what they would save you from Uncle Sam. That's because the tax attorney is NOT a commodity; their expertise and experience make an enormous difference in how much of your lottery winnings go to the government, and how much will stay in your pocket. You would not try to save money by using someone who just started in the business, because here is where experience COUNTS.

Expertise and experience are the key factors when judging most service professionals. For instance, many of us have learned the hard way that when we need our house painted, it's worth the extra money to hire a painter who is known for their quality work. This is because a cheap painter isn't so cheap when you have to have the job done over. And what about using a cheap plumber who takes shortcuts that result in your bathroom flooding? Once you've had that happen, I guarantee you'll go with an experienced plumber next time, even if they cost more. Most of us learn fairly quickly that hiring cheap service providers is what my mom calls, "penny wise and pound foolish."

If hiring a quality painter or plumber is wise, choosing a qualified professional to handle more important concerns, like your finances and your health, is imperative. An experienced financial planner, who manages your portfolio well, will make you money, whereas a bad one will just cost you money. Do you want the cheapest attorney if you're in legal trouble, or the cheapest dentist doing your root canal? If your child is ill, do you want to go to a pediatrician fresh out of medical school or a more seasoned practitioner, even if they will cost you more?

Most consumers would say to the previous examples, "Of course, I would hire a quality person; these are important issues to me." Yet, often when the public looks for a real estate agent--someone to guide them in purchasing or selling their largest financial asset--their outlook often gets cloudy. That's because our industry has done a terrible job of articulating where our real value lies. We've been so busy trying to compete with emerging technologies in performing the traditional functionary activities (that technology can actually do better) that we have failed to communicate our true value proposition - that of providing experience, judgment, expertise, and guidance to our clients (something that technology can NEVER provide).

The price of real estate's failure to articulate our value proposition has been high: not only has our industry suffered in the increased demand by consumers for agents to work for less (remember, when a consumer perceives a product to be a commodity, they will shop the product by price) but more importantly, the huge financial losses the consumer absorbs when they don't have a professional guiding them who can provide the vital counsel on buying or selling their largest financial asset. It's no coincidence that just a few years ago there was a feeding frenzy of online lenders offering too-good-to-be-true loans with little or no guidance and what we are seeing today: the rash of foreclosures and short sales that have ruined the lives of so many. Those consumers were shopping lenders by price, and there will always be someone who will undercut their services while providing no guidance (usually the newest or greediest).

A few years ago, I penned my Real Estate Internet Warning© that is timelier today than it was when I wrote it:

Despite advertising claims to the contrary, the Internet is not an experienced real estate professional. It cannot consult, counsel, advise, apply knowledge of local real estate laws and market conditions, make judgments, own the result, or most importantly, understand your individual goals and needs and care about you as a client. Furthermore, while the Internet can provide information, it cannot interpret it.

The consumer clearly wants choices. But the choices should be in their being able to choose the quality services they want and need and how they can pay for them, not choosing by price. Most consumers don't know the value that a professional providing expert judgment and guidance can provide. They don't know the difference between gathering data and interpreting what it means. Most simply don't have the background to distinguish between real estate choice and real estate cheap. It's about time that we start telling them.

Time for a Change

2007-07-14T10:47:19Z

Below is a response from one of the ACRE graduates and coach, Judi Bryan, to a post on a list-serv regarding programs that teach fee-for-service type models.

There is a program available which gives the "availability" of fee for services, but goes, I believe, a whole lot further. It's the ACRE® program for Accredited Consultant in Real Estate. Since the program is designed around a "consulting" model where the seller has options with what services they want and how they want to pay for them, and the agent has the opportunity to get compensated for time and expertise, whether a transaction ensues or not, it offers a real win/win. And there is no need to sell a prospect on anything. All it is meant to be is an option...an option that gives us "transparency" in how we are being paid and does not require that the seller take an "all or nothing" package.

]]> I think a very key component of this model is that it gives the agent/consultant a real opportunity to dialogue with the consumer about the "real world" of our business. In the 25 years I've been in this business, there have always been "disconnects" in my mind as to how our business works. For example, how can agents be fully unbiased when evaluating a property for a prospective seller when, what we tell them impacts whether we even have the opportunity to get paid for our knowledge and expertise. We are supposed to be able sell something and simultaneously provide fiduciary level service (even when it conflicts with our own best interest), and, by the way, we won't get paid anything at all until we do sell something and it completes to closing!!!

Many of the agents in our industry who are "successful" are so because they are good at selling. But how many of those people provide the callibre of fiduciary that they are supposed to? And by the same token, how many really great "agents", expert at providing outstanding fiduciary counsel to the client, leave the business because the advice that's in the best interest of the client is NOT advise that will pay their (the agent's) bills. I think that's a huge flaw in the system.

The way I look at it, if companies offered this sort of venue to the consumer, the public, who doesn't really understand our business, would be far less inclined to fall prey to all those online FSBO sites that charge them up the yingyang for an admiinstrative package because the consumer doesn't really understand what they are NOT getting. They would further be less inclined to look to venues like HouseValues, Z, HomeGain, etc., because we, as Realtors®, could fill that gap. Those online businesses were able to get a foothold because, at least in some part, they offered things that we have not! A FSBO, because they don't know what they don't know, believes we charge the huge fees we do because of TASKS.

I must admit, that though I've felt the inadequacies of how our business works, I've not been able to really encapsulate and wrap my brain around a few things until taking the ACRE® course and getting involved in the program. Unlike another programs, this one is designed by Realtors® for Realtors®. So many other courses are headed by writers and speakers but not agents and therefore they don't understand the business like we do.

One of the founders, Mollie Wasserman, wrote a book for the consumer this year entitled Ripping the Roof off Real Estate. (By the way, though the title sounds provocative, I suggest agents get themselves a copy...excellent read, designed for the consumer, and hugely respectful of our industry and the hard working professionals that are in it!), The ACRE® program, and coaching is very much pro-agent, pro our business, pro elevating the public perception of Realtors® as having real value to them.

That's no easy task when we, ourselves, put no value on ourselves! How many free CMAs have you done? How many times have you put a buyer prospect in your car with no retainer, no contract requiring you be paid, how many times have you gone to a prospective seller's home and offered guidance as to what needed to be done to get their home ready for market? And what did you charge for those services? I will tell you that I've done the same thing! Why do we do it? Because we hope they'll pick us. (yes, I know, we pick them, too, but I'm trying to make a point here!) And if we don't value our services...why should anyone else?

And what about all those times when the consumer needs us, but because of specifics of what's going on in their world, but they don't hire us because they don't know we can help...don't know how they can pay us!!!! For example, a couple plans to put their home on the market and begin chatting with neighbors about it, and the neighbor says "I love your house, how much do you want?" I don't know about you, but that's certainly happened to me. What IF that seller knew they could hire an agent JUST to help them write the contract, negotiate for them, and troubleshoot the transaction? And, by the way, so could the neighbor! Each could have representation, which is one of the principle areas where our value lies, and we could have the income from those services. Or how about the FSBO, who needs help but doesn't call an agent because, from a historical perspective, they know that agents want them to fail so they could list their home for our "big fees"? What it, instead, the FSBO could hire us just for those specific areas where they need help...and we could get paid for those services? This could be by the hour...by the task/s...up front, monthly, by commission at the close of the transaction. The difference here is not in pushing a specific option down the throat of the consumer...but in offering them options, and helping them to determine which options work the best for their needs and yours!

And what about the person who feels they're being over assessed by the tax assessor; or the couple going through a divorce where they need an objective market analyses? Now they might hire a fee appraiser....but appraisers don't do what we do! What about the family who's growing and is trying to decide whether to add on their current home or upgrade to a new home? And before you say "but we can do that now?" But the consumer generally, unless they have a longstanding, comfortable relationship with an agent, doesn't know that...and....how would they pay us?

The reality is it is very difficult for us to be totally objective when what we tell them directly impacts whether we enven have the potential for getting paid!!!! If we say "improve", we've just worked for free...and we know it. But guess what....so does the consumer. So more often than not, they don't ask because they know we can't give them totally objective advice!

I hope Mollie will forgive me here, but I'm going to tell one of her stories (I had the privilege of hosting her here in Chicago for a couple of days while she was in town to present her model to local agents and boards). But she gives this terrific example of the "Tale of Two Seafood Shops". Shop A puts in their window and on their shelves only their premium, most expensive, seafoods...say lobster and shrimp. Now they do have other types of seafood, but nobody know it because they keep these other items behind the counter and not on their shelves. A shopper walks up to the counter who wants lobster or shrimp, and the store clerk happily fills their order. Once in a great while, somone might aks if they have any other fish, and the clerk reluctantly pulls out their less expensive fish. They have it....but nobody knows about it. Why do they only market the lobster or shrimp? Shop A is afraid that if the customer knew they had less expensive fish, they'd never buy lobster or shrimp! Worse, Shop A never sees the customers who are in the market for less expensive fish, but not seeing it in the window, keep walking to Shop B.

Now, right down the street is Shop B. In their window they have displayed their wide assortment of fish...each well priced, including an appropriate profit margin. Now when customers walk by the shop they see this great selection of seafood. Customers can get pretty much anything they want there and pay accordingly. Funny thing happens though...often someone will come into the shop planning to buy a less expensive fish, but when they start looking at all the great alternatives, and seeing the differences among them, they decide to upgrade. In addition...the customers who decide on the more expensive seafood feel good about their decision, because they see the difference...they know they are getting good value for their dollar, and, moreover, they know exactly what they are paying for!

Historically, we've only offered the lobster and shrimp, for fear that, if we offered scrod, that's all the consumer would buy. In the process, not only have we lost the income that we would have gotten from all those scrod or perch sales....but many of the people who thought they wanted scrod or perch would have upgraded...if they understood the difference!

One thing I've believed for years now is that our traditional way of doing business, offered to the consumer as basically their only option, is no longer sustainable for the long term. The world has changed ... and there are other changes out in the wings that we haven't yet conceived of! Folks, if we don't adapt and give the consumer what they are looking for, you might as well rename the NAR, the National Association of Realtors® to the NAE ....NATIONAL ASSOCIATION OF EDSELS!!!

Just my opinion...

Judi Bryan
RE/MAX Accord
Bloomingdale, IL
Judi@HomesLady.com

ACRE® attending Inman Real Estate Connect

2007-07-03T11:03:48Z

Mollie, Merv and Paula will attend the Inman News "Real Estate Connect" conference in San Francisco July 30th through August 3rd.

The Inman conferences are the premier networking, information, and technology conferences for the real estate industry.

Executive-level real estate professionals, opinion leaders, technology giants, industry experts, and press gather each year at Connect Conferences to discuss a broad cross-section of traditional and cutting-edge topics critical to the real estate industry, opening the door to a wealth of opportunities for business development, information and idea exchange, discussion and debate.

When will we start listening to the consumer?

2007-07-02T22:45:57Z

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.

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Almost 20 years ago, a Broker I worked with hired a big name trainer to come to our office and teach us how to "sell" people using demanding scripts. We were taught not to give the consumer any information about the house until you get their name, address, mortgage info, blood type, first born child, etc. We were taught to focus on the sale, rather than helping someone, finding what their needs are and getting them where they wanted to be.

I didn't like those tactics back then and I don't now. The consumer doesn't either, so why do we continue to go back to the old, tired "basics", that are so out of touch with today's reality? Nobody likes to feel sold to; they want to be listened to and given help in making an informed decision that makes them feel comfortable and smart. I find it odd that many trainers today are still espousing that agents do things the same way that didn't work all that well years ago. It reminds me of the saying "Lunacy is doing the same thing but expecting different results".

Think about how our world has changed: fifteen years ago, people largely had answering machines so they wouldn't miss a call. Today, people have been so inundated with sales calls that they now have answering machines (and voice mail) to screen their calls. Fifteen years ago, many people still looked forward to getting the day's mail. Today, most consumers sort their mail over the garbage can and anything that isn't personal or a bill is dropped unceremoniously into it. But isn't mailing hundreds of nice printed pieces to a neighborhood of strangers (as well as door knocking, and calling at dinner time) the "basics" we are being coached to go back to? Get back to basics? Really?

Maybe instead of listening to these training "pundits", many of whom haven't practiced real estate in years, if at all, we need to start listening to the consumer. I know that this is a novel thought, but history is replete with examples of businesses, and entire industries that failed to listen to what the consumer wanted and woke up one day to find that they didn't have a business anymore.

We now have the Internet, where over 80% of consumers start their search for a house online. These Internet-savvy consumers want to stay anonymous until they are ready to for an agent. They will NOT give out their name, phone number or email because they know how that game works. What they want is information - plain and simple, and when they are ready to move forward, and the agent has given them what they want, the way the want it, then that agent will be the one that will get their business.

In developing the ACRE™ (Accredited Consultant in Real Estate) Course and Coaching Program, my colleagues and I, collectively, have talked to hundreds of real estate consumers over the last couple of years and it is very clear that today's Internet-empowered consumer has three major needs. NONE are addressed by the "get-back-to-basics" one-size-doesn't fit all service package, payable only by commission. And, interestingly enough, despite what we hear in the popular press, none of these needs revolve around "getting the cheapest deal".

1. CHOICES: Today's consumer is saying loud and clear that they want quality choices in the services they can obtain and how they can pay for them. They are tired of gimmicks - aren't we all? Do you like to be treated that way when you have the need to buy a product? What the consumer today wants is education and clear options that give them real value for their money and address their needs without hyperbole or used car tactics of yesterday. By the way: not all of their needs involve a transaction - sometimes they simply want counsel regarding a move-versus-improve decision, a tax bill that seems to high, or a decision as to whether to refinance. These needs are not met by the one-size-doesn't-fit-all service package, payable only by commission. Think about the millions of dollars that, as an industry, we could have earned over the years had we simply offered some options such as charging a flat fee or an hourly rate for our time.

Yet, most agents still continue to try to force the square peg into round holes. The best case in point: For Sale by Owners. Yes, they have been around forever and we can sit smugly in the knowledge that historically, most end up listing with an agent. But technology is rapidly changing the landscape: on-line portals that compete with the MLS are popping up almost daily, putting the consumer's home in front of the eyeballs of increasing numbers of potential buyers. Using these tools, sellers are already locating buyers without (gulp!) the aid of a real estate professional.

But, wait a minute! Just because they found their own (potential) buyer, does that mean the seller doesn't need professional advice? Hardly - this is when they need us the most! Yet, in this scenario, the consumer is often forced to go it alone, or hire an attorney. (The difference between paying a consultant versus an attorney is important to note. An attorney knows the law BUT they don't know the market like we do, so how, in negotiating a transaction would they know what can be given on and what should be a deal breaker? They also don't typically work nights or weekends if necessary. Buyer's remorse kicks in three nano-seconds later, so it's real important to have someone that can overcome this, and I've never seen an attorney that can do that.)

If an agent could simply charge the consumer a fair hourly rate or flat fee for the time worked, as real estate consultants can do very well if trained correctly, they could earn more income for their knowledge and expertise and the consumer would be far better served. It's a win-win for everyone. Wow - what a novel idea!!

Sometimes a consumer has no desire to play Realtor® and wants full service, but wants to pay for services themselves rather than a contingent commission. Interestingly, the experience of our consultants points to the fact that many consumers, when given choices of what services they can obtain and how they can pay for them, WILL choose a traditional full service package and pay by commission, but they want to choose it because it's the best option, not because it's the only option. Today's Internet-Savvy consumer is looking for choices, truthful, unbiased advice, and education. If we fail to provide that to them, they will not be forced into doing it our way, they will simply seek what they want elsewhere.

2. TRANSPARENCY: The vast majority of consumers appreciate what a good real estate professional brings to the table and have no problem with paying for quality real estate services, if only they could just make sense of what they are paying for. My colleague, Merv Forney, sums it up in one word: transparency. The average consumer has never understood how commissions work because we, as an industry, keep trying to equate commissions with payment for services and time. In reality, paying by commission has nothing to do with compensating an agent for time and services. Commissions are all about mitigating risk. It's time that the real estate industry understands this concept and communicates it to the consumer. Then they can choose whether they want to pay for time and services received or pay a premium to have the risk borne by the agent.

3. OBJECTIVE COUNSEL: The consumer also wants someone they can trust - someone who won't make a recommendation just to make a 'sale'. They will pay for unbiased, trustworthy counsel and they see the value in that.

In her book "Ripping the Roof off Real Estate", my colleague, Mollie Wasserman, makes the statement that "our industry is in the midst of an identity crisis because agents are being asked to fill roles that are in conflict, especially in the mind of the consumer."

As Mollie says: "no matter how it's presented or dressed up, there is an inherent conflict of interest when an agent is expected to act as a fiduciary agent providing objective, unbiased counsel to clients, while at the same time being paid by percentage of the sales price. This unspoken reality, combined with a lack of choices in the real estate services offered and how they can be paid for, is the elephant in the room. The real estate industry knows it's there because the consumer keeps pointing to it, but no one wants to acknowledge it and certainly no one wants to talk about it."

Bottom line? Today's consumer doesn't want to be sold to. Nor do they need to pay a practitioner to provide them information - in the age of the Internet; getting access to data is not the problem. What they desperately need is someone who can make sense of what that data means. And no matter how much we argue to the contrary, the public just doesn't buy that an agent can objectively advise them on their options when the amount of their compensation (or whether they get paid at all) is wholly dependent on the decision that they make that the agent is advising them on.

Bleeding is not good for your business' health!

2007-06-26T20:54:55Z

In real estate today, large numbers of agents are competing for a shrinking market. With unlimited real estate information available online and multitudes of sites competing with, and seeking to replace the agent, the public increasingly looks at the agent (and brokerage), who only offers the traditional full-service package payable only by commission, as a commodity to be shopped by price. Limiting themselves to the traditional commission model, agents and brokerages are indeed swimming in a bloody red ocean of cutthroat competition.

By contrast, real estate consulting, which provides the consumer responsible choices in the services they can obtain and how they can pay for them, while paying the professional fairly for their time, experience, and expertise, creates an "uncontested market space, ripe for growth that makes the competition irrelevant."

]]> While technology and the growth of the Internet provides stiff competition to the traditional model, the sky is the limit when you offer choices such as hourly consulting or a flat fee, while keeping commissions in the mix. The fact is that today's consumer often has needs that just aren't addressed by the traditional full-service model and failure to provide options serves just to send the consumer elsewhere where they will likely get shoddy services and certainly won't get the quality counsel and care that a real estate professional can provide.

But what truly makes real estate consulting a wide open blue ocean is the income that can be earned by assisting consumers that aren't even involved in a transaction (or not yet) such as needing counsel in making the move-versus-improve decision, whether or not to refinance, questions about taxes and assessments. Red oceans? Blue oceans? Read on...

Red Oceans vs. Blue Oceans

In last year's best selling book, "Blue Ocean Strategy", authors Chan Kim and Renee Mauborgne describe how "today's major business successes have come from re-imagining the business at hand." They pointed out how "innovative leaders, who could see beyond the ordinary, have redesigned normal businesses, and even entire industries, because their vision and knowledge prompted them to seek and implement solutions that had not been considered."

I will always be grateful to my friend and colleague Ken Deshaies, who in writing the forward to my book "Ripping the Roof off Real Estate", introduced me to this must-read book. It is the inspiration that gives me the utmost confidence that the real estate industry MUST find new ground to satisfy the changing consumer demands. For those agents, brokers, and owners who are struggling with the declining profits and shrinking margins in today's competitive real estate environment, this book is very instructive. Two companies that the authors study in particular are worth looking at:

Cirque du Soleil: Created in 1984 by a group of street performers, Cirque du Soleil, in less than twenty years achieved a level of revenues that took Ringling Bros. and Barnum & Bailey Circus - the global champion of the circus industry - more than one hundred years to attain. As the authors point out, "what made this rapid growth all the more remarkable is that it was not achieved in an attractive industry, but rather in a declining one." What is particularly instructive about Cirque du Soleil's success was "that it did not win by taking customers from the already shrinking circus industry, which historically catered to children. Instead it appealed to a whole new group of customers: adults and corporate clients prepared to pay a ticket price several times as great that charged by traditional circuses."

Curves: Since franchising began in 1995, the Texas-based women's fitness company has grown like wildfire with total revenues in 2006 exceeding the $1 billion mark. On average, a new Curves opens every four hours somewhere in the world. However, as the authors discuss, what makes their growth really fascinating is that according to the experts, at its inception, "Curves was seen as entering an oversaturated market, yet it exploded demand in the U.S. fitness industry, unlocking a huge untapped market, a veritable "blue ocean" of women struggling and failing to keep in shape through sound fitness." Curves simply responded to what the consumer was asking for, which clearly was not being offered by traditional gyms.

The authors lay out the basic premise of the book as follows: "Imagine a market universe composed of two sorts of oceans: red oceans and blue oceans. In red oceans, companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, prospects for profits and growth are reduced. Products (and services) become commodities, and cutthroat competition turns the red ocean bloody. Blue oceans, by contrast, are defined by untapped market space, and the opportunity for highly profitable growth. Most blue oceans are created within red oceans by expanding industry's boundaries, as Cirque du Soleil did."

The authors challenge companies to "create uncontested market space, ripe for growth that makes the competition irrelevant. Companies caught in the bloody red ocean follow the conventional approach, fighting to beat the competition within the existing order by dividing up existing - and often shrinking - demand. Blue ocean strategy on the other hand, is about growing demand and breaking away from the competition by creating a leap in value for buyers of their services in wide open blue oceans."

In his forward, Ken referred to consulting as real estate's "blue ocean strategy". In today's struggling real estate industry, with unprecedented online competition and the commission system under attack as it has never been, consulting is a wide open blue ocean, just waiting to be tapped.

Pay for leads? What you need to know...

2007-06-17T18:48:31Z

In a recent article, the founder of a leading online real estate referral site, tried to make the case to beleaguered real estate agents that buying leads is good for their business and intimated that failure to buy these leads from third party companies (such as theirs) is to miss out on business.

First, let's start with the basic premise - I agree with them that there is a cost of obtaining business. Whether you do old-fashioned farming, mailings, phone calls, or put your resources into your client base and get your business from referrals, business has to come from somewhere and it has a monetary cost.

]]> Capturing online business costs money too, in the form of hosting fees, time spent uploading properties, paying for virtual tours, buying the newest gadget for virtual tours, responding via your cell phone to inquiries - your time cost plus the cost of the cell service, search engine optimization, assistants, taxes, and a myriad of overhead costs, whether you buy leads from these companies or promote your own web site and put your money into search engine optimization (SEO) either way, there is a cost. The bad news is that 3rd party lead generators espouse the fact that their agents are 'elite, experienced, etc' when in fact anyone who gives them a credit card can join their club. What the public doesn't know is that once you get a middle man involved in the process, that low fee, best price they hoped for goes out the window, because someone has to pay these fees to them.

Unfortunately SEO has shown to have greatly diminishing returns over the last few years as the big third-party companies with the deep pockets, compete directly against individual agents for the online consumer. That directly affects the consumer as they are led to believe if they pick a certain company to hire an agent that it costs them nothing, they get the cream of the crop, and they don't have to do the interviewing process. Nothing could be further from the truth.

So, as much as I wish we could go back to the good old days of promoting our own online presence where the consumer could go directly to the real estate professional (who could actually help them - imagine that!), the reality is that these third party companies are probably here to stay, in one form or another because they have the big bucks to reach out to the consumer and make them falsely think they need them to help in the real estate process when all much of them do is just get in the middle and add fees to the agent and the consumers pocketbooks.

The biggest concern I have, and the message I would like to impart to these lead companies and the consumer is this: Be truthful to both parties and make sure you are offering a real added value, otherwise, new players such as the rising real estate blogosphere, will ensure the eventual demise of any "middle-man" entities that don't add value to the transaction, whether it's lead generating companies, or real estate agents that perform strictly functionary activities that are increasingly being replaced by technology. ie: MLS-only companies that for a fee will list your property, but not help you negotiate against the agent who does it for a living - more on that sore topic later!

So, let's do a little real estate 101 for the consumer and the 3rd party lead generators:

AS REGARDS THE AGENT:

Give The Agent The Whole Cost. This article made a financial argument using the figure of $50 per lead to justify why it made financial sense for the agent to buy leads. Of course, when you go to their site you see that it is, in fact, $50 PLUS $50 per month membership fee. So, why not be truthful in the beginning? This "not telling the whole story" is one of the reasons that agents are so resistant to the pitch of third party companies. It's bad business, nobody likes being mislead for the 'sake of the sale'.

Don't Kill the Goose That Lays The Golden Egg. When these companies started a few years back, they were charging 15-20% of the agent's commission on average. (Some like the aforementioned company do a membership fee and per fee charge). Then, they went up. And up. Some, are now charging as much as 30% PLUS a $30 per month charge. In an environment where commissions are going down, housing prices are dropping, agent expenses are increasing these third party companies have to realize that every time they raise their costs, they lose the better agents who have more ability to generate their own business and will back out of buying leads if the cost is too high. Companies are then left with the "newbie's" who have a difficult time closing a deal. And what is 30% of 0? Does that benefit the consumer? I don't know about you, but I don't want to trust the biggest asset I own to the hands of a novice who paid $50 for my information.

AS REGARDS THE CONSUMER:

The Quality of the Agent: When I hear these ads touting to the consumer that when they use one of "their" agents, they get a high quality, seasoned professional, I roll my eyes. In fact, what the consumer is getting in the vast majority of cases, is anyone with a real estate license who can fog up a mirror and is willing to give them a credit card.

Stop the Bait and Switch: Many of these sites hook consumers by offering a free market analysis (CMA). Often consumers think that this CMA is computer generated and that is what they think they are signing up for. Companies then sell these "leads" to agents and then consumers are genuinely taken aback when they are contacted by an agent (or agents). If the CMA's are coming from agents that are doing them for free in hopes of getting the consumer's real estate business, level with the consumer on the site. Don't make the agent pay for the privilege of being treated poorly by a consumer who didn't know they would be contacted. Oh, and when you run those ads on the internet and on TV, don't be afraid to tell them an agent is going to help them, don't put it in microscopic print so they don't notice. That serves no purpose at all because the consumer is mad, the agent is mislead, and in the end YOU lose both of our business.

Don't make the agent into a commodity to be shopped by price: A certain online lending company has the slogan "When lenders compete, you win", sending the message that in shopping for lenders, cheaper is better. I know a lot about mortgages, closing costs, junk fees and I could shop for you, but the majority of consumers don't know enough about how the lending institution really works to do a good job on their own.

Many online lead companies send out the same message about real estate agents. Many in fact, give the lead to several agents; have them take time to do a proposal, with the consumer in the mind-set to pick the cheapest commission. In fact, because the agent is already handing out 25-30% of their commission to the lead company, the consumer has lost any ability to negotiate commissions with the agent - the agent is tapped out. Most consumers have no idea that by using the agent through an online lead generator that the agent is paying for them as a "lead". Additionally, most consumers don't understand that agents usually make them more even after paying a fee than they can make on their own, plus agents do the work they do best, market, negotiate, advocate and get your house sold. Now who do you want to use to do that for you? The agent who can't even negotiate their own fee? The newbie who will charge so little they have no margin to market your property? What is most important? What you pay the agent, or what you end up with at closing in your pocket?

As technology continues its march, lead generation companies need to provide a true benefit to both consumer and real estate professional, and add real value if they are to be profitable and survive.

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

2007-06-08T12:00:25Z

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."

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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.

Consulting and Limited Service

2007-05-26T16:34:24Z

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!"

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This ACRE® Grad voiced a real concern that a lot of our ACRE™'s have when their colleagues talk about them doing "limited service". They wonder if maybe their clients are thinking the same thing, in fact their real concern can be expressed as this: "Is consulting limited service?".

I think the answer to that question is that Consulting in some cases CAN be limited service and there is nothing wrong with that, in and of itself. The problem is that the term "Limited Service" has gotten a bad name from MLS Entry Only which throws someone in the MLS (a functionary task where someone pays big bucks for 15 minutes of typing), but often leaves them without vital fiduciary counsel. It usually makes the consumer feel used when all is said and done.

In a way, one could compare the practice to prostitution. Think about it: a woman sells her body because that is what is "marketable" when her real value (and the value of all humans) lies in her mind and personality - the person she is. The "john" spends a lot of money to "have" her, but all he really got for his money was the facade - her body is not who she is.

When sellers spend a few hundred dollars to be listed in the MLS, they are led to believe that they are getting the benefits of the MLS for a fraction of the price. Most of the time they are disappointed because the fiduciary representation and care is where the value of having an agent is - not the entry itself. Agents know this, which is why most cringe at the idea of "limited service" because they equate it to be MLS Entry only.

But limited service, in and of itself, is not a bad thing because sometimes that is what the consumer needs. I call it CHOICE. Sometimes a seller finds their own buyer - and I think that as matchmaking services on sites such as Google Base, Craig's List, and Yahoo contintue to proliferate - that this will happen more and more. The seller doesn't NEED a full service package - they NEED help in negotiating and troubleshooting, in other words, the vital contract to close counsel and care.

Our industry's refusal to provide this "limited service" does not shut down this need. It simply throws these sellers into the arms of attorneys (who can't do this as well as we can and often charge twice as much) or leaves them without any help (which causes them to lose a lot of money).Sometimes a seller wants to do their own feature sheets or digital photography - should this mean that they have to do without an agent's negotiating and troubleshooting skills?

Homeowners have to make remodeling decisions which cries out for the knowledge that a real estate pro can offer. A few hundred dollars spent for a couple of hours of consulting would be money well spent to ensure they were making the right decisions. Does the industy's refusal to provide this "limited service" take away this need? No, but the consumer loses because they often put their money in the wrong places and it shows up a few years later when they go to sell.

Unassisted buyers often fall in love with a FSBO (For Sale By Owner) and would be glad to pay a professional for a few hours of help in negotiating an offer and making sure everything is in place so they don't lose their deposit or the house. And wouldn't the FSBO be happy to have that fee included in the transaction, especially since it would be a much more reasonable cost than the standard co-broke? Who loses when we don't offer this "limited service"? The buyer does, the FSBO often does, and the real estate industry does. I maintain that we have lost untold amounts of money over the years because we don't offer choices.

The real estate industry by in large thinks that if we don't "give in", that people will be forced into a full package, paid by commission. I'm sorry - those days are over. In the Internet world, there are a growing number of alternatives. The alternatives may not be near as good as a real estate professional but our refusal to address these needs only sends the public to others.

The heart of consulting is listening to the consumer's needs and then presenting alternatives. Each alternative has it's plusses and minuses. If you have set up your hourly rate and fees correctly, it will not matter to you what they choose, you win because they are choosing you because you give them the best thing in the world - responsible transparent CHOICES.

Restraint of trade or consumer protection?

2007-05-15T11:32:48Z

My colleague and good friend Allyson Hoffman, like many of us, was dismayed by the incredible slant and half-truths that filled this past Sunday's 60 minutes segment Chipping Away At Realtors' Six Percent. But, in her blog, she focused on something that I also believe needs some clarification - the issue of the minimum service requirements that some states, including Ally's home state of Illinois, require. There was so much misinformation and lack of full reporting in this story that I could easily blog on different aspects for weeks, but like Ally, I would like to focus on the concept of minimum service requirements.

]]> "the piece mentioned that the State of Illinois is one of the states that has imposed a law making it harder for discount brokerages to offer their discounts. In fact, this is absolutely true. The implication was that full service brokerage firms are conspiring to undermine the discounters. It is unfortunate that this one-sided discussion failed to mention why the law was enacted in the first place.

This law, which obviously affects all homeowners and property owners in the Chicago metro area, the Northern Illinois real estate community , as well as buyers and sellers of homes in Chicago's North Shore and Northwest Suburban areas, might lead one to conclude that it was designed to limit consumer options. In fact, this law actually resulted from consumer complaints to the Illinois licensing authority, the Illinois Department of Financial and Professional Regulation (www.idfpr.com)." Read Ally's full story.

As I said in my book Ripping the Roof off Real Estate, "there are reasons that many states have established minimum service standards in Real Estate. This is not restraint of trade as the press would have you believe. On the contrary, this is consumer protection."

As Blanche Evans, Editor of Realty Times said in her article Are Minimum Service Rules a Disservice to Consumers? "It's the nature of consumers to try to "beat the system" until costs have dropped to the point where the consumer is endangered. But it's not the nature of consumerism to look down the road and envision the end result of their downward pressure on fees. For instance, they don't see the day when air travel becomes unsafe because ticket prices have dropped so low that maintenance is cut or deferred."

By the way, Blanche wrote a great article yesterday on the 60 minutes piece. Read Blanche's full story.

As many half-truths as were evident in the 60 minutes story, the one statement I agreed with was from Glenn Kelman, the president and CEO of the discount firm Redfin, when he said "Real estate, by far, is the most screwed up industry in America." But the answer is NOT discounters like Redfin that give the consumer the idea that buying or selling your home is no more difficult, or has no more downside if you get it wrong, then buying or selling some old belongings on eBay.

We know without a doubt that consumers statistically do better when they have the assistance of a real estate professional. I have always told consumers "It's not what you save, it's what you net" for a reason: in the quest to save on a commission, most consumers, going the discount route, lose far more than what they save when they walk away from the closing table. A home is, for most people, their largest asset and just because do-it-yourself sites proliferate, it doesn't mean that going it totally alone is smart. There are plenty of medical web sites out there - it doesn't mean that after reading them that I'm qualified to perform my own surgery. And if I have a complicated tax situation, it's false economy to save money by doing them myself when I lose far more because of what I don't know.

As readers to this blog know, I believe the answer is using the services of an Accredited Consultant in Real Estate ™ (ACRE). By doing so, the consumer can harnass the power of the Internet and use technology to do functionary tasks themselves (taking digital pictures, printing flyers) while leaving the vital fiduciary role (pricing,negotiating,and troubleshooting the transaction to close) to that of a professional who does it for a living. I make no bones about it: the traditional real estate industry has brought much of the proliferation of discounters on themselves by sticking to the sales model payable only by commission without offering quality choices that provide the consumer real value for their money.

I've said it before, I'll say it again: we need a middle ground. The business of real estate has changed incredibly over the last hundred years, but the sales model and practice has not. There are many of us who think it's time it did.

Consulting is more than a fee schedule

2007-05-03T17:21:12Z

If the only thing we change about our business is implementing a different way to charge clients for real estate and real estate related services we have missed the point. You just become another real estate agent with a different business model. So, lets take a look at what "consulting" and "consultant" really means:

]]> CONSULTING:
From Wikipedia: A consultant is a professional that provides expert advice in a particular domain or area of expertise such as accountancy, information technology, the law, human resources, marketing, medicine, finance or more esoteric areas of knowledge. Also, consultant, from the Latin consult, meaning "to discuss" from which we also derive words such as consul and counsel. (Merv says: insert real estate or any other field of expertise in this definition.)

From Webster: Employed or involved in giving professional advice to the public.

CONSULTANT
From Wikipedia: Often a consultant provides expertise to clients who require a particular type of knowledge or service for a specific period of time, thus providing an economy to the client.

From Webster: One who gives professional advice or services.

OK, enough of that. Here are the key words I like to focus on: professional, expert, knowledge, counsel and advice.

Before deciding to start my real estate business three years ago, I concluded after extensive research that I didn't want to be like over a million other agents competing for the same clients. I needed to differentiate myself as more knowledgeable, more professional, and providing a more business like approach to the local industry. This meant to me being a cut above everyone around me: the way I looked, the way I talked, what I said, the presentation materials (and technology) I use for clients and, most importantly, having real data, knowledge and/or experience to backup my opinions, counsel and advice. This approach is no different than the highest paid corporate business consultants. They exude confidence and are comfortable with their knowledge (and ability to get it).

Was I professional? Yes. It was how I spent an entire career consulting and providing technology services to clients across the US. I literally create a very corporate business proposal for every potential real estate client that I interview.
Was I an expert (in real estate)? Obviously not. But, I was confident in my general business skills to look at real estate as just another business with a different set of rules.
Did I have the knowledge? Yes, Very detailed from a business standpoint and able to get specific real estate knowledge when I needed it. I always had more data on a listing appointment than any of my competitors, including agents from my own office. I rarely lose.
Was I able to give counsel and advice? I was, by being confident that if I didn't know something, I could go find out. And, feeling comfortable telling a client those exact words. I also was able to state that our office with over 40 agents had over 400 years combined experience and are a tremendous resource to us. No problem was too difficult to solve.

Potential clients may be attracted to me because of a website that is different and the fact I advertise a different way of doing business but, they hire me because of my professionalism; the way I approached their potential business NOT just because of my fees.

I truly believe that when you can differentiate yourself from the crowd as a true professional consultant and can articulate the value you bring to a client, your fees become of secondary importance. Don't get me wrong, you have to have a compensation system or schedule of fees but that is not the focus. I am a mere babe in the woods when it comes to real estate experience compared to all of you. You must take your experience, knowledge and wisdom and package it so that you stand out. Be different without giving up who you are. Most importantly, your clients need to recognize your difference and the value you bring above all others.

The proof is in the pudding (where the heck did that phrase come from? Try http://ask.yahoo.com/20020903.html)
The first two full years in business, we generated six figure gross incomes each year from our "consulting" approach.

This is a different perspective on consulting and one that I believe is extremely important to become a successful "consultant." I am happy to take questions and value your comments and feedback.

Oh, I can't resist providing one more definition.

PROFESSIONAL
From Wikipedia: Professionals usually have autonomy in the workplace - they are expected to utilize their independent judgment and professional ethics in carrying out their responsibilities. Typically a professional provides a service in exchange for payment, in accordance with established protocols for licensing, ethics, procedures, standards of service and training / certification.

If we are going to affect much needed change in our industry, becoming a professional consultant is the first step.