Recently in Now you have choices Category

Alternative compensation real estate agreements give both home buyers and their buyer's agents greater financial benefits over more traditional commission-based sales models by reducing home purchase costs and increasing the percentage of hours that agents get paid for their time and expertise.

It has been two and a half years since I put in the Electric Fence around my property to keep my Golden Retriever, Cabo within our property boundaries.  The device works by first alerting him that he is getting close to the boundary line by softly beeping in his ear, as he gets closer to the line, it'll beep stronger and if he's really "Golden Retrieverish" it'll give him a shock should he decide to cross the line.  It works like magic!  In the time that we've had it, he crossed it only during the training sessions and has come to understand the beauty of the beep.

What happens when a Realtor wants to pay her Gynecologist the same way he wants to pay the Realtor? This humorous parody looks at the relationship between Doctor and Patient, Realtor and Client!

Enjoy, and PLEASE leave me a comment.

 

 

Alternative Compensation Models: Quick Math

by Glenn Freezman

A large part of what I think about every day is how our industry can create new models that are fair to both home buyers and the agents who serve them. For me, alternative compensation models are creating a doorway that allow agents to do a better and more fair job of representing their home buying clients while still getting paid in a manner that is respectful of their professional status and the hard work that they do.

I had a chance to catch up with an old friend of mine earlier this week and he shared with me a story of the challenges that he and his wife are having finding a new house. It's probably worth mentioning that he has been trying to sell his current home for over 5 years and was almost genuinely shocked when an offer was made on the property a few weeks ago.

So now he and his wife are on the prowl looking for a new home and he reports that he's had more fun getting a root canal. Never mind that the stress of looking for just the right home in the right place has he and his wife a bit stressed out but on top of it his wife has hired her best friend to be their Realtor for the deal.

The newly released National Association of Realtors Member Profile report (covering 2010) indicates that things in the real estate sector are improving (at least over 2009 numbers). According to the profile, the average agent had eight transactions (covering residential and commercial properties) during 2010. While it's doubtful anybody is feeling celebratory over moving less than one property per month on average, what makes this number even harder to get excited about is that the average agent also claims to have put in full 40 hour weeks during 2010 as well (and I suspect the real number is closer to 60 hours per week for many agents).

By: Glenn Freezman
Nucazza, LLP

I'm not sure if you've noticed or not, but during the past decade how consumers behave has changed dramatically.

The rise of the Internet has meant that consumers no longer play a passive role in acquiring information to help them make decisions but instead are on the front lines and fully active when it comes to finding better deals on everything from buying a bar of soap all the way up to a new car.

As I was sitting outside this morning sipping my coffee and watching the sun climb over the horizon, I looked down and saw a curved stick on the ground that reminded me of a boomerang. Suddenly I was caught up in memories of me as a kid playing for hours on end in my grandfather's backyard with a small wooden boomerang he had given to me as a gift.

Remember when you were a kid, how fascinated you were with boomerangs? At least I was. You take this flat, curved piece of wood and throw it and then watch in amazement as it curves around in the air and comes right back to you.

A few years back in an article in RIS Magazine, Brian Buffini, founder and chairman of Buffini & Company, made a very interesting observation: although 80-90% of real estate buyers start their home search online, almost none would actually go to the next step and click “Add to Shopping Cart.”

Online technology gives the consumer a running start. But to cross the finish line, they need a flesh-and-blood Realtor® who knows the local market and the ins and outs of bringing the transaction to close.

The problem is that traditional real estate companies and associations are still telling the public that if they want the hands-on personal care that Buffini advocates, the full-service commission-only model is the only option. Those who want to take advantage of the do-it-yourself opportunities (and cost savings) OR who do want full service, but just don’t like paying by commission—are turned away.

How much does the 'price of doing business' affect how much you spend on your next home? Probably more than you think! Can you get MORE HOME FOR LESS MONEY

You remember those reasoning problems you used to work on in school? Here's one for you to tackle:

Let's say that you're looking to buy a new car. After doing research and checking the buying guides you finally settle on a model that is just perfect for you. You head on down to the local dealership for a test drive and when you get there, one of the salesmen agrees to show you the car and let you take it for a spin. After returning from your drive you make the decision to buy the car and start to negotiate the price of the car with the salesman. While the car is listed at $20,000 the salesman tells you that he needs to add an additional $5,000 to the final price to cover his time working with you. After all, if it hadn't been for him, you wouldn't have been able to test drive the car, now would you?

So here's the question: How long would it take you to walk out of the dealership?

The Value, The experience and The knowledge that Realtors bring to the table shouldn't be discounted. During the past decade, more and more prospective home buyers have started taking advantage of the information and tools that are available to them on the Internet -and why not? The abundance of sites and information that allows home buyers to thoroughly do their homework before even stepping into a home on the market is tremendous For example, prospective buyers can now virtually tour dozens of homes by looking through photo slide shows, virtual walk-throughs and tools like Google maps, which allows buyers to virtually wander through the neighborhoods or view entire neighborhoods. Overall, it's a pretty easy way of getting the skinny on any house on the market before you decide to go and see it for yourself.

From a buyer's perspective, this access to all of this information and capability often questions the value of paying a Realtor for these services if you can do them yourself. After all, why should they end up paying a Realtor® a high commission when they can do most of the legwork themselves?

From the buyers standpoint this value equation seems to makes sense. However, from the standpoint of what buyer's agent actually does that leads up to the closing, it's a great deal more than being an on-demand tour guide for people looking for a home.

ACRE® Ron Stuart posted the following on our members-only Coaching Exchange. I wanted to share it with others:

Here's an actual email received from my website www.halifaxrealestatechoices.com (name changed and identifying info obscured).

Hi there, I am a first time home buyer and close to entering into a private sale agreement with a friend. He is selling a town house on ********* Court, near ******* Ravine Park. Since all of the homes on his street are identical, I am interested in meeting with a realtor to discuss what similar homes are selling for so I can determine if the price he is asking is reasonable. I think that it likely is, but I would like to speak to a professional before entering into an agreement. I was just wondering how much it would cost to meet with you for a consultation? This sale is quite time sensitive since he plans on listing with a realtor very soon if I don't buy. I can be reached any time at 902-880-****. Thanks! Peter.

How do you think most agents would respond to this?

Our roundtable panelists today are Ron Stuart, Merv Forney, Mollie Wasserman and Brent Fraizer, and the moderator is Mary Pope-Handy.

Mary: Do you do an "initial consultation" prior to showing homes? What is involved in your first appointment?

Brent: Yes, I do an initial consultation prior to working with a buyer. It is the same process for ANY potential client. A needs analysis is performed 1st, a service proposal is prepared along with a customized Smart Plan. All of this is reviewed during the initial consultation.

Mollie: If a buyer is not willing to sit down for an initial consultation, I won't work with them. To me it's like asking a doctor to prescribe medication without an office visit. I'm a consultant, not a tour guide.

Ron: Yes, I do not take on a Buyer client without a qualifying interview. Even before consulting days I insisted on at least an hour with the Buyer before looking at properties. First, I make two points with them. One, this isn't about selling you anything; it's about helping you buy wisely. Secondly, part of representing you is to treat our business together in strictest confidence.

I then tell them we have two main areas to cover: (a) my gaining a thorough understanding of their needs, wants, likes, dislikes, financial capacity, timing, etc. and (b) making sure they have a good understanding of the process including such things as agency, financing, closing costs, sourcing and showing properties, contracting and how I can be paid.

Merv: Absolutely. I do an intense initial appointment to make sure that they are serious buyers.

There was a post this week on Active Rain from an agent explaining how when asked, he will not cut his commissions. By weeks end, there were nearly 200 comments to his post, some agents cheering him on for his stand, others arguing the opposite, some comments from lenders, appraisers, and home inspectors arguing for and against.

But of the 200 some odd comments on the subject of cutting commissions, only two brought up the idea that maybe there is a choice other than cutting or not cutting commissions - from ACRE® Ron Stuart and myself.

Here's what I said:

The problem with discussing commissions as payment for services is that the consumer doesn't buy the reasoning. If it's a million dollar home, can you honestly say that you do four times as much work as you do on a $250k listing? We, in the industry defend it because what we make on an expensive listing makes up for all of the work we do with homes that don't sell and buyers that don't buy. While that makes perfect sense from our vantage point, you can't blame the seller for saying "What's in this for me? Why am I subsidizing the deals that don't close?"

This is the first in a series of "round table" interviews with experienced ACRE® agents on their real estate consulting practice, led by our Times Community editor, Mary Pope-Handy.

Today's interview is with Ron Stuart, Laurie Furem, Mollie Wasserman, Merv Forney and Paula Bean, regarding how home sellers pay for professional real estate help in the marketing & sale of their home.

As an Accredited Consultant in Real Estate, you counsel clients rather than sell to them, and you provide a variety of ways in which you can assist clients in reaching their goals (and a variety of compensation models too).

The question I have for you is this: how frequently do your consulting clients end up with a traditional type of commission arrangement for selling a home as opposed to paying a flat fee, fee for service or an hourly rate?

Ron: Rarely
Merv: About 50/50
Paula: Not often with a "regular sale"
Laurie: It's mixed...
Mollie: My experience was like Laurie's

Let's dig a little deeper. It sounds like in many cases; clients opt for something other than hiring with a commission compensation plan.

Can you fill us in on that a little more?

We're having a great discussion on our private ACRE list serve, The Coaching Exchange, about consulting. It's clear from the discussion that there is still a lot of confusion about the role that a trained consultant performs and how they are paid for their services.

As we've said many times, consulting is not about a fee schedule! Consulting is a practice that provides quality, transparent choices with commission being just one of the choices offered. You can do 100% of your business by commission and yet practice as a consultant because you have the tools in your toolbox to offer other choices, both in the services you offer and how you can get paid. Providing choices is a wonderful thing - it brings you the business regardless of how they ultimately pay.

An ACRE® can offer you both the traditional system of real estate services by commission as well a variety of other compensation models, so the most obvious answer to 'when' is always.  It's always ideal to work with an ACRE® as your real estate professional because with an ACRE® you'll have far more choices in how to receive the services you want and need!

To elaborate on the 'why', an Accredited Consultant in Real Estate (ACRE®) can offer some more cost effective solutions as you only pay for what you need, and ACRE®s understand that real estate is not a "one size fits all" business. It's like going to a car dealership to buy a new car, but if all they had were red sedans of the same make and model, you'd go to another dealership where they had more choices, right?

Sometimes you need to get some real estate help, you know it is going to take some time and effort for the real estate agent to do the job, and you'd actually feel better about it if you could simply pay for the service. Often, though, realty professionals are only paid by commission.  You can ask one to do you the "favor" but in turn your business (or referrals) will be expected down the road.  Not what you had in mind?  Time to find an ACRE, who will consult with you on your special project, charge you appropriately, and there will be no lingering sense of obligation for a favor done.

Every seller is a "For Sale by Owner." Every buyer is a "do it yourselfer." It is simply a matter of how much of the work in a real estate transaction is contracted to a real estate professional. From none to the entire transaction. Or in industry speak, from the stereotypical FSBO for a seller to a "full service" listing.

WHY CAN'T THE CONSUMER HAVE BOTH?

In a recent article in RIS Magazine, Brian Buffini, founder and chairman of Buffini & Company made a very interesting observation: despite the fact that 80-90% of real estate buyers start their home search online, how many, when browsing homes online and finding one that they like, would actually go to the next step and click "Add to Shopping Cart?"

In real estate, quality is essential for keeping the most money in your pocket when you ultimately close. But should that mean that you are locked into paying by commission in order to get that quality? I believe the answer should be no.

Of course, after you have explored and weighed different options, based on your individual needs and comfort level, you may find, as many consumers do, that a traditional commission is the best choice for you. And that's perfectly fine. But you should make that choice because it's the BEST option, not because it's the ONLY option.