The Consulting Times Times Community Blog

ACRE® is an Email Marketing All Star

2010-03-08T11:23:38Z

We're very excited to share that ACRE® has just been named a Constant Contact Email Marketing All Star for 2009.

This designation is awarded for regularity in email communications, strictly adhering to permission-based contact, and providing engaging content that our audience is eager to receive, open, and read.

While we knew that Hot off the Wire and The ACRE® Alert were popular (our open rates are double what Constant Contact considers "good"), we are thrilled to have our efforts recognized by Constant Contact, the leader in permission-based marketing.

Here's looking to further growth, enthusiasm and participation in 2010.

Should you have a real estate license to become an ACRE?

2010-02-20T14:49:03Z

Should one have a real estate license in order to become an ACRE® ?

PT - Ontario

How Home Sellers Pay for Professional Real Estate Help in the Marketing and Sale of their Home

2010-02-18T16:36:26Z

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?

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Laurie: Sure. Consumers like the idea of consulting in theory, however, more often than not opt for a full commission as well.

It seems like your clients appreciate the options.

Laurie: They do. In the recent past, I have been working almost primarily on a referral basis and I am finding that my past clients and sphere of influence folks are much more willing to want to work with me on an hourly consultant basis for the preliminaries but will still opt to go the full commission route when listing.

While they're getting their toes wet, they want to work hourly, but when it's time to list and sell their home, they convert to a commission structure. Interesting - thanks! Everyone else?

Mollie: I had a lot of takers for hourly for instance when the consumer was not looking to do a traditional buy or sell transaction. Perhaps they didn't know whether they were ready to buy or sell or needed general counsel. When it boiled down to the fact that they definitely wanted to buy or sell, 90% of my clients chose a traditional commission.
Ron: I can only think of one or two clients in five years or so of consulting practice which has opted for commission after having the consulting model explained to them. One didn't want to put any money on the line (I always get a retainer or deposit on signing) and the other was being reimbursed by her government employer and all that employer could handle was commission.

Thanks - that's an interesting insight, especially now, with our rocky economy and many homeowners underwater or otherwise experiencing financial challenges. It would be good to see how the whole issue of distressed sales impacts the way consumers choose.

Paula: I can speak to that. When I do "regular sales" - not short sales or bank owned homes - often my sellers want to work together with me in ways other than strictly commission basis. But right now in Florida, it's almost all REOs (bank owned properties) or short sales. The banks can't handle anything unusual, so with them it's all commission.
Merv: I've seen that too. In my experience, most taking the commission approach did not want to or did not have the funds to pay for services when they were provided.

The whole angle of "saving money" can be seen on both sides of the equation, then. Consulting really is about offering choices! I imagine that no matter which way the consumer goes with this, the fact that choices are offered makes a big impression.

Mollie: I think that was huge: because I offered choices, they went with me, rather than someone else because of the transparency of the consulting approach.
Laurie: Agreed - my clients truly appreciated and valued the transparency that I brought to a listing presentation.
Ron: My consulting clients have the option of hiring me for just the essential, effective deliverable absent the "fluff and other nonsense" included in typical commission remuneration. Most agents don't provide this option.

Clients in distressed property situations may not feel that they can opt to pay a flat fee or a fee for services. They may feel that the only way that will work for them is to hire someone based on commission, so that the fee is only paid if the home sells and closes. What kind of clients prefer the non-commission options, besides those who are not in trouble with their mortgages?

Merv: Generally the younger, professional, upwardly mobile, internet centric clients.
Ron: Most of my clients!
Paula: Everyone else!

Thanks to our participants for their insights and experience. There are four primary take aways:

1. Offering guidance based on experience as opposed to "selling" oneself,

2. Transparency is key to the conversations with potential clients,

3. Clients appreciate having options or choices and

4. In many cases, the traditional commission approach was agreed upon.

So, candid guidance, transparency, choice and flexibility in payment options are the primary keys to their success!

If our readers have comments, questions or other experiences, we encourage you to add your comments and/or "join our community" to participate.

Differentiating Between a Role and a Payment Method

2010-02-16T15:06:03Z

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.

]]> Coach Merv Forney said it very well:

"Let's be sure we differentiate role vs payment method. Our role as a consultant has nothing to do with how we get paid. The traditional real estate agent role is a sales person. In fact, in Virginia we are licensed as real estate sales person.

The role of a consultant puts the client's objective in full focus without regard to our self (financial) interest. We provide guidance and back it up with documented evidence. Our guidance may, in fact, result in no business with the client at all.

A sales person could certainly offer choices in payment method and many real estate firms do but they still function in a sales role. Consultants can also offer choices in payment methods.

Conducting oneself as a consultant AND offering transparent choice in services provided and the cost associated with those services sets us apart."

When is the best time to buy or sell??? ARE we at the bottom?

2010-02-15T20:12:54Z

I get this question asked ALL of the time from my past and future clients. So here I will share with you my 30 years of wisdom on this topic.

I started in real estate in 1979, with the great S & L bailout, mortgage rates in the double digit figures, no MLS, no internet, no company training, lol...what WAS I THINKING??!! To make the matter worse, I was 21 but looked like I was about 15 (ahhh, wish those days were back!). So, I quickly learned that if I was going to 'make it' in this cut throat business, I needed a leg up on all the other experienced agents.

After getting my real estate license, I got my mortgage brokers license because that was in the day that mortgage officers only worked Mon - Fri, 9-5. I wanted to know evenings and weekends how to prequalify a buyer.

Next I went on to take appraisal classes in order to accurately assess a property value. Then, I went to hang out with a Title Company office, so I could fully assess what happens from start to finish in a real estate transaction. I also tagged along with a home inspector, termite inspector and I took as many classes as I could on negotiations, contracts, law.

SO drumroll please ;-) ...... Here is what I've learned in 30 years and will share with you about the BEST time to buy or sell a house. let's start with the best time to buy.

]]> NOW! if you have found the house of your dreams, with a payment you can afford, then buy the house!! I know, I know... what about waiting for the bottom? A better interest rate?? LOL... even REALTORS are not able to tell you when that is!

There is no real estate crystal ball to give you a 100% answer to this question. ! If there WERE then there would be a lot of rich people out there with more money than Bill Gates and Warren Buffet combined and multiplied by a gazillion BILLION, MILLION.

Stop waiting for the best rate, the bottom to drop, if you find a house you love, you can afford, THAT is the best time to buy.

WHEN IS THE BEST TIME TO SELL?

THIS is a little trickier, as it depends on your unique circumstances. Are you in foreclosure? Divorce? Estate sale? Moving up, down, or relocating?

Depending on the above circumstances, the best time to sell is when you can get the fastest transaction, at the best terms within your circumstances. Most people make the mistake of not taking the first offer, or counter offering a perfectly good offer. After 30 years years I can tell you that this is a huge mistake.

Why you may ask? Because most people who are selling want the most money, right? OF COURSE, we all want the most money, but the problem is that most people think think the highest price will get them the most money. FALSE

Alas, PRICE is only ONE part of the equation.... stay with me here because I'm going to give you the big secret why that isn't true.

The reason is due to holding costs and carrying costs. Holding costs are your mortgage payment (look up how much goes to principal reduction vs interest, ahhh, what is it? Depending on how long you've owned the house, or if you've done a refi, the paydown on your mortage could be as small as $20. a month. Then you also have real estate taxes, homeowners insurance, PMI perhaps if you did not put down 20% and HOA fees if you have that.

Now add all of that up, subtract the payoff and see where you are. If your mortgage payment is around $2k, then that is what you are losing every month you don't sell the house.

This is the reason you need to look at closing costs and figure out if the first offer may not be your BEST offer. Most sellers get into a frame of mind that they will not sell unless they can get xxx amount of dollars. Maybe this example might change your minds. I hope so because there is a lot more to it than the price. Not to mention stress of having to keep the house in top notch showing condition, leaving when a buyer and their agent comes to show the house, etc.

Hope this helps share a little insight on the real estate market for you and when is the best time to sell or buy a property. If you are upside down on your mortgage, then consult with an Accredited Consultant in Real Estate. You have options now, like never before to buy or sell a house and have someone who will give you several options based on your situation as to the best way to sell or buy a house.

Get in touch with an ACRE now to give you the best options on what to do when you are faced with this highly financial and emotional decision in your life.

Beware of the Elephants

2010-01-13T15:05:33Z

This post arises from a letter I wrote to the facilitator of an excellent seminar I attended in December. On reflection, I thought parts of it might be useful to ACRE® colleagues (or others interested in Consulting) in helping to refine their articulation of the consulting mindset and value proposition.

First, the context. Real professionalism in the practice of real estate brokerage was the subject of the seminar. Bob Wallace, Executive Officer of The Real Estate Board of Greater Vancouver, has presented this material across Canada in a diligent effort to get it on the national agenda. It's evident from selected excerpts that they mean business well beyond the usual platitudes.

]]> "Most definitions of a profession include the following aspects:

The work is applied as a public practice, providing personal service rather than simply the entreprenurial dealing of goods.
There is an independent society which maintains a standard of qualification that attests to the competence of the individual practitioner.
There is a specialized code of conduct enforced by the society designed principally to protect the public.
There is a continual investment made in getting better.

Excellence in client satisfaction is an enforced standard."

"Through public research, we learned that consumers want to hire:

someone they can trust,
someone who provides valuable services relative to the fees paid, and
a professional who provides specialized knowledge and skill."

One great line I can't leave out "...just doing it and getting paid sounds more like prostitution than professionalism."

Now for those who've been wondering where the elephants are, they're contained in what I wrote in response to their request for feedback. Notwithstanding their good intentions the ACRE® side of me felt an urge to let them know something was missing. I share those thoughts here in the hope they may be useful to those who would sharpen their skills in explaining the consulting model:

There is, in my opinion, an elephant in the professionalism space. Actually there are two elephants, a parent and a child. The Parent Elephant is our industry's sales culture. The Child Elephant is commission compensation. If allowed to lumber around unchecked the elephant family will probably trample and crush any progress we make toward professionalism.

Our culture of sales was well established and driven by almost 100 years of momentum when, about 1994 (depending where you practiced), most of the North American real estate brokerage industry adopted Buyer Agency. The replacement of Sub-Agency with Buyer Agency about fifteen years ago was, in my opinion, amandate to stop selling and start representing. We missed an important turn in the road, a teachable moment so to speak. It should have been the beginning of a massive re-engineering of our industry. Instead, having failed to understand the significance of what was taking place, we undertook to fit agency representation to our entrenched sales culture and its concomitant remuneration - sale contingent commission. For example, consider the invented nonsense of Limited Dual Agency, the purpose of which could only be to facilitate double ended commissions.

Today our industry (I wish I could truly say "profession") is a living, breathing dichotomy sworn to act only in the best interests of its clients, but remunerated by a system that rewards acting in self interest. Duh!

REALTORS®, in their initial and on-going education, are thoroughly indoctrinated in agency and its fiduciary framework only to return afterward to an office milieu in which selling reigns supreme. Therein lays the dichotomy. Professionals advise and serve in the client's best interest - salespeople sell!

Given that selling is persuading another to buy something we wish to sell, and that professionalism is, by your definition, the provision of valuable services for a fee, one has to wonder whether there can be such a thing as "professional sales" except in the contemporary use of the term which denotes quality execution and performance of almost any activity.

Regrettably, success in our industry is measured by sales productivity, not by fiduciary integrity. Where MLS® Awards are still practiced, they are the reward of sales success. Qualification for reward trips and other perks are measured by sales. Offices have regular "sales meetings." Our "SOLD" signs hanging on clients' lawns trumpet our supposed sales prowess. Individual marketing material implies that I can sell your property better than another agent can. On and on it goes, ignoring the fact that clients don't need to be sold; they need to receive advocacy and be advised, represented, coached and guided.

Can a sales culture and a culture of true professionalism co-exist? Can the former be re-morphed into the latter? Does the leopard change its spots? Consumers have always seen us as salespeople. Not only have we failed to tell them any different, but, by our conduct we have reinforced their conclusion. Consistent with our sales culture, the dominant form of remuneration is contingent-on-a-sale commission. Commission is the life blood of our existence, a fact also well imprinted in the mind of the public. In that context it is surely laughable that we have the audacity to inform clients that we will place their interests above all others, including our own. Whom do we think we're kidding?

Bringing our industry to a point where it truly does "walk the talk" is no small undertaking. I commend you and your colleagues for the initiative you have begun and hope that I might be able to contribute in some small way as it goes forward.

Ron Stuart, ACRE®

HarbourSide REalty Ltd.

Halifax NS Canada

Why & when would a consumer prefer hiring an Accredited Consultant in Real Estate?

2010-01-13T14:22:13Z

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 may not need to sell a house but you need professional real estate help. REALTORS® who only get paid by commission on a house sale would not be able to assist you with that. In today's economy and with the real estate climate the way it is, there is a huge demand for professional real estate services when you don't need to sell a house. ACRE®s can assist you whether or not you plan to sell.

An example of a non-transactional need for real estate guidance: the "Improve or Move?" question.

To move or improve your home? You'd like help to decide, without being pressured into listing your home for sale. That means seeking out unbiased help from someone who's not trying to get your signature on a contract and a sign in your yard. You need an experienced real estate consultant who will be able to help you make a good decision both now (to move or not?) and in the future (if you do stay, not over-improving your house).

The hardest time we have in selling houses is when someone has over-improved the home and they can't get the price they need when they do sell, in order to buy the next property they want. These often become "expired" rather than "sold" listings. Because of the over-improvement, sellers lose money and are sometimes driven to try selling without professional help so they can avoid paying a commission, but this strategy frequently doesn't work. Statistics show that professional counsel virtually always saves you money (and time too).

I recently had a consumer call me for this very reason. He was thinking of retiring in 3 or 4 years, but wanted to make some improvements to the home in the meantime. He didn't want to be pressured to sell, he just wanted to know if the renovations he and his wife had in mind would give him a return when he did sell. He had several agents who lived in his subdivision as well, so I asked him why he called me for consulting when he could get it free from anyone. He said "because I just need unbiased advice, I don't want to sell right now and I don't want someone to do it free, I want an unbiased expert opinion and nothing is free. For a competent opinion, you need to pay for it." (btw, he was a CPA and said he wouldn't do somebody's taxes free and wondered why agents work for free).

Looking for professional real estate guidance without bias, where your agent can provide you help without seeking to sell your home for the sake of a commission? Seek out an ACRE® and learn how many options you have!

Home Valuations, Paid by Fee (not commission)

2009-11-20T15:05:38Z

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.

]]>

valuation of a home at the time of death of the owner for estate tax purposes

valuation of a home for owners who are trying to decide whether to refinance, sell, rent, or take another course of action (some owners may want this updated quarterly, especially if they are out of the area landlords on the property in question)

valuation of a home to fight foreclosure proceedings (not a loan modification, but to overturn a foreclosure (with an attorney's help, of course)

Each state has different rules about charging for an opinion of value, so it is possible that this may not be available in all states for a fee, but real estate agents routinely do a "comparative (or competitive) market analysis" for homeowners as part of a listing presentation.. Agents have software and solutions for providing this information to potential clients.

When a bank is taking back a home in foreclosure, agents perform BPOs, "Broker Price Opinions", which is much like a CMA, and they do this for a fee.

If you'd like to have a report with the probable buyer's value for your home, an ACRE can do this for you and can be 100% unbiased because the Consultant is being paid to simply provide you that report - "getting the listing" is not part of the formula so there will be no temptation to either inflate or deflate the price (which can sometimes happen when an owner is interviewing several agents: some will tell the sellers what they want to hear rather than what they need to hear).

Change #3: The ACRE® Course...Taught LIVE!

2009-10-08T13:54:57Z

At the end of this month, we'll be embarking on a laboratory experiment: teaching the entire ACRE® course...to a live class.

I've taught consulting before ACRE® was born and have had several requests over the last three years which I've always put aside, mostly for lack of time. However, I received a request two months ago that changed my mind.

]]> This request came from a broker in my home state of MA. She started her own brokerage two years ago with the idea of making it a "all consulting" office. However, she felt that she was "reinventing the wheel" and then found ACRE®.

She wants all fourteen of her agents to become ACRE®s but she wants the class taught live as she feels that with a new model, a live class gives agents a chance to ask questions.

Frankly, a live class offers some advantages: we can teach the content in the morning, have them take their exam online before lunch, and then have the whole afternoon to review using the Coaching Exchange, The Consulting Times, and most importantly, break into groups to calculate rates and fees. That way, by the end of the day when they receive their certificates, they have everything already done, and can join the Exchange as a group.

This broker had an interesting observation. She said that she thought that the future for ACRE would be concentrating more on brokers rather than individual agents. Agents who become ACRE®s by themselves are going back into hostile territory...they have to convince their brokers and managers and deal with other agents that don't get what their doing. Whereas, if we concentrate getting the word out to brokers, we can get whole offices to become ACRE®s as a group.

Anyway, I gave this broker a dirt-cheap price in exchange for two things:

They understand that they will be beta testing this class and it will have some "kinks to work out".
This broker has agreed to be a resource for other brokers, both inside ACRE® and out.

Actually, this is a good situation to start with: I can drive there and I even had a Jet Blue credit that I have to use up so ACRE® Coach Paula Bean is flying up to give me a hand on this class.

If it's successful, and the demand increases to offer ACRE® live as an alternative to the online course, we will be looking for ACRE®s to become certified ACRE® trainers, able to teach the entire course. Given the amount of requests that we've already had in the last three years, I think the live class will be a very popular addition!

If you have thoughts, please comment here.

Change #2: New Course

2009-10-08T13:43:42Z

A couple of months ago, I posted on the members-only Coaching Exchange that it was our intention to upgrade the ACRE® course. Counsel Member Tom Pickering (our education guru) is working on this project; taking my "prose" and making it into a true course book, both because it needs to be, and because it will better ACRE®'s chances of being picked up for CE credits.

Once the new course book is completed, it is our intention to raise the bar in terms of the requirements to become an ACRE®. Clearly, in order to become a successful consultant, one needs to not just understand the model, but also have developed a strategic focus (I don't want to use the phrase "business plan" as it makes most agents' eyes glaze over) and most importantly, have calculated your hourly rates and any fee packages that you want to offer. Without this practical work complete, the theory is useless.

]]> Originally, we felt that we could test on the theory and then, since we were offering a year of access to the Exchange, the practical work could be completed "after the fact". I don't need to tell you that this experiment did not work as planned. This is not to criticize: irrespective of those who took the course just to get the letters after their name, most took the ACRE® course with the intention of completing all the work. But, let's face it, life gets in the way and the urgent of working IN our businesses takes priority over working ON our business to transform it. The end result though is that the vast majority of you have not developed your rates and fees.

So, to remedy this, once the new course book is complete, we will be requiring that the candidate's strategic focus, rates, and fees be completed before awarding the ACRE® designation.

Of course, the practical question now becomes: what to do about present ACRE®s. On one level, we shouldn't care. After all, they paid for the course, and if they don't practice consulting, it's the individual ACRE®'s issue, not ours. But here's the problem: it has come to our attention that in at least two instances a consumer has contacted an ACRE® through the ACRE® Locator for consulting services only to be told that they "don't really offer consulting choices". YIKES! This makes ACRE®, as an organization, look really bad. So, what to do?

Our decision is that going forward, if you've earned your ACRE® designation, no one will take it away from you. You can continue to call yourself an ACRE® if you wish. However, once the new edition of The Consulting Times is launched, if you want the exposure on the ACRE® Locator, you will need to complete your focus, rates and fees. We will give all ACRE® grads different avenues to do so: you can re-take the course if you want a refresher, you can download just the worksheets and do it on your own, or we are certainly willing to offer webinars to complete this work as a group if there is enough interest. But, suffice it to say that once the new course is online, if you have not completed your rates and fees, you will be designated as a "Future ACRE®" on the map without a link to contact you, until your work is complete and submitted.

BTW, I'm excited to tell you that with the new course, you will have the opportunity to learn the content in two ways:

You can download the coursebook and read through it OR
You can watch a video series similar to how courses like ePro are taught.

Please feel free to add your ideas and comments.

Change #1: New Consulting Times Site

2009-10-08T13:38:01Z

We are busy putting together a new, expanded, and more user friendly Consulting Times. Here are just two of the changes (that I know about!)

First, a new course site will be integrated right here on The Consulting Times. The current course site was set up before the TCT was envisioned and the two sites have never talked with each other, not only providing conflicting information, but making for a lot of extra work behind the scenes.

]]> Second, we will be upgrading TCT to the newest release of the Movable Type platform. A major focus will be a "community blog" which will affect The Times Blog (just renamed) for the consumer and real estate professional. In a nutshell, those who join our community will become "content publishers" as well as a commenter.

Looking forward to having one site for everything ACRE® very soon!

Huge ACRE® Changes a'Comin

2009-10-08T13:27:57Z

Well, the lazy summer is over and if you're like me and observe the Jewish holidays, autumn signals a new year and time for new beginnings. And we have huge changes coming to the ACRE® program. The Council members have been putting our heads together and I have been speaking with many of our ACRE® grads regarding what works, what doesn't, what needs to be changed, and what needs to be adapted.

Frankly, my goal has always been, not just to have an organization that promotes, teaches, and supports real estate consulting, but eventually have ACRE® become the BEST training program in real estate, bar none. But to reach that goal, we need to make some major changes and we have quite a few that will be coming over the next few months into the beginning of 2010. I'll be posting them in the next days and weeks.

If you've been thinking about registering for the ACRE® Program, please do not use these upcoming changes as a reason for putting it off. All new materials will be available through our Resource Library so you won't "miss" anything.

Remember, the changes we are seeing in real estate are not going to go away once the market recovers - rather, the changes are systemic in nature and if we are to survive, we need to heed their call. "On the road of life, there are drivers and there are passengers." It's time to become a driver!

Quid Pro Quo? Oh, No!

2009-10-08T11:52:37Z

ACRE® Jennifer Allen, author of "Sell with Soul" and (just out) "If You're Not Having Fun Selling Real Estate, You're Not Doing it Right!" recently sent out a fantastic email to her mailing list. I asked her if I could share it because:

It makes one think.
Jennifer's thoughts are at the heart of consulting where the fundamental question when dealing with clients should be "Is this in my client's interest or in mine?"

Hope you find it as thought provoking as I (and other ACRE®s) did:

]]>
Apparently a bunch of trainers were getting together to cross-promote each other's products. If I were to sign up, I would agree to send out a newsletter to my (precious) mailing list recommending the other participants' products. So, say, in November, I'd tell you all about Joe Schmo's FSBO-Gettin' Package, and encourage you to buy it. If you do, I get 25% of your purchase. Then in December, I'd send out another newsletter raving about Jane Schmane's SEO Program and encourage you to buy it. If you do, I get 25% of your purchase. And so on.

By being in the program, I have to agree to do this for every one of the other members of the program, whether or not I actually know anything about their product. Of course, they'll be doing the same for me.

So... I'm supposed to commit to abuse my mailing list and risk losing subscribers to promote products I know nothing about just so I can make a few bucks and help other trainers add to their mailing lists?

You've got to be kidding me. Uh, no. Not gonna happen. I'm just not that much of a team player, I guess.

If you get a recommendation from me, you better believe I believe in that product. And there's not a chance in hell I'm going to mess with the trust my readers have in my recommendations.

But anyway, here's how this might apply to you and your business.

A lot of real estate agents use the quid pro quo ("something for something") approach to choosing their service providers. In other words, they require referral reciprocity from their lenders, inspectors, insurance agents or hair-dressers. I see this most often in the Realtor/Lender arena.

I think it's a really bad idea. From a practical perspective, I want the very best lender on the planet handling my buyers and guess what? That guy or gal probably has relationships with another real estate agent or two (y'think?) and he'd be nuts to agree to a quid pro quo with me. And frankly, I don't WANT someone who is hungry enough to promise such a thing handling my buyer business; I want someone with a track record of getting mortgages done! To recommend a lender because he or she promises to send business my way is a lousy thing to do to my buyers who trust me.

Philosophically, I'm just as opposed. I don't want to feel obligated to anyone, nor do I want anyone to feel obligated to me. And what happens if your "favorite" lender starts dropping the ball? Are you still obligated?

Your thoughts? Please share!

Lack of Transparency Befuddles Today's Consumer...

2009-08-18T14:41:37Z

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

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

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

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

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

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

Actually, quite a bit! Think for the moment of the 85% of insured Americans as real estate buyers. Like insured health consumers, real estate buyers may have a vague idea that the services they are being provided have a cost, but most give it little thought since they don't perceive themselves as paying for it.

Meanwhile, compare the growing ranks of uninsured Americans like my friend Jack to today's home sellers. With tough times squeezing home equity while technology provides more options, today's seller is increasingly asking the real estate practitioner what they charge. And since most practitioners are not trained consultants and don't offer hourly or flat fee alternatives to commissions, agents are left flatfooted. They have no idea what their services are actually worth and the fuzzy concept of a commission increasingly doesn't cut it. Today's seller wants real questions answered:

"What do your services actually cost? If I do all the things you ask me to do in terms of preparing and pricing my home, why do I pay the same as a seller who doesn't? And if a commission is payment for services, why does it cost me twice as much to sell my $600k home as it does my cousin across town who sells his $300k home? And why ARE commissions so high? Could it be that those that go to closing are subsidizing those who use real estate practitioner's toil and time but never close a transaction? (The answer is YES).

As our health care system continues to dominate the news, it should make those of us in the real estate industry note how the systems compare. Both were designed in another era: health insurance tied to an employer made total sense in the years after World War II when most of us stayed at the same job for life and independent contractors represented a much smaller percentage of the working population. The insured covering the uninsured was much more palatable when there were a lot less uninsured to cover. Today's health consumer is asking a lot more questions: what do services cost? Why are they so high?

In the same way, real estate as a sales profession paid by commission made total sense when our role was strictly that of selling the merchandise, not providing fiduciary counsel and care. A 5, 6, or 7% of a home's sale price as compensation took a lot less of a bite when home values were more in line with other costs of living. Because of economics squeezing the consumer and technology providing choices, today's consumer wants choices in the services they receive whether they are consuming health care or real estate services. Most of all, they want transparency in what they are being charged for. So, is it any wonder that sellers look at us blankly when we try to explain commissions?

Commissions as payment for risk mitigation makes total sense: Economics 101 says that high risk must be coupled with high reward. But if a consumer wants to understand and perhaps pay for the real estate services themselves, commissions make no sense at all. This lack of transparency and continuing to try to explain a commission as payment for services is increasingly biting our industry in the back side and sending the consumer fleeing for alternatives.

When a Model no Longer Works...it's Time to Adapt

2009-08-04T10:10:58Z

As I write this, the US government is embroiled in wrangling over how to overhaul our health care system. It seems to me that the system is not so much broken as it is hopelessly dated because as times changed, it never adapted. Our health care system was designed in years past, when you would hold a job for a lifetime. In that world, it made perfect sense to have your health care as a benefit of that job. But how many of us today stay in one job for our entire lives? And what about the growing legions of independent contractors and self employed entrepreneurs who have no access to a "company" plan? Health care tied to one's employment makes about as much sense in today's world as using a typewriter to write a letter.

]]> Likewise, in the real estate industry, we continue to practice in a way that is not so much broken but hopelessly outdated. The traditional sales model was conceived in years past when we, as real estate practitioners had a very different role. If you think about it, real estate as a sales profession, paid by commission, made total sense when the agent's only job was to "move the merchandise". But in the 1990's our national and state associations expanded our role - it was no longer enough to simply sell the product, we now were asked to act as fiduciaries: working in the best interest of our client and putting their needs above all others, including, and most especially our own. In fact, our responsibilities as a fiduciary became a part of the NAR's (National Association of Realtors®) code of ethics that we are obliged to adhere to.

Yet, when our role was expanded and fundamentally changed, when we were asked to provide objective counsel that was in the client's best interest, no attention was given to how this new role fit with a compensation system that is geared toward salespeople who are free to work in their own best interest. Consequently, real estate professionals today are put in an impossible bind that no amount of "ethics training" can address: we are being asked to provide objective counsel that is in the best interest of our client when how much we are paid, (or whether we are paid at all) is wholly dependent on the client's decisions which we are advising them on!

Performing in these two conflicting roles is an incredible balancing act. I believe that most real estate agents are hard-working, honest, and ethical professionals who strive, sometimes at great financial sacrifice, to do right by their clients. I've seen many an agent counsel buyers and sellers to not buy or sell when the market doesn't favor a profitable transaction, even though they have talked themselves out of a job. The fact that the vast majority routinely put the needs and interests of their clients before their own is a testament to our industry and makes me very proud but the truth is that agents are doing so in spite of the commission system, not because of it.

Here is the truth boys and girls: no matter how it's presented or dressed up, there is an inherent conflict of interest when a real estate professional is expected to act as a fiduciary providing objective, unbiased counsel to clients, while at the same time being limited to contingent-on-an-outcome compensation. In my book, "Ripping the Roof off Real Estate" I call this conflict of interest the elephant in the room. Deep down, our industry knows there's a problem because the consumer just doesn't "buy" us as fiduciaries when we're being paid like salespeople, but no one wants to acknowledge it and certainly no one wants to talk about it.

Please understand: there is nothing wrong with being a successful salesperson. I personally have the highest regard for good salespeople. But that is not what we, as real estate professionals today, are being asked to be. And like health care being tied to our "employer", the sales model, payable only by commission, just doesn't fit today's reality.