In his presentation at the National Association of Exclusive Buyer Agents, "Opening The Door to Fee-For-Service", Abraham Tieh of Houston-based Buyer Agents Realty, posed the question, "Is there anything wrong with the current commission system?
Noting that the commission system works on risk versus reward, the broker and agent take all the risk and there is generally no compensation for transactions that do not happen, he suggested that it may be time to look at what changes are on the horizon for the real estate industry.
Tieh noted the impact the e-brokers have had on home buyers - they are savvier now. The National Association of Realtors launched realtor.com to create a revenue stream from the publication of listings, to help lower marketing costs for Realtors, to empower the Realtor community with the database of listings and to stimulate the desire for home ownership.
Along with the benefits to Realtors came the advent of consumers, empowered by Internet access. They pushed for reduced fees because they found the home themselves on the Web. The Internet has helped turn the traditional real estate brokerage business model upside down.
How much will the fee-for-service model be embraced by the public? Do buyers want to perform tasks? Will buyers work with agents as part of the team? Will they pay for information? Will they pay for assistance?
Tieh then addressed whether or not buyers and sellers disliked paying a percentage commission. He stated that the answer is 'yes' -- they detest paying a percentage. They want unbiased information, flexibility, empowerment and to be in a position to make well-informed decisions.
If you are ready to unbundle services, do some homework first to determine a breakdown of the sources of your leads and look at the buyer profiles. What percent of the leads are inquiring about fee schedules and what percent don't contact you until they have already found a house? What is the average selling price in your market area and in your own office?
Your analysis should also take into consideration what the average gross commission earned is per closing, the average commission after the split with the broker or agent, the average hours worked per transaction and the business expenses.
The bottom line for many real estate agents and brokers considering a fee-for-service model is "Is it going to be profitable for me?" To determine the answer to that, one must do some analysis. What is the start-up cost? Do I need additional advertising? Do I need more training? Is it an add-on profit center?
If you choose to offer a menu of services, use a simple pricing program that is easy to understand and implement, offer exceptional value to buyers, and provide a simple satisfaction guarantee, Tieh recommends.
Tieh also offered these ideas for consulting work sources: community development corporations, attorneys, landowners, businesses, professional groups, investment clubs, relocation companies, financial planners, seminars, retirees, government workers, and the internet.
Additional revenue sources include offering consulting packages (after closing), property tax protest, CMAs (comparative market analyses), mortgage refinance counseling and home improvement evaluation.
Pat Rioux
