How many other professionals work on contingency ALL THE TIME? A sincere look at the real estate business model

By
Real Estate Broker with Austin Texas Homes, LLC 453249

Before I begin, I would like to point out that this post may stir up a hornet's nest of activity and comments, or it could generate a lot of unity and agreement.  Since it deals with money and how we are compensated as Realtors and brokers, I am expecting the former.  Nonetheless, this is something that I have been thinking about a lot over the past decade or so, and I wanted to get it off my chest now.  Please understand that I am in no way about to suggest any type of commission fixing or anything else that could be construed as harmful to consumers or in violation of the Sherman Antitrust Act.

I have been selling homes full-time in the Austin area since January of 1997, and I have made a good living doing this.  Of course, there have been ups and downs (2008 was a notable down year, frankly), but overall I have enjoyed this business.  In fact, the only time that I can say that I honestly wonder if I'm doing the right thing is when I lose a client whom I have met with in person a few times.  Thankfully, this has become much more rare for me over the years, but it still happens sometimes.

Is there anything that can be done to prevent this? 

Most people would say, "No", but I wonder if we shouldn't take a look at how we are paid in this business. 

I don't claim to have the solution to this problem in hand yet, but I do know that I don't like working on contingency with EVERY client and on EVERY deal.  It may be a clumsy analogy, but let's consider a couple of other professions, shall we?  No attorney would work in this way for every case.  Also, no doctor would treat you for free on the off chance that you will inherit some money or perhaps secure a retroactive insurance policy to cover their expenses.

If we want to be considered professionals in this industry, maybe the time has come to be paid accordingly. 

But Jason, you may be saying to yourself, there are plenty of professions that are straight commission in nature, right?  In a word, yes, but their sales cycle is typically much shorter than our own.  If I am selling cars, or major appliances, or even insurance, I probably don't have to meet with the client multiple times over a period of months to accomplish my objectives. 

For other "wine and dine" salespeople, they are likely making a lot more than the average Realtor (current median income: $35,522).  Couple this with no health insurance and it seems that we haven't done a very effective job of taking care of ourselves as an industry.  Additionally, I don't think we have done a good job of educating consumers about how we are actually compensated in the first place!

So, what should we do differently?

What about these ideas that we can garner from other industries?

  • Collect a deposit upfront for expenses and credit this back to the buyer at closing - if they walk away, you don't actually LOSE money, you just break even or make a very modest profit.  Home builders do this right now!
  • Collect 1/2 of the commission upfront and the remainder at closing - every reputable contractor that I know works this way, from web designers to roofers
  • Work for a flat hourly rate commensurate with experience and bearing in mind what the market can tolerate/stand.  Or, maybe the client gets an agreed-upon number of hours, after which they must pay a bit more to have your time.  I KNOW that this particular option  is not as exciting or feasible, but this post is really meant to get people thinking and talking about this topic

If we are truly independent contractors, what is to keep the average broker from changing his/her individual business models?  In my opinion, there are two things to prevent this from happening on a broad scale - fear of change and fear of repercussions from our colleagues.

Very few people enjoy change and many fear the unknown.  However, if you are a success in real estate, you are probably not one of those people!  If you took the leap and got into this business full-time at some point, you are more fearless than you realize.  It's a big decision to be self-employed.

What about fear of how you will be perceived?  This is something that I used to cope with personally, until one day I realized that I really only care about how God, my family, and my very close friends think of me.  Am I running around offending people all over town?  I certainly hope not!  However, I am about as laid-back and easy to get along with as they come, so I really don't get bent out of shape anymore if someone doesn't like me.  It happens.

Speaking for myself and ONLY myself, I would probably be willing/able to accept less money per transaction if I knew that I would be paid something for each and every client that I work with during the course of a year.  I know that last sentence is not the type of thing that typically wins any friends, but it is my sincere opinion. 

I would be interested in hearing your thoughts.

Thanks for reading! 

     

 My RSS feed is http://activerain.com/jasoncrouch/rss.

 

 

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Re-Bloggged 3 times:

Re-Blogged By Re-Blogged At
  1. Isaac E. Chavez 03/10/2009 02:44 PM
  2. Tim and Pam Cash 03/10/2009 08:51 PM
  3. Patrick Cooper 03/10/2009 10:27 PM
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Rainer
11,780
Jack Maxwell
Great Spring Real Estate

I have often wondered how it came to be that most real estate agents work on contingency.  I've been looking, but haven't found anything historical that explains how this business model became the prevalent one.

I for one, feel there would be a lot more customer loyalty if buyers and sellers had to justify paying a fee up front and bear a share of the risk.

I have begun offering a flat fee listing service where the seller's side of the commission is paid in advance.  In exchange for paying in advance, the seller pays a reduced commission but also gets upgraded services.  I feel I can charge less because I know I will receive compensation on each listing, not just the ones that sell.

Sellers are typically concerned about how this will affect my motivation to sell their home, but I assure them I want their referrals and furthermore, the longer it takes to sell their home, the less money I make as I continue to advertise their property.  It seems like a win-win to me.

March 14, 2009 06:59 PM
Rainer
1,065
Paula Bean
A Premier Class Realty

WOW Jason - you did stir up a hornets nest ;-) but I LOVE it.

 I'm a little late to this disussion due to health issues, but after reading ALL 128 POSTS, I noticed a trend I wanted to address.  I am an ACRE as well, but started charging upfront fees to buyers AND sellers over 10 yrs ago.  Mollie Wasserman and I met through another listserv years ago and realized we had consulting in common.

The trend I'm noticing the most out of all these posts is fear.

  • Will my Broker allow this? If not, move, start your own co. ACRE has a program to explain to Brokers how this will benefit their bottom line, so not to worry much on that level.
  • what if they say no and use another agent, argh! Lost opportunity, no money! I'll starve, not be able to pay the mortgage!  My answer to this is if they don't pay upfront, you are not proving your value (easily fixable) or they need more education on the benefits to you both, OR (and this is the most common reason) THEY ARE NOT SERIOUS OR MOTIVATED.
  • WHAT will my fellow agents think? (Do they pay your bills? Then don't worry about it)

I've been a real estate trainer/speaker/salesperson for 30 yrs now, I also actively participate on the ACRE coaching blog, and fear along with rejection are the two biggest reasons people don't want to do something.

I've always walked to the beat of a different drummer ;-) THE FASTEST WAY to get me to do something, is to tell me it can't be done, or I can't do it. 

When buyer agency first came out all my agent friends hated it, said it wouldn't work and started reeling off 101 reasons why it wouldn't work.  I thought of it as a challenge though, so the next buyer I worked with I got an upfront retainer and a BA signed agreement.  The look on my Brokers face was priceless. 

So being the same as Jason and loving to stir up a hornets nest, the next thing I did was start charging sellers an up front fee and doing consulting. 

This was YEARS ago, before home offices were the norm. I had my first child and not wanting to put him in daycare, I got my own pc, seperate phone line and a fax machine and told my Broker I was not going to be in the office quite as much. 

 HE WAS HYSTERICAL needless to say, and asked me "what if someone calls for you at the office?"  Wellll, I replied - what would you say if I was out getting a listing or showing houses to buyers? I'd give them your pager number was his reply.
GREAT I replied - now you can just give them my business phone and pager ;-)

I still remember all those years ago what he said next....(sit down before reading this)...

 

Paula Bean - YOU are ALWAYS trying to find a way to make more money by doing less work!

LOL - Now we

 have coaches and spend big bucks to learn how to do that.

2 things I'd like to say to all of you who mentioned they were 'thinking about consulting'.  I call it the NIKE slogan: JUST DO IT! Hardly any of us were successful right off the bat when we started selling real estate, and you'll just as likely get a few 'no thanks', but you'll get better as time goes on.

  That is why the ACRE program is so good, you have the brilliant brains of the many who've gone before you so you don't have to reinvent the wheel. 

 They also have post cards, scripts and dialogues, Webinars, etc.  If you've been thinking of doing this, then just jump in and do it. I use consulting with short sales, loan mods, and I get paid for consulting when it doesn't even involve selling a house. ie: Move or improve? Taxes, cma's to get rid of PMI.  Now that is all just gravy that you aren't getting right now.

Disclaimer:  I am not being paid for this endorsement

 

 

March 15, 2009 01:47 PM
Rainer
1,065
Paula Bean
A Premier Class Realty

btw - if anyone wants to learn more about consulting, ACRE has a free monthly newsletter. Just go to http://www.TheConsultingTimes.com and sign up. 

 

March 15, 2009 02:57 PM
Rainer
54,676
Kelsey Barklow
423/948-9154, Marne Drinnon 423/202-2277
Evans & Evans Real Estate

I'm with you, Jason, and agree on all points. Wouldn't it be nice....

March 15, 2009 05:52 PM
Rainer
27,028
Amy Champion
MetroTex Association of REALTORS

Woot! 131 comments!

I'm even late(r) to the discussion, but appreciate + applaud your transparency + courage to bring this up. I've been serving REALTORS for over 12 years, and have never felt easy about our industry's willingness to work for free. I was delighted when some 8?, 9? years ago NC's Standard Buyer Agency Agreement included a blank for a retainer fee.

"Win some, lose some - it all evens out" is an easy philosophy to get sucked into, though. However, mayhaps we should all get sucked into "work smarter not harder."

Meanwhile, I'll reinforce to the 14,000 agents that are in my sphere that they *are* worth it! =)

 

March 20, 2009 01:18 PM
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Jason Crouch

Broker - Austin Texas Real Estate (512-796-7653)
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I write about humorous stories, family, things that are interesting to me, and the Austin real estate market.

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