Mollie Wasserman - Real Estate Trainer & Founder - ACRE®'s Blog

How the 99 Cent Song Saved the Music Industry and What Real Estate Can Learn

Sat, 15 Oct 2011 10:48:17 -0700

With the death of Steve Jobs, much has been written about the incredible contributions he made to the computer industry. Much less noted was the fact that he also revolutionized five other industries: animated movies, music, phones, table computing, and digital publishing.

There are so many lessons to be learned from the genius of Mr. Jobs but for now, let’s focus on just ONE of the industries he transformed by climbing into the old time machine to remember the music industry prior to iTunes.

The music industry in 2001 was at a crossroads. Consumers were restless and increasingly unwilling to continue to buy entire albums when all they (initially) wanted was a song or two. The record labels resisted the growing clamor for years, fearing that if consumers were able to buy individual songs rather than being forced to buy entire albums, their bottom line would suffer. But, as is true with all consumer needs, ignoring them doesn’t make them go away - it just sends the consumer elsewhere. The industry’s refusal to answer this need for choice only served to drive the internet-empowered consumer to ripping their own music off friends CD’s, and illegally “sharing” tracks on sites such as Kazaa, and Limewire.

This development was the worst of all worlds: with record labels rigidly refusing to change their business structure, musicians were not only deprived of the royalties due them when consumers used illegal ripping sites, but at the same time, the consumer discovered that using these sites was less than ideal: they not only introduced pesky viruses onto their computers and ripped music of a much lower quality, but many consumers were also bothered by the ethics factor: overwhelmingly, the average consumer didn’t want to deprive the artist of the royalties that they were due and would have gladly paid for the music they consumed if only they could have some choices in how they could buy it.

It took Steve Jobs to grasp the need for a simple, legal source of digital music with choices in how it was sold and his art of persuasion to talk the famously recalcitrant record labels into letting him sell their songs online all the while talking consumers into paying for what they could get (albeit with problems) for free.

The rest of the story, as they say, is history. Steve Jobs beat free by providing the consumer what they wanted. Consumers bought a million songs in the very first week and by 2008, they had purchased 5 billion of them. In fact, five years after Apple entered the music business, it became the U.S.’s largest music retailer. Even more fascinating was that contrary to the music industry’s fears, allowing consumers the option to buy songs individually ironically served to greatly increase album sales and concert tickets. The ability to buy just one song introduced the consumer to an artist and got them wanting more. In short, the 99 cent song saved the music industry.

Real estate is at a similar crossroads today. Many brokers and managers refuse to consider offering the consumer anything other than the one-size-doesn’t-fit-all package of services payable only by commission, while they watch their profits decline. When it’s suggested that the real estate professional give the consumer choices in obtaining real estate services and fiduciary counsel, they dismiss it as “discounting”. The industry is consumed with the fear that if we give the consumer options, the consumer will opt for the cheapest way out.

Those of us “renegades” who think different, who dare to offer the consumer quality, transparent choices in the services they can receive as well as how those services can be paid for, have found something quite amazing. By offering an hour or two of counsel if that’s all the consumer needs now, a flat fee for a specific service or package of services, while continuing to offer traditional commissions for those who want them, we have found that our incomes haven’t declined, but in fact have risen because we’re no longer dependent on a property selling in order to earn income.

By offering quality, transparent choices, not cheap gimmicks, we open up all kinds of new opportunities to earn revenue because we’re no longer dependent on a property selling in order to be compensated. We can be paid to help homeowners who are not necessarily buying or selling or not doing so right now and are facing decisions such whether to remodel, refinance, or seek a tax abatement. The consulting model of choices provides a way that we can be paid for what we’re now giving away for free, as well as an introduction to our services that leads to more listings and sales down the road.

Like the music industry found a decade ago, ignoring the consumer’s need for choices doesn’t make it go away, it simply drives them elsewhere. With the growth of sites such as eBay and Craig’s List, buyers and sellers are finding each other more and more and they’re doing so without an agent. When they need help in negotiating an offer or managing and troubleshooting a transaction, they’re turning to lawyers or going it alone. They’re turning to cheap, bargain basement outfits to get functionary-type services, leaving themselves without the vital fiduciary counsel and care that a professional could provide. Real estate has forfeited a fortune over the years because we didn’t have the structure to provide services for folks that didn’t fit the mold and the consumer as well as the professional are all the worse for it.

The 99 cent song saved the music industry. And to save the real estate industry, we simply need to think out of the box. As Apple said in their 1998 ad “Think Different”:

“Here's to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. And while some may see them as crazy, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.”

Think Different - The Best Tribute to Steve Jobs

Thu, 06 Oct 2011 08:40:46 -0700

WIth the passing of Steve Jobs, there will be many tributes but in my humble opinion, there will be none as encompassing, nor one as important to the challenges we face in our industry as the simple recitation of his 1998 ad "Think Different":

"Here's to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They're not fond of rules, and they have no respect for the status quo.

You can quote them, disagree with them, glorify and vilify them. About the only thing you can't do is ignore them because they change things. They push the human race forward. And while some may see them as crazy, we see genius.

Because the people who are crazy enough to think they can change the world, are the ones who do."

With the real estate industry in turmoil, isn't it time that we stop with the old mantras that are carted out to argue against the change that is inevitable? Rather than look at the changes that are needed as the demise of our industry, how about seeing the changes as an opportunity to flourish?

Think Different.

Thank you Mr. Jobs. You will be missed.

Buyer Services are not FREE! They’re just Financed.

Tue, 13 Sep 2011 08:56:50 -0700

OK, be warned. This is a rant, but I need to get it off my chest.

In this tough market, with so many sellers underwater, there is an increasing need to work with buyers and we’re seeing even seasoned listing agents working with buyers out of necessity. But with it, the frustration is increasingly oozing out of AR on the lack of buyer loyalty, how no one wants to sign a buyer agency agreement, that even if they sign it, you can’t enforce it, etc, etc, etc. See Mimi Foster’s excellent post An Intense (and embarrassing) real estate lesson to see a great collection of comments voicing these frustrations.

I personally never worked with buyers without a signed contract (just as I never would take a listing without one) but that’s not the point of this post. There IS much less buyer loyalty than seller loyalty but I will opine that it goes far deeper than whether a not a contract is used. It goes very simply to a falsehood that we have repeated to buyers for years and is now coming back to bite us:

“Mr. & Mrs. Buyer: don’t worry about my compensation - my services are FREE to you!”

This statement is misleading at best and patently false at worst and it has engendered behavior in buyers that make us want to pull out our hair. If our services are FREE, then why should they value them much? If they’re free, why should they be cognizant of the time they demand from us since it cost them nothing? And why in the world would one sign a contract for FREE services?

Our services to buyers are not free - they’re simply financed. Don’t believe me? Then, think for a moment of a huge expense to buyers that is also not free but unlike our current system of compensation, is paid for visibly and up front: the cost to move.

Unlike real estate services, we don’t roll the cost of the buyer’s move into the price of a house. They pay for the moving truck and all the other costs associated with the move out of pocket. Can you imagine offering a buyer the ability to finance their moving costs by rolling it into their mortgage? It would certainly help them with cash flow in the short run, but imagine the costs in the long run by paying interest on their move for years to come?

The point is that moving expenses are not free! There is a time value of money and there is much less total cost to pay for the service up front then to finance it. It's no different with real estate services. One of our ACRE® graduates recently spoke with a lender who estimated that for the average priced home, the buyer could end up paying $20k over the life of the loan for their “free” services.

Our current “system” not only hides the true cost of real estate services, but inflates the value of sold homes - something we are all too familiar with when doing a CMA and comparing MLS sold properties with private sales. When we try to take into account private sales (something we really need to do to get a truly accurate CMA as private sales are increasing), we end up having to back out the compensation on MLS sold properties so as not to compare apples and oranges.

When buyers are told the truth, a very interesting dynamic takes place:

If they can afford to do so, they might opt to pay their agent for their actual services and time and have the offered co-broke taken off the price of the house, especially if the agent is a trained consultant who can offer this choice OR
If they can’t afford the cash upfront, at least they see our services (especially the fiduciary ones such as the valuation of the homes they are seeing, negotiating and troubleshooting of the transaction) as the vital services that they are. When services have value, buyers are much more respectful of our time and expertise, and are much more likely to sign a contract.

Buyer services are not FREE! They’re simply being financed. It’s time we start telling buyers the truth and stop our industry’s circular shooting squad. OK, my rant is over - thanks for listening folks.

The Clothing Store Versus Your Own Personal Shopper (and what does this have to do with Real Estate?)

Mon, 05 Sep 2011 13:25:40 -0700

Suppose you had an upcoming seminar next month and needed to buy a couple of nice suits. You have two choices: you can either shop at a leading clothing store or you can hire yourself a personal shopper.

If you go to the clothing store, the salesperson will probably do their best to sell you a suit. Hopefully, they'll be very helpful to you by showing you the inventory they have at their particular store. Of course, since they're working for the store, their focus is to move the merchandise. If they can please you at the same time, that's a bonus.

The salesperson is working solely on commission - therefore, they only get paid if you buy a suit THERE and NOW. If you have unique fitting needs and none of the suits at that store fit you well, the salesperson is not particularly inclined to tell you to go somewhere else. They also may not tell you that a suit you do love is going on sale next week. After all, if you come back in a week, they might not be the salesperson on the floor. This is not to say that the salesperson isn't ethical. It's just that they're paid to make a sale for their store, not to find the best suits for you.

Now, let's look at the other option: hiring a personal shopper. Unlike a salesperson working for a store, a personal shopper is paid to find you the best suits for your needs. Since no two customers are alike, they're going to spend a lot of time upfront really listening about your lifestyle, timetable, and price range.

Once they do a thorough analysis of your needs, they may target one or two stores over others to get you the right suits in the timeframe you need, and within your budget. Since they know the marketplace and inventory, they might tell you not to buy your chosen suits right now since they'll be going on sale very soon. Their goal is to use their expertise to find what's best for you. They're focused on the long-term relationship, not just that transaction.

In terms of paying your personal shopper, they'll probably give you a variety of ways to do so:

You can pay them by the hour
You can pay them a flat fee to do a variety of shopping tasks OR
You can pay them contingent on them finding you the suits that meet your approval but you would pay a premium for this choice since there's a risk that they will work and not ever get paid.

Therein lies the difference between traditional real estate sales and the new model of real estate consulting. Consulting is about providing quality, transparent choices to the consumer - both in what services they can receive as well as how those services can be paid for.

Consulting is NOT about discounting your contingent-on-a-sale pay or any of the other bargain-basement gimmicks that have been tried and failed. Consumers are not stupid and they see right through these types of come-ons. Consulting is not about making less - in fact our ACRE® (Accredited Consultant in Real Estate) graduates' experiences are that by providing choices, they earn MORE.

Most importantly, consulting places our highest value NOT on moving inventory, but on representing and advocating for our clients - value that can never be replaced by technology.

The Realtor® of Tomorrow (Oops - that is Today)

Sun, 07 Aug 2011 16:20:42 -0700

We love to talk about the Realtor® of tomorrow but we ought to be talking about the Realtor® of today as we've lost a lot of ground in two crucial areas:

Not recognizing how the role of the real estate agent has changed over the last 30 years and
Not adapting to the tremendous growth of technology

First, the change in our role: I'm going to state a premise that is controversial but I believe to be true: real estate can and should no longer be defined as a sales profession. The sales model made total sense when our sole responsibility was to move the inventory. But starting in the 90's with the advent of agency, our role fundamentally changed. With the advent of agency, our state and national boards and associations began to tell practitioners that primary role was that of a fiduciary without re-examining how we were compensated, putting practitioners in a bind.

On one hand, real estate has always been considered a sales profession, paid by commission. As an independent contractor, a real estate agent needs to move the inventory as quickly as possible, and for as much money as possible, to make a living in this business. And yet, if an agent is a Realtor®, he must follow a code of ethics which, among other things, requires him to put the needs and interests of his clients ahead of everyone else’s, including and most especially, his own. While staying poised and performing in these two conflicting roles is an incredible balancing act, the overwhelming majority of my fellow agents walk that line everyday and they walk it well. That the vast majority of agents routinely put the needs and interests of their clients before their own is a testament to the industry, but agents are doing so in spite of the commission system, not because of it.

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 agent providing objective, unbiased counsel to clients, while at the same time being paid by commission. 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 today.

The real estate industry knows deep down that there's a conflict of interest, but no one wants to acknowledge it and certainly no one wants to talk about it. Now, this doesn't mean that most agents don't do the right thing - most agents do, but if you're constantly put into a position of choosing between ethics and eating, you can't be surprised if eating sometimes wins out. Most importantly, the consumer is not buying it - many just don't believe that agents can provide objective counsel when their being paid contingent on an outcome and since the industry has overwhelmingly not offered any alternatives to commissions, the consumer is more and more going elsewhere for help or going it alone which hurts them because they don’t have representation and advocacy and it hurts us because we don’t have a way of being paid when the situation doesn’t fit neatly into a sales package paid by commission. I also think our unwillingness to offer responsible options is why our industry ranks so low on the trust scale.

Make no mistake: The real estate industry is having an identity crisis because agents are being asked to fill two roles that are in conflict, especially in the mind of the consumer.

Resolving the conflicting role of the agent requires a major paradigm shift in how the industry defines itself. It means a new way of thinking and acting: developing a whole new model in real estate - one of a consultant that provides choices in the services that can be procured and how those services can be paid for.

Secondly, we need to adapt to how the tremendous growth in technology has effected real estate. With the constant hype about what technology CAN do - we rarely talk about what it CANNOT do. The fact is that the growth of technology has not lessened the agent's role but it has definitely changed the value proposition and it most certainly makes the old sales model less and less viable. What today's technology is doing is allowing the consumer to do many functionary (or administrative) tasks that previously could only be done by agents while at the same time, the Internet now gives the consumer access to reams of data, that was previously unavailable. What this means is that the MLS, as the sole place for property information is over. In today's world, as much as agents and their brokers dislike the thought, buyers and sellers, armed with information that they got WITHOUT going through an agent, are finding each other more and more. The agent's traditional role of playing matchmaker, being the provider of information and being paid for their access is no longer relevant and as long as our industry continues to operate and depend on the old model whereby our value is that of providing data, we will continue to fight an uphill battle for control of that data. And this is a battle, that in the age of the Internet that we will lose, in fact, we've lost it already.

However, there is a huge silver lining because what IS relevant is what is getting lost in all the hoopla and that is this: while the Internet can provide information and lots of it, what it can never do is interpret it. The real estate professional's value is no longer in gathering or providing data - technology can do that better, faster and cheaper than any human being. The professional's value today lies in taking the reams of data and making sense of what it means. It's not in providing information but in interpreting it. It's in the fiduciary: guiding, negotiating, and troubleshooting. It's providing judgment, experience, and expertise.

That's what the consulting model is all about and here's the good news, as a consultant it doesn't matter who has access to the data because the value lies not in the data itself but in the interpretation of that data. As a consultant we're no longer paid to provide information but to interpret it and that's something that technology can never do. The bottom line is that the growth of technology offers doom and gloom for our industry if we sit back and let our role be disinter-mediated. However, it offers great opportunities if we use its growth to concentrate on what only we, as professionals, can do.

Whether Rebates or Referral Fees, It Still Adds Up to the Same Thing - Hands in our Pockets

Thu, 09 Jun 2011 14:31:46 -0700

There's been a lot of talk of late regarding commission rebates. The consumer, squeezed by the market, is increasingly asking for them and many in our industry are increasingly providing them.

But...we sure don't like it!

From our vantage point, it feels like hands in our pockets, grabbing at our shrinking paycheck. It feels like...DARE I SAY IT?...the way we have felt for years when relocation companies offer us a coveted buyer or seller in a nice price bracket but attached at the hip to a pile of extra paperwork AND a 30-35% cut out of our check for the privilege!

From our vantage point, it feels like we're being robbed. And we are. The truth is that the commission system only works when the big transactions pay for the little ones. We need the "cushion" from those high end transactions to make up for the lower priced ones that we lose money on. The buyers that we spend hours with but never buy. The listings that don't sell, despite the resources we devote to them. The "free" CMA's that we're expected to provide.

But from the high-end consumer's vantage point, (and the high-end is who's asking for them), they're only wanting what's fair. On the high end, there is no way that we can justify that commission check with the services we provide on THAT transaction. That high-end consumer's sale is in fact subsidizing the lower end sales that can't even cover our costs PLUS all the free work we provide in general that comes as a price of doing business.

Funny how we rail against the high-end consumer who has a justifiable claim to a rebate yet we routinely pay outrageous referral fees to relocation companies that are nothing but parasites, totally supported by our hard work.

This is what our broken commission system, that compensates us based on the value of a property rather than the value of our services, has wrought. But coughing up rebates and relocation fees is like spraying on perfume when what you really need is a bath. It might temporarily mask the problem but it doesn't solve it.

In the olden days when consumers had no other choices, the commission system worked. But today's internet-empowered consumer, who is being squeezed by a market in free fall, no longer wants to be the support system. They want real value for their real estate dollar - value that they can understand.

That's why real estate consulting, which provides quality, transparent choices in both the services they can receive and how those services can be paid for, is the perfect antidote to the rebates and referral fees clawing at our shrinking pay check. Offering choices meets the consumer where they live and offers us an answer to the hands in our pockets.

Are Real Estate Professionals Commodities?

Thu, 19 May 2011 11:07:02 -0700

In the 1995 movie, The American President, there is a scene where President Andrew Shepherd, is in a heated discussion with his domestic policy advisor, Lewis Rothschild, 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 promises to provide the same services for less (or for FREE!). But when they find out that these promises are just a mirage, wasting their precious time and money, 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 functionary type services because they want cheap. They're buying these services because they don't know the difference!

In my book, The End of 6%, 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 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. Do you want the cheapest attorney if you're in legal trouble, or the cheapest dentist doing your root canal? Most of us learn fairly quickly that hiring cheap service providers is what my mom calls, "penny wise and pound foolish."

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 consumer clearly wants choices. But the choices should be in their being able to choose the quality, fiduciary 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.

Do-It-Yourself Opportunites Versus Expert Advice and Fiduciary Care - Why Can't the Consumer Have Both?

Mon, 16 May 2011 08:01:52 -0700

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.

On the other hand, third-party companies that advertise that their sites and services can replace a good real estate professional are also missing the boat; technology can provide lots of data, but without a pro to interpret what it means, the consumer can lose thousands on their largest asset.

For instance, while Zillow clearly states that its “zestimate” is just a starting point and is not an appraisal, the message isn’t always getting through—we agents are continually running into self-described “zillow-ites” who argue with our price analysis of their home, saying the “zestimate” came in much higher (and more to their liking). And when Lending Tree advertises that when “lenders compete, you win" they clearly send the message that cheaper is better.

These messages create a “falsely empowered consumer”: people who think they know a lot more than they do, and who are at risk of losing thousands of dollars and hundreds of hours. Lenders and real estate professionals, like other fiduciaries such as CPAs, financial planners, or attorneys are not commodities. The quality of their service, level of expertise, talent and experience can make a huge difference in whether the consumer gets good value and peace of mind with their loan, purchase, or sale—or gets financially hung out to dry.

A trained real estate consultant can provide that crucial middle ground: harnessing the incredible power of the Internet to allow those consumers that have the time and desire to market or find their own homes to do so, while offering the vital fiduciary contract-to-close duties. The trained consultant can also provide choices in how clients can pay for their services.

The statistics are clear: agent-assisted properties net far more than those that are sold entirely by owner, even after paying the agent’s commission or fee. USA Today’s 2003 study found agent-assisted properties netted 21% more; the National Association of Realtors® 2006 Home Buyer and Seller Survey found that agent-assisted properties netted 23% more.

The bottom line is that having a real estate professional by the consumer's side will save them far more than it costs. But we real estate professionals need to have the training to offer quality, transparent choices in how we can be paid so that if consumers are doing more functioary tasks, they can be rewarded. If we're limited to contingent-commissions, all we can do is cut those commissions, and that's such a bad deal for us, since we continue to carry the risk.

"The More you Spend, the More I Make". And That Makes Sense HOW?

Mon, 02 May 2011 14:52:16 -0700

Tish Lloyd wrote a wonderful post a couple of days ago:

I work for YOU! It's okay to tell me what you're thinking!

For the most part, I really liked what Tish wrote: that it's vital that a buyer's agent develop a level of trust with her client - without that trust, it's very hard to do our job properly. But one paragraph gave me great pause:

"The goal of finding a home you love and can comfortably afford, is my goal -- my only goal. Sure, my salary depends on closing sales -- there's no secret there. And, the more you spend the more I make -- still, no secret there, either. But you've engaged me to represent your best interests and I have a fiduciary responsibility to you."

Real estate is an industry founded on the sales model. Historically, we have always been paid contingent on moving property. Nothing wrong with that UNTIL the advent of...agency. In the mid 1990's, we were told that it was no longer sufficient to simply be good salespeople, paid to move product. We were now told that we must wear a second hat, that of a fiduciary, charged with putting the interest of the client - whether they were a buyer or seller - above the needs of all others, including and most especially our own. YET, our industry gave no thought to examining how we were paid, and the obvious conflict of interest this presented, especially when representing buyers!

As I said in my book The End of 6%:

"Make no mistake, folks: The real estate industry is having an identity crisis because agents are being asked to fill two roles that are in conflict, especially in the mind of the consumer. On one hand, real estate has always been considered a sales profession, paid by commission. As an independent contractor, a real estate agent needs to move the “inventory” as quickly as possible, and for as much money as possible, to make a living in this business. And yet, if an agent is a Realtor®, he must follow a code of ethics which, among other things, requires him to put the needs and interests of his clients ahead of everyone else’s, including and most especially, his own."

Telling your client that they can trust you even though you are only paid when you sell something, is a tough argument to make. Always has been. This is not to say that it isn't often true. Despite the "conventional wisdom", most real estate agents are hard-working, honest, and ethical professionals who strive - sometimes at great financial sacrifice - to do right by their clients. It's a testament to our industry, but the fact is that agents are doing right by their clients in spite of the commission system, not because of it!

But know that the past does not have to be prologue. The growing community of trained real estate consultants offer choices to the consumer in how they can be paid and more and more consumers are enjoying being given that choice. By offering to be paid by a non-contingent fee, the consultant can take that conflict of interest right off the table. And the younger demographic - our future clients - want MORE transparency and choices, not less. We are going to have increasing trouble making the argument that we can act in someone's best interest even though we're paid only to make a sale. It's like the wizard saying to Dorothy "Pay no attention to the man behind the curtain" even though he's right before her eyes!

Sometimes a way of doing business outgrows it's usefulness. The horse and buggy was a perfectly acceptable means of transportation until the auto came about. The typewriter was a wonderful improvement over writing by hand, but how can it compare to word processing on the personal computer of today? And why would we continue to take pictures on film that needs to be processed when we can take digital photos?

Sure, there are many holdouts to change even when it's upon us. For the near future there will be consumers who will want to pay by commission because it's all they know. And for them, you can continue to provide your services and be paid in that way. But increasingly, consumers will gravitate to the trained real estate consultant who can provide quality real estate services without a conflict of interest inherent in being paid by commission. The only question is, will you meet their need for an auto with a horse and buggy? Will you greet them with a typewriter when they want a word processor? Or a film camera when they want digital?

Having to explain the unexplainable conflict of interest is no longer a given. But, you have to be prepared. To learn more about real estate consulting, watch:

Shouldn't There Be Merit Pay for REALTORS®? I'm just sayin...

Tue, 15 Mar 2011 09:31:01 -0700

A couple of months ago, Kirby, our family dog, started scratching himself like crazy. So, like any good mommy owner, I took him to the vet. Unfortunately, his regular doctor (who has 30 years experience) was away on vacation so he saw a new doctor just out of vetinarian school. He checked Kirby over and gave me a prescription. Alas, he misdiagnosed Kirby's problem, necessitating two MORE visits. It wasn't until the third visit when his regular doctor was back, that Kirby was diagnosed properly.

But what really fried me was the bills for the visits. I was charged the same thing for an office visit with Dr-Wet-Behind-The-Ears as I was with our 30-Years-Of-Expertise Doctor. I understand that new vetenarians need to learn their profession but it shouldn't be at my expense. Fortunately, Kirby didn't have a life-threatening ailment. But what if he did? What price would I pay to have the best vet out there taking care of him?

My husband and I pay top dollar to our CPA because his expertise pays for itself year in and year out. When I need a root canal, you bet I go to a senior endodontist, not some rookie out of dental school even if it costs me more. And if I'm ever in legal trouble, you bet I'll want to hire the best attorney to handle my case, not some newbie out of law school.

So, how must a real estate consumer feel when hiring a REALTOR® to handle their largest financial asset? With the commission system, the 30-year veteren gets paid roughly the same thing as the baby agent with a newly minted license. Yea, sometimes you can get away with charging a percentage point more but it's a tough slog to try to make that case to the consumer. That's because commissions are based on the value of the home, not the value of our services. So, overwhelmingly, whether you have years of experience and expertise or you just got your license, we are forced into being paid pretty much the same.

In my book The End of 6%, I talk about how we shop for commodities versus a valued service. I use the example of a particular brand of underwear. No matter if I buy the package of underwear at the fanciest department store or at the cheapest outlet, the underwear is the same. It's a commodity and therefore, as a smart consumer, I'm going to shop it by price.

Contrast that with winning the lottery. If I were to hit the jackpot, I would go out and hire the best tax attorney I could get my hands on. And if they were the best, they wouldn't come cheap, but I'd gladly pay their large fee because whatever I paid them would be eclipsed by what I kept of my winnings. That's because the tax attorney is NOT a commodity. They are a service provider whose expertise will greatly impact how much of my winnings I keep and how much goes to Uncle Sam.

We've structured our earnings in real estate such that the consumer overwhelmingly looks at us as a commodity - basicly the same - so of course they are going to shop us by price. But are real estate professionals commodities? I think not!

When I charge for my services and time, rather than some convoluted percentage of the house, I can justify a higher fee for vital fiduciary level services such as negotiating and troubleshooting of the transaction. I'm NOT a commodity - I provide a valued service and get paid based on what I bring to the table. If the client wants to pay by commission, they can do so, but they understand that the commission they pay is not based on the services I'm providing but on the value of the home.

Merit pay for REALTORs? It sure would make a lot more sense. I'm just sayin...

Work in the Present but Look to the Future

Mon, 07 Mar 2011 11:24:49 -0800

This week we had a post on our ACRE® Coaching Exchange about using the consulting model for assisting clients involved with short sales and foreclosures.The post resulted in a very spirited discussion given how many consumers are under water with their homes.

However, it seems to me that many professionals are doing short sales and foreclosures right now because that's "all there is out there". And if it's an area that's paying you for your work, more times than not, all the power to you.

But, from my vantage point, I see hords of practitioners, armed with the same limited offering, all chasing the same business. The problem is that without unique tools, your value proposition is the same as everyone else's.

Meanwhile, the consulting model can open up new areas of work that have never been available with virtually no competition: i.e .working with homeowners, investors, and others that may not be involved in a transaction, or maybe not now. Homeowners who may be looking to remodel or refinance. Investors who would benefit from fee options in acquiring and selling property. What they all need is expert counsel and care.

With the continued growth of sites such as Craig's List, I see a future where buyers and sellers will find each other more and more without the help of a professional. However, once they find each other, is where they need our expertise to negotiate the contract and troubleshoot the transaction. This business is presently going to lawyers who can't do this work near as well as us because that's not what they do. As trained consultants we can work with these folks and build whole new avenues of business.

Think about typewriter companies in the 80's that kept working on lower and lower margins as the personal computer era dawned. The smart ones kept providing typewriters but put more and more of their time and expertise into the dawning personal computer market. They didn't abandon typewriters but they saw the future.

When digital cameras started making their appearance, smart film companies continued to produce film but put more and more of their resouces into digital cameras and technology. Those who stuck with just film were drummed out of business because they did not develop the tools to compete.

History is replete with industries that, when failing to move with the times, were extinguished. Consulting offers a model where you can continue to provide the services you always have, but smart professionals will put increasing resources into newer areas of business that are "wide open blue oceans".

Beyond Fee For Service - Why Real Estate Consulting is Catching Fire

Wed, 02 Mar 2011 06:08:30 -0800

In discussions about commissions and other compensation alternatives on AR, it's clear that there is a lot of confusion amongst real estate professionals about real estate consulting which is catching fire. Many confuse the consulting model with the old fee-for-service offerings that charge bargain-basement fees for functionary type services, or think it's some type of discounting scheme.

Nothing could be further from the truth! Real estate consulting is a whole new model that is at it's heart about elevating the role of the real estate professional by emphasizing where our value truly is - as a fiduciary, providing the representation, advocacy, guidance and care that can never be taken over by technology.

The REALTOR® & Her Doctor

Mon, 24 Jan 2011 10:08:33 -0800

HBR (The Home Buying Revolution) is putting out some great videos and here's another one that brings out the ironies that we work under: The Realtor & Her Doctor. See if you agree!

Is NAR® Really Working for Me?

Fri, 14 Jan 2011 13:11:47 -0800

Laura Giannotta wrote a thoughtful post and I fully agree with her premise that NAR should be promoting REALTORs.

However, no amount of ethics training will take away the basic conflict of interest when we are asked to act as objective fiduciaries when the amount of our compensation or whether we get paid at all is wholly dependent on decisions the client is making THAT WE'RE ADVISING THEM ON!

We can continue to run REALTOR campaigns until we're blue in the face, trying to dispel the idea that REALTORs are only in it for the commission, but the sad truth is that the consumer isn't buying it.

If we want to be paid by commission than we need to act strictly as salespeople and get rid of the myth that we can provide objective counsel.

OR, if we are asked to act and advise in the client's best interest than our compensation cannot be tied up with the decisions they make.

Take your pick. Argue if you like. But the reality is that we are being asked to wear the "advisor" hat and we can't do so if we don't offer a non-contingent choice in how we're paid.

Via Laura Giannotta 'Your Realtor Down the Shore!' (Keller Williams Realty Atlantic Shore, NJ ):

Is NAR® Really Working for Me?

The National Association of REALTORS® is continuing in 2011 to use our $20. community awareness fee to tout the benefits of home ownership. Continuing to call it the American Dream, NAR® has designed TV and radio ads saying:

"There’s a reason home ownership is called the American Dream. People aspire to home ownership for the financial and social benefits it conveys. Our government supports home ownership because it’s good for communities and the nation’s economy."

This message fails to recognize that the American Dream has turned into a nightmare for many, and it sounds out of step with what going on in the housing market.

I also question why we should encourage government participation in what should be a private sector initiative.

IMHO, the Association should be promoting REALTORS® and our Code of Ethics. NAR's job should be to dispel the myths that REALTORS® are only in it for the commission and the belief that our attitude is 'the public be damned'.

Click here to view the Public Awareness Campaign.

Need a REALTOR® Down the Shore?
Little Egg Harbor REALTOR® Laura Giannotta
Your Jersey Shore real estate resource!
609.384.6121
www.JerseyShoreViews.com
Laura@JerseyShoreViews.com

What's all this chatter about ACRE®?

Sun, 09 Jan 2011 11:42:25 -0800

Since Margaret Rome's post:

Give Yourself a Gift of Education..Consider Real Estate Consulting!

we've had lots of enrollments from AR. But we've also received some questions regarding what ACRE® is all about and more importantly why are we offering it at no charge??? So, if you've been wondering, here's a short video which explains a bit about the ACRE® (Accredited Consultant in Real Estate) program:

Regarding, why we are offering the course for free (we AR types are a skeptical bunch!) the answer is simple: Our mission is to transform the Real Industry toward providing CHOICES to consumers in both the types of services we can provide, as well as how those services can be paid for. And the greater our numbers the more likely we can make a substantial impact.

As for those doubting Thomases that say that our industry can never change, let me quote William Pollard: "Without change there is no innovation, creativity, or incentive for improvement. Those who initiate change will have a better opportunity to manage the change that is inevitable."

Real Estate Consulting is not for everyone. But we believe that it is the future and coming sooner than anyone might have believed even a couple of years ago. In a world where the only constant is change, the REAL dough lies outside of the cookie cutter. If you believe this too, we hope you'll check out the ACRE® program."

Isn't it Time We Start Shepherding Our Clients Instead of Selling To Them?

Wed, 07 Jul 2010 13:59:03 -0700

I'm currently writing a book due out in September. Unlike my previous book, where I had a traditional publisher who took care of everything (financially and otherwise) but left me a minuscule royalty on my books that sold, I went a different route this time. I hired a "Book Shepherd".

Follow me on this because I'm going to get to the tie in with real estate in just a moment. My "shepherd" acted as my editor and manager of the process. I paid him by the hour to edit my manuscript and then guide me as to what needed to be done. While I am publishing my book myself, I am certainly not doing this by myself. My shepherd has provided excellent recommendations for an interior designer and cover designer. He has advised me where to get my ISBN numbers. I have paid for each of these experts as they provide the service and am getting great results because each of these experts (including my book shepherd) were compensated very well for their time and talents.

When the book is published, I will only pay for the costs to print them. The difference between the printing costs and the jacket price goes into my pocket.

What I'm not getting (nor paying for) are services that I don't want or need. Anyone writing books today will tell you that unless you're a Pulitzer Prize-Winning author, a publisher does little to no marketing for you. So, why would I want to pay a publisher for services that they're not going to do anyway? And if I'm going to market my own book, why shouldn't I reap the profits?

I'm guessing that the majority of authors are still going the traditional route but there are an increasing number of us that are taking advantage of technology and hiring a shepherd rather than a publisher. And traditional publishers are starting to get nervous folks because the demand for a new way is growing and technology is supplying that demand.

Now, let's say that I'm looking to buy or sell a house. Or maybe I just want an hour or two of counsel from a real estate expert. Yet, if I go to a traditional real estate agent, I'm locked into a one-size-DOESN'T-fit-all package of services payable only by commission. If I just want some objective advice and am willing to pay for it...forgetaboutit! The industry is not structured for that. What if I DO want to buy or sell but want to do some functionary level things myself but bring in an expert for what I can't handle? Sorry bud...it doesn't work that way.

Now, if you're a real estate professional reading this, you may think that there's no demand for a real estate shepherd who is paid handsomely for their time, services, expertise, and recommendations but I think you might be living in the past. Those of us who offer the consumer choices in the services they can receive and how they can be paid for are seeing a tangible increase in consumers who are choosing different paths. If you're not seeing consumers demanding some choices, chances are they don't know they have them. This will change. And choice is a funny thing: once people get wind of it, they don't want to give it up.

Why are We so Afraid to Get Paid Non-Contingently?

Mon, 28 Jun 2010 14:06:31 -0700

A recent post in Active Rain asked very simply "When Do Realtors Stop Working for Free?" She mentioned that she: "got an email today from a colleague who is a real estate investor. He is very savvy and someone who "gets" it. His advice can be summed up in a couple of snippets. If we are as smart as we think we are and we give great advice, why are we giving it away?"

The comments were overwhelmingly from agents that agreed with her premise but questioned how they could get paid in any way other than by commission. But there were a few responses that blew me away - one actually said that she "hated this conversation" because she maintained that we are (I guess she thinks we always have to be) commissioned salespeople without ever letting her mind expand that practices change when businesses do.

I continue to be amazed at how wedded we are to the commission structure as the only way to get paid. Yikes! You know we used to drive around in the horse and buggy but someone came up with the automobile and thought it just MIGHT work a bit better. And the blacksmiths who continued to put their heads down and shoe horses were soon out of business. Jeez! We used to use a typewriter. And how often are you using a fax machine these days?

For those who say you will make less money by having the ability to charge fees...PULEEEZE! You will earn MORE, not less, when you offer choices. You will get business you never would have had. No one is saying that you have to give up your commission income but having the ability to charge non-contingently secures a good living. When you're a consultant, you're never commission-ectomied because you can always offer to work by non-contingent ways. This is not conjecture - it's the experience of a growing army of real estate consultants who provide quality, transparent choices to the consumer in the services we can provide and how we can get paid for them.

I know change is difficult, but our industry has changed and we must also. We are no longer strictly salespeople charged with moving the product. We are charged with providing objective counsel that is in the best interest of our client, not ourselves. This is far more in line with service providers such as attorneys and accountants who get paid by fee.

Get with it folks!

Stop Explaining a Commission as a Payment for Services. It's Not!

Tue, 22 Jun 2010 07:36:42 -0700

"Don't get too close to me...I have a cold!" We have believed for so long that breathing the same air will spread germs, that it's almost a given. But if you talk to medical professionals, they will tell you that colds and viruses are rarely spread by breathing the same air. It's the exchange of body fluids that spread the germs.

In our profession, we have been told, and continue to tell the consumer, that a commission is a payment for services rendered. We've repeated it for so long that, almost universally, we believe it to be true. But logically, it's not. The consumer knows this and with a tight economy, they are increasingly asking some very logical questions:

"If I price my home where you tell me to, get it in tip-top condition, and make it easy to show, why am I paying the same thing as the guy down the street who does none of these things?"

"When my $600k home sells, I will be paying twice as much as my cousin across town who is selling a $300k home. Why is that? Do you do twice as much work? Or put in twice as much time?"

"If, as a buyer, I do my own driveby's and narrow down my choices so you only take me out once to find a home, why do you get paid the same as you would if you work with a buyer that required three months of house hunting trips?"

As I stated in Ripping the Roof off Real Estate, when agents complain to their brokers that it's getting more and more difficult to justify their commissions to the public, brokers overwhelmingly just tell them to show the client how much they do for them. And while I would agree that much of the public has no idea how much work is involved in bringing a transaction to the closing table, trotting out a list of the 450 Things That an Agent Does misses the point.

The commission system follows the basic rule of Economics 101: high risk must be paired with high reward. We shoulder all of the risk but get paid a high reward if successful. That's why discounting one's commission without reducing the risk we shoulder is often such a bad deal.

Here's the stark truth that we need to face head on: a commission has nothing to do with compensating an agent for time or services. Commissions are all about mitigating risk. Until we, as an industry, are willing to call it what it is, and provide quality, transparent choices in the services we can provide and how we can be paid, we will continue to see our compensation erode and our value undermined. Consumers, not understanding what we're getting paid for, will increasingly try to do it all themselves without the necessary services, expertise and representation that a skilled professional provides.

Real Estate Commissions - Answering the Tough Questions

Tue, 01 Jun 2010 15:33:31 -0700

I'm very pleased to let you know that I will be a guest of Jennifer Allen (Author of Sell with Soul) on Saturday morning, June 19th at 11:30 EDT as a part of her "soulful" series. The subject is Real Estate Commissions - Answering the Tough Questions.

If you dread that part of the listing interview where you talk about, um, MONEY, you'll really enjoy this show. I know that I'm excited to be a part of it. There is no charge to attend this seminar. For details and registration, click here.

How much more do REALTOR-assisted properties sell for versus FSBO's?

Tue, 27 Apr 2010 09:10:44 -0700

I'm in the process of writing an updated and revised edition of my book "Ripping the Roof off Real Estate" and I need some help getting my hands on some statistics.

In the chapter "The Unrepresented Seller" I quoted a stat from the 2005 NAR Home Buyer Seller Survey showing that REALTOR-assisted properties sell for 16% more than FSBO's. I need some numbers that are more up to date than 2005 and have had trouble getting my hands on a more recent NAR survey.

Does anyone have access to any studies showing how REALTOR-assisted properties stack up against FSBO's when sold? It doesn't have to be NAR's study (in fact a more objective source would be superior) but I want to make the point that going it alone is not the solution.

If anyone can point me in the right direction, I'd really appreciate it.

Lack of Transparency Befuddles Today's Consumer...

Tue, 18 Aug 2009 10:05:42 -0700

...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?

Continue Reading Lack of Transparency Befuddles Today's Consumer...

When a Model No Longer Works, it's Time to Adapt

Tue, 04 Aug 2009 07:16:35 -0700

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.

Continue Reading When a Model No Longer Works, it's Time to Adapt

ACRE made Inman News Today

Thu, 30 Jul 2009 09:05:33 -0700

I was pleased to see that ACRE made Inman News today: Timing the Real Estate Transaction http://tinyurl.com/lttej5.

The World Wide Rave...Outstanding Book on Social Networking

Sun, 14 Jun 2009 21:44:11 -0700

I just got through reading World Wide Rave by David Meerman Scott. What an amazing book! I've been struggling over the last few months trying to figure out the best way to get my book, Ripping the Roof off Real Estate, as well as the ACRE Course and Coaching Program, more notice. Especially on a budget, since I don't thousands in venture capital : >.

After reading this book, I feel like I have a new lease on life and work. I'm not in the book review business and if you know me at all, you know I don't swoon over much, but this book is amazing. The best book on using social networks that I've come across, bar none.

Now, if I could just start implementing everything I read...

Mollie

Want to Re-Build Consumer Trust? Then Stop Ignoring Human Nature!

Wed, 07 Jan 2009 10:50:12 -0800

Year after year, polls show real estate agents at the bottom of the consumer's "trust list". But given the inherent conflict of interest in the way we traditionally practice real estate, is it any wonder?

This morning I posted a link in AR to a new article I wrote for The Consulting Times entitled Want-to-Re-Build-Consumer-Trust-Then-Stop-Ignoring-Human-Nature! If any of you from this group have time to read the article, I'd be very interested in your thoughts.

Hope everyone is having a great day,

Mollie Wasserman

Founder: The Accredited Consultant in Real Estate® (ACRE) Program