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Think Real Estate Consulting is Just a Fancy Name for Discounting?

Or Just "Fee-For-Service"? Think Again.

A few years back when I was teaching "Introduction to Real Estate Consulting" at boards and associations, it was common for agents, brokers, and managers who didn't understand consulting to dismiss it as "discounting". This type of comment was always amusing to me because in fact, I developed my consulting model as an anecdote to discounting.

Commissions are, by their design, built on "high risk-high reward". In fact, the reason that commissions are a relatively expensive way for consumers to pay for real estate services is that the lion's share of what the consumer is paying for is risk mitigation. Discounting has nothing to do with what percentage is being charged (there is no such thing as a set commission). Rather, discounting is when an agent or brokerage agrees to continue to carry all the risks inherent in being paid on contingency, but simply agrees to less reward. That lower reward means that they have no cushion to cover them when other transactions don't happen. That's why I believe that discounting is a bad deal for our industry.

Consulting on the other hand, takes a very different approach: it offers transparent choices to the consumer in the services they can receive and how they can pay for them. A real estate consultant can lay out the cost of their various services and give the consumer a choice in paying for the services themselves (the way we pay most service providers) or pay for the risk mitigation that a traditional commission provides, but they MUST understand that they will pay a premium for that "insurance policy".

More recently, we sometimes hear from our colleagues that consulting is just "fee-for-service". Certainly, practicing real estate from a consulting model does entail offering fee options, but the consulting model encompasses so much more that. If you think of consulting as simply providing "fee-for-service" options to sellers, you're missing the boat on what consulting is all about. You're also missing out on a whole lot of extra income!

Consulting is a whole new approach to your business. It's having the "tools in your toolbox" to offer the consumer quality choices that pay you fairly for the expertise and years of experience that you bring to the table. It's knowing your value and having the confidence to walk away from clients who will sap your energy and not provide a good return on your investment. Consulting is about knowing what you are worth and settling for nothing less. Read the full article...

Posted by Mollie Wasserman on 09/08/2007 11:39 AM

Comments (29)

discounting, discounters, feeforservice

29 Comments on Think Real Estate Consulting is Just a Fancy Name for Discounting?

SEP

2007

Mollie:

You get what you pay for.

Hey Molly, nice to see you here on ActiveRain. This is a very friendly place to exchange ideas and learn or just plain rant.

Welcome

Absolutely Bill, and I stress that to consumers in my book Ripping the Roof off Real Estate.

My point is that the lion's share of what a commission pays for is risk mitigation - if the consumer pays for the services themselves they can pay less, still get the highest quality, yet we get paid very well for the time and effort that we bring and even better, we're guaranteed of being paid.

We need new solutions that are a win-win for both consumer and agent. If, we as an industry, don't come up with something other than the "same old same old" to meet the consumer's needs, they will go elsewhere. As Bill Gates said this past June: "Yesterday's answer has nothing to do with today's problem".

Mollie

Mollie, I believe we are seeing the whole fee structure changing into a new era. We will see, good post!

Regards from Charllottesville

Charles McDonald

SEP

2007

Great post!

Wonderful post Mollie.

I was a high tech consultant for many years prior to real estate and I am very familiar with the concept. Don't know why I never thought of it in this context.

Thanks for getting the juices flowing.

Jeff

I don't necessarily agree that "you get what you pay for" As Mollie was trying to say, every closed sale is helping to pay for every transaction that did not go through. The ad expenses, child care expenses, etc... In most cases, you are also paying for what others got.

Perhaps it is because I am so new to the industry, but I honestly don't see the problem with "paying for what you need." I have a friend who is a photographer. If he were to sell his (imaginary) home, what point would there be to me making the flyer and brochures, etc when that is his specialty. Yet he traditionally would not get any kind of discount for doing his own work..

I think for some people, this is a good way to go because they don't need as much assistance from a Realtor as others. It's very individual. I think something like this can help meet individual needs.

I kind of wish buyers were charged for the services provided to them - then there would be a lot less time wasted for everybody involved! It wouldn't even have to be a significant charge - but it would weed out those who aren't really interested. It could even be set up somehow so that that money was somehow reimbursed to them at closing. Kind of like earnest money. You are making a statement that you are in good faith seeking to buy property.

Will it ever happen? I don't expect to see it - but I think it is something else that could be benefitial to everybody involved.

Molly, welcome. I also sent you an email. Is this similar to the NAREC/CCrec program? What do you feel the differences are? As Consultants, do you also list property? Would you still be a NAR and MLS members?

Hi, Molly, and welcome to Active Rain! You wrote a rightfully Featured post. This is good information for everyone and food for thought.

While the client saves money, we save time. We only deal with committed clients, and are paid for our time.

I think it would be a glorious day when the fees are paid separately by the buyer and the seller to their respective representives for the services provided. Now we just need to have the mortgage industry permit the buyer's fees to be financed (as many argue the buying is bringing the money to the table now -- not the seller).

A very provocative post. By the way, what is wrong with fee for service? Many other recent posts have lamented not being paid for all our hard work. The traditional model just assumes that the fee paid will match the value of the consulting and service provided.

Very interesting Mollie. Paula has been in touch with me about this. Maybe I need to open my mind and take her up on her lunch offer and pick her brain a little further.

Suzi Gravenstuk asked: Is this similar to the NAREC/CCrec program? What do you feel the differences are? As Consultants, do you also list property? Would you still be a NAR and MLS members?

All three of the ACRE^TM Coaches took the C-CREC class. While we think all education is good, we wanted to develop a program FOR agents BY agents. A prominent difference between the courses is that the coaches for ACRE^TM are Realtors®, and have years of successful experience in the traditional commission system as well as fee-for-service and hourly consulting. They know the issues facing you and how to resolve them because they are "in the trenches" alongside you on a daily basis.

Also, as far as we know, the ACRE^TM Course and Coaching Program is the only real estate consulting designation course that is empowered with a Graduate Coaching Program for ongoing education, tips, strategies, current topics, problem-solving, and staying sharply aware of current market trends, shifts, and affairs. We feel this is exceptionally important to the paradigm of consulting in any industry. You can take a class anywhere, but if you need help or need someone to turn to for advice, this is what sets the ACRE^TM course apart from any other real estate consulting course in the market today. You receive a full year of the graduate coaching program with your course fee.

ACRE^TM grads absolutely list property - we do all the "regular" business that any agent plus ACRE's have the tools to do a lot of work that does not involve transactions and would not traditional be paid for. And yes, we are definitely NAR and MLS members. Just like "regular" agents.

Mollie

Dan Homan wrote: By the way, what is wrong with fee-for-service?

There's nothing wrong with it Dan! All I'm saying is that consulting is about a lot more than just charging fees. It's providing quality, transparent choices to the consumer. You can practice consulting and assist the consumer while being paid by fee, hourly, or by commission. It's the approach of knowing your value and charging for it. It's also having the courage to tell the consumer that there's no such thing in this world as "free" - that services rendered must be paid for, in one way or another.

Mollie

I enjoyed your book, Mollie. There's room for all kinds of different models in the business and what I liked best about your idea was what Sharon mentioned in her comment-we get paid for our time and expertise.

Very good post Mollie.

I just wrote on this myself. I believe that it's time to change our profession from a sales profession where our job is to SELL, SELL, SELL to a consulting profession where we HELP, HELP, HELP. As consultants we are paid for our expertise.

I really like the analogy to more tools in our tool box. I enjoy offering clients options. They can choose how to pay and how much to pay.

Mollie, Great post. In 1980 I took a course Real Estate Consulting and have been using the knowledge since. Had clients with special needs that hired me by the hour back then. It is not new, just glad to see people thinking more.

I keep moving, if only in my mind, more and more to a consultant/advisor role for my real estate practice. It suits me more. And I'm worth evey penny I would expect to be paid. I've bookmarked the post and your web page. I'll be back to study some more.

Mollie, A great big welcome to you! Congratulations on this well deserved featured post.

Hope everyone gets a chance to read your book..RIPPING THE ROOF OFF REAL ESTATE

This is something I have anticipated for at least 20 years, even trying a few times to implement it. Maybe the time is right now. I believe this is the business model that will change our industry rather than discounting or even the Internet. Thanks for your post, and I look forward to reading more.

I have been tinkering with Graduated listing packages, allowing sellers to pick and choose certain services and even offering a small discount if they are also purchasing a new home through us. I don't think the public is ready for it yet. There are some cities that are a little more progressive than mine but it will probably be while before this takes hold here.

You bring up good points. With all the online discounters out there, it is getting harder and harder to get people the service they deserve...

The service they deserve .... want....or need?

The theory here assumes all of the 'consultants' are highly qualified and being 'top gun service' to the table. We 'all' know that's not true.

i'm so confused as to those that think they offer more than their 'peers'....STILL charge 6% (/2).

I know Realtors can't discuss actual % on AR.... or shouldn't....but it's no secret that the VAST majority of you charge the same rate. I always wondered ....why?

I have an effective process I use and it would be way too confusing to try to remember how to handle each listing differently. I think I'll stick with what's working for me.

Mollie, It is so good to see here on Active Rain. Hope everyone reads your book "Ripping the Roof Off Real Estate".

Congratulations on a well deserved featured post.

Interesting - thanks for posting.

I love taking the real estate consultant role. I am not press nor do I pressure my clients. I explain upfront how I work and what I do as a real estate consultant. They understand that I am not trying to sell them anything. I am giving them options and guiding them to make decision to obtain their goals.

SEP

2007

I have been working to implement fee for service for a couple of years. I have a consulting background so it makes perfect sense to me. I've read your book and I think it is only a matter of time before the consumers understand that there is another way to do business.

DEC

2007

You bring up good points. With all the online discounters out there, it is getting harder and harder to get people the service they deserve...

Todd - Some folks don't want service. Some people like shopping at Wal-Mart, some like 5th Avenue, and others prefer Target. I don’t think it is fair to make value judgment as to what a persons deserves until we know something about their values and motives.

At the same time people have to be careful as to what they say they want, because they might just get it. And sometimes when they get it may not be to their liking. I’ve seen too many people in this business tell folks what they need without asking them what they want.

That can be a great disservice.

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