Fee Based Realtors.

On your side.....no fee based service for me. If I don't work on commission....I'm outta here.

Finding the house on the "net" is only the first step of many in purchasing property.

Amen!! It is too often that what we do is minimized. Many times during a transaction we can save our clients money or stress because of our knowledge and experience. I have a hard time even saying that he be able to hold the designation of Realtor.

Laura,

We have just had the fee based approach come to Canada. So, this Spring will be the first test of it.

I have been approached to ubndetrtake "negotiations" on an hourly rate based system. Since, I would have no other connection with the client, I don't even know who they are, it's not like I would otherwise be lsoing business.

These deals are coming up in the Spring. I'm considering it, and will probably say "yes".

Brian

Karen, you response is very true. One of newer clients initially tried a website that had them pay a flat fee to advertise their home (very minimally I might add) .....but get this after paying the client still had to take all the calls and do the showings. Needless to say that didn't work and now they're back with us...we all could make more if we charged by the hour, some people just want to take advantage.

I seem to have missed the blog and comment you are referencing. Can you provide a link to it? 

The commission based structure is a high risk-high reward compensation system.  Lawyers have a similar system - contingency fees.  Getting paid only for closed transactions means the transaction must cover costs incurred for the unsuccessful efforts.  The compensation is disconnected from the direct efforts.  A fee based service reduces the risk and reduces the compensation required.  Lawyers on a fee per hour basis charge less as it is tied to the specific service(s), not a specific result.

Our business model is fee based - we provide marketing services to FSBO sellers.  We started in January 2010 and have been well received as evidenced by the number of clients using our services.  On the other hand, a local broker stated to a client "ColumbiaGorgeFSBO.com is causing consternation in the market".  Historically, choices and change have caused "consternation" as products and expectations change, whether real estate, retail, or any other industry undergoing fundamental transformation.  Our experience reinforces that consumers are looking for choices.  Over time, fee based real estate services will become more common - my opinion.  Of course, every business is entitled to provide the services they deem appropriate.  Our business model is not meant to demean another business model or person - it provides an alternative choice for consumers.

Mel

Laura, I agree with you but the fact is that real estate in the future is in for some huge changes and 'fee for hire' is one of them.

Ty

Hello Laura,

I'll stop back by on Sat to respond to some of your questions in your comment #8.  Have a great New Years Eve.

Mel

Hi Laura,

I wanted to follow up on our your comments - took me a bit to get back to you.

Could you point me to the blog and comment which prompted your blog?  I would like to see it to get some context to your posting.  Thanks.  Here are my thoughts on your questions/comments from the other day. I'll underline/italicize my comments after your comments in #8 above.

I watched my sister pay thousands to lawyers in a child custody battle because they got paid by the hour. Why would a buyer want to take the risk of paying an hour rate for a Realtor. What if they couldn't find the perfect house. All those hours driving them around? Do you charge for gas? Do you charge someone buying a $100K house the same as someone paying $500K? Does your rate change? Can that $100K buyer afford you now?
My answer to your questions - it depends on what the consumer and the real estate agent/broker agree upon.  In my other company (CFO consulting for small businesses), I meet with the client, determine the business needs and expectations, then propose a solution to meet their requirements.  The cost depends on the needs and mutually agreed upon results/expectations.  If they agree, we move forward on the project.  Sometimes they hire me - sometimes they hire another consultant or do it in house.

Consumers want choices - one price does not fit all. Real estate is slowly realizing this and different forms of compensation are being developed and offered to consumers. Over the last few years, it is very clear to me that consumers have a never pay Retail mindset. Many businesses realize this and have responded by offering value pricing, discounting, etc... It does not mean they failed as a retail business; it means they are responding to changing customer needs and wants.

Our belief - not all property owners want or need the traditional commission based level of services. Offering a variety of service and pricing options provides the consumer choices.  You apparently assume all sellers and/or buyers are incapable of doing some of the selling/buying tasks themselves. For example, many consumers are very proficient negotiators as they do it every day in their business lives.  They may also be comfortable with contracts or hire an attorney, etc...  FSBO real estate and a fee-based system is not for everyone. We readily admit that.  It perfectly suits others - part of the choices available to consumers.

Consumers can buy many types of cars with various performance and features.  If the car industry utilized the traditional real estate model, there would be one high priced vehicle offered with a full set of high priced features.  Some want the traditional service level and are willing to pay the associated commission.  Other consumers do not see the value of the services in the commission based package and want alternatives.  The price/value perception is determined by the consumer, not the provider.

Not to mention high risk for who whom? Not the buyer? If you work hard and have skills you represent the buyer on their home of choice. You don't control the commission offered. Yes it's high risk for the Realtor because that's our job. No risk - No gain. 
The typical commission based real estate compensation model is high risk for all parties to a completed transaction (the agents, brokers, buyer and seller).  The closing transaction has to cover expenses and labor for all of the incomplete transactions - hence the high risk, high reward compensation to the real estate agents/brokers.  If the buyer and seller were only paying for the costs associated with their closed transaction, it would typically be less (notice I did not say always - exceptions happen).  You indicate not high risk for the buyer - yes, they do not pay anything if they do not complete the transaction.  However, if and when they do complete a transaction, their purchase price is paying both sides commission.  And the commission cost is higher because it has to cover costs not associated with their transaction. Please do not say the seller pays the commission - the buyers money is passed through the seller to pay the commission. The buyers cost would ultimately be less if the compensation system is not designed to cover non-related transaction costs.  It is similar to health care - we know we are paying for our healthcare plus some of the care provided to those without insurance or the means to pay for healthcare.

As for sellers who cares about marketing? What do you provide in negotiations and releasing them from risk? How much skill and experience do you provide in terms of contracts, loan qualifying, and contingency removal? Do you fight for them in terms of escrow fees, reviewing title reports, providing proper disclosures, and getting more money? Why would you, you get your fee?
Who cares about marketing?  Do you REALLY mean that?  Every seller should care about marketing their home - exposure and pricing are key to getting the home sold. Some consumers may need the services you mention - others do not.  Our business model fills a niche - providing marketing services to FSBO sellers - period.  We are not real estate agents; our clients have been able to negotiate and close their transactions successfully - how they go about doing so is their choice.  Some may do it themselves, some may hire an attorney, some may hire a real estate agent/broker on a fee basis, etc... It is working for them.

I have a proven track record of getting tens of thousands more for clients then than discount brokers. 
This has to be a hypothetical statement as no transaction can be completed by two different parties at the same time for the same property - that would be the only way to prove your assertion. This is not meant to be argumentativ - I find it interesting when this is proposed because it can't really happen.  It is playing with numbers and pure conjecture.

You represent people that want to save a buck, which is a fine choice for some. I hope that consumers realize that discount brokers are there because they couldn't make it among really skilled and experienced Realtors. They settled because they couldn't survive with their knowledge and skill. Is that someone I want representing me on my largest investment? Heck NO!
I did highlight a portion of your comment. Your stereotype of discount brokers is an over the top exaggeration - you are entitled to your opinion but I very much disagree with the negative name calling.  Are orthopedic surgeons, family practitioners, etc... inferior doctors because they could not do brain surgery? Tarring all with the same brush is wrong.  Politicians use the same tactics to smear their opponents - we all know how slanted such tactics are and how savvy consumers discount such smear tactics.  Showing the value of your full service offering would be a more positive, professional response.

If I'm on trial for murder I want the best darn lawyer! If I have to have surgery I want the best darn surgeon! If I am selling my largest investment, I want the best Realtor! The best Realtors don't work on fees! 
Most of us can not afford the best lawyer, doctor, etc... They are beyond our means - realistically, what I really want is someone good enough to reach my desired outcome.  If a fee based real estate agent/broker sold/helped me buy my home they helped me reach my desired outcome. Ultimately, it is what the consumer desires - if we do not meet their needs the business does not thrive or survive.

Thanks for the dialog on this topic - looks like we are going to have differing opinions.  I may end up writing a blog referencing our discussion and my thoughts on the issue.  Take care,
Mel