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

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: