Very interesting.  Are they nationwide at this point?  I've never heard of them here.  But the one big flaw in the fee for service thing is that very few people want to pay upfront for anything.  They simply prefer to have it handled by the listing agent's broker at closing.

The other big flaw is that the buyer  has no standing in the listing contract which has set the commissions.  The buyer also has no standing in the co-op agreement through the MLS that actually is the contract for the buyer's agent's commission.   People seem to forget that it's not the seller who is writing a check to the buyer's agent, but the listing broker who is paying the buyer's broker. 

If that many buyers only wanted to pay an hourly rate for services, more real estate attorneys would be handling transactions.

This task or hourly model will flounder and go away, because for any agents to make any money at this kind of real estate the hourly rates would have to be too high for agents to stay in business and clients to agree to pay it. Too many gaps of what people don't know what they need will make this a disaster model with the complexities of a real estate transaction for MOST people. This organization will disappear due to it not working long term. Classic example of you get what you pay for. Cheap yields DISASTER. The WHOLE industry would have to switch to this for this to even have a micro chance of this succeeding....

Hi Lynn, I've never heard of this and don't believe it will go anywhere. I do agree with Gary above.  I have suggested this and would like to see what others think of this HBrevolution.com

Hmmm . . . so what this is saying is that the listing agent's services are worth $12,000 . . . and the buyer's agent services is 10x less?!?  And the simplistic video is ridiculous.  Buyers don't pay for the services of a "traditional" buyer's agent. They don't pay for the commissions anyway.  It's from the seller's net.  Another pimp company trying to whore buyer's agents out for their benefits.

Good morning, Lenn. I thought the video was quite lame but then what is my opinion worth...

Hmmm, not to disparage the conventional wisdom of my colleagues here, but...let’s take a quick walk down memory lane:

• In 1876 a western union internal memo stated that “This telephone has two many shortcomings to be seriously considered as a means to communication. The device is inherently of no value to us.”
  
  
• In 1903, the president of the Michigan Savings Bank advised Henry Ford’s lawyer not to invest in the Ford Motor Company. He said “The horse is here to stay but the automobile is only a novelty—a fad.”
  
  
• In 1921, investor David Sarnoff’s colleagues then said about the radio “This wireless music box has no imaginable commercial value. Who would pay for a message sent to no one in particular?”
  
  
• In 1948, Mary Somerville, pioneer of radio broadcasts predicted “Television won’t last. It’s a flash in the pan.”
  
  
• In 1977, Ken Olson, founder of Digital Equipment Corporation argued against the development of a personal computer stating “There is no reason anyone would want a computer in their home.”

Throughout history, those who could not envision the future and adapt to change ended up missing the boat.

Industries DO change when consumers demand that change and we are in a very different world today when alternative compensation has been tried before.

Our industry’s refusal to adapt to the changing needs of today’s consumer doesn’t eliminate those needs. It simply drives these consumers elsewhere or they go it alone. They are already doing so and if real estate does not start offering some quality, transparent choices in the services sellers can receive and how those services can be paid for, our industry will continue to erode. I'm not talking about cheap gimmicks and sales pitches that undermine our image and professionalism - I'm talking about quality services.

What's missed by so many in our industry is that offering choices is not just about transactions, it's having the opportunity to get paid for the time and services we so often give away for free. As for the those who think that consumers will never pay for what they can get for free, I advise that they look at the financial planning industry which in the 80's was a strictly sales model, but consumers demanded a choice and an opportunity to get truly objective counsel (which cannot be had when someone is selling a product), and from this demand, the Certified Financial Planner was born and has grown astronomically in the last three decades. Yes folks, people pay CFP's when they could get advice for "free" from financial salespeople selling products.

Check out: How the 99 Cent Song Saved the Music Industry and What Real Estate can Learn.

For those who say that adapting to the changes around us will never work, I invite you to check out the ACRE® program. Consulting is not about a fee schedule. It's about providing quality choices that can include commissions as one of the choices. If you're more the visual type, we also have a wealth of videos for consumers and professionals at ACRE® Videos. Trained consultants do not earn less - by offering choices they end up earning far more and capturing business that they never would have had.

Hockey great Wayne Gretzky was asked once why he was so great. He didn’t comment about his speed on the ice, the way he handled the puck, or even how he took his shot. He simply responded: “I go to where the puck is going to be, not where it currently is”.

 

 

I think it's best if we all stay in curiosity, not judgment.

I know it's easy to judge new ideas as something to be feared and there are outfits out there that do niether the hard-working professional nor consumer any favors, but I can tell you that Glenn's company works closely with ACRE and our common mission is that consumers receive quality services and fiduciary counsel while giving them choices as to how to pay for them.

The consumer should not be forced into paying by commission in order to get professional care and guidance and the two do not have to go hand in hand. Many consumers will still feel most comfortable having no risk and trained consultants can oblige but the consumer should choose commissions because it's the BEST choice, not because it's the only one. Not to speak of the fact that many real estate needs do not involve a transaction (or not yet) and real estate has forfeited a fortune over the years because we didn't have the structure to provide (and get paid for) professional services for those who don’t fit our obsolete mold.

I personally have little regard for cheap, bargain basement outifts that undermine our value. But offering alternative compensation options does not do that. Before judging, take a few moments, visit their "home" and see what's being proposed and offered.

 

In my mind, real estate consulting is a frame of mind, not a compensation schedule.

Each person takes the consulting concept and makes it their own. Some have one idea of how it should be practiced, and another person has another idea. Glenn has taken the consulting concept and fashioned a unique business proposition. Disparaging remarks won't judge whether his concept is valid....the market will.

Both concepts can live in harmony under one roof. It's NOT an either / or situation.

I belong to ACRE and agree with the concept of offering alternative models of compensation. I've been working on pricing models to see how this can work for me.

I watched the video and here's what I come away with.

Assume I need to Gross $100.000 per year in order to Net $70,000 after Overhead.

In order to Gross $100,000 (for example sake, assuming a 3% buyers side or seller side commission on every transaction) and an average sale price of $250,000 per home, my total sales would need to be $3,333,333 or 13.3 homes. I may meet and spend a few hours with 26 buyers, half of them electing to drop my services or not buy now.

In the video the agent is earning only .003%, (1/10th of the 3%) or $1,200. 

In order to Gross the same $100,000 using the video formula I would have to sell 83 homes. (Or rather, have 83 paying clients.) But a client who pays the upfront money is going to be serious and most likely all 83 would buy a home.

Question: What would I have to do in order to increase my sales to 83 homes (6.9 homes per month).

Answer: I really couldn't do it because I would have to establish a team and have a couple of assistants and increase the marketing expense. In order to pay the team and assistants I would need much more than 83 paying clients. 

Also, if the agent determines they need to earn $150 per billable hour to meet the required Gross Income, then she can only spend 8 hours with each client. Realistically, from the initial consulatation time to finding the right house, and agent will probably have around 25 hours invested.

The ACRE concept is a good one, but the video example is bad because one cannot operate on a 0.003% of sale. The agent would get paid on each one s/he worked on, but she would have to work on an unrealistice number of transactions.

Another thing that concerns me is that by lowering the home selling price by $11,000 in the video model, the buyers have benefited by a lower mortgage, but they have also artificially lowered the comps in the community. Appraisers use the sale price and any seller concessions they may know about, but they would not add back in a 2.9% commission to bring the sale price of that home back to $400,000.

 

 

 

 

 

 

Brokers traditionally get paid on a contingency basis because they are assuming all of the risk hoping the deal will make it to the settlement table. If it doesn't, we hope and pray the next one will close in order to make up for the loss. I hear agents grumbling all the time that they don't like working for free, but yet are afraid to ask for a non-refundable retainer. Agents are doing fewer deals and cutting back on expenses in order to make the commission from the last deal go farther. Is this fair to the consumer?

What is the harm in looking at an alternative model that is a win-win situation for both the consumer and the agent? Will all consumers agree? No, but you may be surprised at how many will agree. Fee for service is not discount brokerage, but a way for the consumer to save some money and at the same time the agent is being paid for their time.

Is there any harm in giving the consumer options and letting them make the decision as to whether or not they want to pay on a contingency basis or on a fee for service basis? Attorney's learned a long time ago that when you work on a contingency basis, you have to charge more, a lot more. The wins have to make up for the loses.

If the seller or buyer is willing to take on some of the tasks that doesn't require a broker's skill sets is it wrong to ask them to pay only for the services rendered? It's all about choices. Isn't it time we let the consumer make the choice that is in their best interest?

 

Hi Lynn - Nice topic and interesting discussion, and tangentially related to my post earlier today about changes in the way we do business. Personally, I don't think this particular model is the one that's going to be the next great thing, but thanks for keeping the pot stirred - this kind of discussion is very helpful in making us aware of what the future may bring.

 

Win win situation....I don't think so. That agent will soon be using food stamps to purchase necessities.

I received my ACRE designation in July.  I couldn't wait to use it.

Basically for me, it's just about giving my consumers options.  So far I have used it primarily on my listing appointments when the discussion of how high my commission is.  We get in to the discussion of them having options, I show them my consumer choices.  It gives them a clearer picture of just how much risk we take on, in any market, but especially in this current market.  So far, it has ended the commission discussion much faster than it ever has before.

At this point, I have one client considering the pay up front option for their listing.  It was a referral, and they want to list with me.  They believe their home is worth $45,000 than my CMA concluded. I suggested an appraisal, the jury is out on that so far.  I refused to take the listing, knowing it will not sell.  So I suggested they pay up front.  If they feel that strongly about the price, than I will do the work, but want to be paid for it.  When, it sells, I will deduct the retainer fee from the commission.  But I won't deduct the amount if it sells in the range I have suggested with my CMA.  We will have paperwork in place that states the above.   My broker is fine with this model

 

 

'Carla - the thing about AR is that we are all entitled to strong opinions but are encouraged to avoid name calling and use of inflammatory words. In peace ...

Glenn

Lynn, You certainly created a controversial post!  Wow!

Lynn I am on my iPad so I cannot view all comments right now, but I can't wait to do o when I get to a computer. I fully support the ACRE model and don't plan to be the last one to grasp and adopt this concept. Agents are ever boasting about keeping up with a changing market and yet those very same agents diss this magnificent movement in favor of a model that (1) gives consumers dditional options and (2) makes way for us to be more fairly compensated. Go figure.