It's All About Value: Fee-For-Service or Commission?

By
Real Estate Sales Representative with for real estate results in the Tri-Cities.

The home buying and selling public do not always understand a real estate sales professional’s value, and in many cases they believe all real estate agents do the same thing.

When someone perhaps not properly informed is preyed upon, buying business by offering lower prices is relatively easy.  This is the essence of (real estate) commoditization, and in my opinion, using the cost of selling is the laziest and riskiest method to market with.

When the consumer is presented the full spectrum of service models (and credentials) to understand and make an informed choice, value (versus price commoditizing) should win every time and besides, the risks that can accompany a bungled transaction far outweigh the costs.

It’s ironic that Joe William should call his business “Best Value” real estate, and perhaps a bit misleading as well.  The $109 “fee for service” listing William offers leaves the Seller to take care of everything else; there is no representation!

This is what John Ruskin knew more than 100 years ago: “There is nothing in the world that some men cannot make a little worse and sell a little cheaper, and he who considers price only is that man’s lawful prey.“

In “Balanced” and “Buyers” markets there are many Sellers getting in “pennywise, pound-foolish” situations, and it has been proven time and time again that far too many lose.

The real estate industry commonly offers the public something called, “Full Service”, which is a bundled package that is generally undefined.

Even some of these generically named, “Full-Service” real estate models will provide for economizing consumers, but can only maximize the ROI with some regularity in a “Sellers” market.

Selling using William’s “fee for service” model certainly won’t guarantee that a Seller doesn’t face additional commission fees. If a Seller posts through William for $109 and the buying party is using a real estate agent, commission fees based on the selling price will likely apply.

Research findings of Richard Robbins International show that a Buyers representative spends on average 32 hours with a Buyer. That Buyers representative will expect to be fairly compensated if they deliver a pre-approved Buyer to the Seller, and when all the other costs are figured in.

Offering a low Buyer’s commission is counter intuitive if a Seller wants to attract pre-approved, qualified Buyers.

Despite being unaware of the many issues that can complicate a sales transaction, some sellers using low cost fee for services are successful in getting what they pay for.

An “economical” sale is more likely to cost unsuspecting consumers more money, take up much more time than selling with a professional, and has additional risks.

The time spent planning, preparing (the home itself, making signs, printing feature sheets, etc), advertising (newspaper, Internet, etc), taking or returning phone calls, arranging showings (to sell an average home requires 12-20 showings, each showing takes 30-45 minutes), etc., is daunting.

Unlike a Realtor, the public is not covered by errors and omissions insurance and will face the risks of showing the home (and everything in it) to unqualified buyers.

Many buyers who do look at private sales are bargain-hunters looking of course to save, and don’t kid yourself, they are well informed and expect the full commission deducted from the sales price.

What if, like the majority of unassisted sales, your house undersells by 3 or 4% because of the discount mentality? Ouch!

If by chance (or because it was priced too low) you were able to obtain multiple offers are you able to deal correctly with them?

Don’t forget the fact that dealing with unqualified buyers often leads to private Sellers having numerous offers collapse.

A discounted service that loses sales, reduces marketability, results in a lower selling price, creates more work and stress, or misses any opportunity, could be a very expensive lesson.

When you lower your commission, you essentially have two choices – to reduce your profit margin, or to cut back on what you use to get the home sold. Neither scenario is very attractive or helpful in guaranteeing you earn the highest possible price for that home.

Think about how much you really saved in commissions? What other experts offering low cost solutions do you know?

Remember that a Realtor offering fee concessions has already given away a part of their commission before they’ve even started. Do you really want them negotiating for you?

Your choice of Realtor could be the best investment you make as either a Buyer or Seller.  Why compromise?  Well it is your money and it is your choice, so choose wisely.

Going into a real estate transaction few people understand what (value) they are getting, which has contributed to a belief by some that Realtors are overpaid.

You should question the value of the business model that you choose for your real estate services because most REALTORS work on a contingency basis (commission), which means they don’t get paid unless you are successful.

The value of loyalty offered by REALTORS working on a contingency basis (versus, “fee for service”) to consumers in a real estate transaction is irrefutable and underestimated.

Sure, we’re more expensive than the competition, but there’s a good reason for that …

All things are not equal and I set myself apart from the low cost, minimal care and short service providers, and I will not compromise my reputation, or my customer’s best interests.

We’re certainly not about to start compromising our reputation by downgrading our service and offering concessions, or most importantly our results.

If you’re looking for cursory services you’ve obviously come to the wrong place. I really want to help people who are interested in what I have to offer (real value for money).

Delivering the high-level of service the customer pays for and the results expected, is where the real differentiation begins.

The most important question we can ask is, “What do our customers expect?” How could I possibly be fulfilling my professional obligations (fiduciary duties), working in the customer’s best interest, without knowing this?

Through an interview and assessment process I want to clearly understand what a prospective customer expects at the outset.

Then I put together a customized but flexible project plan in writing for the prospective customer to clearly understand what they will get, and if the plan needs to be changed it will be.

If you've read this far (sorry about the long post), chances are you have some views to share; I'd enjoy hearing them and thank you in advance.

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Comments (4)

Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

John,

I think price is going to be a significant feature in all of this.

I like your argument. But, the question is: how soon will others join in and reduce fees, to to compete.

Brian

Jun 27, 2010 09:49 AM
John Grasty
for real estate results in the Tri-Cities. - Port Moody, BC
Your Tri-cities REALTOR, neighbour and volunteer.

IMHO Brian, far too many already try to compete on price because they have difficulty distinguishing from others; they are a commodity.

I believe that failing to add value (beyond "Full Service", whatever that is?) is also why so many have to go so far afield using a shot-gun marketing approach for generating business. 

Jun 27, 2010 10:11 AM
Not a real person
San Diego, CA

John Ruskin knew that of which he spoke. Unfortunately, when people become lawful prey, there are people in Washington, D.C., and 50 state capitols who want to protect those people from their own stupidity. Stupid people filing stupid lawsuits are why my frozen waffle says in bright, bold red letters "Cook before eating." Well, duh.

Jun 29, 2010 01:27 AM
John Grasty
for real estate results in the Tri-Cities. - Port Moody, BC
Your Tri-cities REALTOR, neighbour and volunteer.

You're right Russel, due diligence (reading the bright, bold red letters) applies to waffles as much as it does to real estate.

Most Realtors will direct and guide a client through the quagmire, and as much as those in Washington and the state capitols (and just about anywhere for that matter) want to protect homeowners, the reality is that there is little meaningful homeowner protection and people will unfortunately continue to be preyed upon.

Thanks for contributing Russel.

Jun 29, 2010 05:35 AM

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