Say Goodbye To Real Estate Commissions Say Hello To Hourly Fees And Retainers

By
Real Estate Broker/Owner with Sweet Digs Real Estate

By Renee Porsia, Real Estate Girl

For as long as I've been a Realtor which is 10 years now, I've always heard sellers and buyers say that Realtors get paid too much money.  Easy to say coming from someone who isn't paid by commission only and who gets a paycheck every Friday.  It's always easy to judge someone when you do not walk in their shoes. Isn't it?

Too much money; seriously? How much is too much money anyway and who appointed those people the salary police?

Let's talk about this for a second. When someone contacts me to come to their home to possibly list it and I am there for an hour or more, I am not being paid and if they do not hire me, I worked for free. If a buyer contacts me about buying a home and I meet with them and spend an hour with them and they do not hire me, I worked for free.  If a buyer decides to work with me and I show them 1 home or 50 homes and they decide they do not want to buy any of them after I just spent 3 months with them, I worked for free. If I list a seller's home and the home never sells after I spent money to advertise it, which includes signs, lockboxes, flyers and internet marketing, I worked for free and I am actually out money because I have to pay out of my own pocket to market the home.

Now, lets look at it from a different perspective, if I meet with a buyer and they decide to work with me and I show them one home and they buy it, I get paid a commission aka fee for service when it settles which still will take no less than 30 days and if I list a home and it sells in one day, I will be paid my fee for service again in no less than 30 days and many look at that and say well, she didn't do anything and she is making this much money but what they fail to understand or know is that there is still a lot of work that needs to be done before settlement day and guess who is doing that work, me.  One of the most valuable services I will be providing to that buyer or seller is to ensure that settlement will indeed take place and that the transaction doesn't fall apart.  So many things can happen during the time a buyer signs an Agreement of Sale or when a seller accepts an offer on their home.  I will have to deal with the mortgage company, title company, inspection company, the other Realtor, do mounds of paperwork, spend hours on the phone going back and forth with those involved, arrange final walkthrough and attend, arrange inspections and attend and if all goes as planned, finally attend settlement so at the end of the day or in this case, transaction, I could have possibly spent well over 40 hours on just one transaction. Most people get paid weekly for a 40 hour work week. I will wait 30 days or more to be paid and that amount will be different each time and will depend on how much the home finally sells for.

I'm sorry but that is a damn good arrangement for buyers and sellers. They pay nothing while I do all the work and they will not pay anything until they go to settlement and then, that's right, it's time for me to be paid for all the work I've already done.  Who else provides that type of fee arrangement?

But hey, I can change if you want change. Rather than pay a commission or fee for service, let's change the way the entire real estate industry does business.  Pay an hourly fee or an up front retainer. If you are a seller and would like for me to come to your home for a listing appointment, I'll charge you an hourly fee and this way, if you do not hire me, I still earned my fee for services rendered and I am paid for my time to meet with you.  If you are a buyer and you want to meet with me before you decide to hire me, you pay me an hourly fee and then you can go home and decide if you liked what I had to offer you. If I show you 1 home or 50 homes, you can pay me an hourly fee and if you decide to never call me again or to go buy a home from your best friend who just got their real estate license after I spent 25 hours with you over the course of 2 months, well then no harm, no foul because I've been paid.  Hey, if you don't like hourly fees, pay me a retainer and after that retainer is used up, you can pay another until you finally make settlement on your new home or sell your existing home and if you decide not to buy or sell, well then that's the "price" you will have paid for my services.

What are your thoughts?  I'd love to hear them.

Renee Porsia is an Associate Broker with RE/MAX Action Realty and published Author.

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  1. David Robinson 09/16/2010 12:58 PM
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Rainmaker
1,003,133
Corinne Guest
Corinne Guest, REALTOR® | Barrington Realty Company - Barrington, IL
Barrington Lifestyles

Very well said. I have no hesitation in explaing about broker splits, taxes, social secutirty, 401 k after the split, and then how I pay my mortgage etc. I think somehow the consumer justs sees the singlke number and thinks wow that's a lot. As in everything real estate we need to educate clients

Sep 16, 2010 10:49 AM #20
Rainer
44,193
Mark Ruda
Mark A Ruda - Fox River Grove, IL

Agreed that change is not likely to happen, any time soon.

If consumers can get free services under the current system, why would they want change?

Fees for services and hourly rates would help put us on the same system as other professionals, but as some have mentioned earlier, there will ALWAYS be those who complain it's too much.

It's not just real estate agents, by the way. I'm married to a retired public school special education teacher, and her former profession was a frequent target. Not that any of the critics were rushing to get certified to teach nine months a year, or get licensed to sell real estate during the summer. In many people's eyes, they're underpaid and everyone else is overpaid, and should work for them for free.

 

Sep 16, 2010 10:50 AM #21
Anonymous
Consumer

I have read on AR that some agents offer clients a choice of commission or fee certain, and that fee certain is rarely chosen. I personally don't care how RE agents choose to get paid, but I believe that buyers and sellers should each pay for their own representation.

One reason consumers believe you are overpaid is we see the total commission in one number. Most consumers do not realize the typical commission is shared by four or more agents & brokers. THAT'S the problem, commissions have to be high to support multiple people. If each client paid for his own broker and agent, the commission number would not seem as high to the seller, the cost would be visible to the buyer, and an agent could charge what his level of expertise commands in the marketplace.

And by the way, under no payment method would you count the time for the initial meeting. Service providers offer free initial consulations - in order to sell themselves to the client. Only the clients who hire them pay anything.

Sep 16, 2010 11:44 AM #22
Rainer
127,754
Julissa Jumper
Select Properties of Fayetteville, LLC - Fayetteville, NC
Fayetteville, NC Real Estate

Renee: Great post, and great pix, BTW.

As I was reading it, I was thinking "...and one more thing,..." and then you covered that, too. Well thought out and well written!

Isn't it amazing that someone could look at a HUD-1 and say our commission is too much money but look at their own pay stub and claim it isn't nearly enough!

It's interesting, isn't it, that the strongest complaints come from traditional employees, but very few from business owners or entrepreneurs.

 

Sep 16, 2010 12:17 PM #23
Rainer
58,062
Johanna Roy
Counselor Realty - Minneapolis, MN
The Name Friends Recommend

If clients don't hear what they want to hear then they will just move on to another agent. Meaning, if you tell them that their is an upfront fee or retainer- you will probably never hear from them again. I have buyers drive their own cars now, I want them to waste as much gas as I do when searching for properties. 

 

I once had a seller tell me that if I ask him to lower his price at anytime that I should lower my commission. I started packing my stuff up and said, that is something I will NOT do, I already have alot of upfront fees that I do for marketing your home - are you willing to reimburse me for those fees? He said "well no", then we are clear that I can't go down in commission and you will be paying LESS because your commission is based on the selling price. He understood and we had an agreement upfront!

Recently I had a buyer that finally closed on her first home it took 11 months! Yes almost a year to finally find a home and close on it! Financing issues regarding credit and MHFA program she was using, appraisal issues, etc, not to mention this was a short sale. Of course I thought about the hours and months I spent on this, but she was a referral from a good client and I had to think of all the other referrals I will soon get in the future from me being persistant! I have got to think that good things happen to good people!

 

Sep 16, 2010 12:32 PM #24
Rainmaker
241,988
Roger Johnson
Hickory Real Estate Group - Hickory, NC
Realtor - Hickory NC Real Estate

Kudos to the consumer!  I fully agree that each party should pay for their specific representation.  I've always disliked the fact that the seller foots the entire commission (and yes, here we could argue who really pays the commission).

The "why" they pay it is more easily explained. 1) In the past, there was no such thing as a buyer's agent.  Every agent worked for the seller.  They were either the listing agent or sub-agent to the seller  2) Lenders won't loan money for the commission.  The only way for the buyer to get the funds is to pay the commission at closing is if it's "hidden" within the seller paid items  Until lenders view an agent fee as a necessary buying expense, the 'all on the seller' agent pay structure won't change.

Sep 16, 2010 12:34 PM #25
Rainer
152,258
Anna Tolstoy
Coldwell Banker Residential Brokerage - Natick, MA

Renee, I would love to this this fee structure in the future, and MAYBE this will happen, but converting to this system will be a long process. Few agents will start with retainer fees and such, while majority will work on commission, then more will chime in, then it will be about 50-50, and then we'll see... 

Sep 16, 2010 12:51 PM #26
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1,877,410
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

Renee, I have always thought the real estate business model is broken without retainer fees and hence why there is so much turnover by agents. It may change, it may not.

Sep 16, 2010 12:53 PM #27
Rainer
23,789
David Robinson
Lloyd Cullen Real Estate - Murrieta, CA
Call Now (877) 828-0710

Wow, well said!  It is our job to point these things out to our clients.  I find that once the consumer is educated on the "why" for the amount of the commisson, they generally will understand.

Sep 16, 2010 12:54 PM #28
Ambassador
1,892,934
Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

There was a book written by Mollie Wasserman a few years ago on the fee for service model.  There were a couple of RE Brokerages that were based on salary vs commission in my area that have now folded.  The fee for service model works with the right clients just as the flat fee brokerage works for some too.

Sep 16, 2010 01:07 PM #29
Rainmaker
1,359,346
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566

Sellers would go flat broke pronto if the fee was hourly. The hours we invest on doing a great job for our Sellers is surprising .

Sep 16, 2010 02:19 PM #30
Rainmaker
183,192
Marjorie & Doug McKay
RE/MAX Real Estate (Central) - Chestermere, AB
Calgary & Chestermere - 403-207-1776

Great post.  It is hard for anyone not on commission to understand how difficult it can be when you are paid for results only. 

Wouldn't it be great if other professions worked this way too?

 

Sep 16, 2010 02:53 PM #31
Ambassador
2,007,427
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I don't mind being paid on commission or contingency and have been paid that way for performance both as an attorney and a Realtor.

 

It might be nice to get an hourly sometimes though.

Sep 16, 2010 03:26 PM #32
Rainer
17,317
Yanira Guzman
IRealty Group - Clifton, NJ

Fantastic post.

Sep 16, 2010 03:29 PM #33
Rainmaker
180,011
Heather Fitzgerald
REALTY WORLD-Harbert Company, Inc. - Greenwood, IN
REALTOR Greenwood Indiana Real Estate

Renee, excellent post, and there is a reason this was featured! Congrats and keep these posts coming!!!

Sep 16, 2010 03:55 PM #34
Rainer
53,452
John Lockwood
Lockwood Real Estate - Sacramento, CA

All sarcasm aside I think there is a viable business model in a combination fee-for-service and lower commission on the back end approach.  We have to be one of the few industry where the seller over-prices what we sell and we agree to sell it for him for free anyway.  It's actually insane.  The trick to the fee for service model is to make it a win all around -- and that may be harder to do, but I'm looking into it.

Sep 16, 2010 05:22 PM #35
Rainmaker
885,937
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY
Broker-Owner

Intriguing thoughts. 

We don't get paid for hard work or effort. They are a means to an end. We get paid for producing a result. High risk/high reward.

If this became a salaried or hourly industry there would be no incentive to go the extra mile.

Moreover, it would take an industry-wide movement for such a monumental change, and that could not be done without collusion among most or all of the companies. And collusion would create a bigger problem than not getting paid on a deal we failed to get. 

 

Sep 17, 2010 12:31 AM #36
Rainer
15,001
Rayna Mckay
RE/MAX Real Estate Advocates - Calgary, AB

Renee I sometimes feel like I would rather work on an hourly wage and with a retainer. Commission cheques sure are nice but sometimes I feel that I spend way too much time working with people and never getting paid. Great post.

Sep 17, 2010 10:14 AM #37
Rainer
7,568
Veronica Huerta
SCA Real Estate - Ocean Beach, CA

Renee,

Great post. Most people have no clue on the amount of time and effort that is spent on just ONE transaction.

Oct 01, 2010 10:37 AM #38
Rainer
6,588
Lorraine Twyman-Caliman
Keller Williams Realty Centre - Columbia, MD
Realtor

Well put my darlin!

Apr 10, 2011 01:33 AM #39
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