A Humble Proposal to Tweak the Real Estate Compensation Model

By
Real Estate Broker/Owner with Austin Texas Homes, LLC 453249

Quick disclaimer: I really want to start a discussion with this post, not an argument. I recognize that the ideas below might not be watertight yet, but I think it's worth discussing. Nothing here is meant to indicate that we should all agree on how to do business OR how much to charge, because that could lead to anti-trust issues. Instead, I have some thoughts on how to change the perception of our value to consumers. Our time is valuable. We should treat it as such. 

 

I've written about this topic in the past, but I have some new thoughts with regard to how real estate agents are typically paid, and I am wondering if our current model makes sense. If you're an agent reading this, I am not going to advocate any type of "discount" brokerage, or any major, sweeping changes in our industry.

Over the past few years, I have witnessed a push among real estate agents and brokers to "raise the bar" in real estate. I like this idea. I think it's probably too easy to get licensed and start selling. Frankly, it was even easier back in the late 90's when I got my own license. 

If we want the general public to take us seriously as professionals, here's one idea:

 

Stop working for free.

 

If you can name a profession that does as much as we do with no assurance of being paid, I would love to hear about it. Plumbers charge a trip charge. Consultants typically charge by the hour or project, but nothing is done upfront without payment. Even the guy building your patio wants half upfront. 

For those of us who have been selling for any reasonable length of time, we know how it feels to lose a buyer client suddenly and often without notice. Sometimes they just decide not to move, or they go directly to a builder who refuses to pay commission, etc.

I've been considering something relatively small that could help save time for agents and brokers, while also solidifying the relationship between agents and their clients, particularly buyers. 

Have you ever considered charging a reasonable retainer fee to buyers?  My thoughts on what constitutes "reasonable" may differ wildly from yours. One market might be able to justify $100-200. Another might be $500 or more. The point here is that it wouldn't really have to be expensive. Instead, it's just enough to make clients think twice about spending an inordinate amount of time looking with no intention of purchasing. It would also make it more critically important to get financing lined up quickly.

Yes, I recognize it could be a tough sell when your competitors aren't charging to show homes and you decide to ask for a deposit to protect yourself. It could also set you apart as someone who is worth it. This takes real confidence in your abilities. 

In Texas, our residential contract include option periods that require a cursory fee from the buyer. This enables the buyer to have the unrestricted right to terminate the contract within a certain number of days (typically 7-10). It's just a small amount of compensation to the seller for holding the house off the market for a few days. If the buyer closes on the house, this fee is credited back to them at the closing.

Why couldn't we handle showing fees in the same way? For any buyers who are serious and qualified, this is essentially a no-risk proposition for them. You could decide your refund policy, but I would make it non-refundable unless they follow through on the purchase. The only exception would be if they are unable to get a loan for some odd reason.

Again, this is just some food for thought. Our profession is not well-respected, and often for good reason. Every time I have a client who is relocating to Austin say, "We haven't had good experiences with Realtors", my first response is, "I understand that. Actually, I've also had plenty of bad experiences with agents, but there are a lot of good ones, too."

 

EDITED HOURS AFTER THE ORIGINAL POST:

Okay. If you're read this far, I have to let you know that I wrote this for several reasons:

1. I was curious to see if it might get featured ( which it did).

2. I was interested in stirring up some controversy (mission accomplished). 

3. I wanted to test my ability to debate, then decided against arguing with my friends.

        4. Keep reading and you'll see my real point below.

While I think this idea or something similar could work under perfect conditions, I don't think it's realistic. Most people will tend to gravitate toward the "free" option, often even if it's far inferior, partially because they don't know any better, and partly to simply protect their pocketbooks.

Jane Peters is a very sharp agent in Los Angeles, and a friend of mine. She astutely noted in her comment below:

"The idea of requiring payment is like forcing people to work with us. If we build the kind of relationship we need to keep them then there is no need to charge them. The odd one will stray, but so be it. Having them stick with you because of the money is not the kind of position I would like to be in." 

And therein lies my opinion about buyer's brokerage agreements. Some agents absolutely refuse to show property without having a signed agreement in hand. I have never used them - they are not required in Texas to establish an agency relationship. It can be implied or it can be established through an oral agreement. Like the idea posed above, they are really nothing more than a litmus test. If you get it signed, you didn't need it in the first place, because they are loyal. You will occasionally lose a buyer (I lost one this year), but that's okay. I don't prefer the idea of forcing someone to sign a piece of paper to work with me as a buyer. 

If you had a choice, would you choose to sign with an agent you just met, or to work with someone who doesn't require extra paperwork? Give it some thought.

I apologize for making a somewhat outrageous assertion above. I figured very few people would agree with me, and I originally thought I might debate this post longer, but Jane made the comment I was waiting for, so there you have it. We get paid well precisely because part of our gig involves working with a (hopefully small) percentage of buyers who will not close for whatever reason.

Beyond that, I truly did want to stimulate some "outside the box" thinking here. I remember when no one thought that there was any value in having a real estate website (1997) or in requiring registrations on our site when no one else was doing it (1999 - 2000) or blogging (2007). 

My advice: Be careful not to discount new, odd ideas too quickly. There is a reason that we are self-employed independent contractors. I could charge $5 to list and sell a house, or 10%. The market will either teach me a lesson or I will be wildly successful, depending on the presentation, supply and demand, etc. It never hurts to innovate, even if it doesn't work out the way you originally hoped or intended.

Posted by

 

If you're looking for a home in the Austin area, you can also visit my primary website at www.austintexashomes.com.  Thanks!

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  1. Lenn Harley 11/24/2014 10:11 PM
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Rainmaker
637,633
Maria Morton
Chartwell Kansas City Realty - Kansas City, MO
Kansas City Real Estate 816-560-3758

Yes, I think retainers could be charged. There are agents now who charge retainers. Not many do because it is not the accepted norm. I would like to see a better way for buyers to enter the market fully represented but am not sure what that would be exactly. 

Nov 23, 2014 03:49 AM #57
Rainmaker
2,473,592
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

how about a consultation fee too? many times I have given away knowledge and data that otherwise was worth every penny if paid for. Agents are worthy of their wages...so pay up all you chiselers out there....

Nov 23, 2014 04:43 AM #58
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Norma Toering Broker for Palos Verdes and Beach Cities
Charlemagne International Properties - Rancho Palos Verdes, CA
Palos Verdes Luxury Homes in L.A.

Interesting thread, and although I give lots of free valuable information (these blog posts for example), I consider it the first step in building clients for life.

Nov 23, 2014 05:09 AM #59
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Jerry Newman
Brown Realty, 210-789-4216,www.JeremiahNewman.com - San Antonio, TX
Texas REALTOR, San Antonio Military Relocation

Jason, I know some agents were charging a Transaction Fee in addition to the normal commission fees. It would be nice NOT to work for FREE on those occasions when buyers and sellers take advantage, and leave us hanging.

But, it would have to take a Law, or the Support of all the Real Estate Associations to make it stick.

Nov 23, 2014 06:48 AM #60
Rainmaker
4,129,740
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Jason Crouch this thought process was seriously being debated during the Buyer's market a few years ago, but pretty sure it would not work right now in Denver.   Great read!  

Nov 23, 2014 10:49 PM #61
Rainmaker
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Donald Hester
NCW Home Inspections, LLC - Wenatchee, WA
NCW Home Inspections, LLC

Jason, I applaud you for looking at your profession with a new perspective. I think that is very healthy.

I think many professions have reputations that are not favorable. Keep the thoughts coming I think it is very healthy to do so.

Nov 23, 2014 11:00 PM #62
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Bryan Robertson
Los Altos, CA

I wish this were getting more comments.  Too many people probably thinking "anti-trust" when they have no idea what it really means.

Anyway, I like this and am actively working on a means of getting the consumer to start paying agents for their time.  It's a perception issue and one rooted in how much consumers think they get from an agent.  I think the solution is in changing the industry to a model similar to attorneys or other service providers.

The key to making anything like this work though is in clearly demonstrating a value to the consumer. Just getting paid isn't enough since they can get it for free. What else could a buyer's agent off that would get a consumer to pay a retainer?

Great topic - hope we see more input.

Nov 24, 2014 02:51 AM #63
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Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

Hi there Jason. Appreciate the debate. IMHO, we factor in "lost hours," in our fees.  I think we are a well-paid bunch and working with buyers who pass the "interview" test helps me avoid the time-wasters. Plus, I like to work with people who I enjoy and have something in common with - I don't want to force anyone to use my services. But hey, that's just me. ;) 

Nov 24, 2014 03:38 AM #64
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Jason Crouch
Austin Texas Homes, LLC - Austin, TX
Broker - Austin Texas Real Estate (512-796-7653)

I find it funny that almost no one read the entire post.

Nov 24, 2014 03:41 AM #65
Rainmaker
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Nancy Laswick
United Real Estate - Phoenix, AZ
Your REALTOR® For The Valley Of The Sun

Hi Jason Crouch , I did read the entire post but probably because I was late to the party When I was just starting my real estate career I might have been in favor of a retainer or some other tweak to the compensation model but as a grizzled veteran, not so much.

I guess my BS meter is much more sensitive and I avoid buyers that I once would have enthusiastically courted, so I'm not sure I have a problem that needs fixing.

Nov 24, 2014 07:57 AM #66
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John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Jason I did make it through the whole post and many of the comments - as a lender my opinion matches Jane's.  My clients are free to use anyone they like, but 90%+ of the time, they stick with me, and I know I need to make what I do worthwhile to maintain that loyalty.

Nov 24, 2014 11:02 AM #67
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Paul S. Henderson, REALTOR®, CRS
RE/MAX Northwest. - Tacoma, WA
Tacoma Washington Agent/Broker & Market Authority!

Well Lenn has brought up some interesting points as do you Jason. Different models have been tried in our area like;

  • charging buyers to see homes
  • rebating the commission to the buyer 

Those both put more responsibility on the listing agent...

Nov 25, 2014 12:47 AM #68
Rainer
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Chuck Tanner
Keller Williams Realty - Atlanta, GA
Associate Broker "Let's Get You Moving"

Hi Jason, I almost didn't read your post because of your title. I thought you were allocating for reduced commissions. I don't get enthusiastic about showing properties when I know the agent reduced their commission so they could land the listing and then I am going to help them sell it making them look great. I put of lot of effort and time into my profession. I have struggled with the buyer's brokerage aggreement, and yes I have been burned in the past. I think there should be more stringent requirements to get licensed. I want our profession to be treated as professionals and not door to door salesmen.

Nov 25, 2014 06:17 AM #69
Rainer
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RVA HomePRO Michael Hottman
RVA HomePRO Realtor with Keller Williams serving Hanover, Henrico, Chesterfiled and Richmond, Virginia - Glen Allen, VA
Helping you achieve goals in life & real estate

A sharp agent I was working with charges retainer fees for investors. It helps keep them loyal and when they dump you after not listening to your guidance at least you have a little money for your time.

Nov 25, 2014 11:22 AM #70
Rainmaker
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Evelyn Johnston
Friends & Neighbors Real Estate - Elkhart, IN
The People You Know, Like and Trust!

I don't know if they are still around, but ACRE is all about giving the buyers and sellers a choice of how they want to pay, and what they want to pay for.  Last I heard Jennifer, the Selling with Soul Lady was running ACRE. I can't remember her last name.

Nov 25, 2014 11:52 AM #71
Rainer
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Jeff Yeats 918.855.9256
McGraw REALTORS in Owasso, Oklaoma (918)855-9256 www.haywoodhometeam.com - Owasso, OK

At first, it sounded crazy to me that someone would charge a retainer fee.  However, after reading through the post and giving it some thought....sounds like it could be beneficial if done correctly.  I would entertain the idea of a very small retainer fee ($100) just to let buyers know you mean business.  I don't think the amount will be a deal breaker for a loyal client, it's just a small way the buyer indicates their loyalty by laying a $50 bill on the table.  Talk can be cheap.  

 

Good read!  I can't believe I would consider supporting a retainer fee LOL.  I always enjoy creative thinking!!

Nov 25, 2014 11:54 AM #72
Rainmaker
607,629
Claude Labbe
Real Living | At Home - Washington, DC
Realty for Your Busy Life

There are a number of agents here in town who charge upfront fees for buyers.

I can see reasons for both pro and con to this.

If an agent is going to be different and charge up front, there needs to be a compelling case to the client, since it is "different".

Nov 26, 2014 01:02 PM #73
Rainmaker
304,150
Tammy Adams ~ Realtor / Podcaster
Maricopa Real Estate Co - Maricopa, AZ
A Maricopa Agent who Works, Lives & Loves Maricopa

I am a firm believer that the first hour together you will either win your clients business or you will lose it. You can tell how connected you are if you are paying attention. The problem is, folks go into denial about that connection then are shocked that they "cheated".  maybe they werent that "in" to you.  LOL    

Nov 29, 2014 09:11 AM #74
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Tammie White, Broker
Franklin Homes Realty LLC - Franklin, TN
Franklin TN Homes for Sale

I'm coming to this party a little late but your parting statements reminded me of an agent in my office a few years back. She was a new agent. She wanted to work with listings but knew that she'd have a tough time going against more experienced agents in her area. She decided to take 1% as the listing agent. The sellers agreed to pay the buyer's agents 3%. This agent was working for KW at the time so they took a third of her 1%. She didn't make that much money that year. However, she listed a lot of properties and took away the honor of Rookie of the Year for our association. The following year, she upped her percentage with many transactions under her belt and a nice plaque to hang in her office. She was willing to sacrifice her income for one year with the thought that her earning potential would increase the following year and it did. That's just one way agents can creatively get more business.

Feb 04, 2015 06:20 AM #75
Rainmaker
94,324
Sharon Harris
Keller Williams Keystone Realty - Hanover, PA
Realtor

Never take a 1% listing ! My broker would die if I did. LOL

I am in favor of charging a few to buyers up front.

In the past few weeks I waited for a buyer for 20 mins then called. OH  I am sick in bed forgot to call..REALLY????

I have drove from house to house to house with another >>Always a problem with the house >> Again really?? to the curb you go.

I spend an hour of my time bringing you into my office  and explaining a to z with you  . This adds up over the years..

Feb 22, 2015 02:06 AM #76
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