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Are You Willing to Trade $$$$ for a Guaranteed Paycheck?

By
Education & Training with Sell with Soul

I'm watching Jason Crouch's featured post today entitled: "How many other professionals work on contingency all the time?" The premise of the blog is to explore other compensation models that don't require us real estate-types to do so much work for free.

Good stuff.

riskHowever, what I don't see discussed (much) in the post or comments is an acknowledgement that part of the reason our fees are what they are is that we're paid on contingency AND THAT'S WORTH SOMETHING! Working on contingency is risky and is therefore entitled to a higher compensation structure.

If we remove the risk associated with our compensation, it follows that we should also reduce our fee. More RISK = More REWARD. Less RISK = Less REWARD.

And I'm not sure that's what we, as entrepreneurs, really want. We got into this business because we thrive on the challenge of working on commission... which by its very nature, involves risk. Maybe we're not so enamored with our entrepreneurial-ship these days when the risk seems to outweigh the reward, but just a few years ago it was FUN! We LOVED it.

And we can't have it both ways.

Many in our ranks have abandoned their real estate careers in favor of a guaranteed paycheck - and all the goodies that with that like benefits, paid vacation and oh, yeah, weekends off. Of course, also included in that lower-risk job is a boss, an inflexible schedule, a salary cap and perhaps excruciating boredom, ‘specially after the thrill of being your own boss.

If we want some semblance of guaranteed pay, we must be willing to forego some of the potential upside of a contingency-based pay scale.

Frankly, I'm probably fine with that, although my tune might change when good times return. And maybe that's okay. Maybe in today's less certain market, it makes sense to charge upfront or by the hour, and when good times return, revert to the traditional real estate model of a 100% success-based model when success is much more likely...

Related Blog: Upfront Fee versus Pay for Performance... I'm torn!

Here's an excerpt from Sell with Soul on the topic...sws

Successful real estate agents can make big bucks. For a career that requires only a month or two of education, the rewards can be tremendous. But be aware of the reasons the economy supports paying real estate agents such high fees...

First ......

... Second, you agree to be paid on contingency. You take the risk every day that the work you do will not be compensated. More Risk = More $Reward$. Less Risk = Less $Reward$. Not too many professions work with no guarantee of payment. Therefore, you can justify higher fees upon success. If you could convince your clients to pay you hourly (good luck), you could charge a reasonable hourly fee and would probably make much less money per transaction. Overall, you might come out ahead though.

So remember that the next time you get a $10,000 paycheck for, say, ten hours of work-that $10,000 is also paying for those flaky buyer clients who run you around and mysteriously disappear. It doesn't mean that you and your services are worth $1,000/hour.

We real estate agents get spoiled by our big paychecks. We actually think we earned that $10,000 check during that specific transaction. Even if a client put you through the wringer for a year, it's not likely you spent more than 50 hours on his transaction. And, $200 an hour is pretty good pay for anyone.

My personal mantra is that "I sell real estate every day. Sometimes I even get paid for it!" It keeps me sane!

So before you get hostile toward prospects who never take you to a closing, realize that real estate fees are structured to pay you for that "wasted" time. Of course, the better your closing ratio, the less you have to worry about such things, but in your first year(s) you will "waste" a lot of time on unproductive people. But, as we will see later, there is no such thing as wasting your time in your rookie year.

www.SellwithSoul.com

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Comments(18)

Eric Bouler
Gardner Realtors, Licensed in La. - New Orleans, LA
Listening to your Needs

People think the pasture is always greener. I would guess it will stay like it is. People do thrive with incentives and real estate is great for this. Those who do not like incentives can work for the government.

Mar 10, 2009 02:41 AM
Michael Cole
CPG Tours - Corona, CA

Hi Jennifer!

Great post (as always). But I think 'guaranteed paycheck' is kind of an oxymoron these days. I read recently where over 4.4 million people have lost their job in the past 15 months, and half of those have been in just the last 3 months. Very scary stuff. And it's not just here in the U.S.

But I have a question... isn't the upfront fee, or fee-for-service model what so many agents were down on just a year or so ago?Isn't that what they were calling a 'discount' broker?

 

P.S. Happy (belated) Birthday

Mar 10, 2009 02:43 AM
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

Michael - I agree about any paycheck being guaranteed - there are NO guarantees anywhere today, but you know what I mean... although ... frankly, I think I'd rather be in control of my paycheck than some big boss dude who may or may not appreciate all my wonderfulness!

I've always charged an upfront fee IN EXCHANGE FOR a reduced commission. That just makes sense to me and my sellers love it. I'm not sure what discount brokers do - I was one a few years ago, but my commission percentage was just really low.

Thanks for the birthday wishes! Always nice to extend the celebration as long as possible...

Eric - I agree - it probably won't change much!

Mar 10, 2009 02:48 AM
Loreena and Michael Yeo
3:16 team REALTY ~ Locally-owned Prosper TX Real Estate Co. - Prosper, TX
Real Estate Agents

Jennifer - I've worked the up-front fee model before. I may seem good for both parties at first, but I would probably never do that again. I also dont think that I'm called to do it that way. Can't argue with that, right?

I love the thrill of not knowing what my future may be. Somehow, the upfront fee structure just leave a bad taste in my mouth about being "afraid" of how my outcome might be, so I rather collect some at first.

Again, this is just my personal opinion and it works only for me.

Mar 10, 2009 02:50 AM
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

Loreena - what a GREAT point. Perhaps I'm INsecure enough to want to wait to be paid when I succeed, rather than requiring total payment upfront and then worrying my backside off that I won't be successful...

THANKS for that!

Mar 10, 2009 02:56 AM
Anonymous
bobdelledonne

First, let me say your message is always completely thought provoking and that is what makes you different!  Thank you!

NOW, two things...Risk in the eyes of the consumer is very important concern here and as an entrepreneur you must always be reinventing yourself, your game and the payoff. 

The second one first, going back to a paycheck (J-O-B) with high payoff is like doing it yourself without the operating overhead if the entrepreneur structures the joint-venture properly.  It is always a joint-venture, you know.  There are countless leaders who love working at the top tier of the economy and could never accomplish their feats without the big stage.

Risk assumed by the consumer (seller) is a material discussion with regard to your commission and risk you both are taking.  The consumer may feel that the risk of using a new agent or very inexperienced agent is great, so they decide to reduce or eliminate the risk with lower payout or none to the unsuccessful presenter.  Conversely, a successful agent will garner the big commission bucks if the shoe fits in the eyes of the seller.

Who knew there was so much risk?

Mar 10, 2009 03:41 AM
#6
Ken Tracy
Coldwell Banker Residential - Naperville, IL
Helping clients buy and sell since 2005

Hi Jennifer.  I am with you.

I love the upside of owning my own business.  The risk comes along with that...

Thanks for writing,

Ken

Mar 10, 2009 04:20 AM
Chuck Capan
REMAX River Cities - Moline, IL
REALTOR Licensed In IL. - Moline Homes Quad Citie

Oh, I do love this line of thinking as a topic.  I always fear Big Brother is watching (or reading blogs) so with great trepidation.

Why is it we do not offer CHOICES for the client.  It's a one size fits all solution for every client.  x% if it is a $5,000 trailer or a  $500,000 condo.

Seems like it is "From each according to his ablity to each according to his needs"  Louis Blanc circa 1840

 

Mar 10, 2009 09:14 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Jennifer, I have been paid or not paid for performance for 30 years. I thrive on it. The thrill of victory and the agony of defeat is what keeps me going. Now I have started implementing some upfront fees but only because values in my area are so low. Even when I have victory the monetary reward is very small. So I had to supplement. It's working out well though. I will never be an hourly type of guy. I guess I can't say never since we never know where life will lead us.

Mar 10, 2009 11:18 AM
Tim Bradley
Contour Investment Properties - Jackson Hole, WY
Commercial Real Estate Expert in Jackson Hole, WY

I thrive on the thrill of the deal. Getting a big (or not so big!) check at closing is incredibly rewarding for me, and a large inducement for me to work every deal hard. I'm ok with knowing that x% of the deals will go south. And it's a great selling pitch to be able to tell the seller that "I don't get paid unless you are happy (i.e. deal closes). Sellers understand that.

Mar 12, 2009 03:31 AM
Susan Haughton
Long and Foster REALTORS (703) 470-4545 - Alexandria, VA
Susan & Mindy Team...Honesty. Integrity. Results.

I'm totally about the thrill of the hunt...if the income were lesser but guaranteed, I wouldn't be as motivated.  If I wanted something guaranteed, I'd go get a "real" job.  LOL  Part of the push for excellence is wrapped up in our compensation.

Mar 12, 2009 05:57 AM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Hi Jennifer,

Maybe I'm missing something here.....but some seem to be mixing apples and oranges (just my opinion) Taking money up-front doesn't mean you are taking on a paid employment with a 401k...its just another model for operating your own business.  The idea that it is not entrapenural (Sp??) to charge up-front doesn't make sense to me.

In some areas (like mine) where sales are grinding to a halt...an upfront fee may indeed be necessary medicine for survival. Even top producers in my area talking about consulting fees.  True, activity picked up for a while - but it has swung to a DEAD STOP yet again with lending issues and buyers low balling everything by50%. I had one desperate agent offer to cut her commission by 1/3 just to "get rid" of her buyer who has been driving her nuts by low-balling everything for MONTHS. He was putting in offers that were bottom of the barrel all over the place and she risks him walking away with nothing after trying to negotiate over and over and over again for him. Granted, I would have cut someone like that loose long ago - but there are so few buyers out there that qualify - I can understand why she's sticking it out.

Bottom line, eventually we simply have to get paid or we go out of business.  Our market has been in complete stagnation for over three years.  Volume is off well over 60%. At this point more short sales and foreclosures would almost be welcome for agents just because we need this market to MOVE!  That would create the final price capitulation and get sales going again. 

So what are the alternatives....for a market that has 75% of its buyers/sellers NOT performing:

1. RAISE commissions significantly in order to make up for the non-performance (so when you hit the "jackpot" it lasts a while.)

2. Start to charge consulting and up-front fees. 

3. Quit the business or park the license for the next boom.

I'm coming to the conclusion that its "fairer" to charge up front rather than "stick it" to the person who does what we hope they will do - complete a transaction.  Equivication is costly to us and it is probably only fair that those who equivocate endlessly and play games pay for the time/energy drain they create.

 

Mar 12, 2009 06:25 AM
Bridget Cella
Re/Max Connection - Sewell, NJ
e-Pro, Realtor

Jennifer -

I love this:

My personal mantra is that "I sell real estate every day. Sometimes I even get paid for it!" It keeps me sane!

Everyday is a learning experience in Real Estate - can't wait for all of my "knowledge" to pay off!

Mar 12, 2009 08:22 AM
Lonn Dugan
Toledo, OH

Jennifer:  Love your style...  Good stuff.  One thought for you.

You wrote: 

Successful real estate agents can make big bucks. For a career that requires only a month or two of education, the rewards can be tremendous.

Because your next couple of articles discuss the the rookie year and realtor learning curve...  I know you know it takes more than a month or two of education to make big bucks in real estate : )

What it takes is a month or two of classes, and a year or two of experience.  As you say - after a certian number of transactions, a Realtor ought to know what they are doing!

An Illustration - on the same point:  A friend of mine was an accomplished artist, and was often hired to paint portraits.  Poeple would come for sittings, expecting to stay and hour and have to come back a few times. The artist would often announce, at about the 20 minite mark - ok, we can stop now.  The client would generally be disappointed, saying something like, "I thought you wanted me to stay an hour", and "OK - BUT when should I come back...?" The artist would say - no need, the portrait is done. 

Clients would complain - "I paid $300 for that portrait - I want my money's worth, no need to rush..."  The artist would offer that he had done his best, and was very satisfied.  He would continue, "I don't think I could do any better if I started over or took more time with it.  Then he would offer, that "If they did not like the portrait they could leave it with him and pay nothing". 

but before he allowed them to look at the painting, he would be sure to say...

THIS PAINTING TOOK MORE THAN 20 MINUTES.  IT TOOK 20 MINUTES OF APPLIED EXPERTISE AND 20 YEARS EXPERIENCE!

Everybody, 100% of the time, wanted to keep the painting and pay the fee.  

So I asked him - Does that mean you make $900 an hour?  He answered with a smile... Well, I have averaged it over my painting career.  With classes, practice time, special classes on advanced techniques, weekend exhibitions, and sales calls and all that driving around to all of this, plus prepping canvasses, and then mounting and framing and delivering finished pieces... It comes out to about $18/hr.  The good thing is, I love it, get to work for myself, don't have to take orders, and would rather do nothing else!

Point well made - don't you think!

Mar 14, 2009 02:14 AM
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

Lonn - great point and I agree 100% with your premise. Although it IS theoretically possible to make those big bucks in your first year without the experience, unlike a doctor or lawyer or CPA who can't practice their craft until they've completed their schooling. But yeah... very true.

Mar 14, 2009 02:26 AM
Rick Trowe
Cerium Learning - Tulsa, OK
Go With Trowe

There is always overhead of some sort when owning a business. So often though, the expenses get over looked when we have a "grass is always greener on the other side" outlook. It's easy enough to look at someone else's results and say they got a big commission without knowing all the behind the scenes work to make it happen. Success doesn't come without a price tag.

Mar 14, 2009 05:09 AM
Joshua & Kathy Schmidt
ERA Henley Real Estate - Cabot, AR

Jenn,

     I am with you on this one.  We definitely get paid more in commissions because we take a big risk when working strictly for commission.  But if you do your job right you don't have to worry about not getting paid.  Sure, there are going to be those that don't sell, but hopefully they are few and far between.

Mar 16, 2009 11:49 AM
Kelsey Barklow
Hurd Realty - Johnson City, TN
423/948-9154

I love your mantra, Jennifer. It's great. I sometimes feel guilty that I've collected such a nice paycheck and then I remember those three previous buyers who disappeared after days with them. Thanks for the great post.

Mar 22, 2009 12:25 PM