By Julie Garton-Good
www.narec.com 

          It’s been more than 20 years since I received compensation for my first fee-for-services real estate consulting job.
          Opening a real estate brokerage just as recession hit and the prime rate crested 19.5 percent proved incredibly problematic. I was additionally challenged not wanting to compete for scarce sales with my 15 salespeople (which I lovingly termed "my little liabilities").

          In retrospect, fee-for-services consulting found me not the other way around. A former client suggested that a man contact me saying, "Julie specializes in problem real estate." In 1980, all real estate was problem real estate! 
          The referral had inherited an unfinished warehouse in a business transaction. He needed to know what type of tenants he should/could attract, what to charge, and how best to complete the building. 
          Then he posed a question I couldn’t immediately answer, "What will you charge me to figure this out?" I was tempted to say, "I have no clue since I don’t get paid this way. I usually spend thousands of dollars I don’t have in the hope that something will eventually sell!"
          Fortunately, I had just written a check to my attorney for $150, two hours of his time. So I meekly said, "$75 an hour" (but was totally prepared to settle for $25!)
          "Fine" he said. "How many hours will it take?" This, I knew, since I’d been giving information away for the past decade! So began an exciting and financially rewarding experience with fee-for-services consulting.

          In 1995, while gathering information for a new book, I had the pleasure of debriefing more than 200 consumers one-on-one and in focus groups from coast-to-coast. I asked them what they liked and disliked about the real estate sales and purchase process. 
          I asked sellers to describe the components of an ideal sale; conversely, I asked buyers what bugged them most about the transaction process and how they would streamline it. 
          The input and results was startling, particularly in the polarity to traditional real estate industry practices. These findings became the "Frugal HomeOwner’s Consumer Assessment Study." 
          The results clearly showed that the buying and selling models used in real estate (as well as the services available from professionals) bare little resemblance to what today’s techno-savvy consumer wants. In fact, consumers told me that they wanted the type of unbundled, fee-for-services consulting I had fallen across two decades before! The findings comprise seven major realizations, four of which deal with money:

Reality #1: Consumers will pay for personalized real estate services, but want payment options to do so. Many voiced that they disliked paying a predetermined percentage of the home’s sales price (which they termed "their hard-earned equity"). They want the flexibility to choose only the services they need and pay what they’re worth (the major driving force behind the burgeoning numbers of for-sale-by-owners who access and embrace online services).

Reality #2: Consumers believe that if a real estate agent sells a property quickly, he should be paid less, not more. Much in the way a doctor’s quick diagnosis of a hot appendix should result in less cost for fewer hospital and doctor visits, selling a property quickly frees the agent up to explore additional income generating activities with other prospects. Consumers don’t appreciate being penalized by paying a full fee when they contribute to an expedient sale requiring less time, money and effort from the agent.

Reality #3: Some consumers want to be team players with real estate professionals and perform various tasks in the selling and buying process. Likewise, consumers expect to be financially rewarded for doing so. As one outspoken consumer shared with me, "If a listing agent is willing to share fees with a selling agent he competes with, why not with me as a seller who’s paying both of their fees?"

Reality #4: Consumers want what they want when they want it and will gravitate (with few exceptions) to the most cost-effective source to obtain it. Consumers don’t like being slotted in a "one-size-fits-all" approach to selling or buying that strips them of control in the transaction.

Reality #5: Since traditional agents get paid only when something sells, consumers are leery of taking free advice from even the most sage and respected agents believing the means to the end is to "make a sale."

Reality #6: Consumers place the highest value on visible, tangible real estate services. That which is hidden and not differentiated is discounted. When I asked sellers in my study which segments of the listing agent’s skills/ services were deemed most valuable, 85 percent rated the comparative market analysis (CMA) as the most vital tool. This far overshadowed the obvious people-related strengths of negotiating and counseling required to put the transaction together and keep it together until closing. The consumer’s message is loud and clear—unless a task is differentiated and visible in the sales and purchase process, its value is discounted and they’re less likely to pay for it.

Reality #7: Consumers care more about results than they do service. I found this a real eye-opener since the real estate industry views service to consumers as the primary value-creating bastion (even though it’s the most costly business activity in a real estate brokerage). In fact, when I asked members of a seller’s focus group, "How was the service you received from the real estate agent who listed your home for sale, even though the house didn’t sell?" most were at a loss to even DEFINE service! After explaining to one group that service entailed receiving ads on the property, feedback after showings, and keeping in touch during the listing period, a spunky consumer, Mrs. Ramirez responded sarcastically to me, "Oh, so that’s what you call service. Well, I got an entire trash-can full of service from that agent. What I didn’t get was results. I didn’t get my house sold!"

          Do these real estate consumer’ trends signal the death of the traditional full-service percentage- compensated sale? No, not entirely. There will always be a market segment that wants the agent to handle the entire process and won’t want to pay until the house keys change hands at the closing table. But if today’s consumers are bold and succinct enough to describe the real estate approach they desire and the type of reinvented working relationship they want with a real estate professional, it’s imperative that licensees learn skills as fee-for-services consultants to address those needs.

          Termed unbundled, a la carte, or fee-for-services, it’s dividing various real estate services/tasks into individual, flexible, results-oriented segments. Once unbundled, each service is assigned its own financial value. As you might surmise, not all services/tasks can or should be unbundled and available to consumers. This is especially true due to the impact of licensing laws and regulations on real estate licensees in North America. To understand fee-for-services as a business model, it’s vital to understand how polar it is to fee discounting. Here’s an example that may help. You manage a local bakery that specializes in pies. Each day you price fresh pies to sell in two ways:

          1. As an entire pie (bundled) at $8.95; and
          2. By the slice (unbundled, a la carte) charging $2.25 for each of the six individual pieces.

          If a whole pie doesn’t sell by the second day, it’s considered stale; and since it’s now in competition with fresh pies, a marketing edge is required. So you discount the previous day’s pie to $6.95 even though it took the same amount of time, cost, and effort to make as did the full-price, fresh pie. 
          In fact, the day-old pie might even cost you more since it had to be wrapped and refrigerated over night. 
          Obviously, if your bakery finds that it’s selling more day-old pies than it is fresh, you are slowly going out of business by not even covering your hard costs of making/baking/marketing pies let alone generating profit. 
          Applying the bakery example to real estate, a growing percentage of brokerages offer full services to consumers at discounted prices (discount brokers.) Many do so under the faulty premise "what they lose individually, they’ll make up for in volume!" 
          While there’s nothing wrong with a discounted fee business model, most companies do so without regard to price-point-plus-profit — what it costs them to transact business, stay in business and make a profit. 
          In essence, many are already out of business; they just don’t know it yet! By comparison, fee-for- service providers offer various menus and/or unbundled, a la carte services and charge what each is worth (inclusive of profit.) Similar to other brokerage policies, the principal broker must sanction the fee-for-services approach, collect and document (trust account) all consumer’ funds, as well as implement necessary policies and procures to monitor the agent’s actions and protect the public. 
          The biggest challenge for brokers desiring to integrate this business model into their current listing/selling business is deciding what to charge for various tasks/services. Long thought a sales profession based on large-dollar cash infusions, brokers must turn their focus to net profit, not gross revenue. This means scrapping traditional services that are no longer desired/profitable, while adding profit centers manned by salaried licensees, licensed personal assistants or unlicensed level-one personnel. You’ve only to look to the web to see the possibilities available to the reinvented, fee-for-services brokerage!

          According to the 2001 NAR Mid-Year Strategic Planning Committee Report, in an effort to garner a larger swath of a market, attract attention, and annihilate the competition, many brokerages are slashing fees by 25 percent percent or more. 
          In fact, at the mid-year meeting of the National Association of Realtors in May, 2001, NAR’s Strategic Planning Committee released findings that double-sided percentage commissions have dropped to a median of approximately 4.2 percent across the country. Additionally, broker’ profit has slipped to an unprecedented median amount of $150 per transaction side. 
          If these numbers reflect profitability generated during one of the most buoyant real estate markets in recent history, one shudders to think what a recession may bring.
          As early as 1999, reports like the Arthur D. Little, Inc. survey commissioned by the National Association of Realtors and linked to the www.narec.com  homepage, predicted three primary entities dominating real estate by 2005:

Depending on the source and date of the statistics, for-sale-by-owners (FSBOs) are expected to grow to approximately 40 percent of the available property market by 2005. While it’s doubtful that this increase will be uniform across all real estate markets in the United States, the sheer volume will more than double the current number of FSBOs.

Power-Group #2:

Aggregators. Estimated to control up to 20 percent of the available real estate market by 2005, we’ll see aggregators (online and off) unbundle and re-bundle services and real estate products to market directly to consumers.

Power-Group #3:

Real estate consultants. Brokers and agents will evolve into real estate consultants, serving as experts at selected stages, managing the client instead of the transaction. The good news is that unlike traditional agents who often employ high-pressure salesmanship tactics to secure a percentage-commission sale, real estate consultants are compensated in a variety of ways, often for tasks traditional agents have provided for free. Since consulting assumes that there are a variety of ways to move towards the consumer’s desired result (not just via listings or sales), more time will be spent analyzing the consumer’s real estate needs—for life. And since there are hundreds of frequent, non-sales opportunities to assist real estate consumers like providing improve vs. move analyses or assisting a consumer protest the property’s assessed value, the real estate consultant will become the consumer’s long- term trusted advisor much like a CPA or attorney. 

Gomez.com’s June, 2001, Survey

          As reinforcement to surveys like that of A.D. Little, the semi-annual online survey conducted by www.Gomez.com  for June, 2001, predicts that: "… the non-traditional segment of the online home-buying and selling markets (e.g. FSBOs and fee-for-services) could represent as much as 75 percent of total sales by 2005"...
          It’s obvious that our industry needs to quickly embrace new, innovative business models not only to increase profitability, but also to sustain forward movement through the current economic recession.

 One of the most exciting elements of new business models, especially fee-for-services, is the plethora of creative approaches to compensation. We see brokers charging flat-fees for listings, taking a portion of that in cash (or paid via credit card) when the listing is signed and even splitting the up front fee with the listing agent (can we say cash flow?) 
          Yet other brokerages have two or three tailor- made profit-driven menus of services, but allow consumers to pay additional for extra services they desire like advertising. Some enterprising brokers/ agents cap the number of homes they’ll show buyers and charge them a surcharge per additional showing over that number! To say "one size no longer fits all" is a gross understatement in the reinvented brokerage on the horizon.

Knowing that consumers want fee-for-services plus seeing first- hand how well it financially worked for me decades ago, I launched the Consumer-Certified Real Estate Consultant (C-CREC) designation course in 2000 supported by its own parent organization, The National Association of Real Estate Consultants (NAREC). 
          Boasting a dozen of the nation’s finest instructors, we’ve trained thousands of designees in North America (including 52 in Canada) and will roll out an online version of the course this month for greater international distribution. It’s been challenging yet exhilarating helping break the mold of the hundred-year old traditional real estate model, encouraging brokers and agents to "think outside of the box". 
          But for every roadblock, there’s been an equal if not greater reward. Like having a 30-year veteran of real estate share, "This new approach is what I’ve been looking for my entire career!" or similarly, "For once, I appreciate my knowledge and know that I can be compensated for it. No more "free!" Or, after sharing the fee-for-services approach with a consumer and seeing his face light up, hear him say, "It makes total sense—obtain the real estate services I need, when I need them, and pay what they’re worth. It’s absurd to think it would work any other way!"