The business of selling homes on a contingency fee commission basis has thrived for decades. But over the past several years, there has been considerable discussion about the “unbundling” of real estate services and the demise of a one-size-fits-all real estate sales concept.
A popular and seemingly plausible alternative to the commission concept being discussed throughout the industry involves fee-for-service. Educated consumers
armed with easy access to mind-boggling amounts of data can pick and choose from a menu of services they feel they need to complete a real estate transaction. Rather than a paying an agreed-upon commission rate, they pay for the services they choose.
Starbucks created a market for expensive coffee-based drinks. Domino’s created a market for pizza delivered quickly and Blockbuster changed our habits about going out to a movie theatre. Similarly, the real estate industry may well find there’s an increased demand for real estate services delivered in an affordable way and offering an exceptional value.
Fee-for-service won’t necessarily lower profits for real estate companies or agents or save money overall for consumers. It shouldn’t be confused with discounting, which usually means providing fewer services for less money.
With fee-for-service, successful transactions would no longer subsidize failed transactions, as they do now under the contingency system. Instead, the prospective home seller would choose or not choose to pay a fee for a comparative market analysis, a fee for a marketing package from bare bones to full-service, a fee for staging the home, a fee for assembling paperwork, an hourly fee for holding an open house, a fee for negotiating an offer whether it is acceptable or not, a fee for attending the closing and so on.
It could mean the end of home sellers asking six or eight agents to prepare a free market analysis and compete with one another for a lower commission.
The prospective buyer could choose to pay or not pay a fee for locating suitable properties for sale, a fee for being shown homes, a fee for writing and negotiating offers, a fee for preparing a CMA prior to writing an offer, a fee for attending the home inspection and so on. Talk about not wasting another weekend with someone who has no intention of buying a home!
Real estate licensees have subsidized their incomes by charging (and some would say overcharging) our best customers — the ones who complete a transaction — a fee high enough to compensate for the lost, wasted and unproductive time spent with all the customers who never complete a transaction. Under fee-for-service, we’d be paid for all the services we perform.
Imagine the fees that you could collect from the buyer who’s “out in front of the property and wants to see it now!”
In Orlando, fewer than one percent of the homes are sold for more than $750,000. About two percent are sold for more than $500,000, and fewer than seven percent are sold for over $300,000. Given those numbers, a real estate broker considering fee-for-service might not be wise to abandon the conventional business model in the lower price ranges. But 93 percent of home sellers — those whose homes are priced below $300,000 — quite possibly could pay more under a fee-for-service option than they pay under a contingency fee arrangement.
Many markets around the country are offering home sellers and buyers such options as fee-for-service, discount services at discounted commissions, limited service programs and commission rebates. These are choices for the consumer to make and viable business models for brokers. A business model that doesn’t offer perceived value commensurate with the price ultimately will fail. Offering choices, rather than limiting the consumer to do business only one old-fashioned way will be the most successful model in the future. There is a place in the industry for many different business models.
Communication will be the key to a successful fee-for-service brokerage concept. A thorough well-presented menu of services will allow consumers to make the best most informed choices to meet their specific needs.
Whether it’s fee-for-service, limited services at discounted rates, agents becoming hourly employees rather than contractors, major companies creating their own private MLSs or whatever, life as a REALTOR will go on. There will continue to be those who challenge every new idea and have a dozen reasons to maintain the status quo — those who are standing around the water cooler complaining that the MLS books are no longer being printed. There are more ways than one to be a successful respected REALTOR in your community. Like it or not, our industry is changing and will continue to change. Whether you choose to change or not is your choice, but real estate as a career will be exciting and rewarding for the true professionals.
— Marty Hunt is a REALTOR® with Realty Executives of Orlando. He can be
contacted at [email protected] and is available to speak worldwide on a variety of motivation and real estate training topics.