Cash in on real estate consulting
Successful agents provide fiduciary services that technology can't replace
By Bernice Ross, Thursday, February 17, 2011.
Would you like to open up a whole new income stream for your business? If so, offering real estate consulting in addition to your normal commissioned real estate business just might be the perfect ticket.
I recently interviewed authors Julie Garton-Good ("Real Estate a la Carte: Selecting the Services You Need and Paying What They're Worth") and Mollie Wasserman ("The End of Six Percent: How to Get the Expertise You Want without Paying A Commission Unless You Want To") on the issue of real estate consulting.
At first glance, it seems as if real estate consulting is at odds with the commission model. The truth of the matter is that real estate consulting can help you convert more leads at a full commission.
First, it's extremely important to note that like regular commissions, there is no fixed rate on consulting. Commissions and consulting fees are negotiable. Each agent has to determine the best fit for his or her business.
To understand how real estate consulting works, it's important to differentiate between consulting and the normal commission sales model.
According to Garton-Good, a salesperson "tells and sells" as opposed to a consultant who "guides but not decides." Her premise is that consumers want someone who is on their side and who is hired to represent their interests. She also believes that too many agents are working for free. She was one of the first experts to argue for the unbundling of real estate services.
Back in 1999, when Garton-Good created the first real estate consulting designation (the Consumer Certified Real Estate Consultant), she pioneered the "trusted adviser" approach.
Today, Gen X and Gen Y prefer to research information online or through their friends. As a result, a better approach is to be the "trusted resource" that supplies clients with the informational resources they need to make the best possible decision.
According to Garton-Good, most agents spend way too much time providing service and not being paid for it. "Free" doesn't exist. In fact, her experience is that the typical real estate agent is worth between $75 and $150 per hour. Consequently, if your hourly rate is $100 per hour and you spent three hours doing an open house or any other activity that doesn't generate any leads, you just cost your business $300.
Garton-Good says that agents who shift to the real estate consulting approach have a strong understanding of how much their time is worth. Tracking your return on various activities is critical. You must also determine which activities pay you your hourly rate or more. For the activities that are not generating a return, you have two choices: dump them or delegate them.
Both Garton-Good and Wasserman argue that providing real estate consulting can be an important part of your real estate offerings.
According to Wasserman, "Real estate consulting opens up new avenues to negotiate on behalf of clients as well as to troubleshoot problems for a fee." For example, you may know of someone who wants to know whether they should remodel or buy a new property. You can charge for putting together the information necessary for them to make that decision.
Wasserman's company offers a designation called ACRE, or Accredited Consultant in Real Estate. She sees no conflict with agents charging commissions. Instead, consultants have the option of working with both models. Like Garton-Good, she believes most agents are working for less than minimum wage or free, when they're worth much more per hour.
Wasserman draws the distinction between two types of real estate activity. "Functionary" activities include those activities that technology can handle, such as providing information about local areas, schools, and crime statistics. It also includes activities, such as holding open house events, that do not require a high level of expertise.
In contrast, technology cannot replace "fiduciary" activities. This includes counseling, negotiating and other activities that require knowledge as opposed to just disseminating information.
For example, a seller might go online to view the comparable sales for their area. Without having seen the other properties, they still will have a hard time establishing the price. That's where the Realtor's ability to evaluate the seller's property in light of all the other data makes pricing a fiduciary rather than a functional activity.
According to Wasserman, real estate consultants generally bill for fiduciary activities at twice the rate of functional activities. For example, negotiating for a seller in a multiple-offer situation might be $100 per hour while meeting with the appraiser to let him into the house might be $50 per hour.
Wasserman also argues that the real estate consulting model is your best defense against commission-cutting. To illustrate, for-sale-by-owner sellers normally do not want to pay a listing commission. They may, however, be willing to pay an agent to provide them with comparable sales and to help them with staging their home.
Given that only 5 percent of all sellers successfully sell their own property to a buyer they do not know, there's a high probability that the FSBO will ultimately list with an agent.
Wasserman trains the agents in her courses to allow their consulting clients to credit their real estate consulting fees towards a listing commission if they decide to use the traditional commission model at a later date. As she points out in her training: "Consulting is the antidote to commissionectomies!" Once they have already paid you a consulting fee, they're highly unlikely to list with another agent.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of the National Association of Realtors' No. 1 best-seller, “Real Estate Dough: Your Recipe for Real Estate Success.” Hear Bernice's five-minute daily real estate show, just named "new and notable" by iTunes, at www.RealEstateCoachRadio.com. You can contact her at Bernice@RealEstateCoach.com or @BRoss on Twitter.
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Submitted by RealEstateCafe on February 17, 2011 - 8:48am.
From the headline "Cash in on real estate consulting" to the conclusion "Consulting is the antidote to commissionectomies!" this article misses the point. The current generation of do-it-yourself (DIY) digital natives do not need or want full-service and seek out fee-for-service real estate consultants so they can use and pay for their services "a la carte." If agents disguised as consultants are trying to upsell DIY consumers to their "traditional commission model," they're betraying their client's or customer's motivation -- saving thousands of dollars on individual transactions and billions collectively by doing some or nearly all of the work themselves.
Full blog post entitled, "Will real estate agents become obsolete or morph into fee-for-service real estate consultants?" is online at
http://bit.ly/FeeForService
Bill Wendel
The Real Estate Cafe
Serving a menu of money-saving services for "do-it-yourself" homebuyers & FSBOs since 1995
617-661-4046
realestatecafe@gmail.com
http://Twitter.com/RealEstateCafe
Submitted by Bernice Ross on February 17, 2011 - 9:10am.
Bernice Ross, CEO of www.RealEstateCoach.com, home of this year's number #1 selling book at NAR--Real Estate Dough--Your Recipe for Real Estate Success
Bill--there's no attempt to upsell the agent's services. Instead, the consumer is in control. Both Garton-Good and Wasserman emphasized the fact that many consumers today, as you suggested, want to pick and choose the services they receive. However, they both pointed out that many consumers fail on their own. If you are in a consulting relationship already, chances are you'll be hired if and when they decide they want full service.
Submitted by RealEstateCafe on February 17, 2011 - 9:30am.
Thank you for that quick clarification, Bernice. If you like, please post it as a comment on http://bit.ly/FeeForService or I can post for you. My recollection is that Inman comments are only available to members after 24 hours, so I'd like our blog post to show your response after that deadline. Thank you for writing on the subject, as I believe #FeeFF (the hashtag) we use on Twitter, will get more attention this year. Looking forward to experimenting with others. We've been doing #FeeFS for the past 16 years and are still looking for the Sweet Spot. Most of our revenue, nearly three quarters, went back to DIY homebuyers last year in the form of rebates.
Bill Wendel
The Real Estate Cafe
Serving a menu of money-saving services for "do-it-yourself" homebuyers & FSBOs since 1995
617-661-4046
realestatecafe@gmail.com
http://realestatecafe.blogs.com
Submitted by Mollie Wasserman on February 17, 2011 - 11:22am.
Bernice, I just want to point out that professionals define and practice differently. I liken it to the "purists" versus the "pragmatists".
Some see the reality of trying to provide objective fiduciary counsel while being paid by commission a conflict of interest. Count me among them. HOWEVER, the pragmatist side of me believes that many consumers will continue to choose commissions because they are more comfortable with that. In our program, we teach the practitioner that consulting is not about a specific fee schedule, or a way of paying, rather it's a practice of providing quality, transparent choices in the services one can receive and how those services can be paid for.
There is also a variation in what services the consumer wants. Some, like Bill mentioned, are DIY's who only want some services. Others want full service but want to pay for the services themselves rather than by a sales commission, believing that it is the best way to get objective fiduciary counsel. We try to stay non-judgmental - what we stress in our program is being transparent and providing choices.
Mollie W. Wasserman
Founder: Accredited Consultant in Real Estate®
Course and Coaching Program
http://www.ACREcourse.com
Submitted by Julie Garton-Good on February 17, 2011 - 2:07pm.
Thanks, Bernice, for shedding light on fee-for-service consulting. As the founder of the first fee-for-service association and education/designation course in 1999, I've stood by the premise that unless and until the real estate industry becomes truly consumer-centric, it will continue to fight an uphill battle. Moving forward, some sellers will stick with traditional full-service while others will find liberation and satisfaction with DIY (as attested to by Bill Wendel, one of our first C-CREC designees and industry pioneer!) The bottom line is that real estate consumers should be able to choose the services they need/desire and pay what they're worth. When the consumer wins, we all win!
Enthusiastically,
Julie Garton-Good, DREI, C-CREC
Founder, The National Association of Real Estate Consultants; educator/author of the Consumer-Certified Real Estate Consultant designation/course
www.juliegarton-good.com
jgg@juliegarton-good.comj
Submitted by Jerzy (George) Szkup on February 18, 2011 - 6:07pm.
George Szkup
www.DestinationTucson.biz
Fee-for-service is an attractive idea - chances to be implemented are in the never - never-land. At this time it is illegal in most States. It would probably be financially beneficial to an agent. It would probably result in number of law suits - about what consultant should or should not done or said. Some years ago this concept (or something similar) was considered in some States. Consultant (agent) would perform, for a reduced commission/fee, his/her (minimal) of services and would not be legally responsible for his/her actions. It was briefly considered in Arizona and I tried it once. I spent as much time as usual for half the pay!
I believe that this concept was actually (briefly) legalized and introduced in Colorado.
Personally I am all for it - I believe that public would never tolerate it.
George in Tucson
http://twitter.com/geoszk
Submitted by Misha Weidman on February 20, 2011 - 5:58pm.
This is something I've been toying with for a while. Since my background is as an attorney, I'm used to billing by the hour.
One of the things, however, that's given me pause is the question of how to fairly allocate your time if, for example,you've got several clients who have hired you as a consultant to find a house for them. You're on tour or researching the MLS and there's inevitably a certain amount of overlap. Do you charge each of your clients the full freight or divide your time between each of them?
I'm inclined to charge each the full freight but fully disclose that in a retainer letter. (By the way, I'd urge that anyone providing consulting services along these lines make sure that they have a very clear contract spelling out the terms.)
Submitted by john MOROZ on March 23, 2011 - 12:21pm.
As a Canadian Real Estate Agent/Broker, for going on 15 years, there is no doubt that the legal fundamentals of how Real Estate is bought and sold in Canada have some similarities, but there are a number of differences in terms of the responsibilities of agents as they are governed by the Real Estate and Business Brokers Act. As a consultant in a previous life, having some familiarity of how consulting works; the concept of un-bundling services is an equitable way of having your RE business function as a Business...nothing is Free. If it is given Free; then in my view there is no value. In this country and specifically in the Ontario market under the Act the term which comes to mind is "Trade in Real Estate". If one has a contractual agreement, either as a Listing or an agreement to represent a Buyer; then they are deemed to be Trading in Real Estate. Consulting on the other hand is a different set a tasks which is not (in my view) a trade in real estate but rather an advisory capacity scoped by the tasks provided and compensated accordingly, ie. hourly, or per diem. So here is what I do in the Hospitality niche. As a consultant, I would provide a task oriented function to review a property, and this could include review of financial data, operations, staffing, and evaluate the Real property, for a fee, half paid up front and the balance once the report is provided. If we enter what I call Phase II, actually listing a property; then it becomes a contractual listing agreement (Trade in Real Estate). One has to realize that after a review; the property many not go to market for a year or more. Up front work has to be paid for...Noting is Free. If we take it to market; then consulting fees may serve to reduce the commission model on closing. Again this is negotiated. This way there is no obligation for the property to be listed. The only obligation is to have the Consulting review compensated for.
The process is working and is a complete division of how we can get paid for work we do without doing it free on the HOPE that we will get the listing in the end.