Editor’s note: This month, Inman News is focusing coverage on real estate commissions and alternative compensation models. Join the discussion: Click here to share your views and insight with Inman News readers.

Seattle-based real estate company RT Brokerage Services Inc. has rolled out hourly fees for its real estate services as an alternative to its traditional commission-based compensation structure.

Real estate brokerages typically charge a commission rate that is based on a percentage of the home’s sale price to sell a home. And this total commission tends to be in the range of 4 percent to 7 percent, though this can vary.

The listing broker typically shares a portion of that commission with another broker that brought the buyer into the sale. In this way, prospective buyers do not typically pay the brokerage company directly for services rendered. Agents and brokers divide their share of the commission for the buy "side" of the deal and the sell "side."

If the home doesn’t sell — even if the brokers and agents have invested many hours and incurred costs in an effort to sell the home — many real estate companies do not require the seller and prospective buyers to pay a dime.

RT’s pay-as-you-go model, dubbed the consumer-choice model, is intended to suit clients who know they are going to buy or sell. They may know the neighborhood they want to live in, and they may have purchased a house before and can conduct some research independently. Under this alternative compensation model, clients save money for speedy transactions.

The model has very obvious benefits for real estate professionals in that it guarantees they will receive payment for the time they spend working with clients.

If the consumer is not very advanced in the home-search process, the company’s traditional, conventional commission structure may be the best fit.

Steve Hanks, an RT Brokerage client, hired the company to consult about the price of a vacation property and to handle the offer and negotiations.

"The estimated cost for these services will be about $3,000, and so far I have paid maybe $200," said Hanks. "If I decide not to go through with it, I will be out a couple of hundred dollars, but if I do I will save several thousand."

Louis Herrera, founder of RT Brokerage Services, said that buyers who choose the company’s fee-for-service plan will receive rebates for any share of commission received by the company that is higher than the hourly fees. For example, if the hourly fees amount to $3,000 and the company receives $6,000 from the listing broker as its share of the total commission, the buyer would receive a $3,000 rebate.

"If the client elects to participate in our hourly (fee-for-service) model, we rebate any difference between the selling-office commission and any unpaid invoices. The rebate can be applied to their closing costs or their final purchase price," Herrera said.

"If the client chooses to participate in our traditional (commission plan), we collect the listed commission as compensation with no discounts," he added.

"The reason some buyers are willing to enter into a pay-as-you-go model for representation is that they understand who pays, and they know they can and will close a transaction. They also equate value to the time and energy they spend looking for and researching properties. Hence, they see the logic in the hourly model and can readily calculate their savings according to how much service they’ve used."

The company offers four types of hourly services, including administration and design, transaction, tours and inspection, and real estate services — some types of services require a real estate license while others do not.

Agents are paid every 15 days and clients are billed every 15 days, and services are billed in 10-minute intervals. The hourly charges cannot exceed 3 percent of a transaction side — the company defaults to the standard commission-based compensation model if the hourly billing exceeds that rate.

"Traditionally agents have never valued their time on an hourly basis," said Herrera.

"Agents haven’t been very good at tracking their time. They are making less than minimum wage. But if you are making less you probably shouldn’t be doing this business. For agents in the industry what does it actually cost? People haven’t been keeping track because agents don’t really value their time.

"It helps them because they don’t have to debate commission anymore. The agent doesn’t have to discount on a premium that they are never sure they are going to collect. In this model they are sure because they get paid every 15 days," Herrera added.

The hourly compensation model eliminates some risk of a client walking away during transaction process, he also noted.

"I think that’s totally fair," Hanks said. "I’m the one who might decide at the last minute I don’t want to buy, so I’m the one who should take a financial hit if I pull out. On the up side, I save the money if I do go through with it. So I think the model is absolutely perfect for transactions like mine: I’m fairly savvy in the real estate market, but need somebody to take care of the details … especially a real professional to watch my back if something strange happens."

Lauree and Logan Dillard were also doing much of the research work themselves and considered using discount brokerage company Redfin.

"In the end, the house that we went with was one that Louis found and encouraged us to see the potential in" Lauree Dillard said. "(It was) definitely not something that we would have found if we hadn’t been using a Realtor, but still we only ended up paying Louis about 1.3 percent of the sale price of the house, rather than the typical 3 percent."

"Another advantage was that Louis wasn’t motivated to get us to spend more money on a house in order to get a higher commission," Dillard said. "In fact, he was so determined to get us a good deal that he talked us way down from the original house that we had been interested in. The one that we ended up with was only about 60 percent as expensive at the one that he had originally advised us not to buy. So he knew that we could afford more, but he didn’t push us to spend it."

Kraig Baker, a client from Seattle, said that because real estate services are not typically priced on a fee-for-service model, it’s not clear what the fair market value is at an hourly rate.

"As RT Brokerage becomes more successful, I would be concerned about how RT Brokerage scales. As a customer, I might be concerned if the same agent was providing certain services on a fee-for-services basis and other services on the traditional model, and whether the agent had an incentive to serve one customer before the other," Baker said.

Pooja Kumar is a freelance writer.


What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.

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