Editor’s note: This month, Inman News is focusing coverage on the issue of percentage-based real estate commissions and other industry compensation practices. The following guest perspective is written by Kaye Thomas, an agent in Southern California. Please join in the discussion: Click here to share your views and insight with Inman News readers, or send an e-mail. We are offering a free pass to the upcoming Real Estate Connect conference to guest contributions published at Inman News. Read more details here.
By KAYE THOMAS
Real estate fees: So much talk, so little action.
Everyone, whether they are in the business or not, is an authority about how terrible the current system is and how it should be restructured. But no one actually has any workable ideas or they would have been implemented by now.
The real issue is that no matter how much people complain about percentage-based fees, both buyers and sellers get more than they "pay" for. Consumers want changes because many feel they are not getting the service they were promised. They also believe they will pay less. The reality is that they will likely pay more and they will pay it upfront. The may also find they are not getting better service.
Consumers tend to forget that fees are negotiable and they do have a choice about what they pay and who they choose to handle their business. Traditional companies will negotiate fees and many offer excellent service. There are a number of companies that use alternative fee structures. They may also offer good value if a somewhat lower level of services. However, many of these companies are finding that the costs associated with a transaction and the fees they are charging may not be enough to keep them in business … especially in bad economic times.
Agents have spoiled consumers by paying for everything out of their pockets while consumers pay nothing until a transaction closes. If a transaction is not consummated, then the consumer pays nothing.
Depending on the economy, it could take a month or a year to sell a home. During that time the seller pays for nothing while the agent "pays" for a number of things. Yet the agent doesn’t get "paid" until the transaction is closed, no matter how long that takes.
The same is true for buyers. I’ve had buyers look at homes for one to two years and no money passes to my hands until the deal is done. If you include the time factor of money, consumers actually win by paying for services at the end of the transaction.
Hourly fees are the rage of the moment, but consumers forget that services by the hour can be very costly. Those not in the business think a fee-for-service basis would be cheap. Attorneys charge by the hour, and nothing is cheap. There is a fee for every paperclip, phone call, word written, letter sent, or research by associates. The total fee is usually very expensive.
Over the years I’ve seen a number of companies hit the market that were going to change the way real estate is done forever. Most of them wind up going out of business because they don’t charge enough to stay in business.
Operating a real estate company is costly. There are intangibles that make it difficult, although not necessarily impossible, to price on a fee-for-service basis. What should I charge you to talk about how angry you are at your brother for not helping more with Mom?
There is another little thing that always gets ignored in these discussions about fees. The real estate market is cyclical. Companies have to charge enough to stay in business. Many alternative-fee companies have learned this lesson too late. Markets change overnight and if you don’t charge enough during the good times you will not have enough cash flow to sustain the business during slow times.
You can’t give away services for minimal costs and expect to survive. There has to be a profit margin. This is a little item that is rarely addressed in the frenzy of lowering fees.
I’m not overly thrilled with a percentage-based structure. I would love to see a viable method where I would get paid a retainer for out-of-pocket costs along with a fee that would compensate me for the time I spend in getting a transaction finalized without having to hire an accounting company or an attorney. If someone can figure that out I’ll be happy to implement changes.
Kaye Thomas is a real estate agent with Real Estate West in Manhattan Beach, Calif.
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