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 real estate 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.