Brokerage

The great misunderstanding about the fee-for-service business model

Commentary: Unbundling of services is not the same as discounting

Future-Proof: Navigate Threats, Seize Opportunities at ICNY 2018 | Jan 22-26 at the Marriott Marquis, Times Square, New York

The Inman News survey, “You tell us: Is competition for listings undermining commissions?” is timely and full of good intentions, but I did not complete the survey because I was tripping over too many of the questions that didn’t really apply to my practice.

With that said, I appreciate the survey, as the questions do pertain to some trends of change I’ve discovered in my own research and practice.

Let’s take a look at just a couple of the most misunderstood issues and how the fee-for-service compensation option relates.

Discounting

What is discounting anyway? It doesn’t matter WHO the trainer is, traditionally we are taught to FIGHT for the 6 percent listing even though most of us know commissions and fees are negotiable. Yet, how many of us disclose: “Commissions are negotiable”?

Our industry confuses the unbundling of services, known as a la carte services, as discounting. In the pure sense, “fee for service” is nothing more than assigning a value to a task or service performed. The business assigns a price point, builds in a profit and charges the consumer a fee.

3 essential tools that will 10X your real estate marketing
Smart landing pages, a synchronized database and automation generate results READ MORE

This is the polar OPPOSITE of discounting. In fact, one could argue that the industry, as a whole, discounts commissions based on market and other factors.

The inflexibility of today’s traditional broker handcuffs profit margins."

For example, in Southern California commissions are generally in the 5 percent range. Is that a 1 percent discount? I would think the status quo broker would say “no.”

Interestingly enough, “fee for service” is also confused with brokers charging a flat fee for providing a defined scope of services — which brings us to another misunderstood issue …

Limited service

Multiple listing services are structured in such a way that “fee for service” can get lumped into the same category that businesses such as FSBO.com, owner.com and other DIY-oriented sites have become known for. These businesses target the growing DIY consumer.

In general, the status quo frowns on anybody offering less than the opaque one-size-fits-all, end-to-end model — which, in my opinion, is leaving a lot of business on the table.

To put it another way, the inflexibility of today’s traditional broker handcuffs profit margins.

With “fee for service,” rebates are common since you are charging for services actually performed and priced what they are worth in lieu of commission.

Mind you, several states have “limited service” or “minimum service” laws with the intent to protect the consumer. Some states do not allow rebates.

Fee-for-service practitioners have the ability to offer premium services equal to or better than commissioned agents. If I hear one more “you get what you pay for” comment from the status quo, I am going to vomit. My clients pay me $250 an hour: far from discounting, don’t you think? That doesn’t mean I start or complete the transaction (if there is property being bought or sold).

These two issues are just a COUPLE of the most misunderstood subjects when it comes to the application of fee for service as an option for brokers to offer their clients. Would I expect a broker to drop what they are doing and change business plans overnight? No.

But to not think out of the “usual and customary” box and, at least, look into alternative ways to work with the changing real estate marketplace would be shortsighted, at best.

I am a progressive thinker and have partnered with some well-known game changers in my career, which include the travel and auction industries, but I am not one who believes that a real estate transaction can take place without a licensed adviser somewhere along the line, largely due to liability issues.

Today’s consumer is demanding choice. Do not discount (pardon the pun) “fee for service” and other alternative options, as these trends are going to continue to grow.

Mark Hawkins is a Realtor in Long Beach, California.