The Real Estate Sage at The Real Estate Investment Institute - REII

I see where you are coming from. I myself had to cut the commission to close a deal myself just the other day. However I would have to disagree with you. people are paying me to sell their home no matter how much work it is. they are not paying me to work hard for a wile and then complain. i set how much the price will be based on how much it will take to sell their home. it is only fair to get paid when the house sells. and if it takes longer it takes longer I need to plan for that. if you get paid before the closing or have to change the price half way through that is just being dishonest and unfair to your client.  I do believe it would be wise to move away from percentage of sale though. it would be good to have several packages of services that the client can chose. but you still only get paid at closing because that is what you are contracting for. but to charge up front because the work is harder then it was before is down right wrong! life is harder for everyone not just Realtors. we must find new ways to work smarter not harder. ad stop complaining about the economy. 

 

I have always wondered how it came to be that real estate agents were paid a commission on a contingency basis where real estate agents assume all of the risk.  I know of few other industries that agree to be compensated in such a manner.  My attorney expects to be paid for the work he does.  He even asks for a retainer.  So does my doctor, accountant, and pretty much any other service provider you can think of except for maybe my insurance salesman.

Perhaps that is the problem, we are marketing ourselves as salesmen instead of professional real estate marketers and brokers.  Unfortunately, many people do not hold salesmen in high regard although it is their sales that make everything else possible.

I am trying to change this.  I have already begun asking clients for retainers.  I feel that if I get paid for every listing I take I can cover my costs and make a small profit on each one rather than overcharge clients whose homes sell successfully to cover my losses on the few that don't sell, or are in such a low price range that there is no profit.  Either way, my client knows what services they will be receiving and can choose to go that route or not.  I still provide other options.

I can see where your point lies, but am not sure that I agree with it. Perhaps instead there should an application that all agents have a sufficient pool of income, like the amount of money you have to have in the bank to be approved as a broker, so that we can demonstrate we're less vested...

It is a quandry, however I think that the agents with true conviction and integrity rise to the top and therefore continue on in the business.  I myself have steered clients away from deals I did not think were right for them, even though it was going to mean a delay in any type of compensation for me.  I would rather have them trust me and not get paid, than think I'm sleazy and only out for the buck.

James,

 

I've done well on commission and served my clients well, but it can get very costly and I've often dreaded telling Brenda!

I've also done well with agreed upon fees and retainers against billable hours.

Personally, I prefe retainers against billable hours.

 

Bill

Jack,

 

"I have always wondered how it came to be that real estate agents were paid a commission on a contingency basis where real estate agents assume all of the risk."

This comes from early brokers who could not convince the client of the value of their service. It continues for the same reason, only today you've got hundreds of years of tradition over come.

Bill

We do not work as fiduciaries. We are transaction brokers. The state of Florida- it is presumed that you are a transaction broker not a single agent. You can choose single agency but  not many brokers do that, liability reasons mostly. We don't have dual agency. When we double end a listing- we work as transaction brokers also. Since one of our choice niches is the luxury market- no way would I want to do billable hours. Short sales- no way would the lenders approve billable hours- boy, would those bills be high! 

Oh, and if it were to come to a salaried type system- I would execute my exit strategy at that time. I am an entrepreneur who is looking to leverage my time and increase my profit and value. I have owned several businesses and all of them have been where the sky is the limit. That is how Nestor and I get to enjoy our lifestyle. 

So much depends on respect - and I agree that people don't consider "salespeople" as worthy as "real estate professionals."  There is a reason why, as an industry, we are often looked down upon and criticized.  People just generally assume we're in it for the commission and will do anything to get the sale to close.  I do believe some change is coming, though.  Too many people are talking about it.

Christiane,

Money in the bank has nothing to do with honesty!

The smartest criminal broker I know of was also one of the most financially secure before and without 400 counts of fraud!

I do belive there should be a diffrent relinship between brokers and their new salesmen. I'd require salesmen to be employees subject to minamun wage. When they becone assoicate brokers I'd prefer the curent system of indenpend contractors. (Newbes are not the biggest problm, but if we treated them better they would be less of a problm as they learn enough to be dangorus.)

Bill

Jerry,

The cream does indeed come to the top, so unfortunately do the curds.

"I would rather have them trust me and not get paid, than think I'm sleazy and only out for the buck."

Me, too! But, I'm not worried about us.

Bill

Katrina,

 

I'm vary familiar with your "transactional brokerage" I believe it's a very sad state of affairs! That said by lowering clients customers exceptions, I believe in general it's the most honest form of real estate service in practice!

Look outside FL at any franchise office in a fiduciary state, you'll find huge contract forms disclaiming every imaginable fiduciary duty.

It all come back to: "The only protection the consumer has is the personal integrity of his agent!"

Lenders do approve "billable hours" on commercial transactions and on all transactions with an attorney. The problem is Fanny Mae, they're the sole reason besides ignorance that "Buyer's brokers" are still paid by the seller.

"I am an entrepreneur who is looking to leverage my time and increase my profit and value. I have owned several businesses and all of them have been where the sky is the limit. That is how Nestor and I get to enjoy our lifestyle."   I reprinted this because so few understand! You're a success because you work hard and risk failure! You've earned your lifestyle, well done!   Bill

Bill, im not sure how this would work without a big pay cut or mega confusion.

Margaret,

 

I agree, change is coming! I'm an advocate for a better, more professional system. Not the more likely greater limitations. We have to come up with a better system, we can't depend on Congress or the NAR.

Bill

Larry,

Many lawyers do quit well as fiduciaries with out commission. (I'm not talking about personal injury contingent fee types, they're not fiduciaries they're co-conspirators.)

Bill

Very good point. I put customer before profits first even if it means walking away from a transaction.

Bill, how did it work in the old days, where if you were thinking of buying a house in a new small town, you would have to visit the local broker office and choose one of their listings. Was there a fiduciary between client and broker?

By the way, I am not implying that you were working back then, but may have some knowledge of the early practices of real estate brokers.

I'm not that old!

When I started we had listing from the MLS the second business day after listing and photos by the third. We searched the MLS computer with touch tone phones or black boxes.

All fiduciaries led back to the seller through the listing broker. I started true buyer brokering being paid only by the buyer in 1976. Prior to that I did allot of fee consulting, teaching and tutoring, I still do. Except when direct lending I have always worked as a fiduciary agent.

For the record, I started in lending and real estate in 1969.

Bill

Well your blog post really made me think.  I have only been in the business for a few years and I have heard that various commission changes may be coming.  I have also seen situations where it really isn't possible for the agent not to have more than just the client in mind. 

I don't know what the future will hold - our market is changing all the time - it will be interesting to see what lies ahead.

I am grateful that I don't depend solely on real estate for my income.  I think that would definitely cause some troubles while representing clients!!!

Emily,

"Well your blog post really made me think."

Thank you that's a wonderful complement!

Bill

Bill. I don't think there is a connection between how we get paid and meeting fiduciary responsibilities. You either treat your clients right or you don't. I can charge an upfront fee and have no motivation to perform once I've been paid. I  can charge by the hour and drag things out just so I can bill more hours. Or I can work on commission only and convince my client to make a bad decision just so I can get a deal closed and get paid. How we get paid makes no difference.

Sellers prefer to pay us after the deal is closed. If I give them the option of paying me a fee in advance or a commission closing they will almost always chose the commission even if it's quite a bit higher.

It's just the way it is.

Bill...

I agree that the current system does not work in the era of buyer's agency. After all, it still the seller that usually pays ....as you said ... at closing!

Bryant,

Unfortunately, It does make a difference, to some people.

"You either treat your clients right or you don't. I can charge an upfront fee and have no motivation to perform once I've been paid. I  can charge by the hour and drag things out just so I can bill more hours. Or I can work on commission only and convince my client to make a bad decision just so I can get a deal closed and get paid. How we get paid makes no difference."  You're absolutely right!

As I said:

"The only protection the consumer has is the personal integrity of his agent!"

Bill

Richard,

It does work for many, but it compromises many more.

There has got to be a better more profenisional way.

Bill

What consumers and the general public often forget is that THERE ARE MANY DEALS THAT WE WORK ON THAT SIMPLY DON'T CLOSE!  And yes I'm yelling on that one.  Far too many times when people talk/debate about commissions, that talk from the standpoint of a settled transaction.  What about an expired listing?  What about a transaction where you are the listing agent, you're under contract, and the buyer (represented by his/her own buyer agent) is unable to get financing?  What about the listing that you've marketed, then the seller decides that they no longer want to sell?  What abou the buyer who looks at property for months with you, then they buy a FSBO or get transferred out of the area and for whatever reason DO NOT BUY A HOUSE?  There are many times where we do our duty and don't get paid and consumers just don't get (and simply don't care about) that part of the business.

Bill, this is a very thought-provoking post!

My husband often questions me about how I get paid (or don't).  He sees the long hours, the time investment, emotional investment, etc., and then when a client bails and decides not to buy, it's all that time and energy out the window.  I don't burn bridges, and i know these buyers will come back when ready, but that good will doesn't pay the bills!

I just wrote a blog post about how bummed out I was that a buyer that I've been working my rear end off for since July, decided to buy a foreclosure on the courthouse steps (I even found the property for them).  No payment for me; I will have to ask for compensation.  Would you ask?

I don't know what the answer is...I just know that as a 2 year agent, I've never worked so hard at a job for so much risk in compensation.  In my previous jobs, my hard work always paid off in promotions, bonuses, etc.

I thought I was the only person who thought about this!

Any agent and/or brokerage can be compensated any way they'd like.  They CAN charge a RETAINER.  There's nothing that stipulates agents ONLY work on a commission basis.  I've asked for retainers, and have received them in advance of closing.  I've also be paid directly for services.  Commission only basis is not set in stone. 

As for the sellers paying me . . . that too is a misconception.  As a MEMBER of the MLS -- this membership allows listing agents to post their listing, and a co-op fee split is arranged.  Typically, in our MLS it is stated as a BAC fee paid to selling agent's brokerage by the listings agent broker.  The listing agent contacts with the seller to be paid a commission.  That's negotiated between them.  Then the listing agent will offer a co-op fee split to the BAC (buyer agent / broker agent).  The commission paid by the seller goes to the listing brokerage.  The listing brokerge is then responsible to pay my brokerage a BAC co-op fee split as stated in the listing compensation of the MLS.  Not sure how it's done in your neck of the words, but that's how we do it here, and the sellers do not pay me.  So my fiduciary is not comprised at all.  Maybe you're thinking of the old school method.  But that's why we have the membership co-op fee split BETWEEN brokers.  I don't work for the seller, and I am not paid directly by the sellers.  The listing brokerage coughs up a percentage of the commissions.

 

"The only protection the consumer has is the personal integrity of his agent!"....

And that's all there is to say.

Bill,

I would much prefer a "pay as you go" system. That way, buyers would only select the better agents, since they would want to know that they are getting good service for the fees they are paying.

However, the rest of the market comes along and offers to "work for free until closing". This presents a problem and it's very tempting for the buyer, even if in the long run he has to pay a little more.

Then, there is the licensing issue. In Ontario, you can engage in self study over 3 or 4 months, attend 5 days of classes, write an exam and you're in business. Are you "educated" or even "competent"? I don't know, but what you can do is offer to "work for free until closing". And, that starts the whole thing over, and over again.

There are far too many agents! If you are not an agent, then someone in your immediate family surely must be an agent!

The price is low, because the supply of agents is high.

Until two thirds of the agents are out of the business, then your proposition will not really see the light of day. Too bad, because it's basically a good idea.

Brian

Tamara,

 

You've added to what we all need to think about.

Thank you.

Bill

In Florida the legislature passed a presumption of transaction brokerage law in 2003.  We are no longer fiduciaries.  Our job is to facilitate the transaction to get the deal closed. 

For many years now our firm has offered a la carte services.  Most sellers choose to pay us full commission at closing, however we often list properties in the MLS for a smaller upfront fee and let the seller handle their own negotiations and paperwork. 

Many attorneys work on commission as well.  Especially the personal injury ones.  Their fee is a percentage of whatever damages they can earn for their client.  If they don't win, they don't get paid.

I personally love it the way it is. when the seller gets what they want then so do I. I i have not sold the home I have not done my job and therefor I should not get paid.

Melissa,

Thank you!

When we have questions we're seldom alone.

Bill

Sorry Carla,

It's done pretty much the same every where.

Accepting any part of the co-op fee is being paid by the seller! There's no other way to explain!

There's also very few current alternatives for residential sales, but that doesn't make it the best way.

Check the HUD-1 the entire commission appears as a charge to the seller! It is then offset with a disbursement to the listing and selling office.

Many, most (I hope!) don't knowingly compromise themselves. But, when you only get paid if you client closes your closing advice is always in question. It's a matter of perception.

I intended no finger pointing. We have to work pragmatically while aspiring to better the system.

Bill

 

Sally,

It's true today.

It was true yesterday.

And, no matter what we do it'll be true tomorrow!

Bill

Brian,

We all have licensing issues. I'm for letting every one in, then making their brokers much more responsible and upping continuing eduction to some thing really credible!

Bill

Rob,

"I'm vary familiar with your "transactional brokerage" I believe it's a very sad state of affairs! That said by lowering clients customers exceptions, I believe in general it's the most honest form of real estate service in practice!"

"Look outside FL at any franchise office in a fiduciary state, you'll find huge contract forms disclaiming every imaginable fiduciary duty."

"It all come back to: "The only protection the consumer has is the personal integrity of his agent!"

"Many lawyers do quit well as fiduciaries with out commission. (I'm not talking about personal injury contingent fee types, they're not fiduciaries they're co-conspirators.)"

I love redundancy!

Thank you.

Bill

Very thought provoking post. I changed my mind on what I wanted to write 3 times while reading the comments. I think for now I prefer things just as they are.

James,

No one here would argue with you!

This is more about buyer's agents, but why should you and your seller pay or set the fees for the buyers agent?

I only want people to think. I fear change is coming and if we're unprepared it won't be good.

Bill

Tom,

Thank you.

Come back any time if you like.

Bill

Bill, I don't think everyone can do it, but I do think that a fiduciary relationship can be maintained while receiving a commission.

I know that it is different for me but on several occasions I have told a borrower that is trying to do a refinance that it is not in their best interest to do so after I have taken down all of their information and looked at their financial situation.

I know that this is not the same as what a Realtor encounters, but it is an example of putting the client first and doing what is in their best interest without regard for compensation.

When the sellers agrees to pay my fee upfront we can scrap the commission structure. It is like tipping waiters in restaurants, patrons don't want the prices increased to compensate for service.

When I negotiate the price of a car or anything else, I dont' give a thought to the sales person's commission. And, when I am representing a buyer I don't give a second thought to the take home pay. Maybe that's why I'm broke ;-)

George,

"I do think that a fiduciary relationship can be maintained while receiving a commission."

So do I! We're proff of it! But, that doesn't mean there isn't a better less questionable way.

Bill

Michael,

I think you missed the point.

Listing agents have less of a problem than buyer's agents.

After 20 years in Las Vegas I've known some extremely high income tipped people, but they're rare. Do you really want to be dependent on generosity and gratitude? Why put a number in your listing?

I want clients not patrons!

But, your point adds to the conversation. Thank you.

Bill

Gregory,

"When I negotiate the price of a car or anything else, I dont' give a thought to the sales person's commission."

You don't look to the salesmen for fiduciary advice ether! While your thinking about 4 cylinders or 6 you can bet the salesmen and his boss are thinking about the commission!

"And, when I am representing a buyer I don't give a second thought to the take home pay." And, well you shouldn't, but many do that's the problem.

Bill

Bill

Pretty Deep and complex topic. Sure got me to thinking...something I don't like doing late on Sunday evening. I do believe change is in the air though.

Trey,

Change, change as a political statement, for expectancy's sake is what scares me! Too!

Bill

The agent you use as an example is a very poor agent indeed, but the rest of your premise is a little off.

Aaron,

The agent I referred to in the beginning just expressed his frustration, I know him he's right on! He does the right thing! He included the very clause his client invoked. We all know the frustration. If you don't God's blessed you.

My premise is simple: there is a perception of self interest any time a commissioned agent urges a closing! I'm searching for a solution that reassures the client and makes it easier to give your best advice every time.

Bill

 

The naked truth!

I feel that a major failure is overlooked. The Broker has a right to the commission when they procure a ready, willing and able buyer. If all of the terms have been met; Buyer and Seller agree on the terms of the sale, a closing date is set, the loan is funded (or cash is in the bank), the Broker/Agent has done their job. Even if either party backs out and and the Seller does not sue for specific performance, the Broker/Agent have earned their fees. I do not hear of many Brokers that push (or sue) for their earned fees. I would guess that they might not want the "bad" press. However, if Sellers and Buyer knew that Brokers were more strict in this regard, perhaps they parties would be less likely to jump-ship unless absolutely necessary.

 

Bill, I think it's time to scrap "fiduciary"- transaction brokers are a safer bet and make more sense within the confines of the current set up in real estate. Despite many being able to manage it, the standard expected is frought with conflicts.

Either fix the pay structure (as you've eloquently presented) or eliminate requirements within that structure that too many simply don't understand the way that it should be understood.

Can't see it happening -

• First off you'd have to totally change the model to have buyers pay their own agent on an hourly basis - obviously, the seller wouldn't pay for how many hours the buyer agent spent.  That change alone would be monumental and cause massive change in how people engage with Realtors to buy - it may just eliminate them altogether.
• You'd change the relationship with a seller to one based on who has the lowest hourly rate and an ongoing battle over how many hours expended.
• You'd eliminate all short sales - they have no money so they couldn't pay
• If you are worried about the fiduciary interests you still have the same issue in pay/hour.  Except now you could argue that it's in a Realtors best interest to prolong the sales process in order to bill more hours. 

William B,

Naked truth?

Some of us aren't so pretty naked! Truthful, yes, pretty no.

Bill

I'm all for change for the better - just as long as the real estate salesperson gets to keep their independent contractor status.  Come to think of it....if we made them all employees, 85% of today's agents wouldn't justify their salaries and would be out of a job.  Hmmm.  That's one way to cull the pack.

Todd M,

The protection period is another topic. When I opened my first two brokerages (the same day) I went to a 5 year protection people objected so three months later I went to 120 months no one objected.

You are right it's seldom enforced for PR reasons.

Another day another subject.

Bill

Most agents love to think of themselves as fiduciaries until the possibility of losing their commission arises !Then they shift into rederick about being fair to all parties and careful in the transaction(as they reach for their commission deposit slips). No I'm afraid if you pursue the very idea that the client must also come first financially, you'll soon have an angry mob with pitchforks and torches storming your house !

Laure,

That would be a sad day!

Transactional brokers work look at FL, it's a more honest system. But it's a lowering/eliminating of professionalism. Even transactional brokers need to get paid.

"The only protection the consumer has is the personal integrity of his agent!"

Bill

Bill, yes. Protection period is another subject. I am speaking of Procuring Cause and the terms of the listing agreement.

Bill W.

I think you see pretty clearly.

But, I fear change is coming and not for the better. If you don't think so go inside at McDonald's and talk to your former mortgage broker on the other side of the counter!

Go after 10AM and he'll ask you if you want fries.

Bill

Martin (You),

Another subject.

"Independent contractor" is a tax status.

Personally I'd like to see all beginners required to be employees making at least minimum wage, reserving "Independent contractor" status to those with an associate brokers licensee. But, that is another subject.

Yes, I'd agree brokers should ether educate or cull, requiring serious continuing eduction as opposed to entry level eduction would help us all and cull by attrition, not government feeat.

Bill

 

Michael,

I agree.

But, many states still require fiduciary status. Then many companies have contracts disclaiming all fiduciary duties.

Fiduciary status is a high calling! Not every one should be a fiduciary, perhapsa two tired system like English attorneys Solicitors and Barristers?

Bill

Todd M,

Sorry about that. Procuring Cause, is a two fold problem. The broker's are reluctant to chance the PR issues and because so many pay so much of the commission to the salesman it's not worth their hassle. There are solutions but that's two more subjects.

Bill

Glad that I can help to fuel your future blog post! LOL

some times I think it would be wonderful to get paid, but in the consumers eye our pay is outcome based and I am not sure they would want to pay me especially if the listing didn't sell or if they decided not to buy.

This is always a difficult balance, especially for those of us who pride themselves in excellent customer service. Perhaps the key is the ability to know when clients are wasting our time. I'm still learning this, and getting better. There has to be a relationship of respect between the client and agent-especially respect of time. It's good to be specific about how many houses you are going to see in a specific time frame. Also, to be clear about how and when to communicate. 

Good points. It is time for a change in the compensation of agents.

WOW!  Very thought-provoking post.  I've dealt with professionals and a few "out for the buck" types myself.  I would hope this never happens but some people only understand a hit in the pocket.

Teresa,

 

It's always good to get paid!

My cause is getting paid without compromising our service and/or integrity!

Bill

David,

Thank you.

Bill

Kim,

Thank you! Though provoking was my goal.

I don't think it will require an across the board hit!

There is nothing wrong with being "out for the buck" I propose trading outstanding service for as many bucks as possible. Making a profit is not a sin. Profit making should be second only to professional service, but it is not a substitute, nor a measure.

Bill

at the end of the day commissions is predatory lending. This is in all businesses that lend money. cars, houses, appliances etc.

The answers to your questions is a resounding YES! An agent that makes decisions around their own wallet will not be in business for long!!

Tony,

I'm sorry I find your though as incomplete as your sentence! As a commissioned real estate salesman are you also predatory?

Bill

Bill G,

My friend I wish you were right! Alas we all know many that disprove the idea.

There are way to many professional mountebankos!

Bill

Agents who put their need for commissions before their duty to their clients will not prosper for long. Agents who put their clients first (and believe me, the clients know) will reap the rewards in the form of a reputation for integrity, which generates referrals, which generates more business and more commissions.

I agree with you that if we are paid on fee for services basis that most of us would represent our clients better.  Unfortunately, most of our clients do not want to do this.  I always give my sellers the choice and sometimes they choose this route.

Dana,

"Agents who put their clients first (and believe me, the clients know) will reap the rewards in the form of a reputation for integrity, which generates referrals, which generates more business and more commissions."

On this we totally agree, but please see my response to Bill G. #75.

Bill

I do agree with you - I've seen agents do some things 'on the side' that they wouldn't do if they weren't desperate for a paycheck. But that's true in any profession and with any pay structure. I wouldn't want some agency deciding people can't go into real estate unless they're 'solvent', but I do think that's a good question for clients to ask!

Jirius,

I think today's incompetent agents will remain incompetent.

Fortunately, most clients don't know what's best for them, that's why they need us!

Choice is excellent! I'm open to different systems for different people. Well done!

Bill

Joetta,

Thank you!

I advocate real estate investing on the side. I frist wrote my article titled "For The same Reasom Plumber's Pipes Leak!" on this very subject in 1976 or '77. It's in several of my books.

Bill

I am certain that every state is different when it comes to many of the technical differences involved in this discussion.  The financial planning industry is moving away from commission to fees (various structures) and now the public is more skeptical of commissions.  I worked in management in that industry for over 30 years and saw the push and pull that happended along the way.  20 years for more wholesale change!

There are many challenges as expressed in the post and here are some of my other observations:

• Brokers who refuse to accept lower commission agreements or fees.
• Brokers who don't train or have standards.
• Agents refuse to show low commission properties. 
• Agents refuse to spend money on advertising-too much risk and they hope to get lucky.
• Agents who don't disclose all that they should.
• More.

There are quite a few companies experimenting with different formats, many that don't include commission.  Sooner or later a change will happen because the consumer will want the better choice.  I am an advocate for change, but it will take awhile for brokers and agents to change.  just because there is a "better" way doen't mean that the above issues will be resolved.

I like it in more of a buyer agent capacity.  It does not make sense to make more money the higher price you buy the house for when you are trying to get a low price for your buyer.

Hi Bill,

I've written a post making the exact same argument against commission and having almost the exact same results.

I also got some who can't imagine or who do not want the change and others that think it's a great idea.

Personally, I think it's a great idea to scrap the commission structure. Make it a fair payment system for our clients. Buyers pay for the service they receive; sellers pay for the service they receive.

Sellers who use REALTORS around here, do understand the value of our service, they just can't understand why, just because they are selling their property, they are the only ones who have to pay for our service. 

And I have to agree. Sellers not only pay for the services buyers get, but the commission is so high because they have to pay for all the deals that fall through or the closings that don't happen.

As professionals we need to make some money - it is business - but sellers pay so much so we can show a profit at year end.

If we charge only for what our clients receive, we will surely be more respected as professionals.

But for that system to work it has to be regulated by CREA and NAR.

This certainly makes a statement.  I have always felt that some of the time we are just not compensated like other professionals.  Would a doctor, laywer, or any other business person work for commission only?  We all know the answer to that question is NO!  I personally feel that a combination of a flat fee, and a lower commission would be more fair with both selling and buying clients.  What the public may not realize is that we have a lot of up front & behind the scenes expenses that they either just do not think about or know about (or frankly care about).  I have been personally thinking about trying to implement this combination fee in my business just to help me cover some of my costs.  I lost two listings in 2008 that I spent a ton of money on.  These clients were solicited by two other agents during our "off the market period" and promised them things that just were not true.  They also sold their homes for much lower prices than the market would bare.  Heck...I could have done that!  Both of them would not let me lower the price of their home before the listing expired.  I worked so hard for them.  I even went to both of their homes numerous times to bascially pet sit so that buyers would not be put off by a dog in the house barking.  No more!  If I see that I am going to have to put out extra effort, money and time in the future, I am going to try to collect some money upfront for my professional services.  I am tired of being "USED" by people and this is just basic disrespect to me and my business.  The same goes for Buyers that you spend numerous days, weeks, months and even years trying to help find a home.  What about the basic cost of my gas, vehicle expense and my time?  Is that worth nothing?  I say NO.  So, asking for an upfront, non-refundable payment is not bad business, it is just smart and makes your client invested in YOU for a change.

Another thing that might add to the professionalism of the "trade" would be fewer part timers who dont do their job adaquately... but that too is for another topic another time...

We have done many types of compensation plans over the years... lower percentages with the seller picking up advertising costs, hourly consulting fee, straight commission, etc. and I am not sure we find any more advantageous than the others as far as Professionalism is concerned... for sure, certain clients we direct to certain fee plans, knowing that the property will require a long time and intense advertising, we may ask the seller to pick up the costs of teh ads, for example, or if we have a seller that has very high expectations and does not want high commission, we might charge a retainer and details of what we will assume the costs of, above and beyond which the seller will ahve to pay... we also find that buyers are less wasteful of our agents time when paying by the hour... and that the buyers who are just out for a Sunday drive vanish... so we have found that it is useful to charge fees based on the particular needs of the client, or on the particular client...

But I am not sure Bill if how we are paid has much impact on whether or not we act as Professionals...Fiduciary or otherwise.

Ron,

You've certainly added food for thought!

I'm not advocating lower commissions, we all set our own value within our own market.

Bill

David,

I've done allot more buyer brokering than listing. I think the two should be totally split!

Bill

Hi Bill,

Having come from the financial services business prior to real estate, this is an ongoing debate in that industry as well.  Far too many folks were recommending products that paid them well, not necessarily the product that best fit a client's objectives.  When many financial advisors tried to change to a fee/retainer based model, they realized how little "value" they were really providing and could charge for.  The most successful advisors were the ones who would articulate their value for themselves and their clients, while clearly defining their and the client's expectations and responsibilities.

One of the most challenging things I have found as a new agent is creating my business plan based on future events (namely, commissions).  And managing expenses that are incurred on the front end on behalf of a client without knowing if a transaction will in fact, occur.  I appreciate what I am reading on this thread to hear how other folks are using non-traditional ways to ensure their value is rewarded.

 

Liz

 

 

 

Pam,

There will always be resistance to change!

I'm advoacting choices, let those who just can't change continue as they are if the market will let them.

I do think change will be imposed and it won't be good if we're not careful.

Bill

Tina,

There are many scenarios that will work including the current one. I'm looking for a system that fair to all and promotes  fiduciary responsibility!

Bill

Paul,

Part time lets people get started, I'm  infavor. I'm also infavor of heavy continuing eduction!

"But I am not sure Bill if how we are paid has much impact on whether or not we act as Professionals...Fiduciary or otherwise." History supports you, but it I strive for something better! It isn't just us, it's our perception!

Bill

Paul,

Part time lets people get started, I'm  infavor. I'm also infavor of heavy continuing eduction!

"But I am not sure Bill if how we are paid has much impact on whether or not we act as Professionals...Fiduciary or otherwise." History supports you, but it I strive for something better! It isn't just us, it's our perception!

Bill

Liz,

My point exactly.

Thank you.

Bill

If you all think the seller pays the commission....have any of you gotten paid by a seller who has not gotten his money from the buyer? Or buyers lender....

The buyer pays it, the seller just hands some of the money to your broker at close. No buyer's cash, no closing, no payday.

Things seem to be working out just as expected for a looooong time in Real Estate.

Larry,

Ready the HUD-1!!!!!!!!!!!!!!

The commission is charged to the seller!

There are allot of good people that use this rationalization!

You could just as easily rationalize the buyer's lender pays too.

In the end it's just a distraction.

Bill

You know to hear all this whinning makes me laugh. I have been in sales My whole life. We make the big bucks because we take the big chances..Yes we waste alot of time on useless stuff and bad sellers and bad buyers..but at the end of the year we have more than reaped the rewards. How about the phone call you take or the referral and you show them one house and they buy..should you discount your fees because you spent no time at all? If you want a guarrenteed price for all your time go to McDonalds be a manager make 50K a year...

Joel,

Your point is?

It's ok to like the current system.

Bill

Very thought provoking thread.  It is frustrating to put in a ton of work on a listing only to have things fall apart.  I have a short sale that we are currently on our fourth buyer.....however I would never have considered asking the sellers to pay me anything up front.  I knew when I took the listing it could be a long haul and I accepted the "risk"  On the otherhand, I've had listings that have been a slam dunk and no effort (well not no effort - but not much) at all. 

It's all part of process and something we signed up for when we became agents. 

Bill, Very thought provoking and one I and other agents have philosophically discuss on occasion. I have also heard of agents looking not only at the sale price of a house but also the commission in order to "steer" buyers to select homes. I have not personally met an agent admitting this but it does make one wonder. Personally I have never looked at the commission split until I know that the sell will close and sometimes am surprised at the split for the home price (high split for less than optimal property).

Fiduciary competency is like the COE; you either practice it to the best of your ability or you don't and type of compensation won't make a difference.

Susan,

Thank you, thought provoking is all I wanted to do.

"It's all part of process and something we signed up for when we became agents"  of a specific broker. Every thing we've talked about is doable today. When you became an agent your are bound by your broker and tradition.

I'll challenge tradition but never get between you and your broker.

Bill

 

Isn't it true of all sales based scenarios? You always wonder if the person is just selling something to you or not. Ultimately the consumer has to decide right?

George,

Thank you.

"Fiduciary competency is like the COE; you either practice it to the best of your ability or you don't and type of compensation won't make a difference."

It shouldn't and thankfully for many it doesn't! I want to make it easer to say that about more people.

Bill

Perception is reality.  As long as it is perceived that our paycheck is dependent on a successful closing there will be this nagging question about the quality of our advice.

Until we get paid whether or not the deal closes, we will not be regarded as real professionals in spite of how many arguments we use to convince ourselves otherwise.

And this leads us into the "fiduciary" or "agent" discussion. -- For another time.

Lyn,

Almost always. Some of our friends in securities have found ways around it.

I too have been a salesmen since I left the bank so many years ago, but I've spent more time counseling as a trusted fiduricy than as a salesmen on real estate and mortgages.  I see changes coming and it scares me.

Bill

Thomas,

 

"Perception is reality."

It is for the preceptor! If it were true for all we all be guilty!

The most emportant thing is it is for many of our clients.

Bill

Wow, you touched on the topic of pay and people pay attention!

Lots of complaints about curren compensation strategy.  Not too many realtors making a lot of money right now.

But, would they vote to change the way they're paid?  Would be interesting for the National Association to get a straw vote....

Hi Bill,  Trying to equate honesty and income is a lot like the old " Oil and Water " saying.   Most agents have no problem honestly and fully representing a client ont he path to a closing.

Karen,

All I'm trying to do is get pro's thinking.

Bill

Hi Bill, Mr G,

I don't think I equated the two, I hope not. I started with a frustrated trusted friend expressing himself. Most don't allow money to compromisethem, but some do. I'm concerned about perception.

I just posted a more revelent blog on the honesty question.

Bill

Stone Tablets In The Second Decade Of The Twenty First Century

There is no perfect solution.  Are there buyers are sellers that will pay me even if they do not achieve their objective?  Will agents get someone to work as hard if their income does not depend on success?

Gene,

"There is no perfect solution."

Amen.

Bill

Interesting comments all around.  Thanks for the intriguing post.

Randy,

You're welcome.

Bill

The answer is YES!  It is passed time for agents to realize their value and not be afraid to communicate that to their clients.  I charge listing clients an up-front fee in exchange for bringing my professional expertise, education, experience, time, & financial resources to bear on their behalf. 

I do believe it perserves the perception my integrity when engaging in difficult negotiations.  It stays the suspicion that I am only trying to close a sale at any cost.  I do not think that by agreeing to work for free makes them trust you more, I think it makes them think you are a SCHMUCK!  And that leads to the lack of respect that we all encounter all too often.

Like all business owners, real estate agents/broker do have overhead and it is unreasonable to expect that we should manage a business or a budget on a wing and a prayer.

You don't just pay the doctor when you are CURED!  And you shouldn't just pay your REALTOR when it's SOLD!

Jenna,

Thank you.

Bill

If you have even the slightest doubt that you can behave honorably, ethically and exercise your fiduciary duty, you should not be a Realtor...or frankly much else. My honor has nothing to do with a specific transaction and I have often recommended that a client walk away when it becomes clear that it is not the right property...and guess what? I've kept those clients, they have bought from me in the future and recommend their friends. So simply by behaving with utmost integrity......I have received some great PR benefits and plenty of business.

I agree that if they changed the way I'm paid...and illiminated commissions...I'd leave and find something else to do. I value myself too much to turn into a paper pusher.

Karen,

I agree.

That doesn't change the premise, the perception of doubt, the unpaid hours.

Our purpous is to dicus alteratives with out pointing fingers.

Bill

Great Post, a definite thought starter, we are the only biz that totally relies on outside forces to get paid

 

I think you raise a lot to think about, considering humans are inherently selfish. I'd like to think I'm better to my clients, though.

Andrew,

Thank you!

Most of my clients set a high standard to live up to. My concern has always been to provide the high quality of service and advice they deserve.

Bill

Todd & Devona,

Your's is the hardest comment here for me to answer.

I just can't relate to the idea of "inherently selfish."

I don't believe it!

I do belive that we find what we seek or in most cases we find what we except.

Bill

I don't think the biggest problem is getting paid a commission or hourly or flat-fee or whatever.  We've always had a choice of how we chose to get paid when taking a listing.  Whether you choose full commission or some hybrid version, as the agent, you fee is totally up to you and your ability to get the seller to pay it.

The problem is the buyer's agent side.  I don't want to get into a discussion on who "really" pays the agents' commissions here (buyers money, sellers side, etc), the perception has always been that the sellers pay all the commission.  Before legal buyer's agency, that wasn't a problem; everybody represented the seller anyway.

Now, we have buyer's agency.  How is it not going to come up as a possible issue of lack of duty when your paycheck depends on them buying, and it's based on how much they buy?  If you actually do your job and get them the best deal possible, you make less?!

And sorry to make this long, but you can have issues on the seller's side, too.  I had a seller that, during the listing interview, I told him pretty much what to expect to net from his house and what we should list it for to start.  He insisted on a slightly higher price.  Still, in only 3 weeks (in this market), we had an offer for EXACTLY what I said they should net.  They thought it was too low, so in keeping with my fiduciary duty, I reminded them of our earlier discussion, pointed out that it was a solid offer with strong financing, and that in all likelihood, was probably the best offer that we could expect.  I was accused of trying to "force" them into a deal they didn't want to do.  Would I have been if I had taken even a partial fee upfront?  Maybe, but I'd say, probably not.

Roger,

Thanks for your input.

I don't worry about the length.

You're right the biggest part of the problem is on the buyer's side, but both sides need improvement!

Buyer's brokering has always been legal, provided they don't take money from the seller. "Agency" is a farce! Agency may be subsidized by the buyer but is almost always paid from the seller's equity! See the HUD-1!

You're right legally we have choices when listing, but we're limited by tradition, ignorance, and Fanny Mae. 

Bill

Bill,

Rob Hahn pretty much summed this up in his article on Consumer protection vs. competition.  Here's a brief summary of what he wrote:

In all other similar business models (example: attorneys), you can charge more, and get more, for being better at your job.  Private CPA's may charge $300/hr, or you can choose to go to H&R Block for $49.99.

"Real estate is...unique in that in that the best agent in the country may be charging the same amount as the newbie working on his first deal ever."

When experienced and expert agents can charge more, and expect to go it, than newer, less experienced agents, the issue of "raising the bar" will disappear.

While this is not directly related to your post concerning fiduciary and commissions, I think that if his premise would happen, then your question about duty and commission is handled as well.

Roger,

It's both reverent and insightful!

 

There is one other reverent difference, attorneys and CPA's have advanced degrees that imspire a degree of comfort. I would oppose any similar requirement in real estate or mortgage lending. Real estate is primary a people business, but I would prefer higher tighter continuing education.

That said I would personally prefer at least buyer's agents billing like an attorney. There are allot of possibilities, the only thing I'm really concerned with is splitting the current unholy, demonic, incestuous system of buyer's agents taking anything from the sellers!

Bill

Funny you should mention higher education/training for agents, Bill.  Rob also wrote an article recently about that, too.  I couldn't find the link for it, but the summary is that he doesn't think NAR will push for higher standards simply because if they make it harder to get/maintain your license, then they'd get less money, which sounds greedy on the surface, but (he says) it comes with a plan.  NAR is like the 3rd largest lobby in the country.  Being that large, it forces government to listen, and it basically insures that we, as agents, don't be "obsolete."

Interesting thought process anyway.

I work hard to separate my needs from my fiduciary responsibility to my Clients.  It is inherently challenging.  My ethics don't pay the bills but I can sleep at night.  

Beverly, It is inherently challenging not to mention hard work! The amasing thing is so many succeed at it serving their fiduciaries so well! Bill

I hear what you are saying but somehow don't think it will fly. We are part of a profession that many people already see as unnecessary.

Sybil, You may well be right! Bill

I have to agree with #1. We already have bad agents and I truly believe if people got paid regardless if they delivered results, the service level will drop through the floor.

Bev.

I'm seeking to improve the quality of service and advice!

Bill

Bev.

I'm seeking to improve the quality of service and advice!

Bill