Commission pressures are among the biggest concerns for real estate practitioners, as their average payday has sunk nearly 15 percent recently, according to industry consultants. The oft-quoted figure is that commissions average 5.1 percent today when six and seven percent commissions used to be the norm.

The desire on the part of consumers to pay less in commissions has helped produced a lot of new business models over the past few decades, including "100 percent" commission firms where agents have more autonomy; exclusive buyer's agency where agents offer fiduciary-level service to buyers; "discount" brokerage where full-service brokerage services are discounted; referral fee-based lead generation through which lead generation companies are licensed as broker in order to participate in fees at closing, and; fee-for-service, where agents charge full-service level fees for specific jobs consumers want done.

Agents can discount, and third-parties can provide lead generation, but the business model that breaks the mold is fee-for-service. That requires agents and consumers to look at real estate services in a new way - as consultations, and then, to put a pencil to value. The notion of unbundling services caused the industry to panic - what if the sum of the parts is less than full-service fees? What is a CMA worth on the open marketplace? What are negotiating skills worth? How does anyone define service?

That's why Julie Garton-Good started the National Association of Real Estate Consultants (NAREC) four years ago. At first, Garton-Good, a popular speaker and motivator, was hooted down by many who felt threatened by her ideas.

"Agents are still horribly confused, lumping fee-for-service and discounting into one big pot," says Garton-Good. "The ideas are actually polar opposites - with fee-for-service, you get paid for what you do, when you do it, and charge what it's worth. I call it price point plus profit. Discounting typically involves providing all of the services without regard to what they cost, let alone profit consideration."

So far, believers are few and far between. Many brokers stop fee-for-service in its tracks. They won't allow their agents to offer fee-for-service because they want the agent to sell full service. That leaves only agents who are in charge of their business, like independent broker-agents, or "100 percent" agents to be interested in the concept.

"While a majority of agents and brokers) admit that they know fee-for-service and alternative business models are coming," says Garton-Good, "many say they don't want to mess in their nest until it's absolutely necessary."

She argues that they're equating the gross commission to higher profitability, when in fact they may be wasting a lot of time, effort and money providing services that aren't profitable at all.

"Greater profitability can often be reached by providing only certain services that are profitable," says Garton-Good. "That's not such a novel concept! For example, an agent who's spending 48 percent of her gross on business expenses when using the traditional model, can trim expenses down to 30 percent or less by providing only certain services to the seller. And because she's now streamlined her operation, she can more readily duplicate/deliver those services, at a greater profitability to her, and potentially reduce her liability as well by not trying to be all things to all people."

It's an uphill battle. "I call it 'majoring in minors,'" says Garton-Good. "Most agents have never calculated what one hour of their time is worth. The majority are in the category of between $75 and $150 per hour."

It's thought-provoking to amortize that kind of money across forty hours a week, 50 weeks a year, and then apply it to what it really costs the agent to schlep her own signs, place them in the yard, lick envelopes, and perform other low-wage activities. When an agent puts a value on such activities, it makes it clear which activities are the most time-consuming and which are the most important to producing revenues.

"For example, we surveyed our designees with FSBOs and found that even if they didn't obtain the listing at the initial appointment, 65 percent of the time they were contacted again to provide some type of service for the consumer (often writing the contract and closing the sale)," says Garton-Good. "In an industry with one business model for 100 years that had virtually no consumer-centricity, it's wonderful to give consumers a choice and truly make them a partner, not an adversary, in the transaction."

Also, the climate in real estate is changing. "FSBOs are burgeoning in much of the country," says Garton-Good. "Home affordability programs and bargain-basement interest rates have had sellers' just wanting to get the deal done, but since consumers can no longer manage their dot-bomb stocks, many are turning to their largest equity nest-egg, the net proceeds from their home sale."

One designee, David McElveney, a broker-owner in Sydney, Australia, says that double-sided commissions are now between 1.5 and 2.5 percent down under. "That's why he's embracing fee-for-service," she says.

The same thing could easily happen here, as interest-only or equity-tapped sellers find they can't convey their homes without a huge reduction in commissions. Real estate sales are already peaking in many parts of the country.

So Garton-Good keeps on preaching the gospel. "Once more information is disseminated about the differences (and we're certainly trying!) that should help lift fee-for-service into the radar screen," says Garton-Good, whose personal motto is "The pioneers may get the arrows, but they also get the land."

Editor's note: Today, C-CREC designees number over 1,300, and they are spread across three continents. Garton-Good hopes to continue such organic growth. The designees, and those interested in learning more about fee-for-service will meet June 17 and 18th in San Antonio, Texas at the Hawthorn Suites/Riverwalk for the organization's annual two-day conference.

Published: June 17, 2004

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