By Ross Wilson
In this fourth part of the series on the hot topic of real estate fees, allow me to address the issue from a broader perspective.
Nowadays, there seems to be growing public resistance to what was once our industry’s traditional fee structure, in the form of a trend toward lower fees. To meet this demand head on and help increase professionalism, maybe it’s time all brokerages catch up by seriously exploring revolutionary new business models with alternative service options and fee calculation methods. To maintain industry viability, we may need a complete overhaul from the top down.
Let’s say a prospective seller objects to your normal rate, payable on completion of sale, even though there’s no fee if there’s no sale. Naturally, you’re reluctant to discount because you have mouths to feed. You also know how challenging it may be to sell their property, not to mention the expenses. All sorts of options may be available to handle this scenario in a mutually satisfactory manner. Here are a few to consider:
Charge a percentage relative to estimated market value.
The higher the value, the lower the rate. However, that could be a problem since it’s often more time-consuming and expensive to market luxury property.
Charge a lower percentage or flat fee with corresponding fewer services, chosen from a service menu – basic, intermediate or deluxe service.
Charge an hourly fee plus reimbursable expenses – whether or not the property sells – invoiced weekly based on docketed activities, with a non-refundable retainer, payable on execution of the listing contract.
Invoiced fees would be deducted from any percentage commission ultimately payable. The deposit could serve as a guaranteed minimum fee if for whatever reason – including an arbitrary change of heart by the seller – the listing fails to sell.
Under this scenario, for a faster sale with lower costs, homeowners would tend to list realistically. On the other hand, abuse is possible; agents might welcome a higher asking price because the longer a sale is delayed, the higher the revenue. They’d pray for long-term listings and no sales. Arguably, with such low incentive, the system could collapse. Just think about open houses though. They’d not be so boring, knowing you’d enjoy billable time for every dreary hour on the couch.
Charge a variable commission rate calculated on a sliding scale.
A homeowner acquires your services to buy another property and list their old home and you earn a full fee on that purchase. In exchange, you agree to reduce the total commission on their sale by, say, one percent if the property sells within two weeks. If unsold after this period elapses, the rate is reduced by only a half per cent, and with no reduction if unsold after another two weeks. To be fair, after yet another two weeks, the rate could increase by a half point and finally by a full percentage point if unsold after another predetermined period.
The length of seller incentive periods could be determined by your area’s average Days on Market (DOM). List at the highest rate and provide the seller with a signed addendum spelling out the formula. Since the seller would save money if the property sold quickly, they’d be motivated to price correctly from the start. You’d earn a quick but reduced commission. And regardless of how long it takes to sell, your fee would be reasonable, provided it eventually sells.
If your seller agrees to list and sell their property before buying another, and you feel it necessary to offer an incentive to work through you on the purchase, list at your personal full rate. Provide them with written confirmation that after they’ve unconditionally bought another property using your services, you’ll reduce the commission as agreed. This sliding scale program could obviously apply with or without an accompanying purchase. But with this option, it would seem prudent to ask for a buyer representation agreement contemporaneous with the listing contract.
Charge according to an association suggested fee schedule.
Medical and dental associations and insurance companies apparently provide non-compulsory fee schedules for their members, so why couldn’t our trade associations do the same thing? When real estate boards fixed its member’s MLS commission rates, we all played on the same level field. Then politically correct governments intervened to “protect consumers” from “unscrupulous” realty agents. On that day, our traditional industry model began to die.
We could employ any of these formats or any combination, but such evolutionary changes would probably need to begin at the top levels of the industry. In next month’s issue, in this continuing series on our industry’s fees, I’ll discuss the topic from the perspective of worth.