May 11, 2016 That Peter Brewer

Would you like fries with that?

Indulge me in this scenario if you will:

You, your vegan sister and your bottomless-pit-of-a-stomach brother walk into a McDonald’s.

Your sister orders the garden salad, no dressing, with a bottle of water.

You order a Big Mac with cheese and a medium Coke, no fries.

Your now-ravenous brother orders the complete right-hand side of the menu and a Triple Quarter Pounder, extra-large fries, a bucket of Coke, a chocolate sundae and an express sausage Egg McMuffin just to take the edge of his appetite while he’s waiting for the rest.  Maccas

You’re all going dutch, so you ask your cashier to total it up per person.

Your friendly McDonald’s cashier taps a few buttons, and instead of saying, “Would you like more fries with that?” says, “That’ll be $9.99 per person.”

How do you all feel?

I’d guess your sister is feeling pretty ripped. 9.99 for a green salad?

You might be thinking, “Mine’s a little high, but it’s an OK price and I’m hungry.”

And your starving brother has a foot-wide smile that says all his Christmas Days have come at once.

Your sister asks, “How can that be? How can they all be the same?”

The McDonald’s cashier answers, same smile pasted on her face, “That’s always been the McDonald’s way, and the McDonald’s price. One size fits all…” and continues on with her mantra, “Would you like fries with that?”

Of course we know that would never happen at Maccas, so what’s my point?

For an industry where people are paid to be creative, I don’t think I’ve ever experienced anything more boring, unimaginative and vanilla, generally speaking, as the bulk of the real estate industry’s efforts on creativity around their pricing model.

Now, I know that simple statement will bristle some. But let me state my case before you launch a SCUD missile in my direction!

For more years than Colonel Sanders has been frying chicken, most real estate agents in Queensland, Australia were quoting a ‘one size fits all’ model for their commission – 5% of the first $18,000 and 2.5% of the balance. (In fairness, up until Dec 2014, that was the maximum fee that could be charged in a residential real estate transaction.

The limitations of that statutory maximum fee chargeable changed on December 1, 2014.   After years of discussion, lobbying and industry consultation, the QLD Government finally deregulated residential real estate agents fees, allowing them the opportunity to essentially charge whatever they could negotiate with a Seller. No more set maximum!

More of what happened as a result of that market deregulation another day, but suffice to say, the reinvention of fee models and creativity that’s occurred by other than a handful of high-performing Agents since deregulation has been about as exciting as watching paint dry with an interlude of watching grass grow.

Now, I know I’m trampling all over potentially sacred ground by even raising the topic of real estate agent commissions. It’s a topic that brings out the best and worst in people in our business. But alas, I’m putting it on the table again to raise some additional awareness and to maybe shape some more creative thinking in our industry.

It’s not just a touchy subject here in Oz, but also in the USA. Even raising the topic of why USA Agents charge 6% and the slightly remote possibility that someone new might introduce a fee model offering something different to the widely-charged 6% will see mature-age Women Realtors throwing their handbags at you in disgust and cause mature-age Men with walking sticks threatening to break into fisticuffs with the offer to, ‘Take this outside and whip your ass, Sonny Jim!’

Thank goodness they have sensible gun laws to protect each other in the USA…   <<sarcasm>>

In the USA, Agents will try and tell you there is absolutely no collusion on commissions, and they’ll even go to the lengths of protesting that the very whisper of 2 Agents discussing a commission or fee breaches their ‘Anti-Trust’ law. Really? It seems funny to me that over 90% of Agents in the USA all charge the same 6%. What an amazing coincidence that 1.1 Million of them charge exactly the same fee! *cough cough*

Look, I get it. Money is a topic that many people get passionate about.   But we’re damn boring when it comes to fee models.   Why does the bulk of our business only offer a one-siz-fits-all fee of 1%, 2%, 3% or the USA 6%?

So, here’s my thing. Where’s the same passion that brings people to the point of threatening to draw pistols at dawn about protecting their fee being transposed to actually being creative and inventive when it comes to their fees for service?

Does one size really fit all? Should one size really fit all?

I recently asked one Agent why he charged his 2% fee, and his answer was mind-numbingly inventive, “It makes it easy to calculate on the back of my card” was the reply.

Now, let me be absolutely crystal clear on this. In NO way am I advocating for lower fees! Not one bit! This business is a hard gig sometimes. Bloody hard! In fact, I actually think we deserve more for our service in some cases. So don’t quickly package me up as the guy who is trying to drive fees down. Nada.

What I am advocating for is some creativity and originality to come from an industry that’s retained by its Clients to be great marketers, skilled and creative negotiators, and out-of-the-box, deal-making thinkers!

Sadly, though, that’s not the reality I see or experience in real life as a client of many real estate agents in many places.

So, I’m passing the porcupine back to you, Thought Leaders. What does our industry need to do to reshape its fee model? Because I believe it’s outdated, inequitable, archaic and under an increasing scrutiny by today’s wiser Consumer.

Is there an opportunity to build a fee model based around a Client retained hourly rate?

Eg:

$800 an hour while you’re negotiating?

$120.00 an hour while you’re running Open Homes? $55.00 an hour for Admin work? Maybe like a Barrister, Lawyer, Valuer or Accountant does?

I know plenty of Agents who would love to implement this model based on the amount of ‘free advice’ they give each day now. Could that work?

What about a ‘fee for success’ model?

In my dark old days as a relatively successful Agent, I quite often charged top-end properties a fee based on a minimum of 2% to a max of what was effectively 2.75% if the Client was absolutely delighted in my service and result. That fee gave me security around my base, gave the client surety around cost, and gave both of us a mutually beneficial incentive and reward for me over-delivering service.

Does anyone run these incentivized commission programs with any success these days? Could you? What would stop you?

Would a ‘menu of services’ that Sellers could tick and flick based on their needs be attractive to some Sellers? (Not unlike the Maccas “Build Your Own Burger” experience being rolled out very successfully in Australia…) Maccas self

Does every seller want a face-to-face meeting and written progress report twice per week? Does every Seller want your fancy-pants marketing program? Would some Sellers be deliriously happy to only hear your voice when you have a written offer as long as you SMS’d them a quick 3-line note, or 30-second video after every Open Home?

You might be thinking that I’m putting it out there to ruffle your feathers but…Maybe I am?… But is it an option?

Let me share a story of a ‘friend’ who wants to remain nameless.

In their recent research to decide on an Agent to sell their 1.5 Million dollar home, they asked 3 Agents to nominate their selling fee. To begin with, only 2 actually responded…

They were quoted 2.5% (about 30k) plus $6,500 marketing. My friend dutifully and fairly asked what they would get for 30K. Both Agents’ response was, ‘ For 30K, you’ll get my absolute best attention and focus on achieving you the best result I can using my best knowledge and skills to sell your 1.5 million dollar home.’

So, for almost $40,000 (30k +gst +$6,500 marketing) my ‘friend’ was going to get the promised, expected service rhetoric from either Agent who, by the way, had ‘no suitable buyers’ on their books and no historical database of any suitable prospects.

Inquisitively, my friend then asked the same Agents what, hypothetically, the selling fee might be if their property was a $300,000 home instead of a classy $1.5m property.

The Agents again quoted “2.5%” (about 7.5k) plus $3,500 marketing. Again, my friend dutifully and fairly asked what they would get for 7.5k. The Agents’ response, ‘For 30K, you’ll get my absolute best attention and focus on achieving you the best result I can using my best knowledge and skills to sell your $300,000 dollar home.’

So, this time for around $11,750 dollars (7.5k +gst +$3,500 marketing), my ‘friend’ was again going to get an Agent who had ‘no buyers’ on their books and no database of prospects.

In other words, exactly the same service for a whopping $28,000 less!

My ‘friend’ cheekily proposed to both Agents that given the service promise was exactly the same, but $28,000 cheaper in the second scenario, the Agents just pretend that theirs was a $300K home…

What would you do based on the same scenario as a Seller?

What would your response have been as the Agent?

Today’s consumer is getting wiser and much more inquisitive around the fees our industry charges. They’re starting to ask you to justify your fees more than ever. And, it’s not going to go away.

Today’s consumer is also becoming much more cynical about your service delivery, with a report suggesting that 41% of email enquiry to the industry is going un-responded to.

I experience cynicism-laced feedback from Consumers almost weekly about our industry from meetings and surveys our business conducts.

Here’s a challenge…

Go and ask the average man in the street how they feel about our industry’s fees, and stay tuned for a potentially sobering response. That dangerous old mantra of, ‘That’s the way we’ve always done it around here’ that too many businesses rely on won’t cut it in the future.

What’s working for you?

What’s working for your Clients?

What would you like to try in a fee model?

What prevents you from going above the industry average?

I’d like fries with mine…

You?

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About the Author

That Peter Brewer Peter Brewer is a speaker, educator, digital footprint strategist on a mission (some say crusade) to ensure that smart small businesses and smart business people treat the new digital world with the respect it deserves. Peter is a former real estate agent of 30 years and now speaks across Australia, New Zealand and in the USA on technology and digital media in the real estate industry. You'll find more about Peter at thatpeterbrewer.com

Comments (4)

  1. TJ

    I suspect, Reverend, that we’re singin’ from tha same hymnbook… “I hear that train a comin’ ..”

    Add this scenario to your friends $1.5m sillyness … that at $1.3-$1.4 a boy scout could probably get it away. And that’s the lions share of the fee principle. It’s from here on, $1.4-$1.5+ that a pro is actually earning their quids. The reverse is the case with a flat fee .. the agent has no financial incentive to negotiate into the pointy end (not that there should need to be) but that’s exactly where we hope a pro is at work.

    Until the entire payment for service model is rebuilt, from top to bottom, the wrong people will continue to be employed by the wrong principals, (remain untrained & unskilled) with remuneration based on a bad premise, attempting to motivate using an ineffective mechanism, Money.

    (yes, I have some starting point ideas)
    The coffee offer still stands.

    • That Peter Brewer

      Hahahaha! Amen Brother! I’m up for that coffee (or something stronger) any time you’re up here in the sunshine state, or if any of the smarter people in real estate down south would like to bring me south to hear a day of my life theories! Thanks for checking in!

  2. Steve B

    Maybe ,and here is a hypothetical , when fishing we may still need the boat to get to the fish , we may even use the same bait to attract the fish ,but the sweeter the fish may be, the more skill may be required to land that sweeter fish .. Those sweeter fish may not be in abundance like the others ,you may have to drop your line a bit deeper to catch those sweeter fish and then of course it will take you longer to reel that fish in .Is the experience the same ? Is the end result the same ?do you use more petrol getting to that spot ???? …..how come some doctors bulk bill and others charge over and above ? Some people cant appreciate the difference between a ferrari and a commodore,and they need to drive them to realize there is a difference , but they both may still run on Premium fuel !!

    • That Peter Brewer

      Thanks Steve! Loved the analogies, but I’m still back at the boat ramp thinking about buying some fish and chips instead.

Comments are closed.

That Peter Brewer

Peter is one of the few specialists who can think outside his generation