Commission vs Fee for Service

Suze Cumming | November 6, 2013

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As a real estate professional you’ve likely reflected on our compensation model and asked yourself if it’s the only way.  Well, there’s a new model and it’s worth taking a look at.

Recently, I met with a wonderful Realtor® in Halifax, Nova Scotia who has built a successful business based on a Fee for Service Model by offering consulting services to his clients. Ron Stuart is a highly regarded Realtor® in his marketplace, holding many professional designations including FRI and CNE®.  As former president of the Nova Scotia Association of Realtors he sat on many committees in organized real estate over his career.

When I sat with Ron, he explained to me how our commission based compensation system is in conflict with the interests of our clients.  “We get paid more if our buyers pay more for a property”. In such a succinct way, Ron certainly made it clear that our current system is far from perfect.  From the seller’s perspective, commissions are slightly better aligned, but an important question to ask is, “Why does a property seller with a $900,000 property pay twice the fee that the seller of a $450,000 property pays?” Ron’s argument is that the higher sellers are getting the same service for a lot more money.

After reflecting on my conversation with Ron and thinking back over my 28 years in the industry, I’ve come up with this perspective.  Our current system is an awkward evolution from the days when we owed all of our fiduciary duties to the seller. The seller paid the commission and the agents, on both sides, legally represented the seller and had to be honest with the buyer.  When buyer agency came into play, we kept the commission in the purchase price to make it simpler to finance and thus began a long and difficult path to understanding how we could offer representation that was fair and ethical.  It’s an important and complicated issue.  The fee for service model is one possible solution.iStock_000012965446XSmall (1)

Like any new system, it has its downside as well.  If we take selling out of the equation of selling homes, what happens?  The longer it takes to find a home, the better for the agent.  He continues to earn fees while he is unsuccessful at negotiating a deal for his client.  It has the potential of rewarding agents for poor performance.

It reminds me of a time when I had a buyer’s agent who worked partially on an hourly wage and partially on commission.  I found out quickly that I was paying him to not sell homes. Bad idea!

I am very excited that new compensation models are becoming a normal part of our industry and I look forward to seeing the continuing evolution.

For more information about how Ron offers his services, please visit his website at www.ronstuart.com

Here’s what Ron had to share with me in a recent email:

“My fees are tailored to each client situation so there is not a boilerplate kind of fee schedule. Clients typically benefit from lower cost, especially on double enders, and avoidance of the structural conflicts of interest inherent in the commission system. I benefit from getting paid partly up front and the balance upon attainment of an unconditional agreement. I also discovered a serendipitous benefit: clients take more responsibility for their pricing decisions when they are ‘consulted with rather than sold to.’ As well, they are more likely to renew at the end of a listing term, than list with someone else, having paid for services rendered to that point. And, yes, in case you’re wondering, it isn’t that difficult to get money up front from buyer clients before ever showing them a property!”

 

Your turn – please weigh in with your thoughts on commission vs. fee for service, an important and thought provoking issue.

 

Commission vs Fee for Service

Suze Cumming | November 6, 2013

Share this page on Facebook
Tweet this page on Twitter
Share this page on LinkedIn

 

As a real estate professional you’ve likely reflected on our compensation model and asked yourself if it’s the only way.  Well, there’s a new model and it’s worth taking a look at.

Recently, I met with a wonderful Realtor® in Halifax, Nova Scotia who has built a successful business based on a Fee for Service Model by offering consulting services to his clients. Ron Stuart is a highly regarded Realtor® in his marketplace, holding many professional designations including FRI and CNE®.  As former president of the Nova Scotia Association of Realtors he sat on many committees in organized real estate over his career.

When I sat with Ron, he explained to me how our commission based compensation system is in conflict with the interests of our clients.  “We get paid more if our buyers pay more for a property”. In such a succinct way, Ron certainly made it clear that our current system is far from perfect.  From the seller’s perspective, commissions are slightly better aligned, but an important question to ask is, “Why does a property seller with a $900,000 property pay twice the fee that the seller of a $450,000 property pays?” Ron’s argument is that the higher sellers are getting the same service for a lot more money.

After reflecting on my conversation with Ron and thinking back over my 28 years in the industry, I’ve come up with this perspective.  Our current system is an awkward evolution from the days when we owed all of our fiduciary duties to the seller. The seller paid the commission and the agents, on both sides, legally represented the seller and had to be honest with the buyer.  When buyer agency came into play, we kept the commission in the purchase price to make it simpler to finance and thus began a long and difficult path to understanding how we could offer representation that was fair and ethical.  It’s an important and complicated issue.  The fee for service model is one possible solution.iStock_000012965446XSmall (1)

Like any new system, it has its downside as well.  If we take selling out of the equation of selling homes, what happens?  The longer it takes to find a home, the better for the agent.  He continues to earn fees while he is unsuccessful at negotiating a deal for his client.  It has the potential of rewarding agents for poor performance.

It reminds me of a time when I had a buyer’s agent who worked partially on an hourly wage and partially on commission.  I found out quickly that I was paying him to not sell homes. Bad idea!

I am very excited that new compensation models are becoming a normal part of our industry and I look forward to seeing the continuing evolution.

For more information about how Ron offers his services, please visit his website at www.ronstuart.com

Here’s what Ron had to share with me in a recent email:

“My fees are tailored to each client situation so there is not a boilerplate kind of fee schedule. Clients typically benefit from lower cost, especially on double enders, and avoidance of the structural conflicts of interest inherent in the commission system. I benefit from getting paid partly up front and the balance upon attainment of an unconditional agreement. I also discovered a serendipitous benefit: clients take more responsibility for their pricing decisions when they are ‘consulted with rather than sold to.’ As well, they are more likely to renew at the end of a listing term, than list with someone else, having paid for services rendered to that point. And, yes, in case you’re wondering, it isn’t that difficult to get money up front from buyer clients before ever showing them a property!”

 

Your turn – please weigh in with your thoughts on commission vs. fee for service, an important and thought provoking issue.

 

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