Thx Brian and Mark, for ‘holding it down’ for me

And a blogging celebrity joins the mix, welcome ARDELL!

Ok.. you are beginning to get my attention toward the positive side…

I ‘m not real crazy about #3.. boy that looks like a real can of worms in more ways then one..While I can see part C of #3 being a good example of an incentive A & B seem problematic.. B is more easily definable but A.. l I think I got lost with A.. you start with it as a listing agent variable then put in a note about both buyers and sellers agreeing to a benchmark price and incentive for listing agent… 1)what would a buyer have to do with deciding listing agent compensation 2) the actions you note ( 1,2,3 of Part A) would have been done far in advance of an offer being negotiated and 3)why on earth would a buyer agree that the agent should be soliciting other buyers… first it is’t legal to accept other offers while you have an accepted offer other then as back-up offers in the event the original offer is cancelled.. ( I know I’m being picky but this is often the problem with ideas about real estate.. they are neither practical, ethical or often legal.) I have worked with many attorneys who specialize in a field other then real estate and have found that what works in their part of the law does not apply to real estate.

I like your ideas on #4 .. I do believe that it is time for both buyers and sellers to realize there are costs associated with selling or purchasing real estate. Too many consumers never think about what it costs market a listing or to have a buyer make an acceptable offer.

Well Mark, you have given me much to contemplate and I appreciate you taking the time to clarify your thoughts.. so for now let’s put down our dueling keyboards and agree to disagree about some things and perhaps find a point or two to agree on about others..

Many Thanks for your thoughts,

Kaye

01/02/2007 by Kaye Thomas

I appreciate your concern with ensuring that my proposal is truly practical with both the standard and unusual transactions that real estate agents/brokers face.

1. I agree that billing is relatively easy for most professionals who charge by the hour: they can just look at the clock. Tasks that are not attributable to any particular client, but rather to multiple clients – such as training or visits to some open houses – are treated as overhead and are factors in setting a reasonable hourly rate. In the short time that I worked for a law firm, I billed in 6 minute increments, since some billable tasks involved only a short phone call. I think that we agree that flat fees for routine tasks often make sense and that many clients prefer a set fee to a variable rate, because they prefer not to assume the risk of above-average costs. I am still unclear why a real estate agent cannot use a clock to determine how much time to charge directly to a client for work done specifically on that client’s behalf, whether it is done at an office, in a car, via a cell phone or email, etc. I would appreciate it if you could please give me an example of what situation you believe is not amendable to hourly billing.

2. I also think that the current practices of competing law firms and medical practices, among others, demonstrate that competing firms, like brokers, can set menus of fixed prices for some tasks and hourly rates for others that enable consumers to compare prices (and expected quality of service) in a market. I never claimed that my proposal is SIMPLER than the current system, only that I believe it is a more economically efficient way to serve the economic interests of consumers. I agree with the principal of Occam’s razor – that the simpler explanation (or solution) is usually the best – but I do not think that the simplicity of a percentage of sale-price-fee justifies it as the right way. In fact fee is even simpler fee system.

3. I have identified at least 3 simple types of incentives:

A) for listing agents – once a buyer and seller agree on a benchmark price that they think SHOULD be available in the market (this is not an easy task, but rather is comparable to agreeing on an initial asking price) both agree that the listing agent receive (not shared with other agent or broker) a substantial, e.g., 40%, of any amount ABOVE that benchmark as an incentive to motivate the agent to take exceptional actions to raise that selling price, as by (1) doing additional staging, (2) identifying and soliciting potential buyers who might not be aware of why the property might fit them so well, (3) doing research to identify previous occupants who may have become famous – giving the property (or street) additional psychic value to some buyers. I expect that there are others.

B) for buyer agents – once a buyer has selected a home s/he wants to bid on, agree upon a benchmark price and then offer the buyer agent a substantial share, e.g., 40% of any amount below that price the agent can negotiate.

C) bonuses for meeting a deadline of finding a buyer or home to purchase that the client is able to close on. Here, there might be variations on the clauses used to protect an agent against a client who tries to sabotage a deal simply to avoid paying the bonus, but I would expect that a client who is truly in a rush and has many reasons to want to close quickly will be happy to pay the bonus to a deserving agent.

I think that it would be relatively easy to formulate a simple enforceable clause in a listing agreement or BBA to handle these.

4. I do not talk about “retainers,” specifically, but I believe that brokers should offer clients listing agreements that require the seller to pay the listing broker’s flat fees and hourly rates even if a home does not sell, although that amount due might not be payable until the home actually sold, whenever that was, but irrespective of the listing agent used when it sold. I support the same terms for BBAs, although I realize that that might not be as practical, since it might not be possible to expect a mortgage lender to allow the buyer to roll additional prior brokerage fees into a mortgage. Thus, for BBAs, I would support the requirement that buyers agree to pay at least some minimum amount even if they did not purchase a home with the broker they were working with.

Thanks again Kaye for focusing on some of the specifics concerning my fee proposals.

Mark

01/02/2007 by Mark Nade

I’m glad you don’t recommend all parts of our job being charged at an hourly rate…. but it seems to me that accountants, attorneys, psychiatrists don’t face similar situations.. they have offices where clients come to them for varous increments of time.. ( they rarely leave that environment with the exception of trial attorneys) which make calculating fees very easy. You see the psychiatrist for one hour @$150. 00 per hour. ( actually 50 minutes) and then the next patient comes in.. all is very orderly. The same goes for my accountant.. I bring in my figures for the year he plugs them into the computer, we chat a bit and I get the final copy in the mail.. again very easy to caluculate.. even for more difficult client portfolios.. Real estate just isn’t a particularly orderly business. I see real problems with your # 2 suggestion of rates for services that vary widely… consumers want some type of standard service model for fee schedules.. How else can they compare apples with kumquats? The fees really can’t be can’t be similar or we could be accused of price fixing.. yet the consumer needs to have an idea of what services are offered and at what price. Docs may have a set fee but they don’t break it down on an hourly basis other then office visits.. Brain surgery is $_____________.. it isn’t billed at $_________ for 10 minutes for using the A scalpel or $__________ for 30 minutes to remove skull cap and $____________ for 50 minutes spent tying off blood vessels. It’s $_______ for surgery which may or may not include patient followup. As for your # 3 suggestion.. just what is an incentive based fee.. ask 4 people and you will get 4 different answers. I had a client who swore they wanted to sell their home but evey time it was listed they changed the price upward and/or made it impossible to show. If you talked to them they would tell you they were always available to show the home and were ready and able to buy a new one. They could have offered me a million dollar incentive but it would have been worthless.

I notice you did not include the idea of a non-refundable retainer as most attorneys require and I’m curious why this price model was left out of the equation. If we are changing methods of compensation then let’s also get rid of the idea that the agent take all the chances with no expectation of pay unless the home sells. So let’s really make things equitable with… If you die from the operation the doc still gets paid. If you lose in court attorney fees still get paid… if IRS challenges your tax return the accountant doesn’ return your money. So why, with all the talk of new methods of compensation for agents, does eveyone still want to stick us with the the whole bill?

Maybe I’m dense or not getting the big picture by not agreeing with your price models. But it still seems as if you are complicating a rather simple method with a needlessly cumbersome model.. ( and by the way broker fees do vary widely.. CA fees are generally less then those charged in other parts of the country). I also wonder how it would work to have so many different fee schedules and if each contract would need to be checked by an attorney to be enforcible should one party decide to default. It took many years and lots of legalise to get wording re compensation as part of our contracts in CA.

Thank you Mark for taking the time to comment on my questions.

Happy 2007!

Kaye

01/02/2007 by Kaye Thomas

I do not dispute that any particular real estate transaction can require a broker/agent to handle a myriad of tasks that vary from routine to beyond-the-call and which can sometimes require one to use their unique set of talents. My point is that many other professionals, e.g., lawyers, psychiatrists, accountants, face similar situations and find it both practical, reasonable, and profitable to charge by the hour. In your description of the service you provide, I see nothing that goes beyond would I expect is commonly faced by, for example, divorce lawyers and yet those lawyers do not complain that it would be impractical for them to charge by the hour. They can and do, voluntarily, and their hourly rates vary widely along with their skill levels.

Also, Kaye, I do not recommend that agents and brokers charge solely by the hour. My proposal is that they use a combination of 1) flat fees for routine services (where the agent/broker offers a set fee for a particular job, probably assuming that there are no major, unexpected complications, the way most doctors fees are set), 2) hourly rates for services that vary widely depending on the customer, assuming that the customer is willing to take this risk, and 3) incentive based fees for obtaining extra value for the client in terms of dollars or time.

Happy 2007 to you and others reading this blog entry

Mark

01/02/2007 by Mark Nadel

01/01/2007 by Kaye Thomas

01/01/2007 by Jeff Turner :: RealEstateShows.com

Another excellent thought provoking post….not only do you present good subject issues/concerns for debate or exchange but you seem to find the “tickle spot” in those of us who have a passion for the business. Good job in handling a sensitive subject. Hmm…..where was this side of you during the Civil War Blog? Guess I had not seen this side or abiltiy in you. I look forward to the series.

12/31/2006 by Ron Withers

I absolutely love the incentive-based compensation proposal. I’m digesting my fiorst read of your paper. I’ll be back on Bryant’s post with more questions this weekend.

12/30/2006 by Brian Brady