VAR’s sometimes-wacky special counsel (you know, the one who utters the words Kama Sutra in a webcast about the ethics of short sales) is fond of talking about agent commissions and offers of compensation in terms of chickens. 200 chickens to the buyer agent and so forth. For the purposes of this post, I’m borrowing his phraseology. Thanks, Lem.
Seriously: What’s the deal with downward pressure on commissions? Especially in this market. Sure, I understand that market forces are at play, there are competing agents to beat out, limited service brokers offering a low flat fee, etc. Still, I think REALTORS® undervalue themselves. Over beers one recent evening, I talked with two top-drawer REALTORS® who I admire tremendously. They both flat out said the work they do for a client isn’t worth 300 chickens. Their argument was that the time they spent on the deal didn’t justify all that poultry. That may be true, if you assume that the amount of money you earn should be proportional to the amount of time you spend on a deal.
Drawing a Parallel
Is drawing a parallel between the amount of time you spend on the deal and the amount of money you earn the right way to think about your compensation? I’m not convinced. People pay more for extraordinary expertise and results. They also will pay for a quick and painless transaction. If cost were the determining factor in buying decisions, there would be no Ritz Carlton, Lexus, Jiffy Lube, or Nordstrom’s. We’d only have Red Roof Inn, Yugo, Hank’s horseless carriage repair shop, and K-Mart.
Why don’t we see more value-based fees in real estate? REALTORS®: Why not set your fee based on your expertise? Because we’ve always done it that way? I realize there are MLS rules to grapple with, but are they insurmountable?
A Natural Way to Price Services
With so many REALTORS® promoting their services as real estate consultants these days, a value-based fee seems like a natural way to price services. Think about it this way: Your value isn’t based on how much time you spend selling a property or showing homes. It’s based on your knowledge. In fact, if you can make the intellectual leap that your expertise is more valuable than your time, you should be able to justify 600 chickens for a sale that, for example, takes less time than the average. Paradoxically, the more you understand how valuable your time is, you’ll increasingly realize that your expertise is even more valuable.
Yeah, there are factors beyond your control that might inhibit the potential of your expertise to deliver extraordinary results. Is that holding you back from a value based fee structure? It doesn’t have to, in my view.
A friend of mine started his consulting firm on the guiding principle that he would never charge by the hour, only by the job. He understood that his expertise was more valuable than his time. He stands firm on this principle and does just fine. Dude makes a retarded amount of chickens. He has inspired me to do some freelance writing, public speaking and consulting work on the side while I’m not slaving over a hot CPU at VAR. My most profitable freelance gigs have been those that are based on the sharing of my knowledge, not how many words I wrote or how many minutes I spoke. So I go looking for consulting jobs, not speaking or writing gigs.
Freelance consulting is different, certainly. But is there anything to be borrowed? There must be. And… I’d love to hear examples of agents charging value based or other alternative fees based on something other than time or a straight commission.