How many other professionals work on contingency ALL THE TIME? A sincere look at the real estate business model
Before I begin, I would like to point out that this post may stir up a hornet's nest of activity and comments, or it could generate a lot of unity and agreement. Since it deals with money and how we are compensated as Realtors and brokers, I am expecting the former. Nonetheless, this is something that I have been thinking about a lot over the past decade or so, and I wanted to get it off my chest now. Please understand that I am in no way about to suggest any type of commission fixing or anything else that could be construed as harmful to consumers or in violation of the Sherman Antitrust Act.
I have been selling homes full-time in the Austin area since January of 1997, and I have made a good living doing this. Of course, there have been ups and downs (2008 was a notable down year, frankly), but overall I have enjoyed this business. In fact, the only time that I can say that I honestly wonder if I'm doing the right thing is when I lose a client whom I have met with in person a few times. Thankfully, this has become much more rare for me over the years, but it still happens sometimes.
Is there anything that can be done to prevent this?
Most people would say, "No", but I wonder if we shouldn't take a look at how we are paid in this business.
I don't claim to have the solution to this problem in hand yet, but I do know that I don't like working on contingency with EVERY client and on EVERY deal. It may be a clumsy analogy, but let's consider a couple of other professions, shall we? No attorney would work in this way for every case. Also, no doctor would treat you for free on the off chance that you will inherit some money or perhaps secure a retroactive insurance policy to cover their expenses.
If we want to be considered professionals in this industry, maybe the time has come to be paid accordingly.
But Jason, you may be saying to yourself, there are plenty of professions that are straight commission in nature, right? In a word, yes, but their sales cycle is typically much shorter than our own. If I am selling cars, or major appliances, or even insurance, I probably don't have to meet with the client multiple times over a period of months to accomplish my objectives.
For other "wine and dine" salespeople, they are likely making a lot more than the average Realtor (current median income: $35,522). Couple this with no health insurance and it seems that we haven't done a very effective job of taking care of ourselves as an industry. Additionally, I don't think we have done a good job of educating consumers about how we are actually compensated in the first place!
So, what should we do differently?
What about these ideas that we can garner from other industries?
- Collect a deposit upfront for expenses and credit this back to the buyer at closing - if they walk away, you don't actually LOSE money, you just break even or make a very modest profit. Home builders do this right now!
- Collect 1/2 of the commission upfront and the remainder at closing - every reputable contractor that I know works this way, from web designers to roofers
- Work for a flat hourly rate commensurate with experience and bearing in mind what the market can tolerate/stand. Or, maybe the client gets an agreed-upon number of hours, after which they must pay a bit more to have your time. I KNOW that this particular option is not as exciting or feasible, but this post is really meant to get people thinking and talking about this topic
If we are truly independent contractors, what is to keep the average broker from changing his/her individual business models? In my opinion, there are two things to prevent this from happening on a broad scale - fear of change and fear of repercussions from our colleagues.
Very few people enjoy change and many fear the unknown. However, if you are a success in real estate, you are probably not one of those people! If you took the leap and got into this business full-time at some point, you are more fearless than you realize. It's a big decision to be self-employed.
What about fear of how you will be perceived? This is something that I used to cope with personally, until one day I realized that I really only care about how God, my family, and my very close friends think of me. Am I running around offending people all over town? I certainly hope not! However, I am about as laid-back and easy to get along with as they come, so I really don't get bent out of shape anymore if someone doesn't like me. It happens.
Speaking for myself and ONLY myself, I would probably be willing/able to accept less money per transaction if I knew that I would be paid something for each and every client that I work with during the course of a year. I know that last sentence is not the type of thing that typically wins any friends, but it is my sincere opinion.
I would be interested in hearing your thoughts.
Thanks for reading!
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