Fee for Service
Definition: Fee for service in real estate is a financial model that charges the client for real estate listing or buyer services based on services performed, rather than a negotiated percentage of the selling price.
This pricing model can take various forms. It could be an a-la-carte price list or a base dollar amount with additional charges for showing trips or other services. It can even combine a small percentage for certain core services and additional charges for more work.
I've Tried Fee for Service
Well, when I say that I've tried it, this means that I've tried to sell the concept to clients. In only one case did I get it to fly, a seller who found their own buyer and wanted a flat rate for me to handle the transaction for a sub-$100k property.
I did the job, rather easy, as they had already agreed on most everything. I just had to help both sides to cover the bases with inspections or signing that they didn't want them with disclaimers, etc. Most of this was covering my rear as much as theirs. I did this for $2,500 and they split it, both considering it a bargain.
However, even though it flies in the face of logic, my vacation market primarily buyer oriented practice just never could get a foothold in fee for service. You see, buyers still can't see that they are paying the commission because it shows up on the seller side of the HUD-1. So, they don't see value in paying for my time to show them properties and shepherd them through a transaction, even though I legally would rebate them the overage in the 3% buyer side of the commission.
Here's how it worked in NM, a state where you can rebate clients:
- I would offer to work with a buyer for an hourly rate to show them properties.
- I would work for that same hourly rate to take care of the transaction coordination.
- I would bill them weekly and they would pay that invoice.
- If the deal fell through, I kept what they paid and everyone moved on.
- If it went to closing, I would rebate all commission on the buyer side over and above what they had already paid me.
It really is logically a great business model. But, buyers just didn't really want to think about putting out money before a deal was closed.
As far as the seller side, I offered reduced commission percentages with continued full service. I also offered a flat rate listing fee, but with limited services. Neither ever really appealed to the sellers.
If it's not working, it must be a faulty concept ... not really. However, it is going to take a fundamental shift in consumer attitudes and how they view the function and value of a real estate professional in their transaction process. This is happening to a point with the Internet ceding our control of information over to the consumer. They know that they don't need us for locating properties for sale. They don't need us to get basic information and photos of those properties.
Update: It's been a couple of years since this article was last updated, and the Internet is playing an even larger role in real estate consumer research. This is particularly true when it comes to buyers. They are doing much of what the real estate agent used to do to locate homes.
They are often finally reaching out to a real estate professional only after they have a short list of homes they want to be shown.
The Millennial generation may be the turning point for fee-for-service. They are tech and Internet savvy, know they're doing most or all of the home location work, and they may be swayed by marketing that offers a rebate for the difference between fees owed and the commission received. The tough part will be in convincing them that paying for the services as they are delivered will result in cash in their pockets when they get to the closing table. The good news is that this may reduce showings for tire-kickers and concentrate the real estate professional's services on real customers.
Perhaps when they see how to pay us for what they value, things will change.
You can count on it.