(1) If I were paying my buy-side broker by the hour, I would see all the houses the first time myself, then bring him or her in for the final cut, nad pay a fee per showing and then an hourly fee for advice. I did not get $15,000 worth of advice out of my buyer’s broker, not even close

(2) I know the brokers are in cahoots sometimes because I saw a house that was not at all appropriate — the master was not big enough for a king, which was one of my specs. “My” broker said, “Oh, you can tear down this wall.” She was freinds with the listing broker.

First, I believe it is undeniable that the information advantage of the real estate broker over the consumer who does his or her homework has eroded significantly, due largely to the proliferation of online information sources. Information, however, is not the same as expertise. It takes context and skill to effectively sift, interpret, and transform that information into valuable insight. In my opinion, this is exactly where a great real estate professional (say, someone like Will, who has contributed eloquently to this discussion) can and does add significant value – to leverage the experience of hundreds of real estate transactions to advise a client as to what is fair, normal, questionable, anomalous, unreasonable, etc. and guide the client during what can be an extremely stressful process. Why did my partners and I hire lawyers when we sold our consulting company when we are perfectly capable of reading contracts? Because we wanted the insight and guidance of a trusted advisor with the expertise garnered from hundreds of M&A transactions that we didn’t have.

But this leads to my second point: how did we pay for that legal expertise? By the hour, based on the amount of services we consumed. In real estate, however, the common value proposition is this: pay a set commission (say, 3%) for a black box of services. Maybe you’ll get this service or that one, it depends on what happens or with whom you work – but in any case the fee stays the same. This is fairly anomalous in professional services: your accountant doesn’t calculate the fees to do your tax return based on a percentage of your net worth or your earnings that year – you pay based on the amount and value of the time spent.

I take issue with two points that Will made previously in this thread: that “the commission model also successfully separates the wheat from the chaff,” and that an hourly model would result in “mediocre or inexperienced key-turners sticking around in the business for longer periods of time.” To the first, I assert that it would serve us well to differentiate between “good” agents and “economically successful” agents. We tend to conflate the two concepts, largely because transaction volume is the scoreboard most commonly used to rank agents – you tend to hear terms like “top producer” and “million dollar clubs”, which are not necessarily the same as “agent who provided the best customer service” or “agent that negotiated the hardest to get his/her client the best deal.” The commission model favors those who can market themselves most effectively and close the most transactions, not necessarily those who provide the best service or fight the hardest and longest for their client – there might be some correlation, but they are not the same thing.

Similarly, I disagree with the argument that the hourly model is friendlier to mediocrity than the commission model. To the contrary, I contend that consumers paying out of pocket and receiving unsatisfactory service will in short order terminate that relationship rather than continue paying for it. When consumers are not paying for the service along the way, on the other hand, tolerance for poor or mediocre service is greater. There’s a false perception that one is “getting the service for free,” and people are sometimes made to feel “guilty” for terminating a relationship with an agent. This dynamic is exacerbated when a consumer is working with a friend or relative – a common occurrence. For these reasons, I believe a fee-for-service model will tend to improve the quality of service by prompting consumers to be more discriminating.

My final point is this: if we consumers want change, we need to own up to our part of it. We have to step back, honestly do our own individual risk/reward calculations, and live by them. For example, Al and others express a desire earlier in this thread to be able to represent themselves, at least on the buy side. My firm will help you make an offer on a property for a flat fee as well as assist in negotiations as needed. We help FSBO sellers with only those services they need and choose to pay for. Clients who work with us, though, have to be willing to pay our fees on a non-contingent basis. The decision as to what makes sense for you is largely based on your certainty that a transaction will occur combined with the potential savings in our model, compared against the amount of fees you know you will pay in a commission model but only if a transaction occurs. In case you’re wondering: people are making this calculation and do choose our fee-for-service model.

With that in mind, I have no expectation that the fee-for-service model will replace the traditional commission model. I believe both models can and will co-exist – just as you can hire a lawyer on retainer OR on a contingency basis. The choice should be up to the consumer.

Thanks for reading – I appreciate this opportunity to present my point of view, and I look forward to continuing a frank exchange on this topic.

However, my point is that I may not need a broker. I may prefer to represent myself, at least on the buy-side. Picking a broker should be an option, not a requirement. Or I might prefer to pick Will but say I’d like to do a lot of it myself, may I retain you by the hour?

Ultimately, that’s all this posting was about — creating options and having brokers/consultants sell their services based on merit rather than de facto requirement.