Posted by nithi.vivatrat on August 20, 2009
Among the various types of consumers with whom I speak about SmithAdams, one segment immediately and intuitively gets it: professionals. By professionals, I mean specialized service providers such as lawyers, accountants, consultants, and doctors.
None of these professional groups charge a commission for their services. Accountants don’t charge their clients a percentage of their taxable income to do their taxes. M&A lawyers don’t calculate their fees as a percentage of the deal size. Consultants don’t charge their clients a percentage of profits. Yet the commission model is the traditional way we pay for real estate brokerage services.
Looking at my customer base, I can see that professionals — specifically lawyers — are among the early adopters of the SmithAdams model. More than one told me, “I’ve been waiting for something like this to come along!”
What is it about SmithAdams that appeals to professionals? Is it that they can pick and choose what services to use and pay for? Or is it that the potential for conflicts of interest inherent in the commission model is avoided? Or is it our focus on establishing a culture of service and client advocacy, versus a culture of sales and transactions? Probably a little bit of all of the above.
To me, this is key validation of our approach. If the SmithAdams fee-for-service model was the WRONG choice for a consumer, who would know better than professionals who use the same model in their work life? Fortunately for us, lawyers, consultants, and other professionals are opting to choose the SmithAdams model over the commission alternative. Great news for SmithAdams!
Posted by nithi.vivatrat on May 27, 2009
As I talk to folks about the SmithAdams fee-for-service approach to real estate brokerage, I hear responses ranging from this:
“Way to go! It’s time to get rid of the commission model!”
to this:
“I don’t know – do you really think fee-for-service will replace commissions?”
To both, let me say this: hold your horses. We have no expectation that the fee-for-service model will completely replace the traditional commission model.
Why should there be only one way? You can hire an attorney on retainer or on contingency. We believe the same options should exist for real estate brokerage. No single way will be the right fit for everybody, so consumers should have choices.
That’s what SmithAdams is really about: giving consumers choice in real estate brokerage. No two consumers are identical — each person’s needs and wants are different. Consumers should be able to choose what services they need and are willing to pay for. If a consumer wants to pay based on a commission fee model, so be it. Likewise, if a consumer prefers a fee-for-service, pay-as-you-go model, that should be available too.
Here’s my long-term vision of a world of peaceful coexistence and competition between the two fee models. As more and more consumers opt for a fee-for-service approach, there will be more scrutiny of fees by consumers as well as demands for transparency. Commission-paid agents will need to better link their value-add to their fees. The good ones will have no difficulty doing so and will continue to thrive in this environment. The ones who cannot will eventually leave the profession. Over the long run, the overall quality of service to consumers should rise — whichever fee model an individual consumer chooses. Sounds like a good outcome to me. What do you think?
Posted by nithi.vivatrat on May 18, 2009
Given how much of the discussion on this blog revolves around comparing the commission fee model to the SmithAdams fee-for-service model, I thought you might be interested in this lively discussion about brokerage commissions at ThinkOOB.com. It’s great to see that we are not the only ones actively thinking about this issue. I hope my contribution added to the dialogue.
ThinkOOB.com was created by Al Lewis, founder and president of Disease Management Purchasing Consortium International (DMPC) as well as all-around big thinker, to be a “community blog that rewards lay people for coming up with solutions to society’s problems.” To this end, ThinkOOB.com is offering a million-dollar prize to the first idea originated there that becomes policy at the state or federal level. There are some great discussions going on at that site.
In the context of government economic policy, Al coined a phrase that I love: the “methadone economy,” equating the new federal stimulus programs to a substitute — but still very addictive — for the “heroin” of the bubble economy. Great turn of phrase.
Posted by nithi.vivatrat on May 11, 2009
My apologies for my hiatus — lots of activity at SmithAdams keeping me busy, but I hope to get back on the blogging horse starting now.
I hope everyone had a wonderful Mother’s Day weekend. You might have missed Kenneth Harney’s Post article titled “Challenging Brokers’ Add-On Fees.” In it, Mr. Harney explains how U.S. District Judge Virginia Emerson Hopkins ruled against RealtySouth for charging clients an “administrative brokerage commission” (or an “ABC” fee). The court found no evidence that the consumer received any additional service for the fee beyond that which was already covered by the regular commission, violating a federal real estate settlement statutory ban against “unearned” fees.
This is good news for those of us advocating greater transparency and choice for consumers in real estate. Extra fees should not be surreptitiously slipped into an already complicated process. At SmithAdams, we believe that consumers should have total control over what services they choose and pay for. This ruling reinforces that competition, consumer choice, and the laws of supply and demand should determine pricing — not unilateral action by the provider of the service. Hooray!
