I hope everybody had a wonderful weekend! On Saturday, the Washington Post had this article with a compelling lead-in:
At what point does the real estate industry’s penchant for boosterism — and the sunny outlook that comes naturally to any good salesman — get in the way of buyers and sellers looking for guidance they can trust?
I will make this one comment: regardless if abuse is prevalent or not, it cannot be disputed that there is an unavoidable conflict of interest here — a direct result of the traditional commission fee model. When your adviser is compensated based on whether or not you take a certain course of action, there is a conflict. I discussed this in my very first post titled “The Problem with Real Estate Commissions”.
The SmithAdams approach avoids this conflict of interest. To that point, we will shortly be enabling you to self-subscribe to detailed market updates for your zip code or area. Click the thumbnail to the right to see a sample report (PDF format) for condos in select Arlington zip codes. If you don’t want to wait until the self-subscribe function is set up, just let me know (1) what area you are interested in and (2) condo/townhouse or single-family home, and I’ll email it to you.
Speaking of Arlington, if you somehow still haven’t seen the Arlington rap on Youtube, here it is:
As I talk to people about the unbundled, fee-for-service model governing SmithAdams, I am occasionally asked, “Are you a discount brokerage?” The simple answer is NO. SmithAdams differs from a discount brokerage in a couple primary ways:
Discount brokerages provide a reduced set of services for a lower commission rate. In contrast, SmithAdams doesn’t charge commissions at all. Our fee model is similar to that of an attorney, accountant, or consultant. Your accountant’s fees to do your taxes are based on how much work is performed, not a percentage of your net worth. The SmithAdams fee model works the same way – we charge based on the amount of work we do.
While discount brokerages offer a reduced set of services, SmithAdams provides our clients with the full range of services (if not more) than traditional full-service brokerages – but on an a la carte basis.
The SmithAdams approach is very different than the norm in the real estate industry. We believe this approach achieves two important goals for our clients:
First, SmithAdams is able to customize each engagement (and the associated fees) based on the particular needs of each client. We don’t spend (or bill) time putting together home tours for homebuyers who have already performed their own market research and already know the property they want to buy. We might, however, spend time staging the home of a seller if that is critical to achieving the client’s goals. In any case, our work and our fees are tailored to the particular needs of each project.
Second, our model removes the conflicts of interest inherent in a commission model (even a discount commission). As I have written before in previous posts, a conflict of interest exists when your advisor (from whom you expect to receive objective guidance) gets paid based on whether or not you close a deal. I’m not saying this conflict of interest by definition causes poor behavior, but it is nevertheless a conflicted situation with which one may be uncomfortable (I know I am).
Notice that these two points above did NOT include “saving you money.” Sure, many people can save thousands of dollars with the SmithAdams model. But the primary goals of the SmithAdams approach are to align our services with our clients’ individual needs and to raise the quality of service to consumers. Cost is an important factor, of course, but it is not the only thing. More important, we think, are the quality of the client outcome and the overall customer experience.
Our clients do not choose SmithAdams purely for the chance of saving money. In fact, our clients pay our non-contingent fees on a monthly basis. Rather, our clients work with SmithAdams because they believe that we make their real estate experience better, and that SmithAdams will zealously advocate for their interests. Our clients are confident that they receive value from every hour we spend working on their behalf, and they are happy to pay for it.
And that is why SmithAdams is not a discount brokerage.
“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?
The SmithAdams approach avoids this conflict of interest. To that point, we will shortly be enabling you to self-subscribe to detailed market updates for your zip code or area. Click the thumbnail to the right to see a sample report (PDF format) for condos in select Arlington zip codes. If you don’t want to wait until the self-subscribe function is set up, just let me know (1) what area you are interested in and (2) condo/townhouse or single-family home, and I’ll email it to you.
First, SmithAdams is able to customize each engagement (and the associated fees) based on the particular needs of each client. We don’t spend (or bill) time putting together home tours for homebuyers who have already performed their own market research and already know the property they want to buy. We might, however, spend time staging the home of a seller if that is critical to achieving the client’s goals. In any case, our work and our fees are tailored to the particular needs of each project.
Notice that these two points above did NOT include “saving you money.” Sure, many people can save thousands of dollars with the SmithAdams model. But the primary goals of the SmithAdams approach are to align our services with our clients’ individual needs and to raise the quality of service to consumers. Cost is an important factor, of course, but it is not the only thing. More important, we think, are the quality of the client outcome and the overall customer experience.