SmithAdams vs. Discount Brokerages

Posted by nithi.vivatrat on June 7, 2009

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.

Why am I Starting SmithAdams in This Economy?

Posted by nithi.vivatrat on March 10, 2009

When talking to people about SmithAdams, the first question I frequently get is this: “You’re starting a real estate business in this economy?  What are you thinking?”

Paul Graham, essayist, partner at Y Combinator, and all-around renaissance man, explains, in much more eloquent language than I can muster, that this is the perfect time to start a new company.  This point is especially relevant for SmithAdams:

“That doesn’t mean you can ignore the economy. Both customers and investors will be feeling pinched. It’s not necessarily a problem if customers feel pinched: you may even be able to benefit from it, by making things that save money. Startups often make things cheaper, so in that respect they’re better positioned to prosper in a recession than big companies.”

That’s precisely what I’m setting out to do.  SmithAdams fee-for-service model can save consumers money.  In this housing market, I think any of us would benefit from real estate transactions being more efficient and less costly.

To this point, I believe potential customers are more likely to be open to new ways of doing business in times like these. During the recent flush years when real estate property values were skyrocketing and homes were sold in a weekend, few questioned the wisdom of paying a 3% (one-sided) commission on property transactions — a commission that often translated into thousands of dollars.  With the realty market in disarray, the SmithAdams value proposition has resonated strongly with almost everyone to whom I have spoken about our company.

Now is the time to apply the simplicity and straightforwardness of a fee-for-service model, similar to other professional services industries, to the business of real estate.  Despite new technology and other changes in the real estate marketplace, the commission-based fee model has not evolved in decades.  The bursting of the housing bubble presents an ideal time to reevaluate current real estate practices.  Now is the time to start SmithAdams.

I welcome your comments and feedback.