By SERGIO MOSQUEDA
George Ayling, founder and real estate broker of Select A Fee Real Estate System in Chicago, said he was skeptical when he first considered a fee-for-service business model. "I just felt it wasn’t going to work," he said.
That was in 1995, before he and his real estate agents spent about 1 1/2 years examining the workload involved in everything from the initial client contact to closing.
At the time, "I came up with 12 to 13 hours" (of work) per transaction, Ayling said. The next question he considered: "How much should I charge per hour?"
According to Katherine Pancak, professor in residence of finance and real estate at the University of Connecticut at Stamford, said many agents may be asking themselves the same question in the years ahead.
In the future, consumers "may hire some combination of real estate professionals, each to assist in a specific part of the transaction process," Pancak suggests, and it may become business as usual for real estate agents and other professionals involved in the home-sale transaction to find how much their individual service is worth on an hourly basis.
Traditional real estate brokerage models — which base compensation on a percentage of the home’s selling price — continue to overshadow alternative models, and haven’t forfeited much market share to unconventional business models, according to a National Association of Realtors Home Buyer and Seller Survey.
Sellers choose full-service models 81 percent of the time; 9 percent choose a limited-service broker (including discount brokers); and 9 percent choose minimal services such as the placement of a home in a multiple listing service without more extensive listing services.
At the beginning of this decade, some visionaries prophesized disintermediation: an agent-less future in which potential buyers sat in their pajamas shopping directly for homes that were placed online by sellers in an eBay-like forum.
This didn’t exactly happen.
Steve Sawyer, associate professor of information sciences and technology in the Pennsylvania State University, said it was 1998 when the Internet’s first mass appearance brought "utopian hype" and popularized a notion that "anybody who (did) intermediary work would be removed."
If nothing else, Realtor.com, regional, and city-specific home-listing sites are a form of "reintermediation," argues Sawyer, as these services can bring more people, not fewer, into the real state arena.
Sawyer, Kevin Crowston, professor of information studies in the Syracuse University School of Information Studies, and Rolf Wigand, professor of information science and management at the University of Arkansas, together have been researching the real estate industry for more than 10 years.
Some real estate professionals have jumped to a new model in services and fees. …CONTINUED
The traditional real estate commission model "made no sense to me" in a regulatory environment in which agents offer fiduciary counsel to their clients, said Mollie Wasserman, founder of Accredited Consultant in Real Estate (ACRE) designation and author of "Ripping the Roof off Real Estate: How a Multi-Billion-Dollar Industry Came to Have an Identity Crisis." NAR has not endorsed the ACRE designation, created in 2006.
Some consumers, said Wasserman, are not ready to buy or to sell but do want information. That leaves the traditional real estate agent answering questions and working with no guarantee of a return, she said. The alternative is for real estate professionals to sell services for a fee.
"The growth of technology will be the growth of the future," she said, and buyers may be able to find homes on their own, but technology cannot provide counsel. "At the same time, consumers will demand a trained consultant."
Agents will focus less on searching for a client’s home, given the Internet’s ability to move mass quantities of information, according to Crowston.
Agents will increasingly emphasize the human aspect of the process — "helping customers feel comfortable with the (buying and selling) process and being an entry point into the broader network of professionals involved in the transaction," Crowston explained.
In fact, "agents who see their job as just filing paperwork are even more susceptible to being replaced" in the future, he stated.
"We feel pretty vulnerable buying real estate," said Wigand — it is akin to the "nesting behavior of animals," and only an agent with intimate knowledge of the neighborhood can nurture a buyer and seller through the transaction.
NAR noted in its survey that sellers who choose an alternative service model are most concerned with services only an agent can perform.
The top concern of sellers who chose a limited-service broker is finding an agent who can competitively price their home, and sellers who choose an MLS-only listing are most concerned with selling their home within a specific time frame.
While Sawyer thinks agents "can’t make a compelling case to rethink their business models," real estate is "changing way too quickly for people to catch up" and adjust the service and fee offerings to match the new market landscape.
According to Mike Elliott, a former Help-U-Sell franchisee who is now a managing broker at Keller Williams Realty in Hamilton, N.J., said he doesn’t think that the alternative fee-based structure played a role in the Help-U-Sell franchise company’s Chapter 11 bankruptcy in 2008.
Ayling, for now, still offers traditional full services for clients, as well as the fee-per-service model and MLS-only listing services.
"I still believe there’s room for both of us in the marketplace," said Ayling, but "just because (the full-service model) has been done for all these years … doesn’t make it right."
See a related news article:
A pay-as-you-go real estate model
And a reader commentary:
Sergio Mosqueda is a freelance writer in Mississippi.
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