St. Petersburg Times
Services a la carte

Source: St. Petersburg Times ©2001- JUDY STARK

Imagine hiring a real estate agent to help you set a sales price for your house, but that's all. You handle the sale from there, and you pay the agent a fee for that one service.

Imagine hiring a real estate agent to help you negotiate the purchase of a house you've found on your own. You pay the agent for that service alone.

And imagine hiring a real estate agent to help you decide whether it makes sense to refinance your mortgage. Or whether renting or buying is a better choice for you. Or appealing your property tax assessment. In each case, you pay only for services rendered: a flat fee or an hourly rate.

All those scenarios are possible under a new way of doing business in the real estate industry called "fee for service." Consumers pick and choose the specific jobs they want real estate agents to do, and pay for them. They skip what they don't want, or don't want to pay for, and tailor a package of services that meets their needs.

That's different from the usual way of doing things, in which an agent provides a fixed package of services, from putting out the "for sale" sign through handing over the keys at the closing, for a commission, which is about 6 percent of the sales price.

"Consumers are demanding this. It's coming, folks," Michael Lee, a California real estate consultant and educator, told agents at the annual convention of the National Association of Realtors recently. "People want choices."

It's a way of empowering consumers while valuing the agents' knowledge and expertise, not just their abilities to pound a sign into a front lawn or drive buyers around to look at houses, said Julie Garton-Good, who appeared on the panel with Lee. She is a nationally known real estate consultant and the author of a new book, Real Estate a la Carte: Selecting the Services You Need, Paying What They're Worth, which explains fee-for-service to buyers and sellers.

While she acknowledged resistance among many agents to this new way of doing things, others "have an admiration for some of the things a consumer can do and know the power of partnering with a consumer."

'Consumer realities'

Lee and Garton-Good offered a list of reasons -- they called them "consumer realities" -- why they think the time has come for this cafeteria-style way of doing real estate:

Consumers dislike paying commissions.

People want to pay less for a quick sale, and why not? The agent can move on quickly to other transactions.

Buyers and sellers want rebates when they assist the agent. If buyers find the house they want on their own, or narrow down their search to three or four they want to view, or if sellers are willing to host open houses at their home, they've saved the agent time and effort and should see some benefit to that, the thinking goes.

As in other business transactions, they will gravitate to the most cost-effective source to obtain what they want.

Consumers often are leery of agents' advice; they worry that agents are simply doing what will increase their commission.

People place a higher value on tangible services (driving them around, showing them houses) than they do on intangibles (paperwork or problem-solving they never know about, keeping the sale moving on schedule).

Consumers don't care about services; they want results.

"The consumer is so incredibly savvy today, they not only can do a fair amount, or bits and pieces of the transaction, but they have the extra push of online and Web power," Garton-Good said in a phone interview from Indianapolis, where she was on the road teaching agents how to do fee-for-service.

Buyers can look at listings online. They can narrow their choices to a few homes they want to see. They can apply for mortgages online. Sellers can list their homes for sale online and buy everything from for-sale signs to lockboxes. Consumers who manage their investments online or book their own airline flights are ready for this "unbundling" of the real estate transaction.

That said, some consumers think they know more about real estate than they do. Many consumers will continue to want the full-service, soup-to-nuts package, "and we will never get completely away from percentage commissions,"Garton-Good said. "But the days of one-size-fits-all are gone. Now the consumer can ask for options and, to the degree they're willing to partner, they can reap serious benefits."

Don't confuse fee-for-service with discounting, in which consumers get a full package of services, just at a lower cost. And there already are agents who will agree, for a flat fee of a couple hundred dollars, to place your listing in the Multiple Listing Service (the database of homes for sale), but will provide no other services.

The move to fee-for-service (which is not yet widespread in the Tampa Bay area) comes in the wake of a survey conducted in 1999 for the National Association of Realtors showing that by 2005, 40 percent of home sales will be for sale by owner (known in the trade as FSBO, pronounced fizz-bo).

"With that many people empowered to believe they can sell the house on their own, real estate agents are going to have to evolve into doing things that those people find to be of more value," said Jim McElroy of the independent Blue Heron Properties in Palm Harbor, who is about to start offering fee-for-service after a long career as a full-service agent. "That's where the menu of services is going to have to be tailor-made for each seller."

The movement to fee-for-service also is driven by concern about after-the-fact lawsuits in for-sale-by-owner situations, where buyers complain that the house's real condition was not adequately disclosed to them. The involvement of an agent at some point along the way might protect either or both parties. (Indeed, full-service agents will argue that hiring one of them to handle the whole transaction would reduce or eliminate this risk.) The real estate industry also is concerned that a proposal by the Federal Reserve to allow banks to sell real estate could give lenders an advantage, and agents will have to find another way to compete.

Is fee-for-service for you?

Who would benefit from fee-for-service?

The obvious one, Garton-Good suggested, is the "for sale by owner" transaction. "The FSBO seller finds a buyer and says, "What now?' " she said. "Statistically, 70 percent of everything that falls apart does so at that stage" -- after the buyer and seller have found each other but before the closing. "Think in terms of the inspection," which might uncover some problems, "or the financing falls apart. That's when many FSBOs lose the whole thing."

Other possible applications: Homeowners who are trying to decide whether to improve their current home or move. "Here's an agent who's not trying to sell them anything but will simply show them the good, the bad and the ugly, and help them make up their mind," Garton-Good said.

Or someone who wants advice on refinancing: "When would it pay me to refinance, what kind of loan do I need?" Consumers may be reluctant to seek similar advice from a lender, whom they perceive as biased.

Or a consumer who's dealing with a former spouse on the sale of their joint property. Sometimes it's better to have a neutral third party be the go-between and help to set price and terms for a sale.

Ben Friedlander, who heads his own agency, Big Ben Realty in St. Petersburg, has practiced fee-for-service for years and offers these other scenarios: A tenant who has decided to exercise the lease-option on a property and wants help negotiating the contract with the seller. A buyer who wants advice on where to find a particular kind of financing or needs help finding an insurer to write a policy on the waterfront. Or buyers who have found the house they want and now want someone to walk the transaction through to completion.

"Consumers can hire a real estate attorney to do some of these things, but it will cost more and take longer," he said. "This is something I do every day."

Friedlander favors fee-for-service because, he said, "it moves the risk off the agent and onto the consumer. When you get in my car" to go out and look at properties, "if I know I will be paid, I'll charge you less," he said. Under fee-for-service, he might charge an hourly rate for time spent previewing property. Under the standard system of real estate, if the buyers end up buying nothing, he earns nothing for his time and expertise.

Behind the screens

Garton-Good's book offers "road maps" for buyers and sellers that walk them through the parts of a transaction, spelling out what must be done, estimating the time and sketching out varying degrees of consumer involvement.

She raises red flags: What will you as a seller do if your buyers drag their feet at obtaining financing? Are you willing to ask potential buyers questions about their income and financing to screen them before you invite them to see the house? As a buyer or seller, are you a good negotiator and do you know how to counteroffer effectively? Buyers, do you know which contingencies favorable to you should be in the contract?

One important element is the time commitment. It takes an average of 83 hours to sell a house and 69 hours to buy one, Gorton-Good reports. Consumers routinely underestimate that time by nearly 40 percent. They do so partly because they buy or sell a house only once every seven years, and partly because they simply never see much of what agents do, "the things that happen before 7 a.m. or after 7 p.m.," she says.

When asked what was the most valuable element in a real estate transaction, 85 percent of consumers Garton-Good surveyed said the comparative market analysis, the evaluation of similar homes that agents offer to help sellers set a price. "I thought they'd choose negotiating the contract," Garton-Good said. But since respondents typically weren't in the room when the negotiating took place, they didn't see the service and therefore didn't value it.

"As an industry we have not done a good job of showing people the intangible things," Garton-Good says. Much of what she calls "the meat in the middle" happens "behind a screen" as the agent, lender, title company and attorney handle various tasks of which consumers are never aware.

Lee put it bluntly: "People think Realtors do nothing. They think we drive people around and show up at the title company and collect our commission, or we put a sign on the lawn and show up at the title company and collect our commission. It's our fault buyers and sellers think we do nothing."

"It's a trend in the industry. I think we'll see more and more firms going to it," said Robert Hendry of ERA Hendry, president of the St. Petersburg-Suncoast Association of Realtors.

"I think we're finding home sellers as well as buyers starting to have an interest in a different type of structure," he said. "As the business gets more competitive, with homeowners doing more of it on their own, I think offices will be willing to offer part of their services for a fee." Agents "can still get their finger on the pulse of the transaction."

In Garton-Good's book, what some might view as frightening consumers into the arms of full-service agents might simply be reality: This is what a real estate agent does, and if you're thinking of taking on some or all of these tasks, this is what you need to be prepared to do. Any spot along the way that looks like a speed bump might be the place where you hire an agent to do fee-for-service to handle the tasks with which you're unfamiliar. The book will certainly make anyone a better-educated consumer of real estate services, no matter how those services are provided.

Exactly what you'll pay for those services may vary with the complexity of the task and from agent to agent. Garton-Good breaks them down into two groups. Level 1 tasks (providing information, administration, interpretation of data) might have one fee structure. Level 2 tasks, which draw on an agent's expertise and ability to negotiate, advocate and represent, would carry a higher fee structure. Agents set their own fees based on their annual earnings expectations.

Fee-for-service "certainly does not fit everyone," Garton-Good said. It's not right for "many retirees, or people who want to quickly move on with their lives, like people who are relocating." But it may appeal to people who are accustomed to paying consultants for a variety of other services.

"Not everyone needs everything," she said, "but with the flexibility come options. With options, consumers may be much more eager to be a team player -- and maybe not. At least they get to decide. It's long overdue."

Garton-Good's book, Real Estate a la Carte, should be in bookstores in by late April and also is available from the publisher, Dearborn Trade, at (800) 621-9621 or http://www.dearborntrade.com.