Fee-for-service meets resistance within industry Source: Times Dispatch ©2001- WILLIAM CIUCCI Real estate firms and agents who operate strictly on commission are not in tune with industry trends, a nationally recognized Realtor says. They are "already going out of business. They just don't know it yet," claims Julie Garton-Good, the nation's leading proponent of unbundling real estate services to buyers and sellers because of, she says, shifts in what consumers want. Garton-Good is a syndicated columnist, a speaker who addresses 25,000 people annually on real estate issues and one of the 25 most influential people in real estate, according to the National Association of Realtors. She's also the author of "Real Estate à la Carte," in which she details her vision of a "new breed of professionals" who will reconfigure how real estate is played out in this country. Many in the real estate industry don't agree with Garton-Good. The overwhelming majority of real estate industry professionals are paid commissions, or a percentage of the home's selling price. For 6 percent of the sale price (the usual rate used in greater Richmond), a Realtor or other real estate agent will advertise and handle open houses, paperwork, inspections, contract negotiations and other facets of closing a sale. Garton-Good supports unbundling a full-service package and offering components to consumers separately, with a fixed fee charged for each one. For instance, if a seller wants to advertise a house himself, he might hire a real estate agent who, for a set fee, will determine what the price of the home should be. If a seller wants to write and negotiate a contract herself, she might pay a Realtor to put the house on the multiple listing service. Within "a couple of years," Garton-Good says, these ideas will be assimilated by the industry. Soon, consumers will "realize how much they can save," and the dissemination of information via the Internet that previously only Realtors could access will hasten the wide acceptance of unbundled services, she adds. The Richmond real estate establishment begs to differ. "What my experience tells me is that the consumer wants full services," said Earl Jackson, president of Prudential Slater James River Realtors, who's been in real estate for 30 years. His comments echo the chorus of real estate professionals who believe that the labyrinth of paperwork, regulations and details necessary to successfully sell or buy a house can't be navigated by consumers. Realtors and brokers also worry that Garton-Good's plan is going to eat away profits. "This talk of unbundling services is tantamount to the reducing of commissions," said Jackson. Jerry Robinson, with ReMax Commonwealth Group, supports unbundling but admits that "it is definitely going to cut into profits." Jackson argued that the perception of real estate as a field where professionals make more than they deserve is flawed. He pointed out that a $100,000 home, if it's sold by an agent working on a 6 percent commission, doesn't result in $6,000 profit for the listing agent. The listing agent - the seller's agent - splits the commission in half with the buyer's agent with whom he or she worked, and then gives half of the remaining $3,000 to the firm he or she is affiliated with. (Real estate agents are not employees of the firms; they are independent contractors affiliated with them.) The sale of a $100,000 home, Jackson claimed, usually results in only $1,200 to $1,400 for the listing agent. Given these narrow margins, Jackson said he doesn't see how a company or agent offering individual services for a few hundred dollars can remain profitable. Garton-Good says profits can be made. She estimates that selling a house takes 83 hours on average. "In most cases, agents aren't making - on an hourly basis - even half of what they think they are," she said. She actually projects more profits for agents who adopt a menu of services. But the reality is that the Richmond real estate community, uniformly characterized as conservative, has serious doubts about those projections. Dick Nelms, president of the Richmond region of Long & Foster, confirmed that his company - consisting of 20 percent of all Realtors in the area and a 55 percent market share - does not allow its Realtors to unbundle their services. He wants to stick with the full-service model: "It might be Neanderthal, but it's the way I was raised in the business. We're a full-service real estate agency. We haven't figured out a way to dissect our company." If Garton-Good's ideas are to gain a foothold in Richmond, small, independent firms and agents seem to be the prime candidates for a philosophy that has been welcomed with hermetically sealed doors at larger, traditional companies. Tony Villani, in real estate since 1988, brandished a CD - eNeighborhoods, which anyone can obtain-on which all recent house sales for every neighborhood in the United States are recorded. "It used to be that the industry controlled the information. Well, the industry doesn't control the information anymore," said Villani, who owns his own small company, Villani Real Estate. Villani said that he'd been offering a version of what Garton-Good pushes "for years, off and on." Although he's quick to admit that a full-service, commission option is "in most instances the best value for the consumer," he does work on a fee-per-service or hourly wage basis for consumers when it fits their needs Villani likens the industry's reluctance to accept unbundled services to the "buyer agency" issue of the late 1980s. It used to be that those looking to purchase a house were on their own, without representation; eventually, a West Coast trend that had real estate professionals represent buyers swept eastward. "There was a lot of resistance to that," Villani mentioned. "Now it's an accepted way of doing business." Dick Nelms doesn't buy the argument. "I don't think there's any comparison," he said. "One is representation. One is pricing." Tina Fritz, owner of the small Wellspring Realty Inc., views the issue as one of consumer preference. "I think it should be an option," she said in reference to the unbundling trend, but reported that although she's been offering a menu of unbundled services since March, none of her customers have decided to use it. "When they realize what the agent does," she said, "they realize they don't want the responsibility themselves." There is a segment of the customer base that's interested in the fee-for-service model, as demonstrated by the continued success of Help-U-Sell in the Richmond area. Help-U-Sell is a North American franchise specializing in unbundled services; the Richmond branch owned by Nancy Benson has been in business since 1988. Benson said that what her office offers is a "home-selling" partnership with consumers who want to do part of their sale themselves but want some degree of guidance. Help-U-Sell offers varied packages, from full-service down to only placement on MLS, for $499. "The average Realtor has 12 to 13 transactions per year. Last year, my son and I had over 130 transactions," claimed Benson, who operates the office jointly with her son. "Much of our business today comes from referral service - people who have used our service and are very pleased with it," Benson said. Lawrence E. Marshall II, an attorney with LeClair Ryan who is general counsel to the Virginia Association of Realtors, reported that there is no legal obstacle for Garton-Good to clear. "The legal framework is there," for fee-per-service models, he said, explaining that either a commission or a fee is "purely a matter of contract between the parties." The Virginia Real Estate Board, comprised of nine governor-appointed individuals, regulates real estate professionals and enforces statutes. Marshall, who sits on the board, said that "as long as your agreements are well documented . . . the real estate board doesn't care" how professionals charge their customers. An obstacle might exist, though, in Garton-Good's reliance on the Internet as a crucial player in the unbundled revolution. Homebytes.com, the Richmond-based startup that charged $499 for access to the MLS and a few other cursory services, went out of business this spring after devouring $24 million in venture capital. The price was increased to $599 months before the company's demise. Garton-Good starts off a chapter in her book with a quote from Ruth Hopke, Homebytes' former public relations manager; Earl Jackson and other defenders of the current system pointed to the Homebytes imbroglio as proof that the unbundled, Internet-centered model can't work. Garton-Good remains unfazed. Her explanation for the flop is "plain old business attrition," and she says the failure doesn't mean anything for her plan. Better news for unbundled services supporters comes from Mel Martinez, the new secretary of Housing and Urban Development, who just bought and closed on a house in Washington. Convinced that much of the required paperwork for real estate transactions is unnecessary and confusing, he told columnist Kenneth R. Harney: "You know, if I'm a lawyer and secretary of HUD and I'm not reading this junk, you know there's work" needed to simplify the system. Garton-Good indicated that a streamlined closing process could make consumers more willing to undertake real estate transactions themselves, and reduce the need for full-service expertise. Unbundling and simpler real estate regulations "work together hand and glove," she said. n January, Garton-Good visited Charlottesville to qualify those who wanted her designation, Certified Consumer Real Estate Consultant. The session was sold out. She will be in Richmond in July to offer the same course. Keith Krauer organized the event after hearing rave reviews of the Charlottesville session. Krauer, the director of education and risk management for the Richmond Association of Realtors, said he's had calls from as far away as Massachusettes and Maine regarding the Richmond conference. How will she be received? Tony Villani, who was at the January class in Charlottesville, is confident that she'll get a warm Southern welcome. But Earl Jackson remarked, "I'm not real sure that it's a concept that's going to be embraced totally." Whether or not unbundled services become the norm, Richmond consumers are still going to need the services of real estate professionals. Tina Fritz of Wellspring Realty Inc. offered her perspective on the controversy: "Serving the client is the main focus, not amassing a fortune. If that's your attitude, you'll never want for clients, regardless of whether you're a fee-based or full-service brokerage." Contact William Ciucci at (804) 649-6495 or wciucci@timesdispatch.com