Unbundling Services

It's just what the client ordered

April 1, 2007

When Bill Fanning and Ellen Carr opened Smart Real Estate in Rochester, N.Y., three years ago, they wanted to offer consumers full service on a commission basis. But they also wanted to offer something different for households whose homes were what Fanning and Carr considered the “low-hanging fruit” in their market — those properties that were in such great condition that if priced and marketed correctly, they could be expected to sell fairly quickly.

So to attract those sellers, they offered a flat-fee pricing structure. Now some 80 percent of their business is conducted on a flat-fee basis. “We’re being rewarded by the marketplace” and enjoying success with this approach, says Fanning.

Across the country, brokers are tapping consumers’ desire for choice by coupling their commission-based services with some form of menu-based, flat-fee pricing alternative. “We’ll handle the transaction whatever way consumers want,” says George Stephens, broker and co-owner of ERA Stephens Properties in Houston.

What these brokers make clear is that different models of unbundled service can work equally well if they’re structured with consumer needs in mind and the company cooperates with other brokers in the markets. The progressive commission program Bruce Hardie likes to give his clients as much choice as possible. The broker of Keller Williams Spokane Valley in Spokane, Wash., Hardie offers consumers a program in which he bases his charges on various factors.

  • A. If a cooperating broker procures the buyer, Hardie charges the sellers a specified commission, which he shares equally with the cooperating broker.
  • B. If Hardie procures the buyer himself, he charges a commission lower than the rate charged in arrangement A.
  • C. If the seller finds the buyer, Hardie drafts the contract, handles the closing, and charges a commission lower than in arrangement B.
  • D. If the seller finds the buyer and tells Hardie his services aren’t needed, Hardie releases the seller from the listing agreement, does no further work, and charges nothing.

About 97 percent of sellers end up paying the first commission tier, Hardie says. About 2.5 percent pay the second tier. The other half percent pay the third tier, with that transaction typically involving unrepresented sellers, or FSBOs, who decline to list with Hardie but contact him when they find a buyer. “They call and say, ‘We’ve got a buyer. Will you write the contract and handle the closing for us?’ and we say yes.”

Other companies’ associates were skeptical when Hardie began offering the program about five years ago, he says. “Today, they respect it because if they do a transaction with us, they get paid.”

Experienced Sellers’ Option

The lion’s share of business at ERA Stephens in Houston is full-service and commission based, but for the small percentage of sellers who want their services unbundled, broker George Stephens charges a commission rate that’s lower than his full-service rate, and, where needed, a cooperating broker fee. If the buyer’s rep is from his brokerage, the cooperating broker fee is typically lower than it would be for an outside broker.

The unbundled option accounts only for about 3 percent of his business. Most clients, after they hear what’s involved, go for the full-service option. “As we identify some of the problems they might encounter, consumers often say, ‘I hadn’t thought about that.’ Then they’re more interested in our full-service package,” Stephens says.

Clients who go the minimum services route are typically experienced sellers who only want access to the MLS. “A seller might have sold a number of properties or might be an attorney,” Stephens says. “We don’t get many of those requests,” he says, but he does encounter sellers who want just MLS access and assistance showing the property. For those two services, Stephens will negotiate a commission that varies with each seller but is lower than full service.

No matter how few services consumers want, if they sign a listing or a buyer’s representation agreement, his associates are available to answer all their questions, Stephens says. His associates also handle all communications regarding the listing, and all offers are submitted through Stephens’ company.

Flat-fee optionIn the structure used by Fanning and Carr in Rochester, N.Y., sellers have the option of paying a percentage-based full-service commission rate at closing or a flat fee of $1,795 up front and a percentage-based cooperative broker fee paid at closing.

For a $100,000 house, typical in the Rochester area, the cost difference in the two approaches can be significant. Typically, the percentage-based full-service commission amount is a bit more than the combination of flat fee and co-op commission.

Although most of Fanning’s sellers go with the flat fee, those who take the full-service commission approach do so for convenience, he says. Sellers don’t need to come up with $1,795 up front, nor do they have to come up with additional money if they want additional marketing done.

For the flat fee, Fanning hosts two open houses and covers the cost of marketing them. If clients want additional open houses, they have to cover the costs and the marketing (at the same rate the brokerage has negotiated with the local newspaper and other media). There’s no extra charge for extra open houses or marketing under the commission approach.

If Fanning’s company is representing the buyers, it rebates 20 percent of its co-op commission to them after the transaction closes.

Brokers who offer unbundled services say cooperation with other brokers is key to having a viable flat-fee option to offer consumers.

“The associates in other brokerages who work with us are a great bunch,” says Fanning of the reaction to his business model. “They are showing my listings and are very happy with the way we compensate them.”

How a Menu-of-services Specialist Does It

Help-U-Sell is among the national companies whose business model is built around flat-fee pricing for unbundled services. When Help-U-Sell–Michael & Terry Patton in North Las Vegas takes a listing, the company offers sellers two options:

  1. The company handles showings. If an associate at the company procures the buyer, the brokerage charges the sellers $6,950. If a cooperating broker finds the buyer, Patton charges the sellers $3,950 plus the cooperating broker’s fee negotiated when the listing was taken.
  2. Sellers handle showings themselves. If they find the buyer on their own (no cooperating broker), the brokerage charges $3,950.

Regardless of which option sellers choose, the brokerage lists the property in the MLS, advertises it in the company magazine, and creates an online virtual tour at the brokerage’s Web site.

An outside broker procures the buyer about 60 percent of the time, says Michael Patton, the brokerage owner. In the remaining 40 percent of cases, sellers find their own buyer half the time.

Buyers working with one of Patton’s 75 associates also have options. If they agree to preview properties on their own, the company rebates 20 percent of its co-op fee. About 90 percent of buyers get the rebate at closing, he says.

What’s been the response from other brokers in Patton’s market? The best associates in town are accepting of Patton’s model, he says. “They’re too busy doing business to speak ill of us.”

He has, however, run into competitors who claim his associates aren’t experienced, aren’t licensed, or don’t do any work for consumers. But Patton believes the critics misunderstand his company and don’t know the market. “The people who criticize us the most are the least experienced,” he says.

freelance writer

G.M. Filisko is a Chicago area freelance and former editor for REALTOR® Magazine.