Business Approach vs. Business Model


Thumbnail image for dreamstimeextrasmall_13642095.jpgThe REALTOR® community is flush with agents who call themselves REAL ESTATE CONSULTANTS but only know and understand the commission model. Some of these truly are consultants. They have the experience, knowledge, proven methods and a business approach whereby they are giving their clients the best advice and produce justification, evidence and work products to back up their opinions. How they charge for services is irrelevant except for the fact that it may not be very transparent. They know real estate and practice consulting but only grasp one business model.

On the other hand, there are agents that use a different method for charging clients that more closely align with the way CONSULTANTS (think management consulting as an example). These range from charging by the hour to a-la-carte services to fixed fees. We can do this without ever thinking about consulting. It is simply a different way to get paid. These agents/organizations grasp a different business model but don't have a clue as to what real consulting is.

So why is the consulting "charge" model so hard to grasp for some of us? Maybe for several reasons. First and foremost the commission model is is EASY. What do you have to explain? "If you list with me it is X % and we will offer X/2 % (or some other split) to another broker that brings a buyer. And, I do everything that everyone else does and my differentiating value is ... uh ... uh ... me this and me that. And, by the way, I am honest and sincere." OK, now I have a buyer. The discussion is equally easy (maybe even more so): "Sign up with me and ultimately a seller will pay me if and when you choose to buy a home. Thank you." I'll spend every weekend for the rest of my life showing you homes.

With the commission model we basically don't have to think. This is the way it has always been, what we were taught and how our brokers want us operate. It is easy. All we have to do is be like everyone else and maybe adjust the commission (with our broker's permission of course) to be competitive. Not much explaining and virtually no transparency. That is to say (again) we provide the same services that everyone else does for the negotiated (sometimes) commission.

I think our biggest challenge is to help agents new to the consulting concept understand the "role" a consultant plays with a client versus how you request to be paid. These are two distinct (very different) and important parts of this thing we are calling consulting. You don't need to be an ACRE™ (or a C-CREC) to call yourself a CONSULTANT. You don't need to be a CONSULTANT to have a different way of charging for services provided. But, the role you play plus a transparent way to charge for services becomes immensely more powerful when practiced together. Why? Because of the VALUE you can deliver at a fair price. Stand out "Above the Crowd" (for my fellow RE/MAX agents).

So, I want to see more questions and discussion about the ROLE of a consultant. The fee part is actually simpler. Just think about an by the hour plus parts: electricians just need to be competitive with their hourly are parts). Then think about the electrical engineer that you may pay for doing an evaluation of your systems (it doesn't matter what kind of systems) and providing a report with recommendations and alternatives for what needs to be changed, upgraded or reporting to you that nothing needs to be done and in each case why. Oh, by the way, if you concur with the engineer about what needs to be done, he/she can give you a price either by the hour plus parts or, perhaps, a fixed fee to do the work for you. Maybe even with a performance guarantee.

Consulting is about a cycle of events:

  • study (assessment),
  • evaluate (analyze),
  • recommend (advise, report),
  • price an engagement and then
  • execute.

How you manage and present these makes the fee part almost a mute point. Trust me. I am not cheap! I deliver high value (role) at a competive price.

This has been a long way of saying some of you are making the fee part of this more important and too hard. The harder part, in my mind, is your "role." I am happy to take questions about the "role" of a consultant.


Here's an add on thought to my article with a bit more detail and a challenge: Consulting is about a process with a pattern that is repeated in every engagement a consultant participates in:

understanding the problem (objective, goal),
price the study effort,
study (data gathering),
evaluate (analyze),
assessment (opinions),
recommend (advise, report),
receive payment for the study,
collaborate on appropriate plan of action,
price the plan of action based on work to be performed,
receive payment for performance.

How you manage and present these makes the fee part almost a mute point. Focus on delivering high value (role) at a competitive price (fee). Most non-consultants in real estate start at number 5 above assuming the client's objective has one and only one plan of action and a price already determined (a commission). Hire an electrician or hire an electrical consultant? Treat the symptom or diagnose the disease? If a client is hiring you as a consultant, you owe it to them to go through the entire process above. As an exercise, take the general outline and match it up with a typical real estate transaction. Those who have SmartPlan™ ought to see it right away!

In Merv's original post he said something that really hit home for me:

The REALTOR® community is flush with agents that call themselves REAL ESTATE CONSULTANTS but only know and understand the commission model. Some of these truly are consultants. They have the experience, knowledge, proven methods and a business approach whereby they are giving their clients the best advice and produce justification, evidence and work products to back up their opinions. How they charge for services is irrelevant except for the fact that it may not be very transparent. They know real estate and practice consulting but only grasp one business model.

I am one of those who has operated in a consulting mode since I first became a Realtor - that was and is my role. The difference between being an ACRE(tm) and the old "consultant" is the "pricing" pieces as outlined in Merv's second post. This second post is like a light bulb going off for me! It not only helps me clarify the old me vs the new me in my own mind, but it gives me the springboard I need to explain the ACRE(tm) model to potential clients and colleagues. I was of the consulting mindset before ACRE(tm) - the difference now is that I have a framework in which I can get paid for all that free "study effort" I always do. Thank you once again Merv the Magician! Betty Byrnes

Betty, You hit the nail on the head!!! One thing I had said to Mollie many, many moons ago, is that, AT LAST I've found a POINT OF DIFFERENTIATION for how I do business that I CAN FEEL REALLY GOOD ABOUT. Like you, I've always "thought" like a consultant. I've seen our industry more as a service one than a sales one. Sometimes that thinking has shot me in the foot because, if I felt that MOVING was not in the client's best interest (though it CLEARLY was in my own), I would advise them as to why it was not in their interests. It certainly makes for a lot of good will...but that doesn't pay my mortgage! And Merv, I love the breakdown you added. Very succinct and focused. I think as agents we are pretty much trained from the beginning to think "big picture", and not so much in terms of well defined specific objectives. And, as a result, we have always charged in "big picture" terms as well. I think I'll print a copy of it to keep in front me as a reminder.....FOCUS!!!! JudiB

Has anyone read Freakanomics? It is not very flattering for the traditional real estate model, but the point he makes is surely a raging endorsement for consulting. If you're not motivated yet for developing your fees, you might want to take a look at what consumers are reading to get you off the fence. On another note, while I know exactly what I bring to the table and what I feel comfortable charging my clients, I am toying with the idea of splitting up payments. Has anyone had success with this? Would you recommend monthly payments or half up front balance at close, etc? The particular client I am working with, I will be charging about $15,000. For the work, it's an incredibly reasonable fee, but I am hesitant to bill the entire amount for initiating the process. Any suggestions?

I suggest using progress fee payments. Divide the total project for which you will receive $15,000 into its major components and assign a monetary value to each phase. Identify what constitutes the completion of each phase and bill the client for the agreed upon amount for that phase. I used this in my computer consulting business and it worked extremely well. You don't need to wait until the end to get paid and the client has the comfort that you won't take the $15,000 paid up front and take off! Give it a try. Contact me if you would like to discuss this subject further.

Great comment Joe, as I've seen this work in other businesses and what Merv does in his Smart Plan. However, I would like to request that Holly NOT contact you directly to discuss but rather discuss it here on the Exchange. That way, everyone can learn from you and each other. We can also make it the subject of a teleconference if there is enough interest. I wanted to also mention that I talk about Freakanomics in my book, Ripping the Roof off Real Estate. My frustration with the authors was not only that their references to our industry are unflattering but also wrong. I do agree with you Holly, that it makes a great case for consulting. One of the reasons that agents are so vilified is that we have NO TRANSPARENCY! Of course consumers think that they are getting screwed because there is often no relation in their mind between the services they are receiving and the commission they're paying. Mollie

Joe has hit the nail squarely on the head. Here's what I do: There are three major components of the work we do as agents: 1) Preparing the client for a transaction (buy or sell) See "Study" above. 2) Property search for buyers or marketing the property for sellers. See "Action" above. 3) Consummating the transaction (contract to close). I arrive at a price for each of these components and request payment for 1) and 2) in advance or in installments (easy payment plan). My experience is that 1) and 2) constitutes about 50% of the work to be performed. The remaining 50% is paid at consummation (closing) to keep my skin in the game. I get paid for the work performed every step of the way. This is much easier with sellers because they have traditionally paid the cost of selling. It is harder with buyers (but not out of the realm of possibility) because they traditionally believe the service is FREE to them (seller pays our fee). This is but one approach. Anything you can imagine that is fair to you and fair in the eyes of the client is doable. Donald Trump calls it "The Art of the Deal." The science of the deal is systematically determining the value of your services that drives your fee structure. The art is in creating a deal that determines how you get paid. PS: I wrote the original article nearly 8 months ago to generate more discussion about this topic. This conversation about the role you play as a consultant and how you structure a deal with a client is the ABSOLUTE ESSENCE of differentiating yourself as a service provider as opposed to a sales person. The end result is a sale (most of the time). How you get there is the service. This IS the topic that we (you) should be focusing on. Any other topic discussed should only be to reinforce these concepts or to make us better consultants (the ROLE you play!). The fee part is important but if and only if you can establish credibility in your role. If you continue to play the role as a sales person, you will get nowhere with a different method of getting paid for your services.

Ok, here's the really stupid question. When you traditionally consult with sellers, do you create a payment plan for your own side and price in 3% at close for the buyer agent?

You price the buyer side at whatever your selling clients agree to (I suspect you can recommend what might be appropriate given your market conditions). such thing as a stupid question (well, I take that back...the only stupid question is the one you DON'T ask). In recent years, when I give a listing presentation to a prospective seller, when the time comes to discuss commissions, I ALWAYS break it into two parts...the list side and the coop side. Long ago I got tired of hearing sellers challenge why this or that "agent" might want 5 or 6 or 7 or 8%...and what makes them worth it. with all the media hype about commissions (which is always represented as though the listing agent was "getting" the full commission charged), I felt the only way to fight back was to make it very obvious that there is not "one" commission. There are two brokers getting paid. Now, when presenting as consultant, doing it the way I've been doing it makes even more sense. It provides the perfect opportunity to put the decision of how much to offer the cooperating broker squarely in the hands of the client. Present them with the options, as well as the potential benefits and/or consequences of each of those options, and let them decide. We keep talking about transparency...this is just one more component. It also illuminates for the seller that the fee you charge doesn't all go in your pocket.

Holly, The direct answer to your question is YES with the caveat about what is offered to the buyer side in my last comment. Certainly not a stupid question... When working with a seller I always emphasize that my listing fee is different than what we might offer a cooperating broker. In a listing agreement I always insert "See attached Fee Schedule made a part of this agreement by reference" and attach a clear schedule of what I will do for my fee (and by the nature of my SmartPLan what I will not do), how much and when I get paid as well as what the seller agrees to pay the cooperating broker at closing.

As poorly as it reflects on our industry, we have local agents who won't show a property if the buyer's agent is not getting 3%. I guess that's another reason I like consulting so much, ACREs really do consider the clients needs first and I KNOW my clients appreciate that. Do you have any success with showings if you offer the buyer side any less?

Yes, during the HYPER seller's market I have seen as low as 2%. I still see that offered today but not as much. This is double edged sword... In a seller's market the seller has most of the control because of the demand. When one of my listings had a lower coop offering, I have actually had buyer agents call me and explicitly state that if the seller would not offer 3% coop they would not show the home. How sad and unethical. But, there were so many buyers that it did not have an impact on selling...not even days on the market. Here's the other side; in a buyer's market there is so little activity buyer agents are hungry for anything. But remember, in a traditional brokerage, the BROKER must agree to the lower rate and I have direct knowledge that traditional BROKERS have told their agents NOT to engage in anything but 3% coops. Also sad and a totally unethical business practice. As consultants we ALWAYS act in the very best interests of our clients. Besides embracing consulting and Activity Based Pricing of services, the industry must change to "each party paying for the services received." If that was the case, the entire industry would be turned on its head and the consumer gets control of the agent marketplace.

Clearly, a consultant should always act in the best interest of the Client. However, I think we need to acknowledge that the traditional commission approach has continually put the agent in the horrible position of (as Blanche Evans has said) "having to choose between ethics and eating." Saying, as NAR does, that we must act as fiduciaries without looking at the way we are paid and basic human nature is crazy. If you have bills to pay, and you only get paid for an outcome, it's very human to try to push the outcome that provides the best pay. That's why consulting is so powerful. By being transparent and honest with the seller, you can encourage them to provide compensation that is competitive while making sure they understand that you can only control the end that you're getting paid for. In fact, I've often put it in the contract that I recommended a co-broke of X%, so it's very clear that this is not only their decision but their consequence. Of course this is when I'm being paid non-contingently. When paid by commission, I will walk away if the seller does not offer a competitive co-broke. It may be their decision but if the house doesn't sell, I don't get paid and as all of you know, I HATE working for free! Mollie

I can agree with Mollie AS LONG AS a client has been informed. I never have to take a listing for whatever reason if I think the client is being unrealistic in an outcome (traditional commission) based engagement. You have to have the courage to walk away. If I was restricted to a certain X% commission as a buyer agent, I strongly believe that I have an obligation to inform the buyer client of my requirements which may mean I cannot show them homes where the seller has offered less than X% unless the buyer client can make up the difference. But, in any case, they need to know up front. It becomes the client's choice to work with us or not. NAR's point on this is not crazy. It is our obligation to have the courage to provide transparency in ALL matters. It then boils down to a painful but appropriate business decision by "consultants" to walk away or by "clients" to walk away from us.

I think Merv and I are saying the same thing but let me clarify something: I don't think it's crazy for NAR to expect that our obligation is to the Client. My "crazy" comment has to do with NAR not providing training on transparency and other choices that can be offered (and I'm not holding my breath waiting either). If you expect human beings to act against their own financial self interest, you will see a lot of representation of themselves. If they were to lay it out as Merv does: that we present choices clearly and then we each have the choice to work together or not, then it's not an issue - in fact that's how real estate should be done! Anyone else have any thoughts on this? Mollie

If anyone had any doubts about the meaning of transparency, I think we are defining it in simple terms throughout this dialog. In fact, the whole consulting model is based on "transparency" in all that we say and do. I am sure there are a lot of conflicts going on in the minds of our fellow ACRE's. I'd like to hear from everybody on this issue in your own words. We have hit on a very sensitive issue and we have Holly to thank for reading old posts and asking the questions. Holly becomes the ACRE of the day!

Thanks, by tomorrow I could make it all the way through to November's posts!

As JudiB would say: "Text is such a flat medium." We all have a different way of expressing thoughts and ideas. I tend to be very linear and analytical (surprising?). Mollie is always reminding me that we all have different receptors for learning. Mine happens to be visual and learn by doing. Others reading, some it's watching and for many, its personal interaction. So, get involved in your learning mode: the written word as we are doing now, Mollie's presentations or dial into the teleseminars. Maybe do all three; then you have your learning bases covered. I am always inspired when we have these dialogues. Inspire me and I will work my heart out for you!

Good comments from all. I think figuring out the fees is the easiest part. What would you do for how much money? It is easiest to get Merv's smartplan though, it makes it SO much transparent to the client and easier for you to figure out the fees. It also makes you look like a rocket scientist because nobody else DOES this. If you can't get the SmartPlan, read Mollies workbook over again, it explains how to do this in detail. One note I'd like to add to this thread is that once you start acting like a consultant, and you differentiate yourself from the other agents, people respect you more. I just had an agent who wanted help with a difficult client she was thinking of withdrawing because he was SO obnoxious. Wanted LOW commission, very demanding, complained a lot (DIDN'T HAVE EMAIL) whiney baby, and as you all know - I don't deal well with those types, but wanted to help her out. It was great fun, since it was an adventure for me to see what I could do with someone we were going to stop working with anyway. BE WILLING TO WALK AWAY, it works. The guy is now an adorable client because I sent the needs analysis to him, told him to fill it out, and then we'd decide his options, or whether we were even a good fit to work together. I have 5 new listings by using this method. My best .02 is to let them know YOU are different, you want to help, but you need to know what they want before that is an option. Another good thing is that call you get on a listing where someone is shopping agents by rate, lol! I LOVE that one! It's simple, Mr. seller, I am an ACRE, I work by a different method, or you can do commission, so I can't answer your question until you fill out this form. Then, with my expertise, I will give you several options. That takes care of the rate shoppers ;-)

I think it's important to remember that how a client pays for consulting services isn't the issue. The issue is that we have CHOICES to offer them...not just a block of services paid for by commission after the sale. Commission is still AN option...but unlike the vast majority of agents around the country, with our clients it's NOT THE ONLY option. One of our challenges in talking with other agents and prospective clients alike is confronting the perception that we think offering "consulting" means doing away with paying by commission. I know for a fact that scares a lot of the agents in my area that I talk to. The have the misguided belief that if they offer consulting they will have to give up those large, albeit high risk, paychecks. And, when they come, those paychecks are nice. By the same token, I've learned that when talking with prospective clients about consulting, they seem to always jump to the conclusion that consultative services equate to up-front fees...fees that they often simply cannot afford to pay on an up front basis. Once we talk for a while, they certainly are clear that method of payment has many forms. Up front and commission after close are simply two of those forms...and there certainly are others. I definitely agree, though, that when a consumer discovers they can have choices, their attention is much easier to re-direct. Now, instead of "how much do you charge" the focus is on "which alternative works best for my situation and budget". And the real bonus...the consumer becomes a real participant in the process. They're more like a partner working with you toward a common goal!

If you've been in this business for any period of time, you've been taught the presumptive close "So what time would be better for us to get together 5pm or 9am?" Consulting is the ultimate presumptive close only it NEVER looks like it. The fact is that if you offer choices, the consumer choose which one but they're all with you! Mollie

Merv-thanks for bringing this article back to everyone's attention again. I ended the year with another FSBO transactions where I was hired by the sellers to provide them guidance through the process. It is still tough in our industry where the word's "free", "discount" and "rebate" are the ones that catch consumers attention that there is another way that is none of the above.

Happy New Year.

Wow -- I just read this whole thread. Great discussions.

I am writing my own post right now to get up later today about how I started consulting and why it works for me. Once you "train" your clients in how you work, they DO respect you -- much like I respect my accountant.

I don't ask my accountant how much the bill will be. She's been my accountant for years. I take her the work, she does it and presents me a bill. I trust her. That's the kind of relationship I have with many of my clients. I'll explain it in a post later today. Last week a longterm client called me and asked me to do something, an analysis. I did, he called me back and said "Great work, send me a bill." That's the kind of practice I have and when you have relationships like that it's a pleasure doing this business.

Ditto what Cindy and Erica said - this is some goooood stuff.

I've been doing a lot of thinking and writing this last week on what consulting IS, trying to wrap my own brain around it to figure out the best way to explain it... and this post + comments pretty much sums it up... beautifully.

Thanks for bringing it back, Merv!

Thanks for the comments. The bill is in the mail ;-)


I started to go into this diatribe about what makes a consultant a consultant, but I believe Judi Bryan did a great job with in it in her post from 2008. WOW!

But, I do disagree with you on one point. I was an electrician in the military and I would tell that I had to do a lot more than a electrical engineer--depending on the circumstances. I know because, I also have a two year certificate in industrial electronics. That means that the training combines the two to solve problems when preparing an industrial sites.

Just thought I'd throw that in there.


William, Not sure what your disagreement is. It's just a simple anology to get a point across.

Glad you liked Judi's reponse. She is full of wisdom.

This is a great discussion. Going back to what our role is, I have a few questions.

I have been preparing a "strategy" document for my sellers as part of my traditional commission based sevices for years. It documents everything - what I understand their goals are, their situation, and what improvements have been made to the house. Then I outline my research and findings based on recent sales, current inventory, and any other relevant factors. This is so that when the market shifts, or their motivations change, we can all reflect back on the strategy and see that something changed, so now our price/marketing/something else has to also change. I felt like it kept everything professional.

I create that strategy doc for everyone. And I imagine that I would do the same as a consultant. So it seems that the choice for the client is how to pay. For me, I'm going to provide the same service to a seller - he just has the choice for how to pay me. I guess I'm having a hard time distinguishing consulting from fee-for-service.

To keep things simple, I would probably break things down into three phases:

1 - Pre-listing: researching comps, previewing property, etc. Based on all that, determine options for pricing and necessary improvements to make property marketable.

2 - "Launch" - execution of marketing plan, sales tactics, etc.

3 - Negotiation and contract management

If a seller only wanted to hire me for phase 1 and then go FSBO, that's fine.

But the service is the same. I would do everything above for a standard commision.

So what am I missing about the consulting being different from fee for service?

My second question is about transparency. I assume when people say that, they mean that the consumer knows all the steps in the process and what to expect along the way. Is that how you mean it, Merv?

Hilary, immensely thoughtful remarks question ...

First, you are to be commended for documenting the agreed upon strategy to set the baseline for your clients. Great stuff and exactly what consultants do (or should I say should do).

Next, The three phases are perfect. I call them:

1. Prepare to sell
2. Marketing
3. Contract to close

Finally, the Business Model you choose is totally up to you. It can be ...

1. Commision at close (traditional)
2. Part of the commission for completion of each of the three phases (divide it up)
3. A fixed price paid for the completion of each phase (could be called fee-fer-service)
4. Time and materials and pay as you go, usually monthly.

... or anything you and your client can feel comfortable with.

Now, differentiating consulting with fee-for-service:

Consulting is how you deal with your client, your role and how you operate. This is your Business Approach; has nothing to do with how you are paid.

Fee-for-service is a payment method and is one of many potential Business Models anyone can use. I outlined some others above.

Transparency: Break down each phase of a transaction (as you have defined them) into its parts and price each one. Show your client the result. This is powerful when coupled with how we "operate" as a consultant. It is powerful because traditional agents and brokers do not disclose their cost of doing business. And, your clients will be impressed with your level of detail. My favorite client comment when presenting this way was "I never knew agents did all this stuff."

So, here's my approach and it works beautifully:

1. Present the services you will perform and your price for each
2. Maybe some optional services you can provide and prices for each
3. The total price for the complete transaction. This is your cost of doing business.
4. Provide your commission for the traditional approach
5. Provide your hourly rate
6. Give the client the choice on how to pay

Check out this post I made on Sharing Risk with a Seller

Hope this helps clarify our language!!

PS: I created the SmartPlan™ and used it for this specific purpose. It shows the three phases of the transaction and substantial detail in each phase. When presented, it is my business plan customized for each client: hence, SmartPlan™

Thank you! I guess I've been consulting all along. Need to beef up my messaging to reflect that approach.

The true value to this approach is (just to restate the obvious):

- Transparency - the consumer understands exactly what they are getting

- Choice - as Mollie has stated all along. This puts the consumer in control, something I think they hunger for as part of such a large transaction. They don't want to be sold to.

- Objectivity - I think some consumers will value the ability to pay for service to remove the conflict of interest when commission is based on the sale price.

Has anyone else read the book Nudge? It's a great marketing book that talks about how you can influence people's behavior by how you present options to them. My hypothesis is that by giving the consumer choice as Merv describes above, most will pick the traditional model because they won't want to take the risk themselves. But what this does is help us communicate our value better by demonstrating to the consumer what is involved in a home sale and our role in that transaction.Will be interesting to see how this plays out this year for my business.

Good stuff!

Brilliant, Merv. And thank you, Hilary for asking such great questions!

Leave a comment

entry icon

DISABLED - Subscribe to email notices when new comments are made on this Blog Entry

  • cancel-order.jpg
  • business-cycle.jpg
  • business-plan-graphic-480x200.jpg
  • acre-green-logo-220.jpg
  • ccrec_course.jpg
  • ACRE Logo.jpg
  • http-www.jpg
  • winning.jpg
  • dreamstimeextrasmall_13642095.jpg
  • dreamstimeextrasmall_20338445.jpg