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Tuesday, September 22, 2009

Commission-Free Real Estate

Michael Soon Lee by GRI Instructor Michael Soon Lee, MBA, CSP, CRS, GRI

Author: "111 Ways to Justify Your Commission" and "Black Belt Negotiating"

Most brokers and agents are aware that consumers hate paying real estate commissions because they feel they are too high and that we don't earn them. To deal with this miss perception some progressive brokers are beginning to look into alternatives to commission-based real estate models.

Since 1985 I have been helping real estate professionals develop hourly and flat fee compensation systems that they can offer clients in addition to traditional commissions. These plans have helped me get more listing appointments because they have the potential to save sellers money. This is because real estate commissions tend to be higher than necessary to compensate brokers who waste time and money on deals that don't close.

While alternative compensation models can be attractive to both clients and brokers you'll want to seek professional advice before implementing one. For instance, one of the most commonly requested "unbundled service" is from a seller who has found a buyer for his house and just wants a broker to write the purchase agreement. While tempting, this would be practicing law without a license because the only people who can just write a contract for a fee are licensed attorneys. Agents and brokers can only write contracts as part of a real estate transaction and how many other services in addition to writing the contract would be required to avoid this problem has yet to be determined.

However, since the real estate meltdown alternative compensation models are becoming much more popular since sellers have less equity with which to pay commissions. In my next blog I'll talk about why brokers hate to be paid by commission as well.

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