Fee-Based Consultants Gain
A Foothold in Home Sales

There's a new breed of real estate agent in town, agents who are marketing themselves as consultants. They boast that they do not take commissions and that they offer services for savvy consumers.

It's an interesting concept in today's real estate market where agents are slashing commissions to garner new business. Volume picks up the slack in lost income for agents willing to shave a percentage off their commission, or so they hope.

The average commission for a real estate agent on residential sale is 5%, a full percentage point lower than a decade ago. Some agencies offer discounted commissions as low as 3%. And now this: pay as you go service, or a la carte real estate consulting.

Ryan & Associates Realty in San Francisco says "with a consultant, you pay for just the services or expertise you need, and it's a customized set of services for each consumer. Some consumers may choose to work with a real estate consultant by the hour, some would like to choose a la carte services, and others would like to bundle a few tasks/services together. It's possible the consumer will complete some tasks on his or her own. The biggest plus in consulting services is that the consumer now has choices."

The agency is quick to note that the commission-based system as practiced by most Realtors may be less expensive. But it all depends on the consumer and his or her needs. A for-sale-by-owner scenario that needs a little marketing support may end up saving the seller thousands of dollars, especially in markets where multiple offers are common.

Fee-for-service, as these real estate consultants call their practice, isn't discounting. They say discounters depend on volume and mass production, not quality or service, on which they pride themselves.

These are the services Ryan & Associates says it provides: first visit, listing appointment, installing sign and/or lock-boxes, photography, brokers' tours, advertising preparation and placements, preparation of brochures and flyers, Internet advertising, graphics, weekly communications, scheduling appointments, follow-up on showings, negotiations, meeting with inspectors and appraisers, reviewing settlement papers and closing. In other words, exactly the services most commission-based real estate agents provide.

The total estimated cost for all this is about $7,000, or the price of a traditional commission on $140,000 house.

The fee-based firm also offers a menu of services for buyers: traditional commission, an hourly fee with 100% rebate or a "risk-sharing plan" that entails a $1,000 retainer, another $2,000 due upon purchase and sales agreement and when more than 20 hours of professional services is billed, $100 per hour and is due at closing with the balance of the real estate commission is rebated.

That scheme could add up to far less than what a traditional commission would be on a home sale -- but real estate professionals say an attorney would most certainly have to also be hired to review the maze of closing documents anyone who has bought or sold a house knows come with a sale. And that legal fee could push costs up dramatically.

What counts most?

Real estate professionals are conflicted about the fee versus commission proposition. Some say it's about the person, and others say it's about the numbers.

Davis Paris, a former Morgan Stanley real estate executive and now a private developer as principal of ParisWest in Venice, Calif., says on the one hand "you want somebody who can get you that crazy price," yet on the other hand, the "market determines much of the price."

He points to the widely followed Multiple Listing Service), which features home sale price information and is generally available to the public. "The information is all there," he says, "but sometimes you need someone who understands more."

Whether fee or commission then really doesn't matter; it's the real estate professional and service you get that counts, if indeed an intermediary is needed at all.

Wall Street has been struggling with this same fee versus commission debate. According to Boston-based Financial Research Corp, 50% of stock brokers' compensation comes from commissions on trades, the rest from fees. And a Rydex Advisor Benchmarking Research study says, "the share of income generated by commissions is shrinking."

Fee-based financial advisers have always been associated with wealthy clients. Wealthy clients with more money know they can command lower fees and/or discounts.

With home prices soaring, it looks like the same power is being handed to real estate buyers and sellers. The question is whether they'll choose to use it.

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