FOR BROKERS: à la carte service
BY ROBERT FREEDMAN
Limited appeal?
With interest rates inching up and price appreciation expected to ease in 2005, will sellers become cost-conscious and assume more transaction work themselves, paying for a few à la carte services? Or will they opt for a salesperson who can deploy the full arsenal of marketing and consulting services to nab them top dollar? In other words, what’s the latest word on the full service vs. cost savings debate?
For Wes Atiyeh, associate broker at Long & Foster, REALTORS®, in Richmond, Va., there’s little doubt sellers will call a full-service broker. “In a slower market, sellers have so many more needs than they do in a strong market,” he says. “They need different ways to market their house, among other things. That creates a lot of challenges for sellers trying to do much of the work themselves.”
But Lawrence Bunnell, CEO of Insight Realty, a provider of à la carte selling services also based in Richmond, sees a different reality. “When the market cools, you’re not going to get as much for your house,” he says. “You’re going to have less equity. It makes sense for sellers to go with services that can save them money.”
Whether sales slow in the year ahead, there’s no doubt that record home sales over the past four years have been good for brokers providing services on an à la carte basis. The reason, says residential brokerage consultant John Tuccillo: Listings have been attracting a lot of buyers, making intensive marketing less necessary. “This is the peak [time] for à la carte brokers,” he says.
Although no group keeps data on their growth, à la carte brokers are becoming a stronger presence in the industry. The National Association of Real Estate Consultants, launched in 2000 to provide training to practitioners offering services on a fee basis, saw its membership leap from about 250 in 2001 to 1,400 at the end of 2004, says Susan Burr, the group’s executive vice president. That’s a 460 percent increase.
And the number of franchises at Help-U-Sell, the national fee-for-service system based in Syosset, N.Y., grew from just over 200 at the end of 2002 to 700 at the end of 2004, says Rick O’Neil, company president. That’s a 250 percent increase.
There’s no one type of à la carte broker. Business models range from providing MLS entry only to full service, but with services ordered individually. The common thread among à la carte brokers: Each method gives customers a degree of choice.
An analysis of the 2004 NAR Profile of Home Buyers and Sellers data shows a small proportion of consumers are making select choices: 7 percent of salesperson-assisted sellers coordinated the appraisal and home inspection, among other third-party services; 6 percent scheduled showings with buyers; 4 percent held an open house; and 3 percent bought newspaper and magazine for-sale ads. The 2004 findings are NAR’s first on the issue, so comparisons with previous years aren’t possible.
Will the proportion of sellers performing some marketing and scheduling tasks go up in the years ahead? Long & Foster’s Atiyeh doesn’t think so. Now that they’ve tapped à la carte brokers, he says, some younger, often first-time owners will switch to a conventional brokerage when they sell because they realize all of the things that go into the process. “They get tired of limited service,” says Atiyeh.
Adds Doug Corbin, GRI, an associate with Exit Real Estate Results, a full-service brokerage in Winter Springs, Fla., “We’ve had people come to us after a seems-too-good-to-be-true arrangement falls apart,” he says.
Proponents counter that there are two trends working in favor of the new à la carte models: the changing face of buyers and the maturity of the Internet.
As younger baby boomers and other Internet-savvy buyers come to dominate the market, they’re bringing a hands-on approach that favors the à la carte model, says Daniel Rubén Odio-Paez, owner of Drodio Realty in Falls Church, Va. “These consumers want to do things for themselves,” he says. “Brokerages need to provide the tools to let them do that. The real value of practitioners is helping consumers negotiate and make sure they’re getting the best deal.”
Drodio isn’t a fee-for-service brokerage but offers incentives for clients to do some of the work themselves under the company’s sub-brand Rebate Reps. On the buyer side, Rebate Reps rebates a portion of the commission based on the amount of work—including home searching—the buyers do for themselves.
The Internet also is the key component of Insight Realty’s business plan. The company operates in three major metropolitan areas—Washington, D.C., including southern Maryland and northern Virginia; the Research Triangle area of Raleigh, Durham, and Charlotte, N.C.; and the Atlanta metro area—all home to a tech-savvy clientele.
Insight’s Bunnell says his aim is to get in front of the Internet-savvy seller who’s either reluctant to pay a commission or, because little equity has been accumulated in the house, can’t afford to pay a commission without bringing a checkbook to the closing table.
“Our model has so far stood up well in both up and down markets,” says Bunnell. “In strong markets, such as northern Virginia and the D.C. suburbs, we’ve been able to increase market share by offering sellers a way to increase their marketing exposure and at the same time maximize their net equity. In areas such as Atlanta, Charlotte, and Raleigh, which have been relatively slow over the past few years compared with the hottest markets, our model has allowed sellers to compete at an advantage by lowering their list price by the amount of savings we provide over traditional brokerages. In many cases, these homeowners would be unable to sell without a service like InSight.”
Bunnell wouldn’t disclose his company’s sales volume but says his listings have grown by more than 60 percent from 2002 to 2004 and that part of that increase is fueled by sellers who would otherwise tap traditional brokerage services. “Historically, most of our clients were FSBOs. But now we’re seeing an increase in customers who would typically tend toward traditional services,” he says.
Your most lucrative role?
For brokers who are unsure how to position their company, the answer might be somewhere in the middle. That’s what Elizabeth Newbury, ABR®, GRI, broker-owner of Newbury Realty in Dallas, is doing. Newbury launched her company in March 2004 as a hybrid, offering clients a choice from full service for a commission to various limited-service tiers, including an MLS-entry only tier. At this lowest tier, Newbury requires sellers to sign a disclosure acknowledging that the company isn’t responsible for the transaction.
“We want our associates to have the flexibility they need to work with the client the way the client wants,” she says. “If the market slows, clients can negotiate what they want from our associates and at what commission level. That works for all markets.”
Newbury’s philosophy is that you build credibility by counseling clients to take a less-expensive approach when it’s clear full service isn’t warranted. “My first listing sold under the new brokerage was a property in an area undergoing urban renewal,” she says. “The house was going to be torn down. So the key to selling the property was to offer it to builders. We offered the sellers a reduced-service listing and built a level of trust by doing so,” she says. The house sold within 24 hours of being listed, says Newbury, who then represented the sellers in the purchase of their next home.
To date, about three-quarters of her company’s listings are full service, a ratio Newbury doesn’t expect to change in a slower market. She believes sellers’ increased marketing needs will offset the attraction of spending less for à la carte services.
Still, that tension—the increased need for marketing and the attraction of spending less for services—will be at the heart of the drama as full-service and à la carte brokers continue to battle it out for market share.
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