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Why Unbundled Real Estate a la Carte is Polar to Discounting!


Since our inception in 1999 as the National Association of Real Estate Consultants® (now global as the International Association of Real Estate Consultants®) it’s been our mission to help real estate professionals and consumers alike realize how polar unbundled fee-for-services consulting is to discounting.  And anyone who likes pie the way I do should appreciate this tasty, yet simplistic analogy of the vast difference between the two, penned initially in 1999. 

A Trip to the Bakery

You manage a local bakery that specializes in pies. Each day you price fresh pies to sell in two ways: 1) As an entire pie (bundled) at $10.99; and 2. By the slice (unbundled) charging $2.99 for each of the eight individual pieces.

By the slice, you can make $23.92 per pie---that’s more than double the cost of the whole pie. (How’s that for maximizing profit?)  Same ingredients, same cost, different application and end result. 

If a whole pie doesn't sell by the second day, it's considered stale; and since it's now in competition with fresh pies, a marketing edge is required. So you discount the previous day's price to $6.95 even though it took the same amount of time, cost, and effort to make as did the full-price, fresh pie. In fact, the day-old pie actually cost you more since it had to be wrapped and refrigerated over-night.   Obviously, if your bakery finds that it's selling more day-old pies than it is fresh, you are slowly going out of business----pie by pie, not being able to cover hard costs let alone generate a profit

Contrasting Unbundling and Discounting in the Brokerage Business

When you apply the bakery example to real estate, fresh pie by the piece is an example of unbundled, fee-for-services real estate. You allow various tasks and services (based on your business philosophy, policies, liability and consumer’ needs) to be accessed by the consumer and pay for the cost of the service including your profit. Discounting, on the other hand, is polar to fee-for-services since it typically offers the entire bundle of services (i.e. a traditional listing, sale) at a lower price without much consideration of business costs and/or profit.

While touting that they provide full-service to consumers, formal discount brokers often have little idea the affect reducing commissions will have on their ability to stay in business and deliver results-oriented service to consumers. Subsequently, they may trim the quantity or quality of services the consumer' receives, causing the consumer to fall short of meeting his objective and end result. Unfortunately, these shortfalls may not be apparent to the consumer since the brokerage keeps singing the "full-service" refrain; however, the discount broker who is not staying on top of what it costs to do business could literally go out of business trying to service too many listings!  I recently overhead a sage, savvy broker’s  response to an agent who queried when their office would be lowering commissions like discount brokers in their marketplace: 

“Never” he said.  It makes no sense to compete with someone who's trying to go out of business!"

Another potential downfall of the discount brokerage model is the failure to understand exactly where the profit lies.   Discount brokerage is a little like taking your car to an auto mechanic solely because he quotes the shortest timeframe and cheapest costs. How does he believe he can accomplish it?  With volume. But doing so, he often sacrifices quality and best results. Should he find another component of the car that needs repairing, he may choose to overlook it due to his tight time schedule and the need to repair more cars. Or he might approach you to pay additional money to solve the problem. Either way you've lost confidence in the mechanic and his business.

The Bottom Line: There's a Huge Difference

In the final differentiation between discount brokerages and unbundled fee-for-services companies, it's important to understand how each varies in application. The discount brokerage assumes that the consumer needs the whole menu of services and is willing to transfer control to the broker/agent to attain it. More importantly, fee discounters assume that consumers are primarily interested in cost, not flexibility and quality of services/tasks available. In contrast, the fee-for-services company or consultant assumes that one-size-doesn't-necessarily-fit-all real estate consumers and that some are capable of performing and orchestrating various parts of the transaction on their own. Additionally, some consumers want to exercise more control over what transpires and desire tailor-made, needs-based results by working in partnership with the brokerage.

If you’re a real estate professional looking to offer cutting-edge consumer-centric real estate solutions, make sure you have a thorough understanding of unbundled versus discounted services before proceeding.   Failing to do so may find you sacrificing results, consumer satisfaction and business success under the mistaken guise of attempting to save the consumer a little bit of money.

 



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