Last week, a woman who had just closed escrow on her Berkeley home posted the following online: "As I was selling directly to my tenants and we had already negotiated the price, I needed someone to handle paperwork and explain the process to me." She knew that, typically, real estate agents charge a percentage of the purchase price for their services. In her situation, this did not make financial sense and she called me to help her on an hourly basis.
Over the years, I have written about why this arrangement is logical in specific instances. I have also commented about how slow the real estate industry has been to fill this obvious need to help buyers and sellers in a more cost-effective way. That continues to be true.
Functioning as an agent entails far more responsibilities, and, therefore, increased liability, than working as a consultant. The key reasons licensees working as agents get paid so much more than as consultants are that the cost of being an agent, both in time and resources, is significantly greater and the risk of getting sued, especially in California, is also vastly higher.
Unlike agents, consultants do not have dealings with third parties; they give information and advice only to their client, the buyer or seller.
Real estate consultants help buyers and sellers with properties that are not listed. I just received an email from a buyer who does not like "the usual real estate model." He wanted to know how he could do the "leg work," pay a consultant for his time and reduce the purchase price by the amount the seller would have had to pay his agent in commission.
I explained that his concept will not work because the listing agent has a contract with the seller. In simple terms, the buyer’s side of the commission gets paid to the listing agent if the buyer is not represented by his own agent. Under his scenario, the buyer who contacted me, therefore, would be limiting his search to only non-listed properties, an unrealistic approach.
Real estate consulting hourly, however, works well for sellers who want to take the For Sale by Owner (FSBO) route, but understand they need professional direction. That was the case with the seller quoted at the start of this article.
Initially, despite an explanation of my function as a consultant, my seller client was fuzzy on the nature of our relationship. She thought I would "act like a lawyer" and "represent" her. I pointed out that, as a real estate licensee, I never act like a lawyer and that I would advise her but would not represent her.
From the beginning, the seller made it clear she was concerned about cost and could not waste money on a sale that may not close. That made sense to me and I told her she should find out more about the buyers’ loan, starting with their pre-approval letter. The letter turned out fine once the seller, at my urging, verified that their credit, employment and liquid funds were all satisfactory.
Based on the fact that this was a major "fixer" property, my main concern was that, at the last minute, the bank would reject the loan because of the extensive amount of work required. With this in mind, I gave my client a list of questions to ask the buyers about their loan. Note that, as a listing agent, I would have been discussing this with the buyers’ agent and lender before the offer was accepted. As a consultant, I have no contact with these third parties.
One of the issues was that the buyers and seller had agreed to an $18,000 closing cost credit to the buyers. A potential problem, which was news to my seller until I told her, was that the lender might not allow so much for closing costs. Fortunately, there was flexibility in this area.
After reviewing the purchase contract and making recommendations for some changes, including information on the new Berkeley Sidewalk Repair Program, I prepared a counteroffer and forwarded it to the seller.
Once the counter was accepted, I sent the necessary disclosure documents for the seller to sign and distribute to the buyers. I gave her a written explanation of what to do with each form and talked her through the process on the phone. I also alerted the seller to contingency removal dates and provided her with addenda for the buyers to sign regarding these.
In due course, the buyers removed their inspection and appraisal contingencies and, later, the remaining contingencies, including one for the loan. The sale closed on time and the seller was happy.
In her online post, the seller mentioned being pleased with my real estate consulting by-the-hour service and said "I saved a lot of money by only paying for what I needed." This is the definition of a win-win arrangement.
Hourly real estate consulting should not be unique. Although I have been saying this for many years, one day the industry will wake up and make this fee-for-service option more common.