Will Koenig & Strey’s New Fee System Set a New Precedent?

Koenig & Strey's new buyer-fee system begins on April 2, but speculations already abound for how successful it will be.

Koenig & Strey made considerable waves on March 21 when it announced that it would implement a new fee-based system for buyers and renters starting April 2, a first for a major Chicago-area brokerage.

Reaction to the story was swift, and many agents commented on our initial story in support of the measure. Two big questions, though, will be on many agents’ minds, as the April 2 date approaches – how successful will the new system be, and will it spread to other brokerages?

First, a refresher on the system’s tenets: all buyers working with a Koenig & Strey Real Living agent will be required to sign a buyer-agent agreement form and pay a $250 commission, plus 2.5 percent of the purchase price on the home they ultimately buy. Though the Koenig agent has the option to charge a retainer fee as well, it is ultimately up to the agent whether or not to pursue that option.

Joe Stacy, the managing broker at Koenig’s Schaumburg office who is also one of the area’s top producing agent, took part in an early “beta” testing of the fees, and he said in an interview with Chicago Agent that he found nothing but success in his initial experiences.

Stacy presented the new system to five homebuyers, four of whom were new clients and two who were first-time homebuyers, in an extensive 90-minute consultation, where he explained how the new system would function and what it would provide the buyers. All five signed on, and Stacy said they undoubtedly felt more comfortable with the process, based on how he explained it as a new customer-centric system geared toward service, not a fee-based system created to generate additional revenue for the brokerage, as negative portraits have described it.

“It’s not about the $250 fee,” Stacy said. “It’s about the whole process.”

Once the clients understood the added level of service and commitment they would be provided under the new system, Stacy said, they were more than willing to sign on, regardless of the fee that accompanied the service. Plus, he said, the fee is not even that egregious.

“It’s only $250 we’re talking about here,” Stacy said.

But Thaddeus Wong, the co-owner of @properties, had a different perspective on the new system.

Wong said that he was not surprised when Koenig & Strey announced the program because, as a result of its sale to the Warren Buffett-owned HomeServices, its operations have reportedly been in need of additional revenue. What did surprise Wong, though, was the mandatory nature of the system, which he sees as heavy-handed and inapplicable to the world of real estate.

“As much as I believe in a buyer-agent agreement, you can’t force everyone to use it,” Wong said.

The problem, Wong said, is that every agent operates in a different manner; in a sense, each is his or her own entrepreneur, operating independently under the umbrella of a brokerage. So for every 100 agents, there will be 100 different methods of operation, and not every agent will be able to incorporate a fee-based system with their clientele of buyers – and that can generate problems, in Wong’s view.

He presented a hypothetical: what if an agent’s best client, who has used the agent’s services on numerous occasions and brought untold revenues to the brokerage, scoffs at the mandatory fee, and does not want to sign a contract with the agent? If the agent brings that conflict to the managing broker – a conflict that did not exist, prior to the creation of the new system – will the managing broker tell them “no,” that the buyer must sign the contract?

Rather than make the fee mandatory, Wong said firms should instead encourage agents to pursue buyer contracts, and highlight the benefits and enhancements such an agreement can bring to the buyer-agent relationship. @properties, in fact, is planning such a system. Called “Getting What You’re Worth Two,” it will be based on the original “Getting What You’re Worth” platform, a seller-based system that operates in very much the same way as how Stacy described Koenig’s system, where the training and service are the main takeaways, not the fee associated with the agreement. Wong said the majority of @properties’ agents have taken part the original program.

Ultimately, it will take some time to judge the success of Koenig’s program, but Stacy is convinced the company has broken new ground in Chicago real estate.

“I have to believe this is going to be (the norm),” Stacy said, who added that he had recently spoken with an Arizona-based agent who said he would “never even think” of committing to a buyer transaction without an agreement (such forms are commonplace in Arizona, as well as in many other places in the U.S.).

What Koenig essentially did, Stacy said, is something many brokerages have considered doing on many occasions, but nobody had stepped up and taken the initiative and had instead waited for another firm to act. And now that one has acted, he sees many other firms quickly following suit.

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  • Diane Fowler says:

    Here in FL, we have been requiring buyers and sellers BOTH; to pay an additional $250 “transaction fee” on all closings for over 10 years. Some firms charge as much as $495 ” ” . Our firm, Sellstate Priority, does NOT negotiate this fee. Even as an agent, when I sold my OWN home, I had to pay this fee. If clients balk, then I get stuck with it coming out of my commission; but it rarely happens.

  • RobertM says:

    This would be effecient to prevent multiple agents representing one buyer for a single purchase and only one getting paid, accountability on the buyer is a good thing. The r/e market both residential and commercial needs more efficiencies to monitor both clients and brokers. Speaking as a principal.

  • Sharon Harding Re/Max Destiny says:

    Other States were already having buyers sign agreements and charging such fees in the 1980′s. One of the largest multi-office companies (Annen and Busse Realtors) was doing so in the 1980′s in Chicago’s northwest suburbs.

  • Nick Libert says:

    I certainly get the benefit of a more enhanced consultation and firmer commitment between buyer and agent. However, I feel that this should be coached to the agents at a brokerage level but not made MANDATORY. Not every agent works with buyers the same way…and is this fee going to the buyers agent or back to the corporation?

    Some agents work with pay per click or internet buyers who do not have the same level of trust up front, and to implement a mandatory $250 fee in this competitive atmosphere seems a bit unneccesary here if the true intent is to secure the buyer’s agent with a solid relationship. This can be done by a good buyers presentation. As with all contractual relationships, the buyer can walk if dissatisfied and that $250 fee should not make or break a great agent relationship.

    Again, fees like this should be at the discretion of the agent, not the brokerage.

    –Nick Libert, Broker/Owner, Exit Strategy Realty

  • Kelly Bjorklund says:

    I think a buyer agreement with a retainer is a great idea. It could be structured in a way so that if you consummate a purchase, the retainer could be returned to the buyer in the form of a credit at closing. If the buyer, for any reason, fails to purchase a home using the designated agent they have the agreement with, the retainer is then forfeited. How many of us have spent months showing houses to a buyer just to have them never end up buying anything? In these cases, we spend our time & money up front without ever being paid for our services.

    The same thing goes for sellers. How many sellers are out there with unrealistic expectations regarding the value of their home, or have goofy demands regarding showings… like expecting the listing agent to accompany any buyer’s agents on showings? We spend our time & money on marketing, phone calls, trips back and forth to the home and so on, just to end up with an expired listing. A retainer would be a great way to secure that you get paid SOMETHING for all of your efforts, rather than have an expired listing with a competitors sign in the yard 2 days later, and nothing to show for the work you have invested.

    Mandatory is a little rough, but if enough brokers and agents put this idea into action, it could easily become the norm.

  • Anthony Cavalea says:

    I look at this as an opportunity to get more business. I hope all the big brokerages institute this fee so I have more marketing to show why they are better off working with me, since I do not plan on ever instituting a similar policy.

  • As a “Fee for Service” Broker my question is what is the gain for the buyer client? Maybe, more service at least that’s way they are saying or just same that they have been receiving In my opinion most buyers will shy away because of to many unknowns. What happens if the agent doesn’t perform is there a money back guarantee? This is Pandora’s box, Pay upfront for the same service?

    The more important issue as an owner of the company and the agent I see lots of liability issues. Especially if your having the buyer sign an Exclusive contract, an Exclusive contract holds the agent to a higher standard. The buyers agent has to make sure the client is aware of any and all potential property’s on MLS , by owner, developer or from any other source. Then if the property is not in the MLS you have to explain to the client that they might have to pay the commission if they can’t work out a commission arrangement with the seller. And, if the agent misses a property for what ever reason the client can come back at the agent for not doing their best as their fiduciary.

    My biggest concern is the liability for the company on not setting a company policy so that everyone does it exactly the same, You have a policy for how everyone is treated when a buyer walks into the office, agents are to explain agency on the first meeting and what the various options are for the buyer. The buyer agents don’t get a choice on those procedures and now you’re going to leave this up to the agent on who gets charged and not. It’s nightmare waiting to happen and a potential for discriminatory problems and we all pay enough of for E & O insurance as it is.

  • mike says:

    This is very good for all those that do not implement it. It will turn off buyers in my opinion

  • Vera Perner says:

    It will open a Pandora box… Let’s say a buyer’s agent explains all this procedure to a buyer, buyer agrees, agent shows a house, buyer likes it and decided to proceed with the seller directly.
    With the listing agreement that we have now, seller is obligated to pay 5-6% commission, and will not be interested in dealing with unrepresented buyers, as seller has to pay commission anyway. When seller only pays to the listing agent, many buyers’ agents may end up losing their clients after spending time on educating them and showing lots of homes… Even when you do great job, saving money will prevail..

  • Andrew says:

    If the Koenig & Strey finds a prospective purchaser a home on the very first day and earns a $30,000 commission (pre-split) on three hours of invested time, will the agent agree to refund most of the commission to the buyers? After all, Kobe Bryant barely makes $10,000 an hour. If the answer is “no,” then shouldn’t the Koenig & Strey agent be willing to accept the risk of working long and hard for no commission in return for the reward of earning a big commission on jobs that entailed only a minor investment of time? Lawyers don’t charge retainer fees on contingency cases. They win some and they lose some. And that justifies what sometimes appears to be a steep contingency fee.

  • Earlier in the story this is described as a $250 commission. Later, as a “fee”. Which is it?

  • Chicago Agent says:

    Mike Woods from Indianapolis –

    it’s very much an issue of terminology. Some agents and analysts we’ve spoken with have described the system as “fee-based,” as in, Koenig is charging a fee to their services. Others, such as the Koenig representatives we spoke with, have used the “commission” tag, meaning, clients are commissioning the service of the Koenig agent and paying them for their services. So in short, they lead to the same service, but different sources describe it in different ways.

  • I see. Thank you for the clarification.