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Buyer Agreement Fees: The Future of Real Estate?

by Peter Thomas Ricci

The $250 Question
Until now, that is, with the advent of Koenig & Strey’s buyer agreement fee, which operates in a fairly straightforward manner. The $250 fee is a part of Koenig’s standard exclusive or non-exclusive buyer agreement, and it is charged to the buyer only if they purchase a property; if they decide not a buy a residence, they do not owe Koenig the fee, though their agreement to exclusively work with Koenig does come with a term of one year. There is also an optional retainer, which operates more like an upfront commission and can be charged by the Koenig agent if he or she wishes (and thus, is not required). In the event of a purchase, the retainer is credited back to the buyer, but if the buyer does not decide to buy, the retainer is not refunded to them.

The controversy of the mandatory fee is largely lost on George Patrick, a broker with Koenig & Strey in Chicago’s Near North, downtown and Near West areas who had used buyer-broker agreements long before Koenig & Strey officially implemented its own on April 2. Before joining the company, Patrick was a broker with EXIT Team Realty for more than three years, and in his time there, buyer-broker agreements were a trademark of his business operations, though there was no fee associated with those agreements. However, because of his familiarity with agreements, Patrick says he is unfazed by the fee. In fact, he sees the fee as motivation for agents, more than anything else.

“It’s something that pushes us as agents to show the value we bring to the table,” Patrick says. “If somebody says, ‘Hey, why am I paying you $250?’ I feel like I have a response, which is, ‘You will get much more than $250 of value out of working with me as a real estate broker.’”

And the mandatory nature of the buyer fee, Patrick continued, is an essential component of the business model.

“It would probably be pointless if it was optional,” Patrick says. “We’re all consumers, and I don’t think any of us walk in to a business decision-making scenario and choose to pay for something that we can get if we don’t have to pay for it. So in that sense, I think if you’re going to do it, then it just has to be part of what you’re doing.”

Since Koenig’s implementation of the buyer fee agreement, Patrick has had nine buyers sign the form. Only one, he says, was initially hesitant, though he attributed any hesitation more to a natural uneasiness some people have with signing forms, not necessarily the nature of Koenig & Strey’s form. Patrick’s experience is consistent with that of other Koenig agents. Joe Stacy, the managing broker for Koenig’s Schaumburg office, says he has had approximately 15 buyer agreements signed thus far, and only one prospective buyer, an Internet lead who decided to take the paperwork home with him, has not yet responded. Jackson Sanderson, a vice president for Koenig and the managing broker for its Libertyville office, has had 10 buyers sign the agreement without any problems; Sanderson did have two buyers who were more tepid about the agreement, but as was the case with Patrick, their caution was with signing forms, not the specific fee associated with the agreement. Amidst the other closing costs of a real estate transaction, Sanderson says the $250 is simply not that big a deal to clients. “I think the Chicago Tribune and other media outlets that reported on this tried to make the $250 a bigger deal than it really is,” he says.

Patrick adds that going forward, he is not concerned with alienating any prospective clients with the fee given how many of his clients are first-time homebuyers who have never purchased without the fee.

The feasibility of Koenig & Strey’s fee becoming normal practice in Chicagoland’s market is the $250 question, but from Patrick’s perspective, such a development is part of the natural evolution of the industry. Coming from an IT background, Patrick says that real estate has changed drastically in the last 10 years with the advent of the Internet and all the technological changes it has inspired in the industry. Koenig & Strey’s buyer fee is just one more progression for real estate – and one that agents must accept.

“The business model of running a brokerage has been changing drastically, and I think agents have to understand that’s going to continue to happen,” Patrick says. “It’s a good opportunity for us in Chicago to professionalize our industry and really focus on what it is we do with and for our clients, and make sure that all sides are clear on how that works.”

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Comments

  • Michael Sims says:

    Kudos to K&S for taking a step in the right direction for Illinois Realtors. Too often realtors get stepped on by the general public and are not always seen as professionals with standards. Personally I have maintained a minimum fee for all transactions which averts myself and my agents working at minimum (or less than minimum) wage on a transaction. Some clients turn their back on the proposition, but most understand that our time is worth money too.

  • Wayne says:

    Agree wholeheartedly with this. It should end up becoming state law that it is published in each office. Too many lookee-loos think we get paid a salary to be in the office.

    How often do people call us or stop by an office and want to know about buying a home? They then go to another and another office. They seem to think that if they ‘work with’ more than one agent they will get more information than the MLS has.

    If they want to pay $250. up front to each of us, they can work with as many agents as they want!

  • Barry Newman says:

    I can appreciate Koenig & Strey’s approach to buyers. I believe that the State of Illinois needs a new law requiring buyers contracts as they do listing agreements. Some buyers do not understand that their agent typically works hard and only gets paid if something is purchased.

  • Ron Brampton says:

    Listen to a salaried tenure guy like Hsieh and you’d think Realtors are Romney. Making a lot of money for doing nothing. He misses the point like trying to catch a bullet with a net.

    It’s an extremely personal, nuanced and skilled service with risk/reward that can result in a transaction where a lot of money is exchanged. For instance, does Hsieh have any idea where all the data on an MLS comes from and who pays to aggregate it? Agents, maybe? But the data doesn’t get a transaction done. Does he understand why commercial real estate information is so splintered?

    Pro agents know how many well-tended deals fall out. It makes you wonder if any residential real estate would ever get sold without us.

    Maybe a lot of college professors are lousy teachers because they’re disincentivized by tenure. Are agents getting a salary complacent like them? A commission agent has less incentive to service a client? If that last fallacy has to be refuted on an agent web site, we’re all wasting our time.

  • Robert Nowak says:

    The old commission model doesn’t work when some properties are selling for $40,000 or less. Buyer’s that are serious and want to work with an experienced agent will pay the fee.

  • Gary Lucido says:

    Interesting to see Chang-Tai Hsieh heavily quoted here. It was a 2002 paper of his that led me to my current business model, similar to Redfin but with true full service. As he says the biggest inefficiency in real estate is the prospecting. Agents spend a disproportionate amount of time prospecting, which is why I give my agents the leads I generate in order to improve their productivity.

    The other problem is the clients that waste our time, which is why I recently introduced an hourly model for buyers with a 100% commission rebate as well. At first agents don’t know what to make of it but once they try it they really like it. And serious buyers like it also.

  • Laura Mostardo says:

    Excellent article. Well researched.

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