True Value Is Not Just A List Of Tasks
By Dave Hamerslough and Victoria Naidorf
March 13, 2024
Articulating your value as a real estate licensee to a prospective client is a hot topic in the industry at this time. Last month’s California Real Estate magazine dedicated two articles to this subject. NAR has published two articles listing 179 and 105 ways that a Realtor™ is “worth every penny of their compensation.” Office meetings and workshops are also being devoted to teaching agents how to identify and express their value proposition to a potential client.
The national importance of establishing the agent’s value is due, in part, to the outcome of the class action litigation against NAR and various brokers which calls into question the historical mandatory offer of compensation through the MLS and whether it constitutes a violation of antitrust law. This litigation is prompting discussions of, among other things, what is the reasonable amount of broker compensation, who is to pay that compensation, whether buyer representation agreements will become the norm (either by practice or legislation), and whether the offer of compensation through the MLS will be eliminated.
These discussions have prompted many California brokers to assess the true value that their real estate licensees bring to a transaction. Most of these current efforts have been focused on the buyer side of the transaction with the ultimate goal of negotiating, agreeing on, and documenting how a buyer’s agent is to be paid for representing the buyer. How to identify, discuss, and document an agent’s true value exists regardless of whether the agent is representing the buyer, the seller or both. While this article will focus more on buy-side issues, the general principles discussed below are also applicable to the listing side.
The current industry approach to the subject of value is demonstrated by the title of one of the recent articles in California Real Estate magazine (“Proving Your Value”) and the two NAR articles referenced above. These articles identify lists of specific tasks that a real estate licensee can perform at various stages of a transaction; the bottom line of these articles is that the way to prove an agent’s value is to show clients a list of all of the various functions that an agent might perform.
While the tasks that a licensee performs are part of the value proposition, focusing just on a list of specific tasks presupposes a number of issues. Among others, this approach assumes that a prospective client will actually read the list and understand its significance and/or that the list is even relevant to the needs and wants of any particular client. Providing these lists to clients may also create a potential risk of being sued in the event that a licensee fails to perform each task they have used to justify their value.
From our perspective, a task-focused definition of a licensee’s value assumes the following: (1) that the definition of “value” is to be determined solely from the real estate licensee’s perspective; (2) that an agent’s value is the same for every agent and/or every prospective client; (3) that the agent’s value is the same in all types of transactions; (4) that the licensee’s time commitments/energy, ethics/integrity, and/or ability to perform all of the tasks is the same for each prospective client; and (5) that each agent actually performs all of the listed tasks without the need to delegate any of the functions to an assistant, partner, or team.
A task-focused definition of a licensee’s value overlooks the following: (1) it does not consider the perspective of a potential client; (2) that an agent’s value may also include the knowledge and experience of the licensee in connection with the specific type of transaction; (3) that the ability of a licensee to spot issues, ask what is or isn’t important to a prospective client and provide answers and/or solutions to the foregoing may have far greater value than the individual tasks; and (4) that the knowledge, experience, needs, wants, and concerns of the prospective client are actually crucial to determining the agent’s value in representing that client.
In short, value exists when a prospective client has confidence and trust in your ability to help the client meet their needs and wants and your ability to help the client answer or resolve their questions and concerns.
To us, establishing the agent’s value is comparable to what is required of any professional (lawyer, doctor, banker, insurer, etc.) when meeting with a prospective client. These professionals do not provide an industry-generated list of the multitude of individual tasks that they may perform. Professionals establish their value by having an in-depth conversation with their prospective clients in which they (1) identify, discuss, and agree with the prospective client on who the professional is along with what that professional can or cannot do for that particular client; (2) determine the client’s actual needs, wants, concerns, and questions; and (3) determine how the professional is going to accomplish all of the foregoing.
The following are some thoughts about how real estate agents should approach identifying, discussing, and confirming their value proposition to a prospective client.
- The discussion of value should take place before any discussion and negotiation of compensation and/or the introduction of any type of written agreement. The discussion of value can start with providing the client with the two standard agency forms – establishing your knowledge and proficiency with discussing agency can set the stage for discussing your value proposition.
- Learn what knowledge and experience your prospective client has with regard to listing and/or purchasing property. A client with past real estate experience may not need or want the same type of discussion regarding your value; instead, they may want to focus on how you will address their specific issues and concerns.
- Your prior experience with the client may impact the type of discussion that you have regarding your value proposition. Clients and/or potential clients tend to fall into three categories: (1) those with whom you have previously worked; (2) those who are referred to you by a former client or friend or with whom you have only a social or familial relationship; and (3) those with whom you have no prior relationship or connection (e-leads, open house attendees, etc.). Past clients should already know your value and what you will do for them – that is why they have come back to you for help. These clients are more likely to have specific needs, wants, and concerns that should be discussed with regard to a prospective purchase/sale. On the other hand, prospective clients who fall into category #3 have no understanding of your value proposition and may not understand the steps involved in a real estate transaction. The same may be true for prospective clients in category #2 depending upon what they have been told about you and/or their prior real estate experience. It would be a mistake to treat all three categories of clients the same way.
- You need to learn each prospective client’s needs, wants, and concerns as quickly as possible. One way to gain this knowledge is to ask the client whether they have any particular subjects or questions that they would like to discuss with you. This inquiry can be done either when setting up your initial meeting, or at the time of the initial meeting. The former time frame is preferable since it gives you the opportunity to prepare your responses to the client in advance.
- Another way to gain the requisite knowledge about the prospective client is to ask: “What are you [client] looking for in an agent?” Once you know what a client wants in an agent you are in a much better position to create a value proposition that proves that you are the right agent for that client. Ultimately, the best approach is that you literally tailor your value proposition to the needs, wants, and concerns of the prospective client.
- A great way to learn about a prospective client is to use the PRDS Needs And Wants Assessment form (BNWA) or some other means of documenting this subject. Asking a buyer to fill out the BNWA form during your discussions (or as a prelude to your initial meeting) will give you the opportunity to not only discuss their needs, wants, questions and/or concerns that they may have but also to focus on what actions you will or will not take on their behalf. Using the form as an interactive tool will enable you to demonstrate your skills and experience; it will also enable you to demonstrate how you will go about identifying issues and solving problems that the prospective client may have. The PRDS form can also be used to explain to a prospective client how their needs and wants may change over time and that you have a mechanism to address those changes by using the PRDS BNWU form. These forms can be used to help demonstrate your value not only in the house hunting phase but also once a potential property has been identified.
- If a prospective client does not have a good understanding of listing and/or selling property or you want to discuss activities that will take place in this process, consider breaking down the agent and client activities into a timeline. These activities will include, among other things: identifying a property to be purchased or preparing a property for sale, evaluating the list or sales price of that property, writing or reviewing an offer, negotiating price and terms, investigating the property, financing the purchase, determining and resolving title issues, tracking and coordinating the transaction, and closing escrow. Having two or three specific tasks that you will perform with respect to each of those general areas, to us, presents a better way to discuss value rather than presenting a client with a pro-forma list of tasks that you might perform.
- With prospective clients who have neither bought nor sold property, consider having a physical set of the standard types of transaction documents (one for sellers and one for buyers) so that you can demonstrate your knowledge and experience of the forms. Seeing the massive number of documents that make up a transaction file can aid a prospective inexperienced client to better understand how much work you can and will perform.
- Determine if your client needs a referral or has access to such qualified professionals. If the client needs a referral to qualified inspectors, CPAs, lawyers, etc., have a list available for the client. That list should preferably include more than one professional in each category.
- Anticipate that you may be questioned regarding compensation, including the negotiation of the amount and who will pay that compensation. PRDS has developed an advisory (BCA) regarding broker compensation that can be provided to a prospective client as part of this discussion, preferably before reaching any agreement regarding compensation.
- Identify the best way(s) that you and a potential client can communicate and learn when and how that client wants to communicate. Your availability may be a critical element in the client’s assessment of your value.
- If you are going to identify specific tasks to be performed, explain whether you will delegate any of that work to an assistant or another agent; if so, be prepared to explain what work will be delegated, to whom, and why. Sadly, not all of the many tasks listed by NAR or C.A.R. are actually performed by agents at all; many are administrative functions or are handled by transaction coordinators. Some of the tasks detailed by NAR (such as checking on permits) are not statutorily required of California agents. At best, it is somewhat disingenuous for agents to lead clients to assume that they are personally going to perform all of those industry listed tasks; however, using those lists may become a source of irritation if the client learns that the agent is delegating them to someone else. The lists may thus cause harm rather than the intended consequence.
There is no question that real estate licensees perform many beneficial functions for their clients, but the agent’s true value cannot be found on a pre-printed list of tasks or defined by a generic training program. A true value proposition should be as unique as each real estate licensee, prospective client, and transaction.
Each agent needs to have confidence in their own knowledge, wisdom, and experience (and/or the benefits of working with their brokerage firm) so as to build a working relationship with their clients. Agents need to take the time that is necessary to establish not only a general value proposition to use as a starting point with clients but also a logical means to put the clients’ needs, wants, and concerns into their value equation.
Remember: if you cannot determine the true value of your real estate services, then you cannot expect clients to value your services enough to pay for them.
It will be difficult for many agents to request the fees that have traditionally been paid if the agents cannot sell their own value proposition. Hopefully, the points raised in this article will enable agents to do so.