I have a question... I'm an out of state investor and I find properties through the MLS and Loopnet. Thus, I ask my agents to go out and take a video walkthrough of the property so I can decide on whether to make an offer (I do about 20% of the time). Since I've done this so many times before, I basically deliver all the docs ready-made to my agent; there's not a lot for them to do other than open the door.

I'm thinking about asking my next agent to work by the hour instead of on commission and credit the balance of the commission at close. I would pay generously by the hour and it's good money whether I close zero or four deals... it's the same model for how my real estate attorney and accountant get paid; why should my agent be different?

Do you think my approach is reasonable?

"What is your incentive of paying your agent by the hour? If I feel as if you are a strong prospective client, why would I want to be paid by the hour if I could take the commission?" These are some of the questions I would ask if I was your agent. I feel you should put yourself in your agent's shoes as well and if it sounds great to your ears then it would sound great to your agent's. You just have to figure out a win win for both yourself and the agent you are working with and then everything should be smooth. 

The reason I don’t want to pay a commission is that my fee ends up paying my agent 500/hr when you factor in how much time they are putting into my deal.

Because I’m efficient and close quickly, I’m subsidizing all the window shopping customers who waste my agents time and never close.

@Darius Niz , if it's true that "my fee ends up paying my agent 500/hr when you factor in how much time they are putting into my deal", then perhaps they may agree with you, if you: pay them $500/hr instead!

My guess is your little scheme will never fly with GOOD Agents - and you don't want the other kind anyway! My 2c...

Darius,

I've dealt with the same issue. Most RE agents can't think out of the box and overestimate their level of service, especially if they don't see an immediate payday, they quickly lose interest. This is an inherit problem with a commission structure.

I would look for a new agent who isn't busy, Maybe off Craigslist and advertise an enticing hourly fee as I'm sure you already know how much time each assigned activity should take.

I would think some agents would be open to this with an investor because most investors want agents to write dozens upon dozens of low ball offers and agents likely won't likely ever see a closing.

@Darius Niz Anyone in a commission-driven industry that’s great is going to want the commission. Why? It’s more than a “reasonable” hourly rate so the reward will offset the risk (risk: working for free). So odds are you’ll get someone who isn’t super successful to go for your hourly plan or pay more than you want for someone that is successful. Or maybe you just want someone to push paperwork and do a video walkthrough. For all I know you might be able to get someone to do that for $100/hour 🤷🏻‍♂️. But then you get the pleasure of paying for travel time and other fun stuff.

I operate a brokerage in the Chicago area and we've been doing SOME of our deals by the hour for several years now - and we deliver the same great service to these clients that we do to our regular commission clients. There is no reason for us not to. The average agent is making way less than $500/ hour when you factor in clients that suck up a ton of time and clients that don't end up closing. I know. I've run the numbers. 

You won't get your current agent to switch his operating model because agents just can't think outside the box and this guy has internalized $500/ hour but a new agent might consider the proposal since it would be incremental business and they are guaranteed to be paid for their time. Try googling variations of "pay realtor by the hour". Or you could tell your current agent that you want a 50% commission rebate on all your deals.

@Darius Niz who are they crediting at closing? If you are the buyer, isn't the seller paying your agents commission? Would your agent be cutting you a check after closing for the "difference" between his hourly rate, and what his commission check is for?

@Brian Pulaski the way we work it is we get our hourly clients to deposit a retainer with us from which we bill our time. We ask for periodic refills. Then we ask the lender and title company to credit our commission to the buyer. If they won't do that we receive the commission and then turn around and write a check to the buyer.

@Gary Lucido   I suspect cutting a check to a buyer out of your commission is a violation of licesne laws I know in ORegon and CA you can't do that.. your limited to how much referral fee you can pay its usually a bottle of wine and some flowers.

also out our way attorneys charge 500.00 and hour.. so no savings there.

but I like getting buyer brokers arrangements and getting cash up front.. sure will separate the tire kickers and time wasters.. but then again I can see them whinning and accusing you of not actually spending that amount of time on the project..

seems to me a buyers broker arrangement with a reduced fee would be appropriate way to handle this.

AGents go into real estate to GET OUT OF WORKING BY THE HOUR... If I figured out my hourly pay .  Also attornies etc have numerous clients all paying them by the hour so they can put in 6 to 8 billable hours a day an agent would not be able to do that and would probably starve to death.. but in low value asset markets they could maybe make more than commission rates.. out our way were average sales price is over 300k so average commish for top agent is more in the 7 to 10k per deal range.. I can see where 500 and hour would be about right. I know I would not work for less.

In your scenario you're the buyer. Your broker is earning a co-op commission ultimately paid by the seller, right? 

I say enjoy your success, and theirs. 

Every transaction is different. Fees/commission models are based on the average deal. In the title business, when we close an "easy" deal our client doesn't get a discount. That's because they are sure to bring a nightmare deal or two to offset it.

@Jay Hinrichs It's totally legal to give rebates in Illinois and if it's not legal in California then Redfin is in big trouble and their recent IPO is a sham :)

The average agent in the country makes probably half per hour of what we charge so it would be a pay raise for most of them to do hourly work like what we do. The reason some clients like this arrangement is because they are confident they don't need much of our time and they are almost always right. Today they are subsidizing the clients that don't know what they want. If I had the demand I would do all our work by the hour. My agents would make more than they do today.

Let's do some math based on the numbers you provided. The average agent is probably doing less than 10 deals a year but let's run with 10. Let's say the gross commission is $9000/ deal. That's total commission revenue of $90K/ year or $45/ hour on a 2000 hour year. We charge way more than that.

No, they're not spending 200 hours/ deal. That's the problem. They probably worked with 15+ clients and never got anywhere with a bunch and they spent way more than 200 hours with a couple of clients.

Ive had several people come to me and request an hourly rate instead of a commission.  I charge $350 per hour for residential and $500 an hour for commercial.  Ive only had 1 person go this route, and they ended up paying me more in the end than what the commission would have been.

@Gary Lucido   maybe I am not understanding how you pay.. but I know a licensed brokerage cannot pay an unlicensed person a commission rebate.. they can couch in the sales price but no money can change hands.. seller would just discount. I am a broker in CA.. and have been for 4 decades been there on this issue.

Anyway.. out our way you have all these big teams.. with the head agent making 500 to a million a year and the sub agents all feeding into them.. I know my wife who I would say works part time.. sold 16 million last year.. and made 3X what your talking about ... but she is a veteran so I get that.. myself I made zero... my sales days to the general public are long gone. I just cheer my wife on... and run errands for her.. like pick up lock box's and maybe meet a home inspector to let them in that type of thing..

its all good.... !!!!  still love the real estate game...

@Jay Hinrichs then how do you explain Redfin's business model? They operate throughout California and they rebate.

Illinois license law is very clear on this matter. You can't pay an unlicensed individual who is not a party to the transaction. Buyer's are a party.

I don't think any real estate agent is worth $500k and that's why the traditional real estate model is under attack from all directions. New models are popping up left and right. How many high paid stock brokers do you know? They used to be all over the place.

Originally posted by @Gary Lucido :

@Jay Hinrichs then how do you explain Redfin's business model? They operate throughout California and they rebate.

Illinois license law is very clear on this matter. You can't pay an unlicensed individual who is not a party to the transaction. Buyer's are a party.

I don't think any real estate agent is worth $500k and that's why the traditional real estate model is under attack from all directions. New models are popping up left and right. How many high paid stock brokers do you know? They used to be all over the place.

 I do not know about California per se, but there are many states where it is illegal to offer a refund/rebate.  Oregon I know is one of those states. Redfin operates in plenty of markets where it is illegal to do offer rebates.

I think we will see though in the not so distant future some lawsuits against Redfin for anti-competitive practices.  They operate at a huge loss. In fact they lose roughly $3,000 per transaction.  In fact I expect such to happen to knock down their valuation so someone comes in buys the company to use the technology for a more standard like brokerage.  Home Services of America is certainly on a buying binge as of late.

@Gary Lucido   well depends on if your the one knocking down the 500k a year or better I am sure they think they are worth it.. my wife does about 300k part time and I know she thinks she is worth it .. and I certainly do.. she gets all her business from referrals.. so know the public loves her...

more honorable than what I see happens in the wholesale sell real estate without a license activities that are so touted on many sites..

As well as an investor, I sell real estate.  Our value is underappreciated.   But remember, for every sale we get, we waste our time on many that don't sell.  We work on commissions.

Maybe it could be good for an agent.  He walks through 20 properties, gets paid for that, but you only win one or two.  You probably will not get the most seasoned agent to do this for you.  

Redfin does list Oregon, in addition to a few other states, as not permitting rebates. However, they clearly do offer rebates in California which they do not list as a problem. The reason they are losing money right now is that they spend a ton on Web site development and marketing. But those expenses scale really well. I've monitored a few of their deals here in Chicago and they are clearly making money on individual deals. We pay larger rebates on many larger deals than they do and we make money on them. And we always make money on hourly deals. Where they might be losing money is on those 1% listings but I've seen them make money on the ones I've tracked.

Originally posted by @Darius Niz :

The reason I don’t want to pay a commission is that my fee ends up paying my agent 500/hr when you factor in how much time they are putting into my deal.

Because I’m efficient and close quickly, I’m subsidizing all the window shopping customers who waste my agents time and never close.

Pretty sure I've said it in another forum. IF You don't like it come up to the state and get licensed and cut out the RE agent. 

You're out of state so what your requesting is going to at best work once or twice with a NEW agent. You mention you write out the offers, Do you have the state specific forms already filled out? Do you have the property disclosures or a way to get them? 

Then how many times are you going to request the agent to go to the property? Does the agent have to pay specific attention to the property or just shot a video? 

Can the agent just tell the title company, inspector, don't call me I'm just paid by the hour all the buyer? Because I had to pick up the phone then that's an hours work already. And what about the agents experience and knowledge do you factor that? Cause that's priceless to my clients. They call me because I know the area, they want my feedback. Some never buy some do, but I get paid very minimal I believe for the amount of coaching, mentoring and advice I give out to all my clients PLUS then add on top of just doing my job in the deal and after the deal. 

My agent rebates me 15% of his commission on all transactions. And he goes out and takes a gazillion photos and uploads for me and will attend inspections if I’m unable. It’s a rebate on the closing form, I forget what they call it these days, used to be a HUD-1 I think.

Something else to consider - if you just need someone to take videos, why bother with an agent? Get a guy off craigslist to do it for $25 a visit.

My hourly rate, whatever it is, is based on my experience. I never like to compare what I do to a lawyer or doctor, but in this case its very similar. If someone else pays the hourly rate for an attorney to draft a lease, should the atty then only charge you the time it takes him to email a copy over to you, since he's already been paid to produce it and it literally doesn't cost them anything more to send it to you?

No - you are paying for the experience, research, education, and liability and the cost of developing each. Additionally, while I might make $500/hr from you, I might loose $300/hr on another person who never pulls the trigger. Its the risk I take on every person I engage with. So that risk is built into what I make, like interest rate on a loan.

But again, you don't seem to utilize, value, or require any of the services an agent would offer, so I again ask - why not just hire a $25/house go-fer and submit your deal to the list agent direct?

@Darius Niz   It really just comes down to how much an hour you want to pay and what percentage of properties to close on.

I know companies that purchase large amounts of real estate often do this with lawyers.

The disclosure rules are not the same with lawyers vs agents so most people would never be told how the lawyer is actually being paid.

I also want to mention....  "The seller pays the buyer's agent commission" is FALSE in every case where the seller does not bring money to the closing.  That is simply propaganda made up by Realtors and other agents.  The money is fungible.  I do not care how many pass-throughs you do.  The person bringing the money to the table is the one paying.

As of 2015, according to US DOJ, all but 10 states allow broker rebates to buyers:

https://www.justice.gov/atr/rebates