A Thought On Pricing

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If you haven't done so already, first go read this amazing post by one Kris Berg:

Suddenly, we are concerned that my compensation might not benefit the consumer. Last time I checked, the consumer had an unlimited number of choices regarding agents, services and fee structures.

You want a flat fee? Those models exist. If you want to pay $500 or $5,000, there is someone who will gladly take the job. If you want to employ Aunt Margaret to represent you in exchange for a testimonial letter and a Bunt cake at closing, she just might bite.

You can pay 1 percent or 20 percent, or you can pay as you go. You can even do it yourself. The world is full of choices. What I charge is what I am worth, and what you charge is what you think you are worth. The debate is lost on me.

If, as an agent, you think you are overpaid, then you are. Change your model and charge less. And if we are running out of controversy, maybe we should move on to more pressing issues like customer service, industry standards, and ethics -- and something about the other agent who won't return my phone calls when I have a offer to present because I am not a buyer waiving a checkbook above my head.

For me, I charge what I am worth, but I make far less than I am worth. When a client was recently laid off one week before closing, I was laid off, except he had severance pay and now qualifies for unemployment benefits. I enjoy neither. I suspect many of you, like me, have spent six months with a buyer who decides not to buy.

The Inman site often puts posts/articles behind a pay-to-read firewall after a bit, so I recommend you get there soon and read the whole thing.  I laughed, I cried, I learned -- it's just a great post.

I bring this up because in one of those zeitgeist moments, I also read this from the legal world about competing on price:

But lowering your prices in the hopes of capturing new business is self-defeating. You are sending a signal that your value is lower than it was. You are also sending a message that you're willing to compromise to get new business. And what will you compromise? Effort? Quality? Availability? Thoroughness? Reliability? Training?

I railed against law-firm discounting a while back at our sister blog, Gruntled Employees, and republished that post on this blog here: "Legal advice: 30% off! (Why discounts don't always save you money)." The always-excellent JD Hull showed his contempt for discounting in a recent post at What About Clients? entitled "Don't compete on price, especially now." JD's key line:

If a client comes to your firm for price, it will leave your firm for price.

Instead of discounting and taking the easy way out, deliver exceptional service and price according to the value the client receives. As JD writes, "It's very hard, and it takes thought." But it's worth it.

You need to let clients know that you're worth it.

What's good for the goose is good for the gander in this case.

Look, real estate either is or is not professional services.  If it is, then like a professional, you need to compete on value.  If it isn't, then you need to be the lowest-cost provider.

The former may mean you lose some customers.  But perhaps those are customers you may be better off sending elsewhere -- like to the competitor you like least.  Because as Kris Berg points out so poignantly, the risk is entirely on your side:

Consumers should pay up-front, then. Only they won't. It is much more appealing to play with house money, which brings us to the subject of risk. I incur it all. There is risk every time I pay thousands to market a home only to find that the seller has changed his mind and every time I write the fifth offer for a buyer client to learn they that aren't having fun anymore or that her brother just got his license. And there is risk every time I walk into the office that a frivolous lawsuit will be waiting for me.

Either the customer is hiring you (or your people) because he sees the value you're bringing -- with your knowledge, your experience, your skills, and your training -- or he is hiring you because you have access to the lockbox.  The ones hiring a professional isn't likely to change their mind because "they aren't having fun anymore".  Those are the customers you want to keep and cultivate.

Of course, to take this track, you need to be a professional, and ensure that your people are truly professionals with the knowledge, tools, training, and support that professionals have.  I'm not likely to trust a stockbroker whose access to market data is slower than I can get through E*Trade.  Nor will I be much impressed by the value proposition of a tax attorney who breaks out TurboTax.

Since our business at Onboard Informatics is to ensure that our clients have the finest in real estate data, we take it as a point of pride that our clients see the value in what we provide year after year.  My request and advice to our clients is to talk to us about leveraging what you already have from us.  Our interest is perfectly aligned with yours: leveraging the enterprise-class tools and data products to empower your people so that they can be professionals.

Image Credit: Cheeseslave on Flickr.com