An Idea for Brokers: Unconditional Guarantee of Value

Passing on an idea I heard about...

This is a quick post that I hope will be a bit happier, a bit more of a ray of sunshine, given the somewhat dark and foreboding content on these pages the last few months.

I was at an industry event last week and had the opportunity to have lunch with someone with a long track record in commercial real estate. We were talking about the changes to agent commissions in residential real estate, and he brought up something I had heard about back in the day when I was in commercial, and reminded me.

This gentleman had spent years with The Staubach Company, the commercial real estate firm founded by the former Cowboy great Roger Staubach. (Staubach was acquired by Jones Lang LaSalle in 2008.)

Apparently, The Staubach Company had a unique policy from its inception called the “unconditional guarantee of value.” The policy was that it gave all Staubach clients the right to withhold all or part of the commission if the client believed that the Staubach agent had not provided enough value in the transaction.

You read that right. Staubach gave its clients the right and the ability not to pay a dime of compensation if the client felt that Staubach had not delivered value.

My lunch companion said that as far as he knew, in the entire history of The Staubach Company from 1977 to 2008, only two clients had ever taken advantage of that unconditional guarantee of value.

I thought… there’s no way. I mean, that’s crazy! So I looked it up.

Here’s a story from the Wall Street Journal in May of 2004 titled “Seeking Satisfaction.” In it, we find this:

But according to a court filing from an attorney representing Cable & Wireless, Cable & Wireless Internet's agreement with Tory [doing business as Staubach] gave the company "the right to withhold all, or a part, of ... [the] commission," if it believed Tory "had failed to provide value in terms of services rendered."

…

Staubach spokeswoman Betty Johnson says the company doesn't comment on pending legal matters. She says Staubach has offered satisfaction guarantee -- or "unconditional guarantee of value" -- to clients since its inception and intends to continue to do so. "Roger feels it's an important part of our business," says Ms. Johnson. She adds that she knows of only one client who wasn't happy with Staubach's service and paid less than the full commission owed. But the client remained with Staubach, she says.

Back in the day, when Staubach was still independent, I remember it being regarded as one of the best commercial real estate brokerages outside of the Big Three of CBRE, Cushman & Wakefield, and JLL. They had some top notch clients and some of the best commercial brokers in the industry working there.

One key competitive advantage, I think, has to be that unconditional guarantee of value. My lunch companion who had worked at Staubach gave multiple reasons why. I think they all make sense, and I think all real estate brokers struggling with the new compensation system should consider them.

Effect of the Satisfaction Guarantee

There were, my friend said, three major effects of the guarantee.

First, it totally changed recruiting. Commercial real estate is not that different from residential real estate in that the key to success is recruiting the best agents with the best connections and best skillsets. Well, when potential agents learned that Staubach had a company policy of giving clients the right not to pay a dime in commission, only those who were 100% confident of delivering value to the client signed up. Any agent who thought the risk of working for free was too high chose to go somewhere else.

Second, and closely related, the culture at Staubach was obsessed with delivering value. When the client has the unilateral right not to pay you if you didn’t deliver value, everyone at the company got extremely focused on making sure the client never feels like the Staubach agent did not deliver value.

Third, the combination of agents who were confident they could deliver value, the company focus on ensuring that the agents always delivered value, and the guarantee itself meant that Staubach had a competitive edge in getting clients to sign on the dotted line. For clients, there was literally no risk that they would get screwed by a Staubach agent. If they did get screwed, if they weren’t happy with the services of Staubach, they could reduce the commission all the way to zero.

Eventually, it wasn’t Roger Staubach or the managers who had to bring agents in line. The entire company’s culture made sure that those agents who were lazy or incompetent or unprofessional did not last long at Staubach. Other agents, the administrative staff, the managers — literally everybody enforced the culture of value delivery.

Why Not in Residential?

I did a quick search for satisfaction guarantees in residential real estate.

I found this example from JB Goodwin Realtors. Well, its “100% Seller Satisfaction Guarantee” means you can cancel your listing agreement at any time.

That’s not much of a guarantee, but I guess? And I imagine once procuring cause has been established, the client won’t be able to cancel the listing agreement right before the closing.

Here’s a buyer satisfaction guarantee from Kopa Real Estate:

When you buy a house with Kopa Real Estate, if you are not satisfied with your new home within 18 months of the date you close, Kopa Real Estate will sell it for no listing fee*. We put this guarantee in writing to help you understand how committed to our clients we truly are!

Yeah… I guess? I mean, who the hell wants to go through the hassle of selling a house they just moved into and find another house and all that jazz? And what if you’re happy with the house, but not happy with the level of service you got from Kopa Real Estate?

Howard Hanna at least does a 100% Money Back Guarantee.

Unlike any other real estate company, Howard Hanna stands behind the value of the properties we sell. The Howard Hanna 100% Money Back Guarantee helps you buy with confidence. If a Howard Hanna homebuyer of a guaranteed home listed by Howard Hanna is not satisfied, we will buy back the home for 100% of its purchase price*. (*Certain conditions apply.)

I don’t know what those conditions are, but at least this “we’ll buy it back for 100% of the purchase price” seems like a strong guarantee.

Once again, however, the issue brokers in the new compensation world are facing is not the value of the property, but the value of the services rendered.

An Idea So Crazy It Might Work

So here’s my suggestion. It is worth exactly what you paid for it.

Offer the Staubach satisfaction guarantee: If you are not happy with the services that our agents provided you, you have the right to reduce the commission all the way to zero at the closing table.

Imagine that.

A few things will happen, I think. A couple immediately, and a couple over time.

First, you are likely to see an exodus of agents out the door. Any agent who is not 100% confident of delivering value to the buyer or to the seller will find another brokerage.

Is that a loss to you as the brokerage? Depends on your business model, I guess, but… see below.

Second, you are likely to find it very difficult to recruit new agents. Again, agents who are not 100% confident of their value will not sign with you, period. They would be fools to do so. They know they could go to a different firm, do shit work, provide shit service to their clients, and they’ll still get paid.

However… over time, I think a transformation will take place.

Any agent who stays with you stayed because she is 100% confident of delivering value to the client. And she knows that having this Satisfaction Guarantee gives her an edge in getting the buyer or seller to sign on the dotted line. She could literally tell potential clients, “See if the other agent is willing to stake their entire commission on providing you with excellent service. I am.”

The support staff at your brokerage will become obsessed with delivering value, just like Staubach became obsessed with delivering value. They know, just like you do, just like the agent does, that if the agent makes $0 from a transaction, their paychecks are at risk too. Imagine a brokerage where every single person, from the front desk receptionist to the managing broker to the agent to the transaction coordinator is obsessed with delivering value.

Think your clients will have a great experience? I do. And if they had a great experience, think they’d tell their friends about you and your unbelievable guarantee of satisfaction? I think so.

Then slowly, those agents in your local marketplace who have the confidence of delivering exceptional service will find themselves migrating to you. Support staff from other brokerages will find the empowerment that your company offers to them to make sure that the client is fully satisfied attractive. They’ll come over.

You won’t need to train every newbie, beg them to learn necessary skills, and all of the other things that managing brokers have to do today… because all of the other agents, all of the support staff, as well as you and the managers will demand that agents who don’t want to put the work in, those who can’t cut it, get the hell out. Those agents are literally worthless to you, because of the Satisfaction Guarantee.

The end result is a real brand. 1000watt Consulting is famous for doing brand work for the industry, and I think they would tell you as well that a brand isn’t logos or “narratives.” A brand is a promise. From Forbes:

A brand is a promise, and you have to keep that promise in everything you do. If you are a physical product and you cut grease, your product had better do that. If you are a service to create images to help small businesses sell more, your service had better do that. Everything you do around the brand should reinforce the brand promise, from features to physical attributes.

When you take a bold step like giving clients a Satisfaction Guarantee, that means your agents could end up working for free. That is a promise that you, your agents, and your whole company will strive to keep. Everything you and your agents do will reinforce keeping that promise, because keeping it means getting paid.

It is simply a matter of time and word of mouth from happy clients before your market knows your brand, and knows that you will keep your brand promise. If you can’t take market share with that brand, it means consumers in your local market don’t care about quality of service.

There is no consumer in the world who doesn’t care about quality of service.

But… the Risk…

According to Staubach’s spokesperson in 2004, only one client in the history of Staubach had taken advantage of the satisfaction guarantee. As the lawsuit referenced in that story suggests, maybe it was two. My friend thought only two clients in the 30-plus year history of the firm took advantage of the unconditional guarantee of value.

Maybe residential is different. Maybe consumers would routinely screw over their trusted advisors who have worked their tails off to deliver value to them. Maybe that’s not a risk you want to take.

I don’t think American consumers are like that. I think it is a risk worth taking. I know I would, if I had a brokerage today. Because the differentiation I could create with an unconditional guarantee of value would pay for the risk many times over.

Most importantly, if that guarantee meant that I was confident that every single agent affiliated with my firm, with my brand, was delivering exceptional experiences to buyers and sellers, and truly helping them through a difficult and stressful transaction, such that their clients would gladly pay the commission despite not having to… well, I would sleep the sleep of the just at night knowing I’ve done my part for the American Dream.

I say, give it a shot. It’s so crazy that it might work.

-rsh