Same work, one tenth the stake: what a fee should look like on a $90k deal

Question

I do most of my looking in counties where the median sale is under $120k and a good rental buys at $65k. I've hired advice twice and both times the pricing conversation broke down in the same place.

The scope doesn't shrink with the price. Confirming a septic situation, pulling what few comps exist, reading a title commitment, calling the county about a nonconforming use, that's the same hours whether the house is $90k or $900k. Maybe more hours on the cheap one, because the data is worse. Twelve sales in the county last year and four were between relatives, so the analyst's process just fails and you're down to phone calls.

But the client can't pay a metro fee. If a consultant quotes $3,000 on a $90k purchase with maybe $14,000 of first year cash left in it after closing costs, that fee is a fifth of the annual return. No rational buyer does that twice. Meanwhile the consultant who prices on hours is right on the merits and starving.

I see four ways people handle it. Flat fee regardless of deal size, which prices out the whole market. Fee scaled to deal size or purchase price, which means you're subsidizing small work with big work and eventually you stop taking small work. Refusing anything under a threshold, which is honest. Or treating cheap scopes as lead generation for something else, management, a stake, referral relationships, which changes what the advice is for and I'm not sure I like it.

There are people here on both sides of that last one. Where do you land?

karen_whitfield · Answer

I've been the client in your situation for years and I settled on paying for the piece that can't be replaced.

On a $90k rural buy I don't want a full deal review. I want ninety minutes on the one thing I can't resolve, and on land that's almost always access or a use question. I've paid $400 for a phone call and a two paragraph email about whether a prescriptive access argument was worth pursuing, and it was the best money I've spent, because the answer was no and I walked from a parcel I wanted badly. The lawyer confirmed it later for a lot more.

That structure works for both sides. The consultant isn't pricing a whole scope that the deal can't support and I'm not paying for comps I can pull myself. The failure mode is that it takes an experienced buyer to know which question to isolate. A first timer would have bought the wrong ninety minutes.

mikeoconnell7 · Answer

orchard's version is the only one I've seen work at that price point, and I'd name what it is. It's a fixed price answer to a single question, sold with an explicit list of what you're not getting. My draft has a section headed excluded, and on small scopes it's longer than the scope.

The lead generation option is the one I'd argue against, hollow, and not on ethics. It just doesn't survive contact with a client who needs to hear no. If my $400 call is really an audition for a $200 a month management contract, my incentive on the call is that the deal happens. The client can feel that even if I can't. Once I priced the call to actually cover the hour, my no rate went up noticeably, which told me something I didn't love about the earlier work.

tonyv88 · Answer

I'll take the other side of lantern's point, carefully. I do management and I do occasional paid scopes, and the crossover isn't automatically corrupt. What makes it survivable is that the fee stands on its own whether or not the deal closes, and that I say out loud on the first call that I'd like the management if they buy. Disclosed and priced is different from hidden and free.

Where I agree completely: free advice from someone who wants the downstream contract is worth less than nothing, and small market buyers get offered a lot of it. On the scaling question I gave up on percentage of purchase price. I price the question, and below about $600 of value I hand people a checklist and tell them to call me if the septic answer scares them. Some of them call.

Same work, one tenth the stake: what a fee should look like on a $90k deal

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