Special offer

Are You Worth Your Commission?

By
Education & Training with SuccessfulRental.com, Bluewater Property Management, LLC and Lowcountry Turnkey Properties, LLC

This is the first article in the series Every Realtor is a Small Business.  You can read the Introduction to the series at http://activerain.com/blogsview/1680357/every-realtor-is-a-small-business-introduction.

Over the past several months, I have read numerous blogs on commission rates.  Some Realtors will negotiate (discount) and some refuse to budge (side note - mechanic, baker, plumber, tutor, etc (pretty much any job) can be inserted in place of Realtor).

A few of the comments from Realtors who do not negotiate commission rates include:

1.       The Realtor is worth the X% commission (aka payment).

2.       The Realtor has overhead and costs associated with listing a property (aka product/service).

3.       The Realtor is insulted a potential client asked for a reduced commission rate.

4.       If the Realtor accepted a reduced commission, it would show he or she is a bad negotiators.

There have been more, but for the sake of keeping this blog to a semi-reasonable length, I will focus on these four as they are the most common.

Are you worth the commission?

Did you just answer the question?  I hope not, because the question is not yours to answer. 

The appropriate question is "Does your client think you are worth your commission?"

The homeowner (or buyer) is your customer.  As with every customer of every business, the homeowner makes a decision based on value - the money spent is compared to the product/service received.

During your listing presentation it is imperative you Move the Free Line.

Moving the Free Line is a term that developed out of the internet age.  It means moving the perceived value of what is offered past what it actual costs.  Basically, it is internet age terminology for a perceived good deal. 

Simple put - if your potential client does not see the value in your presentation, they will not think you are worth your commission.

Does this mean you are not worth your commission?  To that particular client the answer is no.  You need to add more value.  

And no, not all Realtors are equal; do not assume because the standard commission is X% you are worth X%.  Not all doctors, mechanics, pilots, etc provide the same quality as their competition and are paid differently based on perceived quality.  Stop thinking all Realtors are automatically equal and deserve the same commission.

Stop it - right now.  Never have that thought again.  A Realtor's goal during a listing presentation is to set themselves apart from other Realtors by showing why they are better and more qualified to sell the home. 

Do you see the faulty logic?  All Realtors should receive commission X% yet all Realtors attempt to convince clients they are better than the next one.  How does that make sense?

Show why you are worth X!  Move the Free Line!

But I have overhead and costs.

Quite frankly, I do not care, and neither does the client.  Nobody cares except you (and you better care!). 

You should not resort to listing or commenting on your expenses during a listing presentation.  The one exception is to state the commission is split with the buyer's agent (which you should always give the value of a buyer's agent to your potential seller since they are paying for one).  Outside that you should never discuss your costs to a current or potential client.

Remember, the presentation is not about you.  It is about what you can do for and the value you can provide to the homeowner.

You must show the value of the different avenues you use to list a home. 

You must show the value of the experience you bring.

Insulted at reduced commission question?

Are you serious?  Someone was insulted at the question?  Yes, I have read this comment many times.  To those Realtors, have you ever asked for a discount or bought something on sale (aka a discount)?   Of course you have, so why are you insulted when someone asks you the same thing you seek when you conduct business?

My response to those who are insulted is get over yourself and stop thinking as an individual and start thinking like a business.  This is business.  Everyone wants the best deal possible including the homeowner.

If you want to become mad (which you should not), then you should be mad at yourself for not convincing the homeowner of your value during the listing presentation.

Remember, it is not based on your perceived value; it is the perceived value of the potential client. 

You cannot control someone else's concept of perceived value; you can only attempt to meet or exceed it. 

Negotiating a commission rate means bad negotiator?

I minored in Philosophy during college, and my favorite class during college or grad school was Logic.  I love Logic. 

In Logic if negotiating a commission rate is a sign of a bad negotiator is true, then the refusal to negotiate proves you are a good negotiator would also be true. 

Let me restate the above statement so that is not specific to real estate.  Here is what it would look like in a Logic book:

The refusal to do X proves you are good at X. 

Ask yourself, does that make sense?  More examples...

Your refusal to play baseball proves you are good baseball player.

Your refusal to paint proves you are a good painter.

Your refusal to negotiate proves you are a good negotiator???    

Obviously that is false, so how can negotiating (discounting) your commission show you are a bad negotiator (product/service provider)?  Great negotiators come to a solution that meets the needs for all parties involved. 

Two important things to remember about negotiating with potential client:

1.  You are not negotiating money.  You are negotiating value.  You are a horrible negotiator if you do not understand the needs and wants of the person sitting across the negotiating table.  Money is usually not the issue.  Value is the issue.  Address the value you are providing to the client and give more value

2.  You must stop thinking solely in terms of commission percentages and start thinking in terms of profit.  You are a business, and it is time to start thinking like one.

a.  What are your associating costs with marketing the property?

b.  What are you monthly overhead costs?

c.  What are your yearly overhead costs?

d.  Have you already exceeded your projected profit for the month, quarter or year?

e.  Plus many more questions.  The key is to determine how selling each property fits into your overall business plan. 

Should you negotiate your commission rate?

Only you can answer that question.  No matter your answer I implore you to step back and make a business decision based your business plan and your projected financials. 

One final thought on the topic - I constantly read every transaction is unique, and they each provide a new opportunity.  If this is the case, they why is X% commission always the answer? 

The next article in the series will be on the Costs of Social Networking and published on July 1st.  Here is a hint - a lot.

Comments (11)

Melanie Hedrick
Elite Texas Properties, the best homes from McKinney to Dallas! - McKinney, TX
972-816-7205

Hi Aaron -- I liked your section using Logic when discussing negotiating. 

Jun 17, 2010 02:58 AM
Jenna Dixon
Momentum Real Estate Group LLC - Marietta, GA
55 & Over | New Constructions | Horse Farms

If I missed it, I apologize, but my ALL TIME favorite for why realtors do not negotiate commission: YOU GET WHAT YOU PAY FOR.  As if!  Who would believe that line of reasoning after spending even 1 hour on ActiveRain reading about realtors bashing other realtors!

Jun 17, 2010 05:17 AM
Aaron Silverman
SuccessfulRental.com, Bluewater Property Management, LLC and Lowcountry Turnkey Properties, LLC - Charleston, SC
Improving Real Estate Experience through Education

Thank you Melanie.  I could go on all day about using Logic.

Jenna, that is a good one.  I forgot about it.  If I find a few more good ones, I will try to write a part II to this blog.

Jun 17, 2010 06:42 AM
Aaron Silverman
SuccessfulRental.com, Bluewater Property Management, LLC and Lowcountry Turnkey Properties, LLC - Charleston, SC
Improving Real Estate Experience through Education

I just realized I published this article 4 days early.  The next article will not be July 1; it will be published July 5.  I apologize for the confusion on my part.

Aaron

Jun 17, 2010 07:24 AM
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

Aaron,

Excellent points. I negotiate my commission up not down. If x is the going rate, then I'm looking for x plus y, because I can show added value.

The prospective client has already approached me due to the fact that they expect some kind of added value.

Brian

Jun 17, 2010 07:25 AM
Carra Riley & Declan Kenyon
Brokers Guild Cherry Creek Ltd - Westminster, CO
Helping people Transition at all ages!

Aaron....I believe most brokerages have a commission policy.  As an agent, any commission negotiation has to be approved by the Broker if it is not what the policy requires agents charge.  I also agree that we must provide added value for the seller.  If we do that, the commission amount is not such an issue.

cosmic cow

Jun 17, 2010 07:34 AM
Mike Saunders
Retired - Athens, GA

Aaron - if I am going to negotiate my commission, I will also eliminate some services that cost money, but let them know up front. I do use the comparison that with my commission and structure I have more leeway to invest in marketing the property than those that cut commission. I do a pretty good job of showing added value. On the other hand, I will sometimes use a teired commission but the seller has to contribute somethings to get it.

Jun 17, 2010 12:29 PM
Aaron Silverman
SuccessfulRental.com, Bluewater Property Management, LLC and Lowcountry Turnkey Properties, LLC - Charleston, SC
Improving Real Estate Experience through Education

Brian - Good for your Brian.  Better service should be better compensated.

Carra - A Realtor is essentially a franchisee of the broker (aka franchisor).  Although there is not a formal arrangement stating such, the structure is pretty much the same.  If a broker will not give you the freedom to decide what you charge a client, then the broker will most likely not give you the freedom you need to adequately run your business.  It is your business and not the broker's.  I briefly owned a franchisee, and one needs to be careful which horse you attach your cart to. 

Mike - You are not adding any value when you remove services; actually you are doing the exact opposite.  You are not looking at your real estate business as a whole.  The point of the article was not to give a yes or no answer to the question.  It was to give the reader tips on how to think as a business owner.  You do not help the client by removing servicing, and more importantly you hurt yourself and your business.  The home sits on the market longer (and may not sell due to reduced exposure).  That in turn hurts your average DOM which in turn hurts your ability to acquire new business.

Each house and client is not independent of each other.  They all have one thing in common - you and your business.  You always need to keep an eye on how something impacts your business in both the long and short term.

Aaron 

Jun 17, 2010 04:43 PM
doug diller
Goal Line Inspections - Portland, OR

Answer:  YES.

I've always wondered why realtors charge a %.  My thought is that it is often just as much work to sell a $100K home as it is a $500K home so why get paid more.  As a home inspector I get paid baised on the size and age of the home...not the selling price.  It usually takes me longer to inspect a bigger and older home. 

I've often thought about changing my pricing to per hour.  It is not uncommon for an older bigger home to take less time than a smaller new home.  Sometimes those small newer homes are just trashed and I spend more time on them but make less then I did on that very well kept 1920's 3500 sq ft house.

Jun 20, 2010 06:46 PM
Aaron Silverman
SuccessfulRental.com, Bluewater Property Management, LLC and Lowcountry Turnkey Properties, LLC - Charleston, SC
Improving Real Estate Experience through Education

Doug,

You should definitely charge based on the size of the home.  I know several home inspectors that do.  There is a direct correlation between the size of the home and the average time it takes to conduct a home inspection. 

Aaron

Jun 21, 2010 04:55 PM
Candice A. Donofrio
Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ
928-201-4BHC (4242) call/text

This is a great read! Carra's right in my office's case -- my Policies manual is addenda to our IC agreements and in it, the IC is only allowed to negotiate commissions with my approval.

With EACH listing, we develop a marketing plan. THAT'S when the fee is determined, based on the probable duties and time required to close the listing.

Jun 24, 2010 04:40 AM