"No I Won't Reduce My Commission! Do You Expect Me to Work for FREE?" (Um, let's do some math)

By
Education & Training with Sell with Soul

Bear with me this morning as I rant a little bit about one of the Sacred Cows of the real estate industry Free(specifically, the compensation model that pays us based on the price of the property).

I recently read an article written by a real estate agent bemoaning a potential buyer client's request that the agent reduce his fee by half. Seems the buyer found a property on his own and just needed help getting the property under contract and to closing.

The agent was, predictably, outraged and offended. How dare this buyer ask him to reduce his fee! How dare he imply that the agent's value was less than his "full" price! And how dare the general public think so little of our value that they have the nerve to ask us to negotiate our compensation!

Now, keep in mind, to date, this agent had, oh, maybe an hour invested in this potential buyer. Oh, and this was no $100,000 property; it was more like 20 times that ($2M+). Yeah, do the math - that would have been a sweeet payday, even at a significantly reduced fee.

But no, the agent respectfully (?) declined the opportunity to represent the buyer and enjoy an admittedly still-sweet payday. a payday enjoyed WITHOUT driving the buyer around for months, writing multiple offers and dealing with all the other frustrations of working with buyers.

Okay, fine. Maybe his outrage and offense were simply based on principle ("I don't cut my fee for no one, no how, no way!"), but I have to ask myself... 

Would this agent decline to represent a buyer who wanted to buy a $1M house because the commission is too low (but would be exactly the same as a 50% commission reduction on a $2M one)? Would he snub his nose at a $500,000 buyer because, sheesh, at 25% of the commission on a $2M house, that's barely worth getting out of bed for? Does he completely refuse to work with buyers in even lower ranges because his time and expertise are so freakin' valuable that commissions of $6,000, $7,000 or $8,000 are far too far beneath him?

Now, before you get too huffy with me, let me assure you that the point of this blog is NOT that we should just give in to the demands of clients to reduce our fees.

What I am saying is that, as this story illustrates, our compensation-based-on-the-price-of-the-home model is seriously flawed, and if the general public has trouble understanding our "value," I can't blame them - because the model really doesn't make sense!

Do we provide twice as much "value" when representing buyers on a twice-as-expensive house... or, perhaps better said - HALF as much value on a half-as-expensive one? When we protest that we "don't work for free" when a $500,000 buyer asks us to cut our fee by 25%, does that mean that we're "working for free" when we represent a $375,000 buyer (which would result in exactly that same 25% reduction in pay)?

Hey, I like working on commission as much as the next entrepreneurial adrenaline-junkie, but just because I like it doesn't mean it makes sense.

Okay, rant over.

 

 

 

Posted by

It's Here!

 

The More Fun You Have Selling Real Estate, the More Real Estate You Will Sell! 
(True Story)
Order Your Here!

 

 

 

 

 

 

 

 

close

Re-Blogged 6 times:

Re-Blogged By Re-Blogged At
  1. Ken's Home Team LLC. | 360.609.0226 | Portland, OR & Vancouver, WA Real Estate Team 03/27/2011 02:22 AM
  2. Gabe Sanders 03/27/2011 04:07 AM
  3. D B 03/28/2011 10:53 AM
  4. Fred Carver Personal Real Estate Corporation 03/31/2011 05:20 AM
  5. Joeann Fossland 03/31/2011 11:47 AM
  6. Pete Xavier 09/09/2012 11:20 AM
Groups:
Rookies Turning Pro
Learn to be a Top Producing Listing Agent
Selling Soulfully
Silent Majority
The Ninety-ninth Percentile
Tags:
commissions
rants
sellers
all blogs

Spam prevention
Show All Comments
Rainmaker
313,528
Glenn Roberts
Retired - Seattle, WA

Up front with the proper principal is right J. Phillip. But finding is not the beginning. Experience is garnered over years of finding out what problems may arise and how to solve them, A $2,000,000 listing handed to a rookie may work out and may not, the same as a $50,000 condo somewhere else. The risk is greater and I for one, at my given level of ownership, would interview agents until I was sure I was dealing with experience, competence and integrity.

Mar 28, 2011 03:06 PM #113
Rainer
69,054
Robert Courtney
Lihue, HI
Century 21 All Islands, RA, CDPE, MCRE, CIAS

Commission schedules are set by our Broker.  I can take less, but it is on my side not the brokerage.  In any business there is a price to pay for service.  Ours is a percent of the selling price.  The seller wants to sell high, the buyer wants to buy low.  We are paid on what they agree upon.  Selling our value is up to us.  If our value is less than what our broker fees are then we take a cut not the brokerage.  We can use all the examples in the world like tipping or tithing.  Value is the issue.

Mar 28, 2011 03:27 PM #114
Rainer
60,032
Dennis & Terri Neal
RE/MAX, Big Bear - Big Bear Lake, CA
Your Home Sold in 45 Days or We Se

Very hot topic! I like how you handled this.

Mar 28, 2011 09:09 PM #115
Rainmaker
484,157
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

Just wanted to comment on the questions about the sellers paying the commission, so why is the buyer asking for a rebate/reduction...

While the charge for commissions shows up on the seller's closing statements, it's the buyer's money coming to the table, so some say that it's the buyer who pays the commissions to the seller, who then only distributes it to the agents. My opinion on the matter is that both parties are paying the commission - the seller is reducing his net proceeds and the buyer is increasing his purchase price to cover the commissions.

However, in this scenario, it's really a non-issue (IMO). The buyer knows the buyer representative is getting paid at closing and therefore he knows there's money on the table to negotiate, regardless of where that money came from. He's negotiating with the buyer agent on the buyer agent's paycheck, not with the seller or the seller's agent on the amount of the commission.

Mar 29, 2011 02:22 AM #116
Rainer
97,429
Glenn Freezman
Nucazza LLP & Home Buying Evolution, & Family Abstract, Inc - Fort Washington, PA

Sorry for the late chime in, i was out of it for a couple days....  Think about the basics of the transaction, not what we were "Taught" for 125 years as gospell and truth but the actual basics of "Where did the money come from?  The buyer is going to be paying for the costs of the Real Estate agents for the next 30 years as part of their mortgage, the buyer is overpaying to purchase his home because he is a victim of tradition.  when the "Gentlemen of Real Estate" originally designed a buy/sell, it would have been nice if they included a buyer and seller in the conversation.  The contracts, if he can look through clear lenses, has an inflated price tag of X% to cover the costs of not only the sellers representation but the buyers as well.  The buyer is actually overpaying on the purchase his home by 3% AND then being convinvced that he received his representation for free.  At what point did American's allow the seller of a product or service to include the cost of buying it in the sales price?  The "MYTH" that it is the sellers money is one of the great marketing efforts in our history, I would argue as far as to state the Buyers money paid for both sides and that every home in America is overinflated by 6%.  What i mean by that is that for 125 years we have arbitrarily added the cost of buying and selling the home to the price the buyer paid so over time it bacame "part" of the sales price.  Now the seller believes he/she is entitled to the overinflated price, the buyer is getting smarter and the traditional realtor will ask wtf?"

Mar 29, 2011 03:11 AM #117
Rainer
97,429
Glenn Freezman
Nucazza LLP & Home Buying Evolution, & Family Abstract, Inc - Fort Washington, PA

Its very simple... FOLLOW THE MONEY TRAIL.  The buyer brought the money, the seller added it to the cost of the home, seller ends up with 6% +/- less money, the buyer ends up paying 6% +/- too much.  Well someone needs to pay the agents for the 3 out of 4 buyers that didn't buy a home so, oh yea, your buyer ends up paying for them too.  So, in my opinion the buyer in actuality is paying the salary of 13 participants. 3 Buyers that never bought multiplied by the 3 agents that worked with them (9) plus the buyers and sellers agents and brokers of the transaction they actually are purchasing.  so really the buyers are responsible for paying the commission and the lost commission whenever they buy a home.

Mar 29, 2011 03:30 AM #118
Rainer
144,110
Lydie Ouellet Dickinson
Realty Executives Tri County, Bellingham MA - Bellingham, MA
Realtor

Sometimes to get a little, we need to give a little.  Simple as that! Great blog!

Mar 29, 2011 04:38 AM #119
Rainmaker
642,556
Dawn A Fabiszak
Private Label Realty ( Denver metro area, Colorado - Aurora, CO
The Dawn of a New Real Estate Experience!

Jennifer ~ "rebating" to someone in Colorado is legal so long as they are party to the contract.  Flat fee commissions would not work at all.  On the listing side, the marketing costs are much higher.  A 50% reduction on the buy side is a little steep.  Finding the house is only part of the transaction.  What about our risk, responsability, etc?  Does that mean we reduce our responsability by !/2 as well?

Mar 30, 2011 04:39 PM #120
Rainmaker
484,157
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

"So Miss Smarty Pantz Jennifer - if you don't like the current system, what's your solution?"

http://activerain.com/blogsview/2214384/real-estate-compensation-alternatives-to-the-commission-based-model-and-yes-we-still-make-a-good-living-

Mar 31, 2011 02:19 AM #121
Rainer
103,417
Marsha Cash
RE/MAX Advantage - Stockbridge, GA

I am always flexible.  You don't want to make it a habit of reducing your pay, but in some instances it's warranted.

Mar 31, 2011 03:29 AM #122
Rainmaker
1,045,687
Fred Carver Personal Real Estate Corporation
RE/MAX Camosun Victoria BC Real Estate - Victoria, BC
Accredited Real Estate Consultant

Hi Jennifer...Very Good post, You sure raise a wee bit of attention in the Rain. I'm with you.

I recently completed my ACRE Certification and I am now an Accredited Real Estate Consultant, so in this incident I would have just negotiated an hourly  Fee for my time to assist this client. He certainly could have gone to a lawyer who would have charged him his professional fee.

Mar 31, 2011 05:10 AM #123
Rainer
233,428
Mike Yeo
3:16 team REALTY - Frisco, TX

Great rant post! Commission is negotiable as far as I know. Some agents may not want to deal with negotiating commission but sometimes there could be something else that could come out of the discounted transaction. If the buyer is upfront negotiating the commission, to me that is honestly upfront and that could still be a relationship to be built. If the pull a last minute, then that is a whole different story.

Mar 31, 2011 07:13 AM #124
Anonymous
Tommy Lorden (Buyers Slice Realty; Boulder, Colorado)

Kudos for the intellectual honesty!   I'll take it a step further:  it's not right to tell buyers that the seller pays the commission.   Technically true?  Yes if you consider it is deducted from the seller's proceeds.   But, really true?   Not when EVERY seller considers the commissions due when deciding how much to accept for their property.

I ONLY work with buyers who think about the cost of commissions to them...and I rebate them half of my commission if they are willing to do the heavy lifting when it comes to the front end search.   I earn less for doing less...it's only fair.  

Why should a pre-qualified buyer who calls me and tells me they want to put an offer on 123 Main Street this week pay the same as a first time home buyer who needs serious hand holding and a chauffeur over the course of a few months?

If you are providing traditional full-service in Colorado, I can send my more needy buyers to you (that aren't a good fit for my model), and I'd welcome the buyers who are beating you up over this...it is all I do.

Mar 31, 2011 07:48 AM #125
Ambassador
2,977,861
Margaret Rome, Baltimore Maryland
HomeRome Realty 410-530-2400 - Pikesville, MD
Sell Your Home With Margaret Rome

And here is comment #130...This is such a good topic to be be discussing on ActiveRain..Give Yourself a Gift of Education..Consider Real Estate Consulting!

Mar 31, 2011 12:26 PM #126
Rainmaker
242,066
Jenny Durling
L.A. Property Solutions - Los Angeles, CA
For Los Angeles real estate help 213-215-4758

I have wondered the same thing since I started in this business. Some of the lowest paying deals are the hardest ones to close! Maybe on the listing side it makes sense to get paid more- there are marketing costs that could be higher on higher end homes. On the other hand, the buyer's agent does the same work regardless of the price of the house. It doesn't seem fair and equitable at all but I also wouldn't turn down 3% of a $2million listing!  If we went to a flat fee arrangement, I bet alot of folks would leave the business and that would be just fine by me.

Apr 06, 2011 03:55 PM #127
Rainmaker
92,179
Kerry Jenkins
Prime Properties - Crestline, CA

I don't know, I think I would negotiate with the buyer on that since yes finding the home is only a small part of it. But shoot even half of a 3% deal would be in the nieghborhood of $30K so ummm, I would take the buyer!!!  That's just stupid. If you're making about what some people make in one year for one deal then why you giving up that much money when it's a "sort of" for sure thing(never for sure until it closes).

Apr 07, 2011 10:25 AM #128
Rainer
10,591
Jeannine Willis
Keller Williams Realty - Weymouth, MA

I think its been said before as "Would you cut off your nose to spite your face?"

Apr 11, 2011 06:09 AM #129
Anonymous
Joe Farrell

I have never as a seller paid a listing agent more than 5% of the sales price for any piece of real estate ever.  That goes back 20 years.

I am now in the process of discussion listing my mother in laws high in demand over 55 community condo which will likely sell close to full price in less than 30 days for around $205k.  I have real estate agents telling me that the 'standard' fee in this listing area is 7% - I laugh at them - politely - and state that their own lobbying organization states that the average statewide [Iowa] commission is 5.6% so telling me that they are at 7 - which by itself is highway robbery - seems suspect given an average of 5.6.  They refuse to take a listing that will require them to a) put it on the MLS and b) show it twice and probably get an offer.  They themselves have told us this - there is no answer to the why should I pay you what you perceive as a standard rate?   I would negotate the price of loaf of bread if it was worth my while - and certanly $2-4000 is worth my time to negotiate a little - 

I negotiate on my fees all the time with people - its part of life.   I paid $35000 for my education 30 years ago - and worked my rear off for the first 5 learning what is not taught in school and you want 7% of my asset because you are in a business you managed to restrict entry into so you can control it and increase transaction costs?  I'm gonna end up negotiating the fine points of the transaction anyway that you are mostly clueless on - so all you do for me is weed out the riff raff and get access to other agents - and spend a few dollars putting pictures in papers  - 

 

Jul 25, 2011 07:47 AM #130
Rainmaker
484,157
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

Thanks for your comments, Joe! I feel your pain and can't argue with you on most of what you say here! I will debate the issue of whether or not we're clueless and that all we do is weed out riff raff and put pictures in papers - although on the surface, that may appear to be the extent of our role (and, unfortunately, that's the way some agents seem to run their businesses), a good real estate agent does far more, much of it behind the scenes.

I have ZERO issue with a potential seller wanting to negotiate the fee for my service. I mean, c'mon - as you say - it's a BIG EXPENSE and on what planet is it unreasonable to expect someone to just accept what IS a sizable (and negotiable) expense. If I can't justify my fee to someone, I don't deserve to get that fee and if we can't come to agreement on what is fair pay, then we will agree not to do business together. Nothing in the world wrong with that outcome.

Anyway, I appreciate your thoughts; it's always nice to hear an outside perspective on matters that affect our business.

Jul 26, 2011 03:13 AM #131
Rainer
2,750
R O

Great post! I can't believe there are agents who refuse to reduce their commission rates. To me, the average person is always looking for a discount. By reducing ones commission, an agent can be more competitive. There is no need to be greedy.

Dec 25, 2013 04:10 PM #133
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainmaker
484,157

Jennifer Allan-Hagedorn

Author of Sell with Soul
Ask me a question
*
*
*
*
Spam prevention