Bear with me this morning as I rant a little bit about one of the Sacred Cows of the real estate industry (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.