Our Sacred Commissions

By
Education & Training with Sell with Soul


 From Day One, we real estate agents are pressured by sellers to reduce our listing commission. There are entire classes taught on ways to Just Say No to discounting. If you read Sell with Soul, The New Agent's Guide to an Extraordinary Career in Real Estate, then you know how I feel about commission discounting...there are perfectly good reasons to do it! I don't see any problem with giving your family and good friends a break (they'd do it for you) or with discounting your commission for frequent buyers or sellers. I always offer a discount to my good investors; I'm part of the team and if I can help them be profitable, then they can buy more homes. It's the way of the world and we real estate agents are not immune from it.

Besides, frankly, the practice of real estate is much easier now than it used to be. When listing commissions of 6% or even 7% were set, it was during the days before fax, email and online MLS search engines. I remember my real estate agent driving across town at 10pm, in the driving snow (well, okay, a thunderstorm) to deliver my offer. And then driving back the next morning to pick up the counterproposal. And then driving to me to get my signature on the counterproposal. And then driving back across town to deliver the signed counterproposal to the listing agent. Can you imagine what real estate must have been like when we couldn't just fax a contract to our client and review it over the phone?

Or how about poring through the weekly MLS books that came out every Friday? Remember when the online MLS didn't have pictures, much less interior photos and virtual tours? If we wanted to know what a house looked like, we had to get in our car and go look at it! Our buyers couldn't help us screen listings since the information was not readily available to them - they were completely dependent upon us to provide them with data on listings and to keep them updated on new listings.

To enter a listing on the MLS required filling out a form and faxing it (or driving it) to the local Board for input. Which might take a few days. Price changes or listing extensions? More paperwork.

In short, being a real estate agent used to be a lot harder. A lot more tedious. We were worth 6%, especially when the prices of homes were under $100,000. Now, frankly, charging 6% to sell a $400,000 home is ridiculous, in my humble opinion. What on earth did you to do to "earn" $12,000 (If you only get one side) or $24,000 if you double-end it! That's more than many people make all year!

Okay, enough soap-boxing. My point is that there's nothing sacred about the 6% commission, but if you feel you're worth it and can get it, you have my blessing. But for those of you who have trouble Just Saying No to discounting your commission, that's okay too.

At one point in my career, I advertised an extremely low listing commission of 4.2%. I offered full real estate services for a fraction of the fee typically charged by agents in the area. I was proud of my ability to offer excellent service for a reasonable cost and frankly, was also hoping to eliminate all fee negotiation in a listing presentation. Being somewhat shy, I'm always looking for ways to reduce confrontation in the sales process. I was optimistic that home sellers would beat down my door to hire me to list their home, and that what I lost in revenue on a sale-by-sale basis, I would make up for in volume.

And it worked, sort of. Yes, I got a lot of business and yes, listing appointments were much easier (and quicker since we didn't have to battle for an hour over my fee). It was rewarding to offer great service and know that most of my seller clients felt that they received full value for the money paid.

However, along the way I encountered some unexpected challenges with my discount philosophy. I attracted difficult sellers. I had always gotten the vast majority of my business from friends and past clients, and referrals from friends and past clients, but some of the sellers I found myself working with, were, in a word, cheap. They were stingy. They were (in my opinion), unreasonable. Some of them even embarrassed me with their stinginess and as a soulful real estate agent, it was hard for me to represent them.

Many of my clients were upside down in their homes; they owed more on their home than it was worth. That's why they hired me - my low fee would help them retain a few pennies of their equity or at least reduce the damage. These sellers had to ask top dollar for their homes and weren't able to negotiate at all with buyers, which led to many crashed deals and frustration for everyone.

I was also surprised by the hostility of the other agents in town. Perhaps I should have expected it, but I guess I thought everyone had their own business to run and wouldn't worry about little old me and my discounted commission. Au contraire! One company was so worked up about me that I was the main topic of conversation at their weekly staff meeting - and that they spent the entire meeting brainstorming how to shut me down! I was kind of flattered, actually.

Another issue that arises when you charge less than the "going rate" is that it's hard to get referred listing business. Think about it - if an agent is going to refer a client to someone to list their house, they're excited about getting a twenty percent referral fee...well, twenty percent of a 7% fee is a whole lot more than twenty percent of a 4.2% fee! And of course, it was hard for me to pay out referral fees when my margin was so thin anyway.

I recently read in one of the Don't Sweat the Small Stuff books something that may have changed my outlook on discounting my service - any service. It goes something like this...if you charge half of what you are worth in order to generate a volume business, you are working twice as hard as you have to. Imagine what would happen if you charged a full market rate...and promptly lost half your clients. You'd be making the same amount of money you were before, working half as hard. Hmmmmm. That makes a lot of sense to me, from a purely mercenary perspective.

So, I'm torn. The soulful part of me believes that real estate fees are inflated and should be more reasonable. However, the businesswoman in me realizes that if I'm giving myself away for no good reason and working harder than I have to, that's just irresponsible financial (and time) management.

I don't know the right answer, even for myself...

copyright Jennifer Allan 2006 http://www.sellwithsoul.com/

 

 

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Rainmaker
599,945
Jim Lee
RE/MAX Shoreline - Portsmouth, NH
Portsmouth NH Realtor, Portsmouth, NH

Have you ever considered we are worth more for what we know that what we do?

A fudiciary anything has more value than a functionary.

Schlepping keys around, driving pieces of paper all over town, and the other stuff we used to do is and remains functionary work and that's probably worth somewhere around minimum wage (which is why your assistant needs to be doing it)

However representing a client in a fudiciary capacity has a huge value; that's why lawyers can command fees of $300-900 an hour.

If discount fees were the answer everyone in my area would be listing their property with al the local discount and/or flat fee guys; that's not the case here.

I believe buyers and sellers are willing (and even happy) to pay a reasonable fee (one that allows you to make a profit) IF you're able to give them enough reasons why you're worth it.

Nothing sacred about commissions then or now; that's why they've always been negotiable.

Maybe learning about consulting for an hourly or flat fee could be an avenue of interest.

2 members of this forum, both longtime successful Realtors and friends have came up with a new course about offering consultant services.

Take a look at their consulting program and see if it could be a fit for you.

Nov 29, 2006 12:47 AM #1
Rainmaker
484,157
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

Thanks for your thoughts! Real estate commissions are such a hot topic... with so many different opinions. We all have to do what we feel is right for us and our family.

As long as an agent can justify their fee, feel good about it and sell it, I won't argue with any percentage. I've listed homes for free... I've listed homes for 7%. I've rebated 100% of my commission when I've screwed up.

When I owned a discount brokerage, the owner of a competing full-price firm asked me not to leave my business cards in the homes that I showed because it would "force" her agents to defend their "standard" 7% fee. In fact, she threatened me with "additional measures" should I persist in leaving my bcards in homes. Seems to me that if an agent is going to charge a certain fee, they darn well better be prepared to defend it... no matter what the fee is.  Frankly, I often had to defend MY discounted fee because my seller prospects didn't believe they would really get full service at such a low price. And my low fee didn't always win. (darn it).

 Have a great day!

Nov 29, 2006 01:06 AM #2
Rainer
12,876
Lee's Summit Real Estate:: :: Paul Korodaj
Lee's Summit, MO

Jennifer,

I started giving my sellers a menu of options: 6% gets a sign in the yard and the basics, 7% gets more bells and whistles, 7.5% gets the deluxe treatment above and beyond.  Most (80%) go for the 7% and are happy they did.  This also helps defend my commission without having to because people know what their getting.  Good luck. 

Nov 29, 2006 02:05 AM #3
Rainmaker
508,620
Michele Connors
The Overton Group, LLC Pitt & Carteret County - Greenville, NC
Your Eastern North Carolina Realtor

I certainly think there are many models that work..It falls into which are we most willing to work with.

I too feel that situations arise to reduce, modify or alter the "norm" protocol. I also feel the relationship can dictate how I approach the issues.

Ps- I too leave my card, phooey if the sellers agent has a problem. It is to show I was there , I take responsibility for turning off lites, locking doors etc.

 

Nov 29, 2006 03:17 AM #4
Rainmaker
1,765,876
John Novak
Keller Williams Realty The Marketplace - Las Vegas, NV
Henderson, Las Vegas and Summerlin Real Estate

Hi Jennifer - Technology has definitely helped the real estate industry become more efficient. But we also have more housing options to chose from, more regulation and a generally more litigious society. It's up to us as agents to educate our clients that real estate involves so much more than just finding a house.

What really struck me in your post is that when you lowered your commission you attracted difficult sellers. At the other end of the spectrum is the 'Nordstrom client' - they recognize quality products and service and are willing to pay for them.

Dec 03, 2006 05:34 AM #5
Anonymous
Jim

A full time agent still works the same number of hours. It's just that now we can accomplish so much more, instead of wasting that time driving around or flipping through MLS books. Workload increases in step with efficiency improvements. There are now more agents to compete against, more data to sift through, etc.

 

Like Jim Lee said, it's the intellectual value that we get paid for, and now, more than ever, a good realtor is worth all the money. Now, with all the mountains of information, they are the key to pricing right and making the right suggestions for improving the home. The problem is with the perception that the agents only value is the legwork. I think you're doing yourself and other agents a disservice by posting that you feel our work is much easier and therefore we don't deserve the money.

Dec 04, 2006 01:21 AM #6
Rainmaker
109,585
Debbie White
Southeast Alaska Real Estate - Juneau, AK

Several licensees in my market adopted your strategy about five years ago, and now we have one of the lowest average commission rates in the country.  There's always someone willing to do it for less, especially in the hot markets of the last several years.  I hope our changing market helps us get back to normal. 

I'm not worth less than I was five years ago.... in fact, I think I'm worth more!  I've got more experience.  Have your other expenses gone down during this experience?  I don't know about you, but I'm paying more for my homeowner's insurance, my property taxes, my vehicle, fuel, IRS, E & O Insurance, advertising and other marketing, referral fees, cell phone, long distance, computers, etc.  In our litigious society, this doesn't strike me as a good idea.

In some European countries, the "average" commission is only 1%.  And guess what - the seller's complain that it is too much!  Slippery slope............

Mar 02, 2007 06:10 PM #7
Ambassador
2,289,828
1~Judi Barrett
Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK
Interesting topic of many many forums and debates. 
Feb 17, 2008 01:10 PM #8
Rainer
24,091
Vanessa Plante-McDonald, MBA, REALTOR® - Cash Rebate to ALL My Buyers!
Bethel Equities, LLC - Laurel, MD

Jennifer,

I concur 100%!

Vanessa.

Apr 09, 2008 01:17 PM #9
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Jennifer Allan-Hagedorn

Author of Sell with Soul
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