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/