Lesson Learned: Discounting my Services Proved Very Costly: I should actually title this Lessons Learned and write the 1,000 or so lessons I have learned over the years, but this one was the costliest, so I thought I would start here-
When I got my license I had heard that in order to last in the business you must list homes for sale rather than work with buyers, or at least make the listing side of your business the top priority. So I interviewed with several brokerages and found one I really liked.
The managing broker was wonderful, and she had a company that was primarily a listing brokerage model. It was a discounted fee structure for clients but I was listing several homes a month as a new agent and quickly learning contracts, negotiations, going to closings and even working with the occasional buyer. Life was good.
After about 8 months of this I realized that there is a certain mindset of the population that seeks out discounts on everything they do, in fact they do not purchase anything unless they can get a reduction in price, these people are generally very high-maintenance and demanding, and they beat up all the rest of your affiliate partners that you refer their way. These "Discount seekers" were sucking the life out of me. (a lesson for another post)
I did a handful of full service listings and worked with buyers, they were a breath of fresh air and were very thankful for the services I offered and very willing to pay my fees. You would think that I would have learned from this, but I am a bit stubborn so when I decided to break from the brokerage that was giving me a ton of business (although very little in compensation) I joined an old friend who was one of the top listing agents in Denver, again, a fantastic mentor, this guy would sell 300-350 homes a year and I was very fortunate to be a part of that.
I put in my time and decided it was time for me to open my own brokerage, high office splits and big fees are something I have a very hard time with, so I would do it myself, take what I learned from two great mentors and put it into my own brokerage, my wife quit her full time corporate job (lesson here for another post) to join me and we were off to the races.
We knew we had to market outside of our sphere if we were going to be able to make it as a team and to provide enough for both of us to do this. We started marketing in magazines, in fact I paid $1800 a month for the full back page of a magazine with a one year commitment (another costly lesson here for another day, but still not the costliest). One thing we were told was that in order to have anyone call you need a call to action, what sets you apart, and almost all of these agents advertising were offering a discounted fee for service of one sort or another.
Okay, that was it, we will devise our strategy based on a discount (see above image for copy of my $10Million dollar mistake) you would think I would have learned this lesson from previous experience, but again I am stubborn. Even years ago when I owned a Play It Again Sports franchise I would get so upset with all these coupon book salespeople that would come calling for us to advertise in them, and because we were part of a co-op we had to go with the majority, I thought, "How stupid is this, that we pay a lot of money to give even more money away with a discount coupon to shop at our store, isn't our concept good enough"
Stubborn John plodded ahead and created the business card that you see here, we literally offered to reduce our commission in half when a buyer uses us to sell their home as well, and we also offered a 50% rebate for home buyers that used us to sell. Now this is probably not as rare as one might think out there with all the different models, the problem was, that we did not attract any new business because we all of a sudden were cutting our commissions in half, in fact we now had to give all those loyal clients a big fat reduction so we did not have any ill feelings if they ever saw our advertising.
Here is the lesson - we were called by an investor that wanted to purchase a home in our neighborhood as his primary residence, this guy bought up as much waterfront property as he could, he owns miles of shoreline in several states and also has dozens of rentals, he buys million dollar homes and flips them making very handsome returns, we hit it off, he liked us and although we were relatively new to the industry he said that these top husband and wife teams had nothing on us, in fact he wanted to prove it to us, he had a friend that had two homes listed, one was for $5.125M and the other for $4.75M, this friends agent had just asked the seller to reduce both by one half a million dollars,. Yep that is a ONE MILLION DOLLAR price reduction.
Our new best friend said, if you can preview those two homes and tell him what they need to sell he would get those listings for us, needless to say the other seller was not happy about the big expensive pricing mistake and my wife and I were more than happy to see if we could solve the puzzle. We previewed the homes, both were beautifully updated from top to bottom, not a single upgrade went left undone. We looked at each other and said, why aren't these homes staged. Yes it was that simple, we called our guy, and he said lets meet and talk, we met him at a property in our neighborhood, told him of our findings and his face lit up, he said "I knew you could figure it out, let me make a couple phone calls and I will get you these listings"
We were literally shaking, thinking this is amazing, is this really how we are going break into the luxury market, and then it happened, I handed him my card and turned it over, making sure he saw the big discount that we offer, in fact I was so proud I made sure to point this out to him. He grabbed the card and looked me square in the eye and said, "You just blew it! You never offer up a reduction in services, especially before anyone starts negotiating with you, that is always the last option, you proved you could hang with the big leagues and then turned right around and proved why you do not belong their yet!" OUCH, that was a $10M mistake and the most expensive lesson I have ever learned.
Moral, If you are trying to make it in this business never discount your service, what we provide is invaluable and people that understand this are more than happy to pay us for our expertise. This seller eventually had the home's staged and bumped the price back up, he said he would gladly pay a $150K commission per listing if he nets an additional $300K because of the advice of a professional.
This contest, could be an entire book, I think I may actually write this book, thank you.
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