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Lesson Learned: Discounting my Services Proved Very Costly

By
Managing Real Estate Broker with LoKation Real Estate

Lesson Learned: Discounting my Services Proved Very Costly: I should actually title this Lessons Learnedeasy come easy go 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.Expensive lesson learned

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 Ghandi quotepreviewed 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.

Posted by

 

John Marshall -Fore!

Low-Maintenance Golf Course Living

I have been involved in the Golf Communities through-out Colorado for the past several years. As a contributing writer for Colorado Golf Magazine I write articles regarding new course development and their surrounding communities.

720-982-6322

"A good agent will learn to dance to the clients music, but a great agent will write the music that attracts the clients he wants to dance with." John J Marshall

If you are a new agent and finding the road more difficult than you thought, please send me a note and I would be happy to help.

I enjoy helping agents to find their niche!

 I am happy to help.

Comments (110)

Kathy Streib
Cypress, TX
Home Stager/Redesign

 

                        Thank you John Marshall - FORE! for my ah-ha moment. 

Jul 02, 2016 10:49 AM
John Marshall - FORE!

Thanks Kathy, love the ah-ha moment 

Jul 03, 2016 11:15 PM
Sheila Anderson
Referral Group Incorporated - East Brunswick, NJ
The Real Estate Whisperer Who Listens 732-715-1133

Good morning John. It is a costly lesson and an important one. If you don't value yourself no one else will either.

Jul 02, 2016 10:09 PM
John Marshall - FORE!

Yep, I wish I would have learned that on a much less costly lesson, but maybe it wouldn;t have stuck with me 

Jul 03, 2016 11:16 PM
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

Good morning John. Discounting upfront is negtiating against yourself. Lesson well learned! Enjoy your day!

Jul 02, 2016 10:32 PM
John Marshall - FORE!

And there are no winners when you negotiate against yourself.

Jul 03, 2016 11:17 PM
Debbie Gartner
The Flooring Girl - White Plains, NY
The Flooring Girl & Blog Stylist -Dynamo Marketers

I don't know how I missed this initially.  Super post w/ so many great learnings.  I agree w/ you...those looking for discounts are generally more difficult to work with.  It's a bit of a red flag wehn I have customers trying to that and it's also a red flag when I get someone who has worked w/ one of the discount brokers (and/or buy wo/ an agent).

Jul 02, 2016 10:36 PM
John Marshall - FORE!

I would imagine it happens in all industries, in fact I just read that the most profitable retail stores across the country are those smaller, more service minded, customer service oriented stores, think Apple vs Walmart

Jul 03, 2016 11:40 PM
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good Morning John Marshall - FORE! -  I learned the same lesson and wrote about it too.  Chasing discount seekers, I found too, does not lead to better business.

Jul 02, 2016 10:56 PM
John Marshall - FORE!

Grant I will have to read your article, thanks for letting me know

Jul 03, 2016 11:41 PM
Jerry Newman
Brown Realty, 210-789-4216, - San Antonio, TX
Texas REALTOR, San Antonio Military Relocation

WOW! What a costly lesson! Discounts should be a last resort, and even then, I might not take the listings since those clients as you stated above, are the hardest to deal with.

Jul 02, 2016 11:19 PM
John Marshall - FORE!

Yep, I think agents need to take a seriuos look at their value, it doesn't take much to find those that do not value their services.

Jul 03, 2016 11:42 PM
Gayle Rich-Boxman Fishhawk Lake Real Estate
John L Scott Market Center - Birkenfeld, OR
"Your Local Expert!" 503-739-3843

John...DO write that book, will you? This could be a real estate bible. Even those of us who have been in the biz awhile, still need to hear this. I certainly did and I"ve been in this for over 10 years! Thanks, bud...happy to see such a great amount of comments and thanks goes to Kathy Streib too for her aha moment that I had as well. 

Jul 02, 2016 11:33 PM
John Marshall - FORE!

Gayle Rich-Boxman Fishhawk Lake Realtor (503)755-2905 the book is underway, and there were so many great lessons here in this contest, it seems like maybe AR should even have a category for agents to just go and learn form our experiences.

Jul 03, 2016 11:44 PM
Pat Starnes-Front Gate Realty
Front Gate Real Estate - Brandon, MS
601-991-2900 Office; 601-278-4513 Cell

Ouch! That would be difficult to get over, John. I'm sorry you lost those listings, but glad you got the message. Our service, knowledge, and experience IS invaluable.

Jul 03, 2016 01:11 AM
John Marshall - FORE!

Thanks Pat, and the longer I do this business, the more selective I become.

Jul 03, 2016 11:45 PM
Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

Got a call. Someone read my blog. The catch is rebate. It got to be 75% to buyers.

You are joking.....

Jul 03, 2016 01:19 AM
John Marshall - FORE!

Sam, I am curious what they read in your blog that made them think you would discount anything.

Jul 03, 2016 11:45 PM
Tammie White, Broker
Franklin Homes Realty LLC - Franklin, TN
Franklin TN Homes for Sale

Great story. Interestingly, when I've interviewed with sellers of million dollar homes, they've never requested a reduction in commission. Except for one. I declined. She hired someone who would and her house is still on the market. Now, listed with agent #3. 

Jul 03, 2016 03:00 AM
John Marshall - FORE!

It is a big reason some never make it out of their current situation they dont value themselves and they definitely do not value others. They need a "shift" in their mindset to change their lives.

Jul 03, 2016 11:47 PM
Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi John - That's a painful lesson, and an expensive one. Mary and I figured that one out much less expensively, but it was pure luck that we did so. Some of your other lessons also sounded painfully familiar.

Jul 03, 2016 05:27 AM
John Marshall - FORE!

Dick Greenberg I am guessing every agent that has been in this business for a while has an encyclopedia of knowledge we could share.

Jul 03, 2016 11:48 PM
Patricia Kennedy
RLAH@Properties - Washington, DC
Home in the Capital

Hi, John!  I included this post in today's Last Week's Favorites.

Hope you enjoy the rest of your holiday weekend. 

Jul 03, 2016 06:03 AM
John Marshall - FORE!

Patricia Kennedy Thanks so much, this was a very rewarding post for sure and have a great 4th.

Jul 03, 2016 11:49 PM
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

this is truly painful to read - and such a good lesson for all of us. WOW! 

Jul 03, 2016 10:15 PM
John Marshall - FORE!

Sharing my pain again actually was a nice way of letting go of it.

Jul 03, 2016 11:49 PM
Denise Hamlin, Broker/Owner
Cardinal Realty ~ 319-400-0268 - Iowa City, IA
Helping Happy Clients Make Smart Choices

Excellent post and very well written. We do all kinds of things in the search of the holy grail and I feel I've spent more money than I needed to on stuff that didn't work. Nothing quite this expensive though. Ouch. 

Jul 04, 2016 03:57 AM
John Marshall - FORE!

I have found the best marketing is often the least expensive, do a great job and others will refer you

Jul 05, 2016 01:48 AM
Rene Fabre
ARFCO Media - Renton, WA
Practicing Philosophical Eclectic of the Arts

Nice read John Marshall - FORE! ... and thanks for sharing this story so very openly. I can't believe how many of my RE broker friends here tell me stories about buyers wanting to lowball offers... Really? Are you kidding? In this market? I like your comment, sharing the pain let's me let go of it! Hope you have. Expensive lesson, but an invaluable education! 

Jul 04, 2016 10:45 AM
John Marshall - FORE!

It is gone, dust in the wind, and I am with you, I am still seeing buyers wanting to low-ball, some just are not believing in the reality of the current market.

Jul 05, 2016 01:50 AM
BARB KELLEY
NextHome Realty Center - Cypress, TX
The 'Golden' Experience Team!

Excellent post and feature!  We are worth what we believe we are!  And you're so right, it hurts all of us when agent begin discounting.  We work very hard and have so many expenses, but unfortunately, many people think we just put a sign in the yard, open a door and pick up a check.  Nope, it doesn't work like that!

Jul 05, 2016 08:42 AM
John Marshall - FORE!

I think the fact that the general public feels we do not do much is a direct reflection of desperate agents that are not able to prove their value.

Jul 06, 2016 12:47 AM
Teaching Amanda Fische
Teaching Amanda Fische - Denver, CO
Offering 30 plus years of sales insights

Ouch! What a painful lesson, one we can all learn from, never show your hand up front even if you are willing to "bend a little".

Jul 06, 2016 12:19 AM
John Marshall - FORE!

That is such a good way to put it, "never show your hand"

Jul 06, 2016 12:48 AM
Debbie Reynolds, C21 Platinum Properties
Platinum Properties- (931)771-9070 - Clarksville, TN
The Dedicated Clarksville TN Realtor-(931)320-6730

What a great lesson to share, John. Some of the lessons we learn hurt. Thanks for participating in the Lesson Learned contest

Jul 06, 2016 12:48 AM
John Marshall - FORE!

Thanks for this contest Debbie Reynolds best one I have participated in so far, so many great lessons learned.

Jul 06, 2016 12:53 AM
Mimi Foster
Falcon Property Company - Colorado Springs, CO
Voted Colorado Springs Best Realtor

What a terrific post, and what an awful lesson to learn. This is probably the greatest lesson I have learned in this business - I don't discount what I charge to do my job. I'm worth every penny. :) Sorry this happened. No matter what they say, you don't ever really recoup it. 

Jul 06, 2016 01:00 PM
John Marshall - FORE!

Thanks Mimi Foster , I guess it wouldn't be a lesson if we did not learn from it, and I am sure you are worth every penny!

Jul 08, 2016 04:42 AM
Anonymous
Carmen Santistevan

Thank you for writing this! I have only been in Real Estate for a year, and a colleague told me that discounting my services would help me to build my business faster.

After reading this I understand that by discounting my services I am discounting myself in the process! So thank you again!

Jul 11, 2016 05:25 AM
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