The Truth About Discounting Your Commission
Buffett’s quote is particularly applicable in the case of real estate sales.
Unfortunately, many home sellers don’t appreciate what this means until after they’ve sold their home with an agent who’s cut their commission.
Despite the fact that even in a smoking hot market like 2017, only 33% of sellers were able to sell their home for full price (or net full price), sellers are still willing to work with agents who discount their commission.
Even when that lowest bidder is potentially unskilled and could potentially cost them thousands of dollars in the process.
It boggles the mind for sure.
To make matters worse, it’s getting tougher and tougher to get sellers who want “a good deal” to see how using a discount broker or an agent who cuts their commission could legitimately prevent them actually reaching the goal they’re asking that agent to help them achieve.
Cutting commissions hurts seller and agents alike. It prevents sellers from getting the full service, full effort they need to get their home sold for the most amount of money in their time frame. It prevents agents from building a sustainable business model that lets them create the life and dreams they deserve without doing a disservice to the sellers with whom they work.
It really is a double-edged sword.
The truth about discounting your commission is that you don’t have to. You always have a real chance to beat out an agent who discounts their fee.
And if you do the right things and handle your presentation properly, you can get the listing and secure a solid fee for yourself.
If you want to beat out the commission cutters and negotiate a full commission on your listings, doing the following three things:
1. Know your business, your competition and your market
Show me is always better than tell me when you’re looking to influence someone to make a decision.
When it comes do getting sellers to see that working with a full-service, full-commission broker is the best solution to help them get their home sold and walk away with the most amount of money, you must literally show them what that looks like.
To do this, you must do your research and gather data about what’s happened with listings that were handled by agents who cut their commission or a discount broker.
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If you look deep enough and wide enough in the MLS, you should see trends in time on market, average sales prices, average list prices, etc. Ideally, you should also be able to see that time on market is longer and average sales and list prices are lower, too.
In addition to that, you need to look at the listing sheets and the information you find on line.
You see, it’s highly likely because discount brokers don’t spend as much on marketing and advertising in selling their listings that you’ll see poorly created listing sheets, too few or unprofessional photos and a weak selling effort overall.
The important thing here is maintain your integrity. Don’t bad mouth your competition of say negative things about them or their business.
What I am recommending, however, is that you use the data and information you find to professionally create doubt about agents who cut their commission.
Point out how the homes listed by discount brokers sold for less, were listed too high, were listed too low, were marketed poorly or just fell short of the mark overall.
The key here is to do it elegantly, eloquently and with class. The goal isn’t to make your competition look bad, the goal is to let the work they did or didn’t do speak for itself.
Most importantly, let your prospects see the information you gathered and lead them to their own conclusion that working with a discount broker could be financially devastating to them.
2. Show real value
Selling a home is a challenging, angst-filled process, and the best agents help guide their clients through every step. Even the littlest of oversights can cost sellers much more than a 1- or 2-point discount they received at the outset – if they aren’t represented by the right agent.
More often than not, clients who work with discount real estate brokers leave the transaction feeling that their expectations weren’t met.
Sure, in a hot market, homes sell fast and for top dollar, making agents who cut their commission can look like the heroes. But it’s clear it wasn’t them or the effort they put forth that netted the seller this result.
When the market is moving at a normal pace – or slower due to economic or market conditions – things don’t quite go as well. This is because most discount brokerages offer limited services or lack consistency in their processes. Remember, they’re not collecting a whole lot of commissions on their sales.
They do so by limiting their services, paying their agents less or rebating commissions.
You see, flat-fee discount real estate brokers normally create a simple MLS listing and nothing more. As I mentioned earlier, many don’t actively market the properties or do a good job of it.
Traditional real estate brokers – broker’s like yourself – do way more than put the property on the MLS. They invest time and money marketing their properties. This includes using social media, advertising, contacting previous clients and co-brokers, and more.
They do serious work to actively promote sell the properties they list to earn their full fee.
They provide value and can actually charge a legitimate fee for it.
Conversely, if clients use a flat-fee discount broker, they’ll be doing a lot of the work: scheduling showing times and inspections, fielding buyer questions, writing offers and counter offers, providing disclosures, and completing other paperwork.
The agents don’t do the bulk of the work, that rests on the seller’s shoulders. In short, there is little to no value.
One last thing here: often times, discount brokers aren’t able to negotiate a full fee for the buyer side of the transaction, which means that agents won’t show their houses because of a cut-rate commission. While this isn’t fair to the buyer, it’s a common practice by many buyer’s agents and it can impact the sale of a listing for sure.
Be sure to demonstrate the value you bring to the table during every phase of your listing process so that there’s no doubt that you and your company are worth the fee you’re seeking.
3. Keep them focus on their bottom line
The real estate sales process is a strange one sometimes. Agents and sellers focus so hard on price and commission that they often forget what matters most: what the seller is going walk away with.
The promise of bigger profits on the sale of one’s home through a significantly reduced commission can be really exciting at the time the listing agreement gets signed.
But after the home lags on the market and the limited services add up to diminished customer service, the “warm, fuzzy” feelings start to wear off.
From there, the seller is left to hope that their home sells for something close to what they were hoping to get.
Now this doesn’t always happen, but it happens enough that it can leave a bad taste in people’s mouths about real estate agents on the whole.
To help seller’s avoid making this potentially costly mistake, it’s crucial that you spend time doing a net sheet on each listing presentation and get sellers to focus on the bottom line.
And, if you’ve done the requisite amount of research prior to going on your listing appointment as I suggested above, you’ll be in much better position to show sellers how much they’ll walk away with by using you vs. a discount broker.
Doing this, combined with demonstrating great value for what you do can be the difference between getting the listing at your fee or not at all.
Even in a screaming hot market like this one, homes aren’t selling for full price for discount or full-service brokers.
In 2017, according to the National Association of Realtors Confidence Index, only 34% of sellers sold their home for full price or netted full price at closing.
This is proof positive that many agents – discount oriented or otherwise – just aren’t getting the job done.
Make sure you do your due diligence, articulate how much value you bring to the table and get sellers to focus on how much equity you’ll get them.
When you do that, you put yourself in perfect position to never lose to a discount broker.