Should real estate agents drop their commissions?

Home sellers today have a lot of options if they don’t want to pay full commission to a real estate agent. Just type the words “real estate commission discount” into a popular search engine and you will get more than 81,000 Web page listings.

The result of this trend has been some downward pressure on commissions. The average commission rate in 2003 was 5.1 percent, down from 5.4 percent in 2001, according to Real Trends, a real estate research and publishing company.

Some agents have reacted by dropping commissions when asked. Others are setting up a menu of services, offering various service levels depending on how much the client chooses to pay.

Does this mean you have to drop your rates to stay competitive? Not necessarily. The matter is debatable, and we have two cases in point that demonstrate that either approach can work well.

No Discounts: Jeff Scislow

Jeff Scislow of RE/MAX Results in Eden Prairie, Minn., has been the top RE/MAX salesperson in Minnesota for several years. He charges a standard 7 percent commission and promotes the benefits of working with him and his team on his Web site: on average his sellers obtain 99 percent of the listing price; time on market averages 14 days; and 96 percent of all his listings get sold.

He gives six main reasons why he will not cut his rates when asked and sticks to the standard percentage-based commission structure almost every time. (He does allow for a little flexibility in commission on very high-priced homes).

• A straight percentage is easy to convey to sellers and easy for them to understand.

• There is widespread understanding and acceptance in the marketplace for this type of commission structure compared to the newer fee-for-service plans.

• It makes accounting easier when you charge every client the same percentage.

• It eliminates the risk of clients finding out that one person has paid more than another; it also eliminates referral clients wanting cut rates.

• A straight percentage is easier to negotiate than the dollar amounts associated with some fee-for-service plans. These plans generate resistance and questions over specific fees, such as “why does this cost me $500 and that’s $1,000 and that’s only $250?” 

• The standard 7 percent commission is more profitable. Scislow says, “It allows me to earn more money per hour.”

Discounts: Gayle Henderson

Gayle Henderson of Scottsdale, Ariz., has been selling real estate since 1993. Since joining RE/MAX in 1999, Gayle has consistently ranked in the top five RE/MAX agents in the state of Arizona. She offers a menu of services, which she sees not as a “discount fee” system but rather as an “added value” system. She sticks to percentages, but offers four levels of services at varying rates:

By-Owner Assisted Services: Commission is 4.5 percent–5 percent of sales price. Services include:

• consultation with homeowner

• market analysis

• MLS listing

• yard sign

• lock box

Silver Services: Commission is 6 percent of sales price. Services include everything in the level above plus:

• color brochures

• notification of homeowners in the neighborhood about the listing

• notification of top 100 Realtors via e-mailed brochure

• Internet advertising on www.Realtor.com and other sites

• bi-weekly written reports of market activity

• open houses

Gold Services: Commission is 7 percent of sales price. Services include everything in the levels above plus:

• home warranty

• online Visual Tour

• special advertising; for example, the home will be one of four featured homes of the week on www.Realtor.com for the Scottsdale area and ZIP code

Platinum Services: Commission is 8 percent of sales price. Services include everything in the levels above plus:

• appraisal 

• an additional ½ percent commission to buyer’s agent (helps increase activity)

• certified home inspection via American Society of Home Inspectors–information to be shared with buyers

• two hours of interior design services for help in staging the home.

In addition to the approaches developed by these two top producers, many others exist. If you do plan to try a new lower commission structure, carefully define the services offered for the commission level charged and put it all in writing in your listing presentation. Whatever you do, stick to your system so that customers get fair treatment and the services for which they bargained.

Howard Brinton is a real estate sales motivational speaker and the founder and CEO of Star Power Systems, a sales training organization that offers tapes, books, videos, conferences and a club that distributes selling techniques from the nation’s top producers.