Sellers, there’s a downside to commission cutting

Consumers who don't understand how agents are paid need lesson in 'discounting'

Did you know that many consumers believe that if you earn a 6 percent commission you keep the entire 3 percent on the buyer or seller side of the deal? It’s no wonder that they feel commission cutting is fair game. What can you do to educate them otherwise?

Back in 2005 I wrote a book titled “Waging War on Real Estate’s Discounters.” The book has more than 100 strategies on how to defend your commission in a seller’s market. One of the most important points, however, is that the moment your sellers ask you to cut your commission, what they are really telling you is that you have failed to demonstrate your value.

Negotiations image via Shutterstock.
Negotiations image via Shutterstock.

Arm yourself with a premium marketing plan

An excellent strategy for demonstrating your value is to give your sellers a written premium marketing plan. This plan outlines all the services you provide to give the sellers the maximum exposure that results in the maximum price for their property.

Two powerful commission defense scripts

You will also need at least two scripts that illustrate why it’s better to hire you as opposed to an agent who cuts his commission. When a seller asks you to cut your commission, two of my personal favorites are:

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  • “Mr. and Mrs. Seller, in order to achieve the highest possible price for your property you need someone who is a strong negotiator, wouldn’t you agree?” (Wait for their response.)
  • “So if John Agent from Competitor Realty couldn’t even negotiate a full commission on his own behalf, how effective do you think he will be negotiating the best possible price on your home?”

Another favorite comes from San Francisco Bay Area real estate broker Allan Bernardi:

The primary challenge facing agents right now is that the public doesn't understand how much the agent actually nets at the end of the day.
  • “Mr. and Mrs. Seller, this is my premium marketing plan that will help you obtain the highest possible price in the shortest amount of time. If you would like to pay a lower commission, perhaps I can find a junior associate who is willing to work for less money.”

Please note that neither of these scripts mentions the word “discount.” Discounts are perceived as a benefit. Instead, the first script addresses the seller’s need to net the most from the sale, and the second closes on the fact that no one wants to be represented by a “junior associate.”

The six-card commission defense

At this year’s Real Estate Connect San Francsico conference , Ben Kinney of Keller Williams revealed one of the best commission defense strategies I have ever seen. The primary challenge facing agents right now is that the public doesn’t understand how much the agent actually nets at the end of the day.

A second challenge is that agents are now receiving phone calls where the homeowner asks, “How much do you charge?” If the agent answers, “Six percent,” the caller hangs up before the agent has a chance to explain his services.

Kinney’s approach to this situation addresses both of these issues. Here’s what he does:

1. Kinney comes armed to the listing appointment with at least 10 business cards. He uses these cards to illustrate what happens with commissions.

2. When clients ask, “How much do you charge?” his reply is, “Three percent.” This is also the answer to the phone call that asks, “How much do you charge?”

3. The next step is to ask the seller, “How much do you want to pay the agent who brings the offer to you — it can be 2 percent, 3 percent, 4 percent or even more.” Assuming that the seller says, “Three percent,” he puts aside three cards in addition to the three cards representing his commission.

4. He then continues by explaining: “Just so that you understand what happens to the 3 percent that you will be paying me,” he takes three cards and continues as he removes the first card, saying, “Every agent has to pay their broker part of the commission.” He takes the first card and puts it aside.

He then picks up the second card. “This amount goes to the marketing of your property,” which includes such services as professional photos; video; Web marketing; social media marketing; newspaper ads the agent pays for; brochures; gasoline; and all the other expenses entailed in marketing a home.

He then puts that card aside, picks up the last card and says, “This is how much I get paid.”

He then tears the card in half and says, “But I have to pay taxes, so this is how much I keep.”

He then asks a very important question: “So if another agent offers to lower their commission, where do you think the money comes from? Three percent goes to the other agent, 1 percent goes to their brokerage, and the government keeps 50 percent of what they earn. They’re not going to take food out of their children’s mouths, so the only place where this money can come from is by cutting into the 1 percent that I use to market your home.”

So the next time a client asks you to cut your commission, try one of the two scripts above, or if you’re feeling adventuresome, give Kinney’s approach a try. It works for Kinney’s team and it can work for you, too.

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of the National Association of Realtors’ No. 1 best-seller, “Real Estate Dough: Your Recipe for Real Estate Success.” Hear Bernice’s five-minute daily real estate show, just named “new and notable” by iTunes, at www.RealEstateCoachRadio.com.


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