As the market heats up, new discount commission models are coming back into the market. What can you do to demonstrate the value you bring to the transaction that will also generate a full commission for you?
Finding a house is the easy part
Leslie Ebersole recently made an astute observation on the Facebook Raise the Bar group: "It’s easier than ever to find a house, but harder than ever to actually buy one."
The primary reason that sellers challenge you on the amount of commission that you earn is that they don’t see the value in the services you provide. Because many of the best Realtors do everything in their power to make the selling process as easy as possible for their clients, sellers really don’t have a grasp of how hard it is to close a transaction.
Many companies offer a "seller’s guarantee of services." In most cases, these guarantees outline what the agent will do in terms of marketing the seller’s property. If the agent fails to perform, the seller can contact the broker/manager and ask to have another agent assigned to the listing. This powerful approach protects sellers from being stuck with an agent who is not doing the job.
While the guarantee is a powerful tool, very few companies and agents outline all the steps that are required to close the transaction. As Ebersole correctly noted, finding a house is the easy part of the transaction. Most experienced agents will tell you that locating the right property is about 10 percent of the work. The other 90 percent is getting the transaction closed.
Consequently, when it comes to earning a full commission, it’s important to educate your sellers about all the steps it will take to close their transaction. You can do this with a list that includes all the required contracts, disclosures, samples of reports, etc. The more detailed the list is, the better. An even better approach is to post this list to a transaction management platform or even to a cloud-based tool such as Evernote where you can quickly send all the materials via email.
In most states, there are more than 100 different steps (documents to be signed, inspections, appraisal, etc.) required to close most transactions. When your sellers realize what is entailed in the process, it makes it much easier to argue for a full commission.
Use numbers to make your case
While this approach requires you to track your results and to be powerful at persuading sellers to be realistic about their asking prices, it is one of the best ways to earn a full commission. The first step is to identify two important statistics from your multiple listing service. The first statistic is the average number of days on the market. The second statistic is the list-to-sell-price ratio, which is the final selling price divided by the original list price.
Once you determine these numbers, the next step is to determine the average days on the market for your listings. If your average "days on market" is less than the MLS average, that means the sellers have fewer carrying costs on their property. For example, if the average days on market is 75 days and you sell your listings in an average of 45 days, that means that the seller has one month less of carrying costs (mortgage interest, utilities, insurance, possible homeowners association dues, property taxes, etc.). It also means that the sellers are less likely to have to reduce their price.
Assuming that the seller’s house is listed at $200,000 and the payments are $1,200 per month plus another $500 per month for additional carrying costs, the seller would save almost a full point on the commission ($1,700 in total carrying costs vs. $2,000 for one point of the commission) just by selling more quickly.
The second step is to calculate your personal list-to-sell-price ratio. Assume that you sell your listings on average at 98 percent of the original asking price and your MLS average is 94 percent. While your sellers would normally receive $196,000 as their sale amount, the sellers represented by the average agents in your local MLS would receive $188,000, a difference of $8,000, or four points on the commission.
Taking these two numbers together, listing with you would net the seller $9,700 more as compared to listing with most other brokers in your MLS. Even if the competing broker were to reduce his or her commission to 3 percent, the seller would still net $2,000 more with you.
If the seller is interviewing other agents, advise the seller to ask your competitors how much they net their sellers. Virtually none of them will be able to answer, so the listing should be yours.
As the market strengthens, commission cutting will once again become an issue for full-service agents. If you haven’t done so already, it’s time to dust off those old commission defense scripts and prepare for battle.