For years, brokers have been training agents to sell buyers on the idea that the buyers were not the ones who would be paying their commission.
This is actually misleading, but the idea has survived into the modern era for many reasons, the most obvious of which is that the industry needed (and still needs) a convenient line to put cash-poor buyers at ease about the homebuying process.
However, the fact of the matter is that in the age of information, the curtain has been pulled back, and all that was once in the “restricted access” realm of real estate open exclusively to agents has been laid bare.
The value a buyer gets from their real estate agent is under greater scrutiny than ever.
Historically, we have been saying “the seller pays” because brokers thought sellers would perceive greater value in a listing agent than a buyer’s agent and that it would be easier to convince sellers they pay commission given the agents’ costs of marketing, signs, broker’s opens and photos.
Factually, however, buyers pay their share, and as the evolution of the industry has challenged the value proposition of a buyer’s agent aggressively in recent years, smart buyers have realized that they are paying the buyer’s agent.
Ultimately, they’ve realized that they will be financing this over 15 or 30 years in their mortgage. To that point, they have started asking for rebates. A buyer who isn’t paying doesn’t ask for rebates!
Think of this as somewhat analogous to sales tax. Could you imagine if you were told the businesses you frequent pay sales tax, and you don’t? Anyone can go to the grocery store and see that sales tax is simply baked into the total you pay at the register.
The business simply hands your money over to the government. The same is true of a real estate transaction, and buyers have noticed that they are footing the bill for the transactional cost of doing business.
In fact, I would suggest that a real estate transaction potentially has a more veiled cost than sales tax. The price you see on the shelf for a product is just what the vendor receives, and then tax is calculated separately and added to the total.
In real estate, the price of the house already has the commissions baked in, making it seem like the buyer isn’t paying for the “tax” of having a real estate agent represent them.
But, as with so many other aspects of the industry these days, the real estate community hasn’t caught up; we simply haven’t figured out how to communicate our value to a wiser buyer. If you want to stay relevant to buyers you need to show up differently.
A buyer is not going to pay 3 percent just for a door-opener or a taxi driver or someone to facilitate paperwork.
There has to be something more, and luckily for us, there is!
Perhaps what they should be paying for are agents with the ability to:
- Win when others are writing dozens of contracts to get a deal
- Negotiate on price and concessions wisely with a deep understanding of local economics and trends
- Craft a winning strategy for home inspection negotiations
- Find opportunities that are not simply listed on the MLS
This is not everything we can do to be worth it, but it’s definitely a start. As an industry, we can be honest with our buyers, and we can find ways to be worth what they pay.
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Patrick Kilner is the founder and CEO of TowerHill Realty. You can follow him on LinkedIn.