A few months ago, I received a call from a customer I had been cultivating for several months. He was finally ready to list his properties but wanted to negotiate the commission. He told me he was interviewing several agents and that lowest commission wins.
I defended my full commission by highlighting my experience, expertise and success rates. I also laid out how much I invest in a property by covering the costs of professional photos, brochures, mailings, print and social media marketing.
He didn’t care.
All he wanted was the lowest commission. In his mind, his property was a hot commodity, and it would sell regardless. He further warned me that agents in my area were going to have a tough time when companies like Redfin hit our market. He told me they would put us all out of business.
It was evident that if I wanted his business, I would have to cut my commission to compete. I was angry about being backed into a corner, but I knew I had to remain professional because a reduced commission on several properties would be a significant amount overall. So, after negotiating, we finally agreed on a slightly reduced commission.
This was my first introduction to commission compression, but it has not been my last. To be honest, the question of commission reduction is often posed at listing appointments. I’ve learned that I can combat commission compression in most cases, but one size does not fit all. You’ve got to know when to stand firm, give a little or run away.
Before tackling how to handle commission compression, it’s vital to understand what it is. Simply put, it is the expectation for agents to cut their commission while providing the same service they would typically offer at a full commission. The disrupters and discounters lean hard on advertising that they do it for less. The consumer grasps this idea and expects all agents to do it for less.
Here are a few ways you can combat commission compression.
1. Set yourself apart from the competition
If disrupters are in your market, you’ve got to know what you provide that they don’t. Be ready to go toe to toe with any points thrown at you. Know what your competition provides and how you provide more.
Highlight you’re there for them beyond business hours and that your representation doesn’t stop when a buyer is found. You continue to represent them through repair negotiations, appraisal appeals and even after closing.
Most disrupters are not in the business to form relationships. For them, it’s all about volume. Because disruptive models pay a salary to their agents, the hunger to promote and succeed at selling their home might not be as intense as the agent relying on the sale to feed their family. Don’t be afraid to highlight that with you, they have a partner. With the disrupter, they have the name of one or more contacts.
2. Showcase your art of negotiation
Negotiation is a huge part of selling homes. Negotiating your commission is no different. If you have a hard time convincing a customer of your worth, then how will you be able to assure them you will get top dollar for their home?
Empathy is maybe the key to productive negotiations. Through asking questions and empathizing with your customers, you will have a better feel for why they are looking to save money on commission.
Is it because they still owe a lot on their home and are afraid they can’t afford a full commission? Is it because they don’t think agents work for the money they earn? Or is it because they read that commission is negotiable and that they should ask for you to do it for less.
If it’s about your worth, be ready to show your value. Go through your marketing process, show success statistics, and offer past client testimonials. If you go above and beyond, it will shine through.
3. Sometimes a small cut wins out in the long run
Like it or not, the days of full commission every time is a thing of the past. Sometimes, the benefits of a small cut will outweigh a set commission. But if you choose to cut, be ready to cut even more when a buyer’s agent expects a full commission. Ethics aside, statistics show that homes with the standard cooperative commission are shown more than those with a reduced buyer’s agent commission.
If the customer has the potential to offer repeat business, a small cut might be well worth it. I’ve found that once I show my value to this type of customer, they are more likely to pay full commission on the next sale.
4. Don’t be afraid to walk away
In my experience, the clients that are adamant about arguing for lower fees turn out to be twice the work. If your gut tells you that the customer will be a high-maintenance client who doesn’t heed your advice or suggestions, walking away will save you time, money and aggravation in the long run.
Commission compression is something we will all have to deal with in the coming months and years. If you’re not already dealing with it, it’s just a matter of time before it will be at your doorstep. Be ready to fight for what you deserve when it comes.
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