(Disclaimer: This article is about sales commissions earned by real estate professionals when working with sellers and buyers in a real estate transaction. All commission examples are used for context only. Remember, in real estate, all commissions are negotiable.)
I recently searched Google asking the question, “Are real estate agents overpaid?” The search results were eye-opening. Most of the comments I read were negative. Here are some of the ones I read that did not contain inappropriate language:
- “Real estate agents are the most overpaid, useless professionals on the planet … ”
- “Is there anyone in this country more overpaid than real estate agents?”
- “6 percent commission has always been too high, and especially in these challenging times.”
- “Real estate agents are a rip-off.”
- “No real estate agent is worth that kind of money.”
- “Why can’t we solve the real estate agent 6 percent rip-off?”
After reading these, it became apparent to me that we, as an industry, have done a terrible job of conveying our true worth to the consumer. Many believe we don’t work very hard for the money we charge a client to assist them in selling or purchasing a home.
From the consumer’s point of view, we stick a sign in the front yard, do some paperwork along the way and get paid a ridiculous amount of money at closing.
From a bigger perspective (the 30,000-foot view, as I like to call it), we’re not the only industry suffering from a “professional rip-off” consumer mentality.
Doctors, attorneys, accountants, CEOs and others are right there with us when it comes to the idea that service providers and business executives charge too much for what we do. We can overcome the negative public perception concerning the value we bring to a real estate transaction, though. Here’s how.
To be successful in this industry, you have to believe in two things: yourself and the services you provide a buyer or seller. Don’t expect the consumer to accept the fee you charge if you can’t show them you’re worth every penny of it.
We do a tremendous amount of work to get a real estate transaction from the offer stage to the closing table. If you don’t convey to the client what you do behind the scenes to get the transaction closed, you will always be fighting to keep your commission.
If you’ve not experienced it yet, you will have a prospective seller or buyer client ask, “Is your commission negotiable?” When a prospective client asks me if I am willing to negotiate my commission, I always respond with, “Of course. How much more are you willing to pay?”
Seriously, I do this every time a client confronts me about my compensation. Some laugh; some do not. I do not lower my commission. No matter what the client’s response is, I always stand my ground on the amount of commission I charge in a transaction. Of course, there are exceptions.
If a seller client is a friend, and they allow me to represent them in the purchase of their next home, I might lower the commission slightly since I will benefit from two concurrent real estate transactions. The keyword is “might.” It depends on the client’s financial circumstances, personal situation and our relationship.
Most of the time, when a seller client asks me to consider a lower commission, they are in the midst of a financial crisis and need every penny they can get at closing to service their debt.
Once, a single mother with four small children asked me to help her sell her house because her ex-husband stopped paying child support and alimony (he eventually ended up in prison on drug charges), and the mortgage company was about to initiate foreclosure proceedings. Her job did not pay her enough to cover the monthly mortgage payment.
To assist her, I elected to waive my listing commission, so she would have more money at closing to move on to the next chapter in her life. Outside of selling a property for my church, this was the only time I did not charge a fee.
The unrepresented party in a transaction
What should you do if a buyer wants to make an offer on your listing, and they don’t have an agent? Do not lower your commission if the property comes under contract with an unrepresented buyer.
Also, you should not reduce your fee if you decide to be a transaction broker/facilitator in the transaction. In both circumstances, you will find yourself doing more work because the buyer is not represented.
Defending your paycheck!
Almost every real estate licensee in the U.S. is an independent contractor. As an independent contractor, you’re paid on a commission basis and must report your income to the IRS on a 1099 form.
Your commission is your paycheck. Your commission checks may be frequent if you are a high producer or infrequent if you sell just a few properties annually or work as a part-time agent. In any case, the money you receive goes to operating your business and maintaining a desired standard of living.
Currently, the question concerning compensation arises for listing agents more frequently than with buyer’s agents. However, as the industry changes, this may become more of a point of discussion if a buyer’s agent doesn’t receive compensation from the listing broker through a shared compensation agreement.
Time will tell. In the meantime, the following tips are designed for listing agents who are challenged on their compensation from a prospective seller.
When you are faced with the “Will you lower your commission?” conversation, you need to be armed with the necessary weapons to counter the client’s request. The following three strategies can assist you in keeping your hard-earned money in your pocket:
- If the client says the “other agent” will charge less commission, tell the client, “If he is willing to charge less commission, how do you expect him to get the most money for you when he is negotiating with the cooperating agent?” Tell them they will get what they pay for.
- If the client says he or she needs as much money as possible at closing, explain to them you are skilled at finding a buyer. Would they cut their salary in order to allow their boss to make more money? They will say “no.” With this example, you need to use your unique value proposition as a tool in comparing lowering your fee to them taking less in their paycheck.
- Say “no” to the client. Sometimes you need to tell the client your commission is non-negotiable, and stand your ground. Some clients will respect you for doing so and will be willing to move forward with you. Others will not. Remember, you must show your value to them before you say “no.”
The bottom line on broker compensation is that we are paid what we are paid because of what we do for the client. In fact, I believe we should charge more to navigate our clients through the crazy and unpredictable real estate market we’ve experienced over the past few years.
Real estate transactions are becoming more complicated, and the risk for the client and the agent continues to increase. We will not survive if we do not have the means to operate our businesses in a professional manner that allows us to meet the needs of today’s sellers and buyers.
John Giffen is Director of Broker Operations for Benchmark Realty, LLC in Franklin, Tennessee. He is the author of “Do You Have a Minute? An Award-Winning Real Estate Managing Broker Reveals Keys for Industry Success.”