Compensation Conundrum


Of all the questions that make real estate brokers cringe, “Will you cut your commission?” probably tops the list.

Sometimes the question comes on the phone before you have even met the seller. Perhaps the question comes after you have been working with the seller for weeks to get their house ready (and the seller has spent several hundred dollars to do so) so now when it comes time to sign the listing agreement, the seller wants to save a few dollars and cutting your commission is the quickest means to that end. Or it could be that because you have a relationship with the seller, a commission cut is expected.

If you have been cringing a lot lately, below are three steps to overcoming the compensation conundrum and educating clients about the value of a REALTOR®’s services.



STEP #1 HAVE A COMPENSATION RULE

Whatever the situation, the first step in addressing the commission conundrum is to have a rule around what you charge. Commissions and fees are negotiable; therefore, you get to decide what you want your business model to look like. You have to know the right fit for your brokerage and how you do business. For example, if you say you have a rule to charge a fixed commission rate , but review your listings over the last year and find that your average rate was less than that percentage, then you don’t have a rule.

A good rule of thumb is to not cut your standard compensation unless you want to.. That allows you the freedom to do a deep discount when for example, a family has lost everything in a fire and needs to move. It also allows you to easily say no (nicely — more on this below) when you have a seller who is simply trying to save a few dollars. You may also decide you want a rule to allow for a discount for repeat clients or if you will be representing the seller on their listing and they plan on buying as well.

If you don’t have rules around your compensation, make them today and tape it up somewhere in your office so you remember to enforce it!

STEP #2 KNOW YOUR SYSTEM

As a broker, create a system for selling homes that is more robust than what most other brokers do in your marketplace and have props as examples for each step. Show an example of your house flyer. Show an example of your “just listed” cards and letters that you should be sending out to the neighborhood where you announced the listing and open house. Show samples of a property book that you create and leave in the house. Showed samples of the photography.

Complement your listing presentation on your tablet with good old-fashioned print materials. Create portfolio boards that showcase systems for print marketing, online marketing, photography, pricing, open houses, communication and more. Imagine handing your potential seller a 15” x 20” board with miniature mounted example templates which you will customize for their home. Or imagine handing the seller a portfolio book of homes you or your photographer have photographed. If you do want to show samples of your online virtual tours or video, this would be the time to utilize the tablet, but printed and well-presented props will complement your presentation. Props show the seller what they can expect, what you are committing to, and that you understand marketing. Oftentimes, having a strong presentation like this is enough to wow the seller and they won’t even ask for a cut in commission.

Once you know your rule and your system, then you can more easily know your truth and be able to know in your gut what you will and won’t do and the reasons why. Remember, if you provide full concierge service, there is a place for you in the market. If you are at a discount brokerage, there is room for you too. Our marketplace supports both a Nordstrom and Target pricing model, but until you educate sellers, they may not know where they are shopping.

STEP #3 GET INTO THE CONVERSATION

Despite all your preparation, you might still be asked to cut your commission. Before you jump right in and say, “NO!” I encourage you to first get into a conversation and learn why the seller is asking. I wish I could list all the reasons I was given as a broker, but here are the top three:

  • “Another agent said they would do it for x%. or a flat rate”
  • “We need to get as much money as possible out of this house in order to move into our next house. If you suggest the price of $x we need to make up the difference somehow.”
  • “I just can’t see how what you do is worth $x.”

Unless you ask, “Why do you ask?” you won’t know their motivation for asking for a reduction and knowing their motivation is key in overcoming their objection. The motivations listed above can be addressed with education about the services you provide versus a broker who may be discounting their fees. Educate them regarding how the market works and how the marketing you do or the service you provide will possibly save them money. Here is how that might work:

“I can see how you would think you are saving money by going with a broker who can sell your home for x%. I don’t know exactly what their system is so I can’t tell you how my system compares, only how it performs. In the last year, my days on market average is 19 days while the MLS in this area as a whole was 34 days. That means that compared to the average broker, I sell homes 78% faster than the average agent. Furthermore, my list to sales price ratio is 99.4% while the MLS as a whole is 95.8%. Using an example home priced at $300,000, the average agent might sell your home for $287,400 but with my average, it would be closer to $298,200. Saving 1% on commission would only net you an additional $3,000, but my proven listing system indicates you could save even more — another $7,800 compared to the average agent.”

You can also talk about your truth and your business philosophy:

“Client, I do not discount my fees and I would like to share with you why I don’t. I have a business policy to only offer full service while listing your home. That means I will use all the systems and processes I showed you earlier to get your home sold. I only know how to work at a higher level and I don’t alter my level of service on a day to day basis. The system I use works and it gets stellar results. I would love to get those results for you but I don’t discount to try to win your business. But I hope I can work for you because I know what it will take to get your home sold and I am prepared to do it.”

These examples are not necessarily scripts, but to show you what it might look like to speak your truth in a nice way. Imagine someone asked you right now to cut your compensation. What is your truth? Do you know what it will take to get a home sold? Do you know that your system is effective? What does your gut say? Once you know your truth, you can think about why your truth benefits your client – and that is how you say no but in a nice way.

So next time someone asks you to cut your compensation don’t cringe. Instead, view it as an opportunity to begin a conversation to allow your client to have a deeper understanding of your processes, their effectiveness, and why sometimes they need to pay a little extra to reap some big benefits.

The founding partner of The Lones Group, Denise Lones, brings over two decades of experience in the real estate industry. Visit www.thelonesgroup.com for more information.


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