I was recently on a listing appointment with a potential seller in my own neighborhood area of Hawk’s Landing.
The couple, who are in their later years, will move into Oakwood Village on the west side after they sell their approximately $1M home. They built the home in 2003. They plan to do this within the next 6 months. Let’s call them Richard and Barbara.
The appointment went great. I was 5 minutes early, had my CMA (comprehensive market analysis) in-hand, and even rushed to bake a dozen gooey chocolate chip cookies, to which Barbara squealed with excitement when I handed them over. Richard then led me around on a tour of their beautifully sprawling home which abuts the golf course.
Beautiful property, beautiful view. I commented that I have the same lovely sunset view from my back deck, which I do.
Finally, we sat down at the kitchen table. I presented my CMA of comparable sold homes in the area and asked Richard to tell me what he would like to receive for their home. He was confident they could get over $1M. I was in full agreement and offered some pricing strategies to get to his desired amount.
Finally, came the talk about my ‘Success Fee’, a.k.a Commission %…
(Some of us REALTORS® like to call this our ‘Success Fee’. We are only paid it when we actually successfully find them a ready and willing buyer who offers an acceptable price for their home.)
Barbara joined us at the kitchen table. I showed Richard a sample of the Wisconsin listing agreement and stated my compensation, which is the standard rate for the Madison area.
Richard said, “That’s a lot of money.”
This is where I gladly explain some of what I do as their real estate agent to get top dollar for their home. I explained why I don’t discount my commission. It was tempting to go into the whole anecdotal story about how if you go to the doctor and he tells you that you need heart surgery you don’t ask for a discount, or worse yet, for him to cut out some of his services for a lower price, but I didn’t go there.
After the meeting, I thanked them for a tour of their lovely home and said that I would be honored to help them with their needs.
Fast forward to this past week. I just wrapped up attending the Wisconsin REALTORS® Association’s Annual Convention at the Kalahari Resort in the Wisconsin Dells.
I’ve never been surrounded by so many REALTORS®. Not surprisingly, this same topic of the dreaded pushback conversation from potential clients about our Success Fee came up time and time again. I was rather shocked when many REALTORS® admitted to readily discounting their fee with clients to win the listing.
They did this by presenting a comprehensive list of all that they will do to sell a client’s home and then ask the client what they would like to cut off of the list in order to get the lower fee %.
Let me tell you why this is a terrible idea and a detrimental practice for real estate professionals.
While some argue that lowering commissions can attract more clients, it ultimately undermines the agent’s worth, professionalism, and the quality of service they can provide to clients.
Before I get into the list, let me just point out the obvious: when a real estate agent immediately agrees to drop their Success Fee (Commission %), is that really the kind of agent you want negotiating for YOU and what, for most people, is the largest investment of their lives, when they can’t even stand firm in their own justification of their skills for their services.
What if they instantly cave on your deal as well?
Read on to learn more about all that your REALTOR® must know and perform for YOU. This list only really scratches the surface mind you.
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Expertise and Knowledge
One of the primary reasons not to discount commission percentages as a real estate agent is the value of our expertise and knowledge. Successful real estate transactions require in-depth understanding of the local market, property values, negotiation tactics, and legal intricacies. By discounting commissions, agents signal a devaluation of their own expertise. It implies that our knowledge is expendable, which leads clients to question the quality of service they will receive.
For instance, when a client approaches me to buy or sell a property, they are not just paying for the time and effort I invest during the transaction but also for my years of experience and the insights I can provide. This experience translates into helping clients make informed decisions, negotiate effectively, and navigate complex contracts. A discounted commission deters potential clients who may perceive it as a lack of confidence in my abilities.
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Quality of Service
Discounting commission percentages leads to a decline in the quality of service provided by real estate agents. When an agent accepts a lower commission, they’re tempted to cut corners or rush through transactions to make up for the lost income. This can result in a less comprehensive service, potentially leading to poor outcomes for the clients.
Real estate transactions are not just financial transactions. They are life-changing events for many individuals and families. Clients rely on their agents to guide them through this process, ensuring that their interests are protected and their needs are met. By discounting commissions, agents may compromise the quality of service they can offer, leaving clients at a disadvantage.
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Commitment and Motivation
Another critical aspect to consider is the agent’s commitment and motivation. Real estate transactions often involve a significant amount of time and effort, including property research, market analysis, client meetings, negotiations, and paperwork. A full commission ensures that agents are adequately compensated for their dedication and hard work.
When agents discount their commission, it can lead to a lack of motivation and enthusiasm. The financial incentive to go above and beyond for clients diminishes, potentially resulting in a less thorough and less dedicated approach to their work. Agents who earn a fair commission are more likely to be highly motivated, working tirelessly to achieve the best possible outcomes for their clients.
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Marketing and Resources
The real estate industry is highly competitive. Successful agents invest heavily in marketing and resources to attract clients and provide top-notch service. This includes expenses related to advertising, professional photography, staging, and legal support. A fair commission allows agents to cover these costs and maintain the quality of their marketing efforts.
When agents discount their commission, they may struggle to allocate sufficient resources to marketing and other essential aspects of their business. This can result in subpar marketing materials, limited exposure for listings, and inadequate support during the transaction process. Ultimately, this compromises the client’s experience and can lead to a less successful transaction.
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Legal and Ethical Considerations
Real estate transactions involve intricate legal and ethical considerations. Agents are responsible for ensuring that all aspects of the transaction comply with local laws and regulations while adhering to ethical standards. Cutting commissions too low can tempt agents to take shortcuts or neglect vital legal and ethical responsibilities.
Maintaining a fair commission is essential for agents to invest in ongoing education and training. That allows us to stay updated on the latest legal and ethical guidelines. This knowledge is crucial for protecting clients and avoiding potential legal disputes or ethical violations. Discounting commissions can undermine an agent’s ability to meet these obligations.
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Client Expectations
When an agent discounts their commission percentage, it can set unrealistic expectations for future clients. Word of mouth and client referrals are essential in the real estate industry, and clients talk to one another. If one client hears that an agent offered a steep discount to another client, they may expect the same treatment.
This can create a cycle of decreasing commissions. With more competition, agents are constantly pressured to lower their fees to attract clients. Over time, this devalues the profession. It makes it challenging for agents to sustain their businesses. It’s important to set a standard commission rate that reflects the value of the service provided and maintains professionalism within the industry.
Conclusion
Discounting commission percentages is a practice that real estate agents should avoid for several compelling reasons. It diminishes the value of an agent’s expertise. It compromises the quality of service provided to clients. And it can lead to a decline in commitment and motivation. Moreover, it limits the resources available for marketing and legal compliance and sets unrealistic client expectations.
As a real estate agent, maintaining a fair commission ensures that clients receive the highest level of service and professionalism. It allows agents to invest in their expertise, dedication, and resources. Ultimately this results in successful transactions and satisfied clients. In the competitive world of real estate, providing value should always be the priority. That begins with recognizing the worth of our profession and the importance of fair compensation.
That reminds me, I never got my Tupperware back from Barbara. I better follow up and see if they found a discounted REALTOR® yet.
For more information of real estate commissions, check out this informative article from U.S. News & World Report,
How Do Real Estate Commissions Work?
https://realestate.usnews.com/real-estate/articles/how-do-real-estate-commissions-work
If you would like to have a further discussion about the services we provide at Copa Playa Realty, please reach out.