We all know that real estate commission rates are negotiable by law. Therefore, as a great salesperson it falls to you to prove to the seller that you are worth the rate of commission that you are asking them to pay. You need to determine the rate of commission that is acceptable to you and allows you to do the proper job for the seller. Then it is up to you to explain all of this to the seller and negotiate with them what you feel is appropriate.
As I speak to real estate professionals across North America, the “average” rate of commission paid can vary drastically. However, I think we would all agree that the pressure on professionals to cut their real estate commission rates has never been greater. If you intend to hold the line on commission, you are going to need to be at the very top of your game!
Why is it that a lot of sellers today will usually expect to grind on commission? Sometimes they grind on real estate commission rates so much that it causes them to end up with a cut-rate agent who may not provide the services and exposure needed to sell the property at the highest price possible.
Potential Reasons Why Sellers Request to Cut Real Estate Commission Rates:
They may have had a bad experience and don’t think much of real estate agents in general;
It’s possible they have yet to see a presentation that inspired them enough to conclude the agent or agents are worth the fee being asked for;
The seller may feel the home will easily sell, and consequently the agent won’t be doing enough to justify the commission rate;
They are simply unreasonable and too difficult to reason with;
As savvy consumers, they feel as though they should at least ask for a lower rate just in case the agent would be willing to cut it down a bit. Even if they like the agent and feel the agent will bring value to the sale, they still feel the need to ask;
They may have low equity and are looking to the agent for help;
The seller feels since multiple deals are being conducted with the agent, there should be some incentive.
You don’t have to accept a rate that is less than you feel you are worth. You need to learn to present more powerfully and negotiate more aggressively. Stand your ground on what you are willing to accept.
Your failure to stand your ground when you take the listing will increase the likelihood that they will keep asking for you to concede on other aspects of your partnership, resulting in even more money leaving your pocket as the transaction plays itself out. If you make a habit of cutting the commission below what you know you are worth, it erodes both your profit and your confidence, and can quickly become a pattern that is hard to break. Furthermore, if you take a listing at a lower rate, there is a strong possibility that other sellers in the area will find out about it and expect you to do the same exact thing for them.
Real Estate Commission Rates Can Be Confusing Sometimes
Another reason sellers often ask you to cut your real estate commission rate is because they really don’t understand how commission works. They see the total percentage on a listing agreement and think, “Wow that’s a lot.” We know they really don’t care about how little you might net or how hard you might work. However, when you break out for them how the commission dollars are spent, it helps them understand how it all works to maximize the exposure for their home. After all, maximizing exposure and netting the highest price possible is really all they care about!
If breaking down your real estate commission rate becomes necessary to help them understand how it works, start off by explaining to them that you work for “X%” on the listing side, and that they have the option to decide what they are willing to pay the buyer agent. Encourage them to think about what percentage will incentivize the best buyer agents to bring their best buyers to the property. You can explain that (out of your percentage) you will need to pay your own fees off the top, and then split fees to your company and your broker.
Next, explain that you are fronting the money for all the marketing costs and staff time needed to assist you in the process. On top of that, explain that you are investing many, many hours of your time over the process of marketing, negotiating, and closing the transaction. “And the good news is, Mr. and Mrs. Seller, you don’t pay a thing unless you find the offer acceptable and choose to accept it and it closes. I, as your agent, take on all the risk and expense up front.” Of course, you may want to explain that there is a possibility that you will bring your own buyer and earn the full commission, and that this is something they should hope occurs because it will ultimately give you better control of the transaction.
What Will Convince Them To Pay A Higher Real Estate Commission Rate?
When meeting with your seller prospects, you have to remember one thing: They don’t buy the plane, they buy the destination. In other words, they don’t buy the features of what you are offering through your marketing efforts and services, they buy what those services will do for them — which is to help them net the most money from the sale!
Sellers appreciate good service. They expect it, and everyone always promises it. What they really pay more for though is skill and expertise! When you look at the website of most real estate agents, they talk a lot about service. When you look at the website of most major law firms, for instance, they talk about education, knowledge, skill, and results. We could learn a thing or two from them and how they position their value.
A few years ago, I had an opportunity to conduct focus groups with groups of homebuyers and sellers in the Orange County, CA market. I asked them what criteria they used when selecting a real estate professional. The number one answer was, “We look for a market expert.” They know that someone with experience and market expertise can help them save time, find the best opportunities, and avoid the pitfalls to have a smooth closing and stress-free process.
As you review and upgrade your listing presentation, be certain that it is emphasizing the skill and knowledge that you bring to the table and how that will net them more if they choose to partner with you as their real estate professional!
Why Agents Often Volunteer To Cut Their Real Estate Commission Rates
I often find that agents who are lacking in confidence will walk into a listing appointment and simply volunteer to cut their rates. If you are currently in the habit of doing this, please STOP IT. I understand that there will be times that you will make a business decision to take a cut, but at least require them to ask you to do it. Do your best to fight for what you are worth, and do not ever volunteer to lower your rates without first being prompted to do so.
I want you to always carefully consider any cuts you are thinking of making, particularly since it is vital to remind yourself that each listing costs you time, money, and brings with it a certain degree of risk. If you do the math to calculate what each listing costs you, you will need to factor in hard costs, both your time and staff time, and come up with a grand total. In a sense, each time you accept a listing you should think of it as you writing a check to a seller for this amount. You need to think about it and determine if it’s worth it.
Will you get your money back plus a profit? Think of that one lyric from a well known Kenny Rogers song: “You gotta know when to hold them, know when to fold them, know when to walk away and know when to run!”
Appreciate the reminders!
I need to update my “ace in the hole” list as to the value I bring to the table and why cutting commission is not an option.