The ability to negotiate commissions properly has the most dramatic effect on how much profit you make in your business, because if you are talented you make more money on the same sale. If you do not handle this part of negotiations well, you will do all the work for nothing.
As far as your own income is concerned, you do not get what you deserve, you get what you negotiate.
Negotiating Listing Commissions
Real estate commissions are highly negotiable. Real estate as a profession is one of the most creative in offering different models of service that provide for different amounts of payment. There are firms that charge a flat fee for limited service, such as just putting your home in the Multiple Listing Service. There are discount firms that charge a lesser percentage commission in return for less service. There are real estate agents who provide a menu of service, and you select the items you want and get charged appropriately. There are full service real estate agents who negotiate their commission down from what they would like to charge. There are also full service real estate agents who charge more than their peers, and insist on a premium over the amount other agents charge. Just a cursory look in any city will reveal a large range of business models to show that real estate agents negotiate their commissions in many ways.
Concentrate on Value
One of the best ways to negotiate the commission on a listing is to provide such an image of marketing, service and advice that the clients would not ask you to negotiate your commission. In other words, if the perceived value of what is offered is so high, the client will not want to negotiate the price, as it could go up. When someone wants to trade you their $50 bill for your $20 bill, you do not open up negotiations to try to get a better deal. So, explain the features of your marketing, the exceptional services you provide, and the benefit of your negotiating skill to give the client an appreciation of the value.
One of the major features of your value is established by using fear of loss in your negotiations. Choosing the wrong real estate agent puts a large strain on the family when the move is uncertain and filled with problems. Having the wrong agent can also cause a financial disaster. Most sellers are afraid of making the wrong choice. You need to use that fear as a part of presenting the value of your service because part of what you are selling is security, protection and freedom from fear.
Brodrow’s Law from Negotiation Bootcamp is to be willing to walk away, always. The sellers will sense if you are desperate. They will also sense if you are willing to walk away. Convey your interest in listing their property, but also show your willingness to walk away in order to strengthen your bargaining position.
Some real estate agents believe that if they do not negotiate their commissions, they will lose their customers. The more successful agents believe the opposite: that if they do not defend their commission the seller will lose respect for them. The seller’s perception is that if you will cut your commission to below the market value, you may be worth less than market value.
My favorite statement to bring the point home is “You do not want me to cut my commission.” Then wait for the sellers to ask why. The answer is “If your agent is such a weak negotiator that they give their own money away, how well will they do when an offer comes in and they are negotiating with your money?” If you want to show some style, change the subject to ask what circumstances would make the sellers feel that they should pay you a bonus. When the sellers get you to give up the bonus, they see some value in the concession and may give up their discussion of cutting the commission.
Another approach is to use the higher authority technique. Indicate that your firm has a policy of charging a particular commission, so you cannot lower the commission for them, as you would have to lower the commission for everyone. A good phrase to add is that if you could cut your commission, the people you would do it for is them. But, you cannot. Some sellers may accept that you do not have the authority to reduce the commission.
Another way to deal with commission negotiations is to set the issue aside. Explain that you and the seller are a team, both in this effort together. You depend on them to have a good house in good condition that is available for showings at reasonable times. They depend on you to get the attention of potential buyers, make them appreciate the special features of the home, and negotiate offers to a great deal. If you end up with a great price, you are in it together as there is enough money to go around. If you end up with a price that is unreasonably low, then you will both be disappointed together, as they will take less money and so will you.
Explain that now is not the time to negotiate the commission as you have not been given a chance to bring in a good offer and prove your worth. If you do, you earn the full commission. If you don’t, you work with them at that time on the amount of the commission. Setting aside the issue until later has worked for me as I have yet to have anyone want to negotiate the commission after seeing how much our Team has done to sell the house. If you happen to do a less than wonderful job and want to share in the loss with your client, there are worse ways to resolve a client’s disappointment than by reducing some of your commission.
If You Have to Cut the Commission
If you are going to cut your commission, try to negotiate it in dollars, not percent. After all, a one percent reduction in a six percent commission is actually a seventeen percent reduction in the commission. Have the sellers ever gotten a seventeen percent reduction when they negotiate to buy a car?
The commission rate will vary, as there is no standard commission rate, so use whatever is appropriate for you. Many sellers are looking for a one percent reduction in the commission, as one percent does not sound like a lot to them. But, to you, it may be one percent of $1,600,000 which is $16,000. If you talk with them in dollars, they may be happy with a $5,000 reduction in the commission, as it sounds like a serious amount of money.
Another way to negotiate the commission is to throw in an additional benefit to justify leaving the commission alone. Offer to do hire an ASHI approved inspector for a pre-listing inspection or to provide a home warranty.
Do You Want to Make a Decent Living?
In order to provide for your family, you have to keep your clients from taking your money when you list a home for sale. In Create A Great Deal, the book on real estate negotiating goes into detail on how to get paid for all the work you do. Do you know how to negotiate when a discount broker is an option? Do you know how to use the basic economics of supply and demand to your advantage in order to get a commission that is higher than your competitors? Do you know how to get your client’s respect when you refuse to cut your commission?
If you would like to take home more money for the same work, click here join the Real Estate Negotiating Institute and participate in our discussion so that you will get the respect, and compensation, you deserve. You can also click here to pre-order my book Creat A Great Deal, The Art of Real Estate Negotiating, where an entire chapter is devoted to the issue of getting real estate agents the compensation they deserve.