It's not uncommon to be asked by a potential seller if I will reduce my commission, especially in cases where this individual will also be using my services to purchase a new home. And oh, how I used to cringe when that question would arise. But having been in the business for a few years now and gaining a clear understanding of the time, effort, and manpower it takes to get a house sold, I've learned that saying "no" really isn't so hard after all.
So where does all that commission go?
OFFICE -- rent, electricity, phones, computers, copy machine, fax machine, secretary, sales director, paper, insurance, Closing staff, Accounting staff
SALES AGENT COMMISSION -- cell phone, errors and omissions insurance, tech fees, car expenses, association dues, license fee, personal web site, living expenses, self-employment taxes,
COMPANY PROFIT
CO-BROKE COMMISSION -- Incentive offered to other brokers to show and sell your house
MARKETING -- shorewest.com, billboards, radio, mailings, open house, Shorewest TV, yard sign, Shorewest hotline, smart phone apps, listing flyers
Charging less means spending less.
If the broker spends less on overhead, they wouldn't be able to do the work they need to do.
If the broker reduces the percentage paid to the sales agents, those agents will work elsewhere.
If the broker reduces their profit margin, they won't survive.
If the broker reduces the co-broke percentage, fewer agents are motivated to show their listings.
And if the broker reduces the marketing dollars, homes will not get the same level of exposure, which translates to fewer buyers, longer times on the market and lower sale prices.
I remember when I bought my first house I did the math. I thought the agent, who both listed and sold the house, was walking away with literally thousands of dollars in her pocket on a $100,000 house.
But I get it now.
Those thousands of dollars are covering several paychecks and paying several overhead bills.
I just have to remember that the general public isn't in the business so really have no way of understanding this, and it's therefore my job to explain it to them. And it's my job to prove to them my broker and I are worth every penny.
Peggy - Great explanation of where it all goes. The other expense that is not know is when a lender takes part of the commission just because they can. That really makes me mad when at the last minute they spring that trap. Oh well, what can we do? Thanks for the blog.
Sellers see that X% and think it all goes to one person, and often dont understand how chopped up it gets, and they forget it cost money to list and sell a home!
In the mortgage world people think the same way, we actually have costs calculated out per unit so we truly know what it costs for each transaction, and once you discuss paying for rent, electric, postage, Processing etc they begin to "get" it!
When I am asked to drop my commission, I give them a confused look and ask them to repeat what they just said. Sometimes they can't get up the nerve to ask twice. If they persist and ask again, I smile sweetly and say, "No, but thanks for asking. Now, do you have any other questions I can answer?" It really does work a lot of the time :o)
Steve -- I do really think it's a matter of educating our sellers. I don't know that I've ever experienced what you describe with a lender, although I'll certainly be more alert now!
Robert -- I agree -- if we take the time to explain, I think most people do "get it" and are more receptive to our fees.
Mary -- Your comment made me laugh. I like "I give them a confused look." I, too, tend to just say "no" and nothing more unless they ask for more info.
Peggy, This is a perfect explanation -- just right to give to your clients.
Peggy - I'm sure most people think that we make a ton of money on every transaction. Most have no idea of where it all goes. Thanks for the post.
This makes a good case for including in my listing presentations an explanation of why my business model is the most efficient and cost effective in the industry. Once the foundation is laid, it's a lot easier to prevent or defend commission erosion attempts during the process.
Peggy, Many sellers ask if you could go down just 1%. But what they don't realize is that if I go from 6% to 5% (just for example sake) that is a TWENTY PERCENT cut in pay.... thanks, I will probably reblog this one, thanks!
Gary -- Thank you. I think I am going to just include it in all my listing packets.
Jim -- I agree. I think it's a matter of educating them.
Mike -- Excellent point. I agree having a clear understanding from the beginning can only benefit us.
Pat -- Thanks for reblogging! And I never did the math you explained above. Yikes!