I hear the same challenges from real estate professionals regardless of the market – they continue to face the age old objection about commissions. For the new agents in the industry, it should be noted that this problem has been decades in the making. The problem is not an issue with the public, though they ask us to negotiate our commission, but it is more so with the agents who do not feel they are worthy of a 5, 6 or 7% commission. This problem can be fixed if everyone would take a moment to analyze their profitability and understand their costs of doing business. I am not suggesting that you charge a specific commission rate, but rather that you choose a commission rate based on your forecasted revenues and expenses.
The reduction of 1% in your commission rate is a 15-20% drop in your gross revenue and more importantly, a drop of up to 33% in your net pay!! The cost to sell a house is the same at 6% as it is at 4%, the difference is pure profit. Most agents don’t realize the net impact of this drop or how it affects their take home income.
I often see agents cut their commission as a form of survival when they lack the skills to communicate their unique value proposition. They lack the skills and the training, so to compete they have to give away a piece of their paycheck to convince the public to do business with them. It is sad to watch them trade away their worth as a professional, and I don’t think they realize they are alienating the rest of the industry in the process. If these agents would take the time to understand the repercussions of their actions, maybe they would take the time to create a value proposition and the ability to communicate it effectively.
For the record, I want to state that not protecting your income demonstrates an inability to negotiate on many different levels, including the inability to negotiate on behalf of clients. If we are not careful, our boutique quality approach that many clients have enjoyed from their real estate professionals over the years will be replaced with a big box model designed to reduce us to order takers, and in the process, we will be working harder for less money.
Real estate is an unusual business – the salesperson takes on all the risk and their entire income is predicated on them closing sales. With salespeople getting a larger portion of the commission these days, they also assume more expenses which raises their risk. Whenever someone has risk, the return has to be in direct balance to make the risk tolerable. The problem is, many salespeople today have assumed the risk but in their lack of wisdom, they have also reduced their return so their business model doesn’t make sense.
It is easy to focus on the problem, but much more difficult to address the solution. In the next few issues I will supply you with some scripts for handling commission challenges. If you know someone in the industry who lacks the skills to protect their paycheck, or maybe has not thought about analyzing their profitability, please feel free to forward this issue to them and ask them to sign up for my free monthly subscription so they will receive the commission dialogues to set them on the right path. It is my mission over the next few issues to address this problem so salespeople will be equipped to deal with commission objections head on.
I wish you great success this month.
President, Leader’s Edge Training
Please pass this information along to anyone in your contact management system who you think would benefit from reading it.