Some of my clients ask me about cutting their commission to get a listing. And, I can’ t blame them for asking. It’s probably the most common objection/question you’ll get from a seller. And, with times being tough, if it looks like the only way you can get the listing is to cut your commission, well….
So, let me put this as plainly as possible:
NEVER, NEVER, NEVER, NEVER, NEVER, NEVER, cut your commission! It’s the absolute worst thing you could ever do. And it’s more detrimental to the seller than it is to you.
As with every rule there are some exceptions, and I will begrudgingly state two exceptions later in this post. However, if you are simply taking a listing and putting it on the market, then, in my book, there is no exception: do NOT ever cut your commission.
If you’re reading this and you work for a discount broker, then I’m really sorry for you. I mean that. And it’s not an insult.
First, you have to do more work for less money than if you got a full commission. Not to mention that since you already started off the relationship as metaphorically telling the seller your commission (and therefore your service) isn’t worth that much, and can be negotiated, you actually set yourself up for cutting it even more if and when it comes time to get the deal negotiated. That’s the first thing to go. The seller is at their supposed bottom line, and the buyer comes up to their supposed best offer. Whammo! The seller, or other agent says, knock a percent off to get this deal done, and there goes more of your money up in smoke.
Second, you’re not a salesperson, you’re an order taker. I’m sorry if that’s insulting, however, the seller is only interested in your service for the perceived notion that they will save money. If you were a full commission agent, you wouldn’t have gotten the listing. Yet, most times the seller won’t save money at all. In fact, they’ll leave money on the settlement table, thinking they saved 1, 2 or 3%.
Do your research and you’ll see it’s been proven that the list to sale price ratio of cut commission listings is considerably lower than that of normal (or higher) commission listings, on average. And that’s of the houses that sell. A large portion of cut commission listings (in every type of market) never actually sell, or end up listing and selling with normal commissions.
First, it’s a misleading line item number. Clearly 3, 4 or 5% is less than 6%. So, yes, if you sold two houses for $300,000 each, the one that paid 3-5% would pay less commission than the one at 6%.
The problem is, that’s not the real story. To show the real story, you need to base the percentages on the original listing price, not the final sale price. As studies have shown, typically the house for 6% would have sold much closer to it’s asking price than the one with the cut commission. So, to look at the two houses based on sold price isn’t accurate.
In other words, if I listed a house for $309,900 at 6% and sold it at $300,000, the seller will have gotten 97% of their asking price. Conversely, to get the $300,000 sales price on the cut commission listing, the listing was most likely priced at $335,000 or above, and sat on the market longer than the $309,900 listing.
This isn’t because of the market, either. Although in this market, the higher the commission the faster you’ll sell it. Really, though, this is just simple economics. Agents need to make a living, yet the average agent sells between 2 and 5 homes a year. So, if they have a buyer in their car, representing 20-50% of their annual income, they are going to want to take them to the higher paying commission listings, right?
And, since fewer agents will show cut commission houses, those houses will obviously stay on the market longer. That means they either reduce considerably and/or get low-ball offers (if any), therefore eventually selling for much less than they would have if they were listed at a higher commission.
And what’s worse is that agents who easily cut their commission typically have a habit of not being able to stand up to sellers on price, so they over price their listings, as well. And, as I’ve posted about this many times, over pricing a listing does the same thing as cutting the commission, only it’s to a much larger group. Both agents AND all the buyers won’t want to see over priced listings…so they stay on the market even longer.
That’s just the economics of the commission issue. The real issue is your mindset and belief system.
If you need to cut your commission, then you probably have a “worth” issue. You most likely don’t believe in yourself, your abilities, your company and/or your profession as a whole. If that’s the case, I would love to help you with that, and coach you on it. Please email or call me for a free coaching session with no obligation (info below).
I’m serious. What would happen if you asked your lawyer to cut his hourly rate to handle your case? Buh-bye. With insurance today, it’s not really a good example, however if you asked your doctor to cut his examination fee, you’d be sent to the free clinic. What about the taxi-cab driver, do you think you can bargain with him? You’ll most likely be walking those 8 blocks.
Unfortunately, the public thinks real estate is a negotiable service like if you were at a flea market. There is very little regard for the actual service provided. And that’s the industry and the agents’ faults. Because what’s 10 times worse is that agents by into that thought process, too!!! (I’ve actually heard of agents telling friends and family to go For Sale By Owner rather than use them!!!)
I know, the NAR has a code of ethics so that no group of agents can collude on commission and “harm” the public, yet the other side of that promotes an industry that is rife with 1) For Sale By Owners, 2) sellers who will only list with those agents that cut their commission and, 3) a public that believes that every agent is and does the same.
***1) According to the NAR yearly studies, FSBO’s, on average consistently leave more money on the table than listed homes…depending on the year they get between 16-27% less money. Ooooo, but they saved 6% commission!
***2) You know what happens when you go for the cheapest anything, you get what you pay for. It’s magnified when you go for the cheapest service. Using a cut commission as your only criteria when listing, without regard for sales skills and/or track record, is a terrible business decision. Yet, it’s practiced every day, in every market.
***3) This is evident every time you hear “I’m already interviewing some other agents, thanks anyway,” or, “I’ve already spoken to someone from your company,” or, “What are you going to do any different than my other agent? You all do the same thing,” or, “I’m going to re-list with one of the agents that showed my home.” Public perception is that there is no difference between a) buyer and listing agents and, b) agents in general.
What comes to mind when you think about someone representing themselves in court? How about someone diagnosing their own sickness and prescribing their own drugs? Or cutting their own hair? It’s no coincidence that one of the only professions that has as many members of the public trying to sell their goods on their own as real estate is the used car industry.
You need to realize that you are a professional who provides good quality service. If you don’t think you have the skills, then get training (see us at www.yourethedifference.com). You should be paid well for your services, you deserve it!
Following are the two exceptions for cutting your commission that I mentioned above. Under NO circumstances are you to offer to do this. This is only when the client insists, and you see it as a deal breaker. Even then I still don’t think you should cut your commission anyway, however:
1. You are taking a listing that a) you have a buyer for right now, or b) is a slam dunk based on price and saleability; in other words it’s easily going to sell very quickly.
2. You’re in the middle of a deal, buyer or seller, and the deal is big enough that you can afford to take a little off to get it to work to get the deal done. For example, if you’re selling a $150,000 house the commission is so low already that cutting it further will all but wipe you out after your split, taxes expenses and time spent. I still really don’t like this, but in the heat of the battle, sometimes you have to make a business decision. However, you better get the other agent to agree to split it with you.
*** DO NOT FALL FOR THE FOLLOWING UNDER ANY CIRCUMSTANCES:
1. You got an offer so quickly, you hardly did any work. Cut your commission. – Bull***. You did your job better than anyone could have. Tell the seller something like this: “I’m sorry, I thought you hired me to get the home sold. Did you want me to just let the home sit on the market? OR, “Oh, I mistakenly thought you needed to move. Should I tell the other agent you don’t want to sell?” OR, “Let me get this straight, you want to penalize me for doing my job better than virtually any other agent on the market (based on average Days On Market)?”
2. It’s your buyer, so you’ll make more…cut your commission. – No. Again, you did your job better than most could have. Second, you’re doubling your work load because you have both buyer and seller. Try something like this: “Mr. and Mrs. Seller, I listed your house and made it a priority to sell. There are literally hundreds of homes for sale, and I got this buyer to make an offer on your house instead of the 25 just like it. You’re house is selling literally because of my efforts. Now, I’m actually doing twice the work on your home working with the buyer and the seller. So, why do you want to penalize me?” If they persist, you can remind them that if the buyer were to buy another house, you would get full commission for the buyer and they don’t get their home sold.
3. Since we’re buying with you too, will you cut your commission? – There are at least six answers to this one in our book, Now What Do I Say?, however I will tell you that the prevailing mindset you need to have to answer this one is “Why would I cut my commission to do twice the work?”
Again, I invite you to call or email me for a free coaching session if you need help with the commission cutting issue.
And, either way, you need to buy some version of our Now What Do I Say? product line where we give you all sorts of ways to handle the “cut your commission” objection.
You’re The Difference