Don’t Discount Commissions!

Think Real Estate trainer and compliance specialist Bill Robertson discusses why discounting commissions is always a bad business decision, and demonstrates what you should do to avoid being asked.

Every time I return from the land of the long white rugby world cup, I find I am always impressed by the average rate of sales commission New Zealand real estate agents charge their vendors – which is currently, and has been for a long time, around 4% + GST.

The New Zealand real estate market is rather slow at the moment, having come off their boom back in 2007/2008. Added to this, are the recent New Zealand natural disasters such as earthquakes and floods. However, back here in Australia, most of the East Coast is rather slow as well due to the market coming off, plus the current and past floods. Therefore, when you compare the general real estate market in New Zealand with the average market here in Australia (especially on the East Coast), the situations are rather similar.

How come real estate agents across the ditch can charge around 4% + GST whereas real estate agents, in general throughout the East Coast of Australia, struggle to have a vendor agree on somewhere between 1.5% to 2.5% + GST?

Right now in New Zealand, some clients have recognised that the general work of a real estate agent has diminished somewhat in recent years, due to automation – especially when it comes to prospecting, marketing, and showing the property. Therefore, a few agents are now lowering their commissions to 3% + GST – and advertising the fact strongly. Nevertheless, it seems this strategy has not changed the face of real estate for the remaining 99% of agencies who will not discount.

From what I was told, most New Zealand vendors agree – they are willing to pay top dollar commissions to a real estate professional who can negotiate hard on their behalf, to get the best possible price based upon the property itself and market conditions at the time.

This would be exactly the same back here, but why do we, as an industry, buckle when it comes to negotiating our own sales commissions?

As a professional real estate agent or salesperson, would you agree that helping a client sell or buy property, is a results-driven business – you only get paid if you get a result? However, if your accountant makes a mistake and the ATO does an audit on your return – you pay the tax owing, plus the penalty, plus your accountant’s fee. If the heart surgeon is unsuccessful in undertaking a triple bypass and you die, the heart surgeon still gets paid. If your lawyer loses the case for you, he/she still gets paid. However – if you fail to sell or buy the property you do not get paid!

What gets you full commission, at all times, is your attitude.

If you are so far behind the ‘8-ball’ when you do get paid a commission for a sale – why discount it at all? What gets you full commission, at all times, is your attitude. Do you have an attitude problem when it comes to negotiating your fee?

Reasons why a Real Estate Agent would cut commission:

  • The competition is doing it, so it has to be matched (or undercut).
  • The seller insists they do or they’ll take their business elsewhere.
  • The agent is too weak to debate the point.
  • Nobody has suggested they stand firm.
  • Nobody has shown them how to get a 3%+ fee.

Reasons why a Seller will Ask or Demand that you cut Commission:

  • Straight-out cheap skate/bargain hunter/looking to save money.
  • They actually do not like you or the industry you are part of.
  • They do not have confidence you can do the job.
  • They do not see the value of using your services
  • They do not know just how hard you work and hours you put in to find that buyer for them.
  • They perceive all real estate agents are the same so all they have to do is go shopping for the lowest commission dollar.
  • They are not serious about selling and playing games with you.

All Real Estate Agents are the Same

This is as bad as saying all computer retailers, travel agencies, and coffee-shops are the same.

  • Ever shopped around for the cheapest computer deal – and then cannot get technical support, advice or servicing?
  • Ever shopped around for the cheapest airfare through the cheapest travel agent – and the wheels fall off when a flight is cancelled or you miss the plane?
  • Ever shopped around for the cheapest takeaway coffee – and then you regret it when you take your first sip?

However, the above are cheap products when compared with selling a property. But we all know that people shop around for the cheapest real estate agent because they perceive you to be just like the rest.

Explain thoroughly how the market is the final arbitrator, and that your job is to find the premium buyer for the property.

Here are some Points of Difference:

  • Deliver a ‘pre-listing’ submission ahead of time – your personal ‘selling your property’ kit
  • Make your listing interview “question-based”.
  • Be at your “peak” during your ‘listing interview’
  • Explain thoroughly how the market is the final arbitrator, and that your job is to find the premium buyer for the property.
  • He or she is out there – you don’t know where they are, how soon they have to buy and how much they’ve got to spend but they’re out there. “All we have to do is try to find them”.
  • Be sincere, understand and show you care – you share a common goal. They want to sell their property and you want to get paid. A win-win situation.
  • Use your visuals – electronic or paper-based. They are like a data projector to a trainer – it helps them focus.
  • It takes two people to sell a property today. The seller and you. You both must be on the same side of the tennis net playing doubles, not on opposite sides of the net playing against each other. It is a team effort.

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