By Ross Wilson
In this second column in the series on the controversial topic of real estate fees, let’s begin with a few questions.
A prospective seller asks you to lower your usual professional fee. How do you handle this increasingly common tactic? Do you charge the same rate as you normally offer to pay a co-operating brokerage, say half of the total rate? If your seller agrees to also buy through you, do you charge a lower listing rate? What’s your fee for a “double-ender”? Do you promise to negotiate your fee at offer time? To reflect a lower rate, do you chop services, or offer various individually priced services from a menu? Do you even have a clear policy? Maybe you habitually surrender whenever the subject rears its ugly head? Or do you stick to your principles and refuse to budge?
If negotiating your fee is normal practice and/or you’re registered with a discount brokerage, that’s quite understandable because your practice is presumably structured accordingly. You anticipate providing incentives and hopefully enjoy sufficient volume and profitability to justify them. But full service agents, often with higher expenses and lower volume, must generate relatively higher commissions to reflect their business model. And until a dramatic industry shift occurs, for a business to stay solvent, it must remain this way.
Did you reduce any fees last year? How many times? A reduction, for example, of $2,000 for each of 10 transactions totals $20,000. If you’re an average producer, after expenses, that may represent a large portion of your net annual income. Did such generosity generate any referrals? If you had refused to reduce, would you have lost that client? Did they demand full service anyway?
Whenever I was asked to lower my usual fee, I’d normally respond by asking why they needed a reduction – and calmly awaited their reply. If unable or unwilling to respond, I’d ask if they were under financial duress and desperately needed my charity. If they denied being needy (usually the case), I respectfully refused and moved on. But if they persisted, I’d ask why they contacted me. If they said because they trust me, I’d ask what that trust was worth. Often, this would nip the problem in the bud.
Rather than automatically capitulate to a prospective seller’s demand, which is obviously the easiest thing to do, defend yourself by justifying your fee. Start by differentiating between your actual fee and that of the buyer agent. You may have to explain that you don’t receive the entire commission, that your company takes its share and also pays the co-operating brokerage. Offering an attractive buyer brokerage commission is just as important as establishing a realistic asking price. The list price is designed to attract buyers and the posted commission rate to entice their agents. Though such unethical practice is not officially condoned, when selecting properties to show a buyer client, it’s easy to inadvertently skip a listing offering a non-competitive co-operating brokerage fee.
Once your would-be seller sees the logic, you’ll no longer have to justify the full rate – only half. If, however, they still balk at your share, ask why they’d even consider paying you – who will have contractually undertaken to be legally and ethically bound to protect their interests (and spend your money and your time promoting their property) – a fee less than that being offered to the buyer’s agent whose intent is the exact opposite?
Ask how the seller would feel if forced to face aggressive buyer agents without your strong representation. What’s that assurance worth to them? Further, why would they want to hire a weak agent who would easily yield to their demand for a lower fee, and then expect that same agent to behave any differently under argumentative assault from a buyer’s representative? If you so readily surrender during the listing presentation, what will happen to the ultimate sale price when the rubber really hits the road and you’re negotiating with an aggressive, skilled buyer agent? Cave for one – cave for all.
In the next column, I’ll discuss the topic of risk verses reward.