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Mastering The Art Of Commission Negotiation

About 20 years ago I attended a seminar and while I don't remember the name of the speaker that day, he definitely was an expert at teaching people how to negotiate.

There was one simple phrase he communicated to us that has stayed with me ever since. In fact, the moment he mentioned the phrase I recognized how important it was for anyone negotiating in a business situation to understand:

"When negotiating, don't give a concession unless you get a concession in return."

When you look at and read this phrase, you may realize that it in fact forms the basis for the entire negotiation process. Because negotiation is about giving and taking, while continually moving towards reaching a successful agreement for everyone.

As a real estate agent, there are times when you'll want to implement this approach for yourself, and in doing so you will be handsomely rewarded, too.

With this in mind, one of the greatest mistakes I see real estate agents making is simply caving in when it comes to negotiating their commission. In fact, in situations like these, the conversation between an owner and agent might go something like this:

Owner: "I only want to pay you a 4 percent commission instead of the 6 percent commission you're asking me to pay you."

Agent: "OK."

And then, looking at it after the fact, going from a 4 percent commission to a 6 percent commission is a 50 percent difference in an agent's income for doing the exact same amount of work that they're going to be doing anyway on the transaction.

The minutes you spend negotiating your commission often translate into the hourly rate of thousands of dollars per hour -- quite possibly the most valuable time you'll ever spend as a real estate agent.

In continuing on with this line of thinking, recognize that people love to engage in the game of negotiating. Especially oftentimes when they feel they're in the position of power. These people also want to feel that they've worked towards achieving a result that is even more beneficial for them, too. And the person who stands toe-to-toe with them in negotiating, wins their respect at a much higher level also. So know this and utilize it to your advantage with the people you deal with in your real estate business.

If an owner tells you they want to list their property with you at a 4 percent commission instead of a 6 percent commission, consider asking them a question like the following:

"Mr. Jones, let me ask you for a moment to pretend that you're a real estate agent working in my marketplace. There are ten properties that you can present to your clients where the owners are paying a 6 percent commission, and then there's one where the owner is only willing to pay a 4 percent commission. Now knowing that you'll make 50 percent more money on a transaction where the 6 percent commission is being offered, in what order would you then submit those properties to your clients?"

And now that you've got his attention, here are a few follow-up questions you may want to ask after waiting for his response each time:

"Knowing that your property will receive far less showings at the commission you're offering, how much money do you think this will cost you in terms of the lower purchase price you'll definitely receive when you finally locate your buyer?"

(Wait for his response)

"And with that in mind, paying the fair market commission rate of 6 percent may actually now sound like a bargain to you, doesn't it?"

Now of course this won't work successfully for you every single time you utilize it, but it will definitely work enough times for you to make it very much worth your while. And at the minimum, it will probably help you to negotiate a commission rate that's a better one than what the owner initially offered you.

But in getting back to the original phrase I mentioned earlier from the seminar, always look to get something in return for what you're giving up when negotiating your commission. If you sense that the owner has finally reached the maximum amount of commission he's willing to pay you, it may be time to segue into negotiating for a longer listing period on the property, in exchange for you now accepting the commission rate he's agreed to pay you.

Published: February 18, 2005

Use of this article without permission is a violation of federal copyright laws.




Jim Gillespie, Ph.D., is America's Premier Real Estate Coach℠. He has over 20 years of experience in real estate sales and is a past president of three different real estate companies. His FREE real estate E-newsletter with tips and creative ideas to help agents make more money is now read by over 35,000 agents nationwide. You can subscribe to his FREE E-newsletter by visiting RealEstateSalesCoach.com or contact him at Jim@RealEstateSalesCoach.com.






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