Making Less to Be More

Written by Posted On Wednesday, 04 July 2007 17:00

If you have the choice of showing a home that is paying $5,000 in commission to the selling agent and one that is paying say $10,000, which home would you show?

It's a question of ethics, but it's also a question of profit. The home that pays more in commission isn't always the most ethical or profitable choice.

At a recent focus group of ten successful Realtors, the group was asked about their showing preferences for lower or higher commissions. To a person -- and to their credit -- they said they would prefer to show a property that they knew their prospect could afford and would be happy living in. They knew that in the big picture, it is not the amount commission made on one deal that makes their career. It is their reputation for focusing on the clients' needs, not their own needs, that makes them successful.

Not all agents feel that way. Others are concerned about their own profits, and not without good reason -- they're in business to make money. But what they might not realize is that it's possible to make more money by making less. Let me explain.

In one of my seminars recently, some agents were complaining that one builder paid commissions only on the "net," meaning they were not paid on the price charged for upgrades to the buyer by the builder. They were only paid on the purchase price of the home. Other builders, they noted, paid much more in commissions and incentives.

In most cases today, "net" means the price paid after closing costs, home association fees, and other cash incentives are deducted. These agents didn't understand why all builders don't pay generous commissions, and they may well be missing an obvious point -- that commissions tend to reflect the saleability of a property. In other words, commissions tend go up when selling is more difficult, and that they tend to go down when sales are easier.

Two years ago, when agents were begging for listings, sellers had two questions: "How much is your commission? How much will you cut it?"

Now sellers are more than happy for Realtors to list their home and pay them a good commission to do so, sometimes with added incentives to selling agents.

Why would a seller offer a higher commission? A quick look at the track record of the neighborhood could tell the story. Are homes in the neighborhood staying on the market a long time? Has this particular home been on the market a while? Has there been a price reduction with no result? Is there something negative about the schools, traffic, or employers in the area?

In any case, a smart agent will ask himself why the commission is so high for a particular home. With a little investigation, the agent may find out that the neighborhood is quite desirable, but for reasons of their own, the seller is willing to forfeit some equity for a quick sale. Or the agent may find that a large employer has laid off some workers and that the market is temporarily saturated with homes.

The same is true of builders. One builder may be paying twice as much commission as his competitor to make a name for himself or he could be offering more in commissions because his product is inferior.

Agents need to see for themselves before they take too-good-to-be-true commissions as incentives.

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David Fletcher, NHCB

David Fletcher is a co-founder and CEO of New Home Co-broker Academy LLC., an online e-commerce business. Visit David's website to take his famous 3-hour online course, How To Build  A New Homes Niche, to become a certified New Home Co-broker (NHCB). More than 5,000 graduates. Content is based on his long career and onsite sales success working with both builders and Realtors to list and sell more than $3 billion in new construction. If you are a broker who wants to offer your agents a way to add new homes to their resale inventory and home shoppers, this is your solution. 

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