When clients push to negotiate down your paycheck, prove your worth by demonstrating your value proposition—but never automatically cave in.
Young adults are a resourceful bunch. Despite being pegged as financially careless, there’s evidence that many are adept at bargaining for lower prices on goods and services—including negotiating down your commission. First-time sellers who haven’t yet learned the value you bring to the transaction on the selling side may be especially likely to haggle with you. Although some real estate professionals are willing to lower their commission to attain a longer-term goal, such as winning referrals from a satisfied customer, you don’t have to automatically cave to your client’s request.
“Work on it before that question comes up, and when you talk to potential clients, explain what you do and why it’s valuable,” says Paula Monthofer, ABR, GRI, a real estate pro with Realty ONE Group Mountain Desert in Flagstaff, Ariz., and 2017 president of the Arizona Association of REALTORS®. She adds that because many practitioners handle tasks in a seamless way—which can create an impression of effortlessness in their work—clients can underestimate their value. “If you play a good pregame and show them behind the curtain, they won’t question your commission.”
It seems you may find yourself in this situation with many different clients, not just those who are new to selling. While 66 percent of millennial sellers say they’ve attempted to negotiate their real estate agent’s commission, according to a Redfin survey in December 2016, 58 percent of Generation X members and 39 percent of baby boomers report the same.
Heather Davis, a sales associate with RE/MAX Preferred Properties in Oklahoma City, says how you defend your commission is a reflection of how you will represent your clients in a real estate transaction. “How am I supposed to represent and stand up for my seller if I can’t defend my own pricing and commission?” she says. “If you’re serious about your business, you need to have your principles and be sure that you’re providing a service that justifies your payment schedule.”
Of course, your defense should be tactful and respectful. Rather than justifying why you charge your specific commission rate, give your clients a justification for paying it. Spell out how your negotiation skills, home inspection know-how, or ability to identify serious offers will help your sellers get the most profitable sale, says Terry Miller, CRB, CRS, managing broker at Coldwell Banker Bain in Seattle. “Millennials love data, and they want you to be quick and efficient and prove why they should hire you,” she says. “The take-home is to help them see you’re the obvious choice.”
Remember that your commission isn’t based solely on hours spent with the client, which is why fighting for it is essential. Your commission also covers items such as the work you do to market a property and organize vendors and contractors for needed repair work to the home. When you think more intentionally about your business, you don’t treat your commission like a negotiation chip, Monthofer says.
If you’re still in the interview process with a prospective client, you don’t need to verbally defend your commission right away. Demonstrate your expertise first, and consider attaching an agency pamphlet, along with links to your testimonials and online reviews, to the email confirmation for your initial appointment. If prospects want additional sources, connect with past clients who are willing to share their experiences working with you. “Show clients how you’ve sold in their neighborhood and facts on what you bring to the table,” says Pete Kopf, principal broker at Kopf Hunter Haas, REALTORS®, in Cincinnati. “The relationship is how you present yourself and illustrate value, and the different ways you deliver that value is how to handle a question on commission.”
If you’re already working with a seller, track your work to create a strong case for your commission in case the client questions it later in the transaction process. Update your client at the end of every week on the calls, reports, and tasks you completed for them. This builds accountability and makes it hard to argue against commission percentages when you’ve been consistently communicating your actions.
“Dozens of clients ask to lower my commission because I’m in a competitive market, and I say, ‘I don’t discount, and here are the reasons why,’” says Marie Presti, ABR, CRS, broker-owner of The Presti Group Inc. in Newton, Mass. She adds that sellers often ask her to reduce her commission if they accept an offer below their asking price. “I say, ‘I’m not a party of this transaction. I have an agreement with you, and you can accept, reject, or counter the offer, but my commission isn’t part of the discussion.’”
“No” is a fair answer, and if your client won’t accept it, you can walk away from the relationship. However, if you’ve made a mistake, you should pay for it, Kopf says. After all, it’s your job to make sure the transaction goes smoothly. “We’re like the PGA Tour: We don’t get paid if we don’t play well,” Kopf says. “Good brokers show their value throughout the process. I often get a hug at the closing because my customers know I’ve earned that paycheck.”
When you truly believe in your value proposition, it’s much easier to explain the “why” of your commission percentage. “Once you know what you’re worth, you’ll stop giving discounts,” Monthofer says.