One of the nice things about being a Real Estate Agent is the ability to be flexible in how you do business, but should you discount your commission? As with anything there are times that discounting makes since and other times that it doesn’t.
Discounting Works Really Good When.…
1. Investors are doing repeat business. Most investors when purchasing a home are planning on selling in a month or so after doing the rehab. Often by the time that the property is under contract they are on to the next property. Investor homes are usually priced for quick sale, homes are immaculate, key boxed and vacant. Very little expense on marketing is expected.
2. Home owners that are selling and purchasing a home can also sometimes see a discount on their listing because agents know that the time frame of the two deals will most likely happen at the same time and that there is a huge benefit having one agent coordinate simultaneous closings.
3. When there is only one agent involved. This one is tricky because as the only Realtor involved it sometimes ends up being twice the work. The nice part about this is that by using only one agent, the client is most likely using people the agent recommended ensuring that the job will get done. Time is money and often with every unknown part of deal the risk of not closing increases. There is no way an agent is going to tie up their listing with a buyer who cant pull it off. Having a good lender and title company are crucial to a smooth deal.
4. New agents will sometimes offer a lower commission in order to get a couple of listings that they can use to springboard themselves on to other clients or to farm/market a neighborhood. Even season agents may do this occasionally in order to get a sign in a neighborhood they are targeting.
5. A home that is priced extremely competitive. A home that is going to sell quick is a dream come true for any agent.
Discounting Does Not Work When…
1. Seller expects the same amount of work as a full price commission. Professional photography, bus tours, internet marketing, colored brochures, door to door knocking, open houses, mailers and on and on. When an agents net goes down so can some of the out of pocket expenses.
Flat Fees Listings Are The Worse…
1. Liability. There is just so much risk in the selling or buying of real property it just is not worth the small fee usually charge to be put on the MLS. Even with flat fee listings your name is still going to get dragged into a lawsuit should anything go wrong. Just think about discrimination, lead base paint, mold, wrong forms or no forms. What a nightmare this can be.
2. Often Sellers do a flat fee thinking they will save money and yet still have the advantage of being on the MLS. There is so much that goes into marketing a property, screening and availability of showings, safety at open houses, liability, errors and emissions insurance, disclosures, negotiating, working with the lenders and title companies, extensions, forms etc.etc. Probably the biggest downside to the flat fee is that an experienced agent within a few conversation with a seller gain so much advantage that a seller usually has no clue as to what they have given up at the negotiations. Time frames and loopholes for buyers to walk from the deal will all be in favor of a represented buyer as well as bottom line price of the home. Sellers will very often tie up their property for weeks only to have the deal fall through and not be compensated with keeping the earnest money.
I personally wont do a flat fee listing because there is value in what I do, so much more that putting a property on the MLS. Yes, I have had clients, even friends, choose to go with flat fee company’s, but in every instance they have had to ask for my help at some point in their transaction and the sad thing is, more often than not, it was to fix something gone wrong.
I would like to encourage you to give some real thought about when as a professional you will or wont discount your commission and then stick with it.
Perhaps you are just graduating real estate school and are shopping for a place to hang your license. Picking a company can be challenging. Real estate agents often talk in an entirely different lingo and the terms can be thrown around to the point where it can be overwhelming. When you are interviewing Brokers at different company’s, a percentage is often put out there…We’ll give you a 70/30, or an 80/20, or maybe even a 60/40. But what does that mean to you? This ratio is in regards to the split you will have with your new company.