A Discounter Defends High Commissions - Why A Smug Attitude Doesn't Make You Right!

Bob Mitchell,

OMG!!! I just had an epiphany!!!!!

You know how you said your highest deal was $795,000 (or something like that)...and that the million dollar housing market was slightly tough to crack for a discounter??

It just occured to me that that the solution is sooooooooo easy!!! Instead of charging 1% or whatever it is you charge on the lower priced homes...here's an easy way to capture the higher-end market.

Create a completely separate marketing campaign for higher-end homes. Reference the incredible success your company has experienced in the low to mid range market...and state that (in response to higher-end customers' requests) your company is rolling out its Platinum Program for Luxury Homes (call it whatever you want). The Platinum program offers the high-end home seller all of the "normal, everyday, average-people solutions" <smirk> but in addition, the Luxury Home seller receives the following:

Make up a list and insert it here. It doesn't matter what it contains, as long as you charge more for it.

Your platinum customers simply don't want to feel that they're doing what an "average" person does. Hence, the preference for the brand name HVAC system and branded leather purse examples from above. My daughter's mom is a "Nordstrom's Girl". One day, we went to the Mac cosmetics counter. She bought a lipstick liner and a mascara. The total was $82.00 and I couldn't help thinking to myself "Did Maybelline and Cover Girl go out of business????" LOL!! But in her mind...she felt really good about spending the extra money...and she can often be heard telling complete strangers that she uses Mac cosmetics. ROFL!

Back to your Platinum Program.

All you'd have to do is charge a flat fee of...hmm...let's go with $15,000 for your Platinum Luxury Homes Program. To justify the higher fee, be sure to offer all of the same arguments you're seeing here (cost of living, greater advertising costs, more expensive Diet Cokes, etc.) The fact that they CAN pay more than your normal discounted fee will appeal to them for all the same reasons that paying $2,500 a night for a suite at the Bellagio in Las Vegas makes sense to some.

You'll become the leading real estate office in your area for the Luxury housing market....simply by giving them what they want. A higher fee. The added bonus is that they can still save face by telling their friends that they paid a bunch extra and got the Platinum package versus the "everyday-average-people" one.

Geeze....you know....part of me is being facetious....and part of me wants to help you create the marketing materials just to see if it works!!!!

I love it!

Dave

You wrote:  If I go on a listing call where I'm competing with you for the listing and I do a better job of convincing the client that my program is a better deal, then I get the listing.  If you do a better job of convincing them that your program is a better deal, you win. It's that simple.

Which is why I don't justify my fee.  I don't sell a program.  I broker the listing and/or sale of real property by providing representation or consultation to buyers or seller or listing brokers.  Each property is unique and each buyer and sellers' needa are unique and there is no one program that is right for all.  Each sale involves a plan taylored to meet the needs of the buyer or seller within present market conditions. 

A taylor who custom fits a fine suit with quality fabric can charge a lot more than an off the rack at Wal Mart.  The taylor doesn't negotiate his fee, nor does he have to justify it.  If you want his fine tayloring, you pay his fee.  Otherwise, go to Wal Mart. 

Bob, I just don't know. My initial thoughts are that if I sold the 1mil property before my advertising even hit then obviously I did something right and the seller would be more than happy to pay me accordingly. Last I checked...selling a property quickly is a good thing for most sellers. I was working with a couple of Drs earlier this year on purchasing a medical center where my part of the commission would have been $95,000. They knew it and didn't think anything of it at all. I say would because the deal didn't happen due to the property being too small. So we are back to looking at properties. 

I do want to point out that despite popular beliefs commission rates are actually increasing. They are higher now than they were during the boom because the consumer knows they have to hire experience and they have to be able to offer higher co-brokes to make their properties stand out(the same as a builder offering incentives). Commission are affected much more by market conditions than they are by information availability(Internet). 

The bottom line is that the consumer has had choices for a long time now. They can hire who they want and pretty much pay what they want. There is no monopoly. If someone doesn't feel I'm worth what I charge then they don't have to hire me. I never pressure anyone to work with me. They work with me because they want to.

By the way. I left this comment for Brett over on my post but he never came back to comment on it so I'llleave it here as well:

OK Brett, I'm going to approach this from a different angle for ya. First you need to clear your mind of any and all preconceived ideas. 

I would never compare what I do to an Attorney or a Doctor. Although there are many Drs and Attorneys that suck at what they do. Just because they may be book smart does not make them good Drs or Attorneys. Nor does it make them a professional. I'm sure you can agree with that. 

I also would never justify my commission by how much money I spend or solely on what I do to market a property. Even though the marketing is a part of it. Folk spay me because of what I bring to the transaction. It's a package that includes years of experience, knowledge, reputation etc.. 

Look at this way: As an advertiser why would I pay money to place an add on your blog site, website or show? Why can't I just go out and build my own website or blog site and place my own ads? Why can't I just advertise on Craigslist or a myriad of other free sites? I certainly have the knowledge to do so. I don't know how much you guys charge but I'm sure the cost to advertise far exceeds any set up costs that you incur. They pay to advertise on your sites and show because you drive traffic. This is an intangible that just happens to be the most important part pf the equation. 

If you didn't have any traffic then advertising with you would be a a waste of money because you cannot justify the costs just by the things you do i.e. build a pretty ad and place it on your site. Anyone can do that. And many do. They are paying you because of what you bring to the table. And they know you are bringing things to the table because you can show them results. These results are due to the Barries personality and their knowledge and experience in marketing. There are folks that do exactly what the Barries do BUT if they don't have the personalities, knowledge and experience for it they will fail. The sites and show are NOT successful because of the way the ads are designed. 

Here's another example: Let's say you were wholesaling a property. You went out and found a deal and placed it under contract with an assignable contract and then sold off your interest for a tidy profit. Why couldn't the end user have just done the same thing? Why should you be entitled to a tidy profit for just flipping a contract? It's because you had the knowledge and the time to put it together. Even though anyone(in theory) could do it, they don't necessarily have the inclination to do so. This is also an intangible.

There will be some people that will take advantage of today's technology to market and sell their own property. But there will be many more, by far, that won't. Those are the folks I'm looking for. Those are the folks that just want to sell their property and are willing to pay what I charge to get it done. They don't care how I do it. 

We will NEVER be able to justify our commissions to you because you don't need or want our services. So trying to do so is an effort in futility. All I know is that in 14 years I have never had a seller that was disappointed in my services or what I charged. Even though I have had many houses that I didn't sell. That's just the nature of the business. I take NO responsibility for market conditions. That's out of my control. It's out of my control that they owe more than the property is worth. My sellers are my friends. They are far more than just a pay check. We do the best we can with what we have to work with.  

I care about the folks I work for and they know it. That's how I justify my commission. 

I have sellers right now that I have been working with for 2 years. We may never sell their property because they aren't able to price it low enough. They are in their 80s and have health problems. We have no option but to try. The members of AR actually donated money so we could help them pay for a bankruptcy to get rid of bills they could no longer afford. They have nothing except their home that is too big and expensive for them. Earlier this year I worked with them for 3 months to negotiate their 11% adjustable rate mortgage down to a 6.25% fixed rate. Their property is listed with me pro bono to try and get the price closer to market value. I've spent many hours on the phone with them letting them cry on my shoulder when they get depressed. I worry about them daily. That's how I justify my commission which in this case will be nothing. These are intangibles. 

I truly hope that the day never comes when you need a REALTOR(R) like me and many others who will help you solve your problems whether we get paid or not. But if you ever do..... give me a call. I'll refer you over to Century 21 :) 

It's not what we do, it's how we do it. And you'll either get that or you won't. My guess is you won't. And there's nothing I can do about that.

Bob, I couldn't read all those long comments so I'll make a short one.  Looks as if you've become a "golden child" with stars aplenty.  LOL

In my personal experience, it always seems that the higher the price of the home, the easier the transaction goes.  When it gets down around $100,000 it seems like everything is difficult.  Getting financing is difficult, homes are in more disrepair, both sides are trying to squeeze every nickle out of the transaction. 

When I sell a million dollar home, people seems to have no problem with the money, the homes usually have been maintained better, and people seem to do what they say.  There are fewer surprises.

I just figure that the $100,000 sales are getting my services at a discount.  I wish I could charge more but it seems that some how other agents are there willing to do it at a low price.

For the million dollar homes I really don't feel like I need to justify my fees.  There are many agents out there and I'm sure that others will do it for less.  If someone wants to pay me what I'm asking, why should I somehow feel that I'm charging too much?  For some reason, they trust me and feel that I will bring more value to the transaction than someone else.  Sometimes they might just not want the hassle of shopping around.  People make decisions for all sorts of reasons.  I play the game the way it is currently set up and when it changes, I'll make adustments. 

The profession is constantly changing (the fact that we are a national discussion on a blog or series of blogs that are open to the public is proof).  As mentioned above, customers are more educated.  This is a good thing as are choice and competition.   Who knows what  model, if any, will prevail?  My guess is that traditional, discount, tiered, etc will all still be around when we are dead and buried.  Agents will fail or succeed in every model not because of the model, but because of the agent. 

If I am putting out my money and my time with the hopes that my skills and my knowledge will sell a property, then I charge the rate I feel I am worth. 

Brett, if you'd like a discount from that rate, it is REAL easy.  Pay me.  Up front.  Non-refundable.  I'll be happy to work in an hourly capacity on those terms. 

Look at Doctors.  They get paid whether they are right or wrong (I know this one first hand).  Attorneys that only get paid if they win charge WAY more than those that work hourly... at least if they win... a lot. 

But, it is back to the basic point.  If you want me to break out what I do to some sort of hourly rate, you are going to pay me an hourly rate to do the work.  If you want to wait to find out if I'm going to be successful, you aren't going to get me on the cheap.  And I have offered discount plans, and will offer them again (stay tuned, I'll be wrting about it here on A|R).  But, sitting at the table with MOST home owners, the decision sounds like a no-brainer until that whole "writing a check now" thing comes up.  They don't want the risk.  They want ME to assume the risks.

RadioBobbyville  - With the powers bestowed upon me as a member of the Rain.  I declare you credible.  There are some who cannot make the declaration you put forth, as they resent debate. 

We are the sum total of our experiences and are not expected to see life or an event in the same way.  There is a difference in an argument and a debate.  No one is compelled to agree with another, but they should respect a dissenting point of view.

As you said, dissentions sometimes enforce your perspective more as the fallacies in the opposing arguments are revealed.

You have received a lot of MPG from this posting!  Keep the mike on.

Bob,

Far be it from me to second-guess how you do business. 13 years says you are doing plenty right.

Let me clarify what I meant with regard to liability. Certainly, someone with more transactions is going to have more exposure. My point is that in any one transaction, the more high-maintenance and litigious clientele are the high end buyers and sellers. Again, agents who handle this higher amount of money changing hands with competence and aplomb are rarer. Scarcity justifies a higher compensation in my view.

Let me also clarify what I meant by being paid what we are worth. I said you are paid what you BELIEVE you are worth to the consumer in a given transaction. What I am saying is that you have ample justification to ask for, and deserve, a higher commission rate. Some consumers do not believe any agent is worth 3% on the listing end. Some are willing to pay more. It is a big pool with plenty of room for us all, and I appreciate your thoughts.

Lane points out somthing really interesting - if the buyer/seller takes the financial risk UP - FRONT it's a no brainer to discount.  Part of what we charge has to do with all the lookie lous and sellers wanting free CMAs to get their FSBO pricing.  This is a problem for us, but the public pretty much takes it for granted that this is all "free." It's almost written in their DNA...There is DNA CODE in there that says "A Realtor is FREE unless a deal closes."

Lets call it the "theory of abundance."  This is free labor abundantly available.  No need to conserve or "think" before making use of the resource - because said resource is "free."  But NOTHING is free in this world.  Freebies are designed to rope you in so you actually WILL pay. The public doesn't give the free help a moment's thought - until its time to pay for it - when the deal closes. It is actually the price for something they have had free use of for a very long time with nary a thought.

Ruthmarie,

I understand where you're coming from....BUT....isn't it US who have done that to ourselves as an industry??? Aren't we the ones who for years have been promoting "FREE Market Analysis, No Obligation Whatsoever!" on brochures, postcards, etc.??

Don't we do the same thing when it comes to buying a car? Free Test Drive. We go to the dealership, test drive a Chrysler 300....and then walk across the street and BUY the new Honda Civic Coupe (just picking makes and models as an example).

Maybe the Chrysler didn't fit our needs as well. Maybe the salesman turned us off. But whatever the reason....we did exactly the same thing the FSBO customer did to us in garnering a free market analysis.

And I can't help but think we need to reassess what we perhaps did wrong...in not convincing them that we are perhaps a better value for them. I don't blame the consumer at all....we've trained them very well.

Dave

I agree with Lenn's comment that you don't have to justify your fee whatever it may be.