"Don't get too close to me...I have a cold!" We have believed for so long that breathing the same air will spread germs, that it's almost a given. But if you talk to medical professionals, they will tell you that colds and viruses are rarely spread by breathing the same air. It's the exchange of body fluids that spread the germs.
In our profession, we have been told, and continue to tell the consumer, that a commission is a payment for services rendered. We've repeated it for so long that, almost universally, we believe it to be true. But logically, it's not. The consumer knows this and with a tight economy, they are increasingly asking some very logical questions:
"If I price my home where you tell me to, get it in tip-top condition, and make it easy to show, why am I paying the same thing as the guy down the street who does none of these things?"
"When my $600k home sells, I will be paying twice as much as my cousin across town who is selling a $300k home. Why is that? Do you do twice as much work? Or put in twice as much time?"
"If, as a buyer, I do my own driveby's and narrow down my choices so you only take me out once to find a home, why do you get paid the same as you would if you work with a buyer that required three months of house hunting trips?"
As I stated in Ripping the Roof off Real Estate, when agents complain to their brokers that it's getting more and more difficult to justify their commissions to the public, brokers overwhelmingly just tell them to show the client how much they do for them. And while I would agree that much of the public has no idea how much work is involved in bringing a transaction to the closing table, trotting out a list of the 450 Things That an Agent Does misses the point.
The commission system follows the basic rule of Economics 101: high risk must be paired with high reward. We shoulder all of the risk but get paid a high reward if successful. That's why discounting one's commission without reducing the risk we shoulder is often such a bad deal.
Here's the stark truth that we need to face head on: a commission has nothing to do with compensating an agent for time or services. Commissions are all about mitigating risk. Until we, as an industry, are willing to call it what it is, and provide quality, transparent choices in the services we can provide and how we can be paid, we will continue to see our compensation erode and our value undermined. Consumers, not understanding what we're getting paid for, will increasingly try to do it all themselves without the necessary services, expertise and representation that a skilled professional provides.
"When my $600k home sells, I will be paying twice as much as my cousin across town who is selling a $300k home. Why is that? Do you do twice as much work? Or put in twice as much time?"
"If, as a buyer, I do my own driveby's and narrow down my choices so you only take me out once to find a home, why do you get paid the same as you would if you work with a buyer that required three months of house hunting trips?"
As I stated in Ripping the Roof off Real Estate, when agents complain to their brokers that it's getting more and more difficult to justify their commissions to the public, brokers overwhelmingly just tell them to show the client how much they do for them. And while I would agree that much of the public has no idea how much work is involved in bringing a transaction to the closing table, trotting out a list of the 450 Things That an Agent Does misses the point.
The commission system follows the basic rule of Economics 101: high risk must be paired with high reward. We shoulder all of the risk but get paid a high reward if successful. That's why discounting one's commission without reducing the risk we shoulder is often such a bad deal.
Here's the stark truth that we need to face head on: a commission has nothing to do with compensating an agent for time or services. Commissions are all about mitigating risk. Until we, as an industry, are willing to call it what it is, and provide quality, transparent choices in the services we can provide and how we can be paid, we will continue to see our compensation erode and our value undermined. Consumers, not understanding what we're getting paid for, will increasingly try to do it all themselves without the necessary services, expertise and representation that a skilled professional provides.
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I agree that commissions are really all about mitigating risk. The public is fixated on what we're paid, or more precisely, what they are charged. They fail to realize that we are not paid unless the deal closes.