Walter Sanford is an international speaker and author of 14 books for real estate salespeople. He can be reached at firstname.lastname@example.org.
Value Proposition: Prove You’re Worth the Commission
Knowing how to respond to a request to lower your commission can help you outshine your competition and clinch the deal.
October 1, 2005
When you’re at a listing presentation and the sellers ask you to lower your commission, there are a number of quick comebacks you could make:
- The arrogant: “No. Next question, please.”
- The pie-chart method, through which you illustrate where all your commission goes.
- The old, but sometimes effective explanation: “Mr. Smith, we’re about to travel a long distance across a very dry desert. I will need enough gas in the tank to get me to the other side and accomplish your goals. The gas that fuels my business is the commission, and it allows me to commit the resources necessary to get your property sold.”
- The analogy: “Tell me, Mr. Smith, you’re a doctor. What do you say when someone asks you to cut your fees?”
- Then there’s, “Mr. Smith, if Salesperson B was so willing to cut his commission, can you imagine what he would do to your asking price during negotiations?”
- There’s also, “Other salespeople know what they’re worth.”
With any of these responses, it's possible that sellers will surprise you by accepting your answer and dropping the subject. However, the most effective way to prove you’re worth full commission is to demonstrate how you will add value to the transaction.
Department stores such as Neiman Marcus and Nordstrom can charge top dollar for their products because of the value they add to your transaction. Think of yourself as a “department store” of real estate services that, perceived by the seller, can be obtained in many places.
The only reason that you are full price is because you offer better service, greater value. Here's one strategy for showing potential clients that you are worth your commission.
- When a commission question comes up, the issue must be isolated as the last remaining objection. This can easily be done by asking the question, “Mr. Smith, if we can satisfy you in regards to our commission cost, are you willing to give us the honor of representing your home tonight?”
- After you receive an affirmative on the above, you then relegate the commission request to a dollar value. “So then, Mr. Smith, a 1 percent reduction would equal $5,000. Would an increase in your net proceeds by at least that amount allow you to go ahead and market your property with us?”
- If the above is an affirmative, it’s time to restate the objection. “So, Mr. Smith, do you mind if I take a moment to show you more than one way that we can increase your net proceeds by $5,000 so that you accomplish your goals?”
- Fill out a listing worksheet that details net proceeds after a full commission and all expenses are factored in. Show the sellers all the ways that you can limit their expenses. After completing the worksheet, pose the following question: “Mr. Smith, are these savings enough to get you what you want out of this sale?” Sometimes there is a “Yes, that’s more than I thought” response, and you can move ahead with your listing at full commission. Sometimes the sellers will say, “Yes, that is what I wanted; however, I still want that $5,000 commission reduction.”
If the sellers still ask for a commission reduction, you need to prepare some ammunition that proves the added value of your services. These may include:
- A comparison of your sales volume and days on the market with the MLS average and with other real estate professionals whom your prospect may be considering.
- Statistics that show your average list-to-sale ratio compared with the average from your local board of REALTORS®.
- Your search engine strategy, networking activities, Internet marketing, telemarketing, database research, and other marketing efforts to drive buyers to their home — all of which will improve their chances of a quick sale.
- A list of all of the services that you provide (home staging, coordinating all showings, providing expert negotiation on the seller's behalf, etc.).
- An offer to provide a home inspector for free within a few days of signing the listing agreement so that the sellers can identify possible sticking points for buyers and repair any problems before the buyers bring in their own inspectors.
Any one of these value propositions could exceed the $5,000 that the sellers want. Cap your arguments by stating:
“When you put them all together, you're likely to get a substantially higher net than my competition could bring you, even if they did reduce their commissions. I would like you to give me the opportunity to put you one step closer to achieving your goal by giving me the listing tonight.”
When you concentrate instead on discussing the value-added service you provide, you’ll get a better outcome from your listing presentations and beat out the competition.