Real Estate Commissions: “It All Evens Out” and “50% Of Something is Better than 100% of Nothing??”

Jul
2011
30

posted by on Consulting & Compensation

Fair

For the record, let it be known that I have no problem with real estate agents charging their clients as much or as little as they care to, nor do I have any fuss with the manner in which they do it, as long as it falls within legal limits and doesn’t conflict with their brokers’ policies. Oh, and, AS LONG AS 1) they’re providing good value for the dollar paid, whatever that dollar amount is; and 2) they demonstrate integrity by playing FAIR – that is – not charging one person less than another as a business-buying strategy!

Anyway, a few months ago I wrote a couple of blogs about real estate compensation – specifically our traditional model where we are paid based on the price of the home we help our clients buy or sell. I questioned the appropriateness of this approach since the value of our service really isn’t based on the value of the product.

You can read those ramblings here:
“No, I Won’t Reduce My Commission, Do You Expect me to work for FREE?” 
Alternatives to the Commission-Based Model – and yes, we still make a good living

Today I want to pontificate about the comments left on those blogs that were along the lines of “Yeah, sometimes we make too little and sometimes we make too much on a specific transaction, but it all evens out in the end…” and “50% of Something is Better than 100% of Nothing.”

While quite common among real estate practitioners, I believe these two attitudes are a little dangerous, and even border on unethical in my opinion.

(Ooooh, such melodrama, Jennifer!)

Let’s start with “It All Evens Out”
The fact that it “all evens out” may be true FOR US, but is in no way fair or reasonable to the person paying the bill – that is – our buyers and sellers (and yes, buyers help foot the bill of our commissions just as much as the sellers do; some might argue they’re the ones who pay it).

When our clients pay for our service, they have every right to expect us to charge THEM fairly, which in their minds, has nothing to do with that $50,000 condo buyer we spend 9 months on last year and therefore need to “make up for” when we work with clients in higher price ranges.

“50% of Something is Better than 100% of Nothing”
Is this true? Absolutely! No question, if you do the math, that statement is 100% true, 100% of the time!

BUT

Again, is it FAIR to our clients?

In most cases, no.

Implied in that statement is that, if pressured, we’ll give into a buyer or seller’s demand that we accept less in payment than we normally would, because, shoot, something is better than nothing, especially when it comes to a paycheck.

But is that FAIR to our clients who do NOT request/demand that we accept less than we normally would? Is it ethical to charge one client your “full” price simply because he was too polite to ask for a discount, while charging someone else less because he was a little bolder? Sure, it happens every day, but is a part of the reason our industry is lumped in there with used car salespeople (who everyone knows you must negotiate with)!

Am I saying that you should charge everyone the same “rate?” Not at all. I think every real estate scenario is deserving of individual evaluation and “rated” according to its potential degree of difficulty, among other factors. But to simply discount your fee because someone asks you to while holding to your fee when someone doesn’t reeks of unprofessionalism and even a lack of integrity.

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