How Does Your Real Estate Agent Justify Their High Commission?
| | Thursday, January 18, 2007 @ 09:21 AM EST
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Contributed by: dee copeland
dee copeland Properties
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I'm a member of several online real estate forums and a common topic is on justifying "high" real estate commissions. The commission topic can be sensitive to many, but the question will almost always come up as to whether you are paying TOO MUCH for your real estate agent.
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COMMON QUESTIONS:
Why the heck are sellers paying what they consider "high" commissions on real estate transactions? Is that 25-point marketing plan and placing the home on MLS really worth it? Can't sellers just do it themselves? With all of the discount and internet companies out there, what's the difference among agents?
MY TAKE ON THE INDUSTRY
1) It's too easy to get a real estate license. In Texas and many states, you just need to be over 18 and meet basic requirements before passing a final test. Some new agents want to "try" real estate. They think they just have to get out of bed, show houses, hand out some business card, and boom, they are rich. A professional real estate agent will run a full-time business. If we want to succeed, sooner or later, agents WILL need a marketing budget, business plan and goals, listing and closing systems, assistants, communications systems, customer service processes, etc.
2) With over 1 million members of the National Association of REALTORS®, it's hard for consumers to choose who to work with. Have you ever heard an agent say "I work everywhere" or "I handle everything"? David Knox, Howard Brinton, and other industry trainers teach us that true real estate professionals set themselves apart. If your agent is not a specialist (geographically or with a particular demographic), then they may be a commodity. A commodity is like bread or water. You can find it everywhere and brands do not matter to someone shopping based on price. David Knox said that if an agent finds that they can't compete on value (what the client gets for what they are paying), the agent will compete on price (how much they cost without regard to what they offer).
WHY SELLERS PAY COMMISSION
Bottom line, a seller will pay a commission when they feel they are paying for a valuable service. Many times, they pay it because they feel they don't have a choice, but I hope they know that there are choices. In my case, my clients understand that my value (like the value of their lawyer, CPA, etc.) is in my expertise. I didn't pay thousands of dollars and spend weeks at a time gaining industry certifications to have letters after my name. Agents get letters after their name because:
1) They want to learn best practices and gain specialized knowledge instead of practicing on you
AND
2) They want to network with other agents who went through the same training they did.
Certifications are one way agents set themselves apart, so ask your agent what they mean. Also ask what boards, organizations, causes, and groups your agent is involved in. You'll quickly find out if you have a commodity or a serious pro who is actively running a professional real estate practice.
SO IS THAT COMMISSION WORTH IT?
If you have a true real estate professional who is makes your life easier, solves your problems, takes away worry, has a smooth process, proactively provides updates, makes your day better, and just plain gets the job done, then YES, it's often worth what you are paying.
If you chose them because 1) you couldn't find anyone else 2) they were the cheapest 3) they are a friend, nice, or a general practitioner, then you may be paying too much. There are always exceptions, but you may want to interview a specialist who may better suit your needs. I say this because a specialist can often do the job of a generalist, but the reserse may not be true.
Again, the purpose of this post is not to upset agents who want to "do everything" for their clients themselves and "be everything to all people" since this will account for at least 90% of the industry. I find the 'Jack of all trades, Master of none' colloquialism to be true.
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