Negotiating the Commission vs. “Discounting”

[photopress:album2.jpg,thumb,alignright]My very first entry here on RCG discussed the manner in which a buyer and their buyer’s agent negotiate the buyer agent commission. Being a “Discount Broker” and Negotiating are not one in the same. A “Discount Broker” usually has a set fee or menu of services with set prices. Many traditional brokers have a set range within which their agents cannot deviate. “Negotiating the commission” is a simple phrase for no carved in stone set amount. It means sitting down with a client and determining a fair and reasonable price for this client given this particular client’s needs and expectations. The end result being an unknown factor until the end of the interview. The end result could be higher than the client’s desire, lower than the client’s expectation and in many cases no change at all from the agent’s expectation. Negotiation is about an intelligent discussion with a mutually agreed upon end result.

Last night before I went to sleep I popped over to Greg’s excellent blog and his article that referenced my feelings on the topic of buyers and buyer’s agents. I was a little surprised to see a “nastygram” comment there aimed at me personally and my feelings on this topic. It amazes me that agents who sit down with sellers every day to negotiate the commission, become absolutely outraged at the suggestion that buyer’s should do the same with their agent.

I would like to dispell the myth that I am a “Buyer’s Broker” who exclusively works with buyers only. Not because there is anything wrong with that business model, but because it simply isn’t true. The only reason I highlight buyers with regard to commission negotiations is because agents negotiating with seller clients is a given. There is absolutely, never a listing appointment with a seller, that does not include the topic of commission. Consequently there is no reason for me to evoke change or explain the parameters within which the seller consumer can negotiate with their agent.

One of the main reasons to highlight the difference between “discounting” and “negotiating” is the fact that Buyer Agent Bonuses are on the rise. Every night I receive emails and “Zip Your Flyers” from agents around the Puget Sound offering “$5,000 EXTRA Buyer Agent Bonus!” and “4% SOC!”

The mere concept that a Buyer Agent will be enticed to lead a buyer to one house over another, because of the amount of money that Buyer Agent will make when it sells, shoud be offensive to every single agent in this country.

The Buyer Agent represents the Buyer. The Buyer Agent is not “Selling a House to Make Money”. The Buyer Agent, in representing the Buyer’s Best Interests, should never be offering advices based on the fee structure of each property. That doesn’t mean that a low fee doesn’t infiltrate and influence the thought process. We are human. It would have to be a perfect match for my client and a great house for me to truly buckle down and recommend a house that is paying five bucks or nothing. But there have been times when I recommended a house and walked away with absolutely nothing, just as there are times when I have represented a seller and found that my walking away with nothing was the only way to achieve the objective. It happens once in a while the same as a lawyer does a pro bono case once in a while. I don’t make a business model out of it, but I don’t rule out the possibility of that end outcome either.

As for the jab at the end of the “nastygram” comment “NOTE: Ardell is NOT a REALTOR”, it is absolutely true that I “stepped out of the pew” after having been a member for 14 years or so. I have given NAR over ten years of those 14 years I was a member, to raise the status of the buyer to CLIENT level. I am disappointed that Buyer Agency has not progressed further than it has, and clearly I have given them sufficient time to meet my expectations.

Does anyone really think it matters if I go over and slap my $500 or so over at the Board of Realtors on Monday to “become a REALTOR”? Does taking five minutes out of my day and $500 out of my pocket really make any difference in who I am or how I do business with my clients? I think it is more honest and ethical to be true to myself, and stay out as long as I agree with the DOJ’s position. I think it is more honest and ethical for me to stand outside the fray until our basic thinking is more in line, than to be a member who dissents from within. I’m the one who has to look at myself in the mirror in that regard, and make a personal choice. At present, this is the one I can live with.

As long as the buyer is not expected to discuss commissions when they meet with an agent, the same as a seller – no more, no less, I will remain where I am. Discussing commissions with a seller does not automatically translate into discount nor does discussing commissions with a buyer automatically translate into discount. It is a matter of equal treatment and respect, pure and simple. How can that possibly be wrong?

ON A LIGHTER NOTE – THERE WILL AGAIN BE A PRIZE, ON BOTH SITES, FOR NAMING THE BAND AND ALBUM TITLE OF THE PICTURE IN THIS POST. Same era, late sixties, fabulous Rock and Roll band from the West Coast that might have done better on a different label. Not a One Hit Wonder, with many albums in our collection, and one of Kim’s favorite bands of all time. There are other clues to the band’s name in the photo itself, but this one should not be an easy ,”googleable” answer. Good luck!

22 thoughts on “Negotiating the Commission vs. “Discounting”

  1. Ardell, I had to go over to Bloodhound and defend your position. I think it’s absurd that someone would slam you regarding the way you do business. I think anyone that makes a living using a model that works for them is great–gotta tip the hat.

    We are not a member Washington State Escrow Assn. Does that mean we are not closing deals in accordance with Article 12? Does that mean that we are any less of a viable small business than others?

    No.

    Are we a discount escrow service? Can the only way we compete be because our rates are significantly lower than our competitors? No. What good is lower prices if people think our support and service sucks. In fact, in the time we’ve been in business we’ve never had a Realtor ever send work our way due to our lower fee. But, here’s the Holy Grail to steal a term from Russ Cofano: we have received comments from their clients that they never new they could get a deal on escrow fees such as ours, absent junk fees as well. It’s this type of advocacy and bottom line savings that makes agents look swell to their buyer or seller.

    In my opinion I think that the real estate community underestimates the power of saving a dollar or rebates to consumers. It is probably easier for consumers to understand money than to perceive value added service. Money is tangible. Value added services is tougher to sell.

    Tim

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  3. RE: Seller paid “Buyers’ Bonus”. If a Buyer’s Agent has a Buyer’s Agency Agreement with the Buyer, then anything over-and-above that agreed-upon amount goes directly to the Buyer, not to the agent. This is all the more reason for a Buyer and Buyer’s Agent to have an agreement, in writing, prior to actually looking at any houses.

    RE: Status as “Realtor”. Perhaps the writer is referring to your status because of the current discussions on Inman about real estate professionals. Dr. Kevin Boileau in a recent Inman article on real estate ethics says, “There really is a technical, traditional definition of professional status, which includes three criteria: 1) specialized knowledge; 2) group identification and membership; and 3) agreed-upon education and training, including ethics training, certification by examination and continuing education.”

    He goes on to say, “So, while many agents may have specialized knowledge, they must also be obligated to follow certain, written ethical standards of practice. This allows individuals in a specific industry to maintain specific behavioral expectations amongst themselves as well as toward their target consumers. Without a written code of ethics, standards are nebulous and therefore cannot be formally learned or enforced. This breeds moral chaos.”

    I think his point is that by joining a professional organization, such as the National Association of Realtors, you give yourself credibility and announce to the world that you agree to maintain a certain code of behavior and ethics, and without doing that, you are something less than “professional”. That’s just my guess. But if you don’t care, I wouldn’t worry about it.

  4. Marlow,

    I would say it’s fairly obviously a Realtor making the comment because they used the trademark symbol 🙂 Also likely one who blogs because they complained that my phone number shows on my blog, and liken “Different strokes for different folks” to prostitution.

    The only thing that bothers me is it is obviously someone I “know” who chose this roundabout means to take a shot at me, as opposed to saying it more out in the open and identifying themselves when doing so. Likely it is one of my RealTownBlog compatriots.

  5. Great points about professionalism and ethics. I agree that until one agrees to abide by some ethical standards, they cannot call themselves a true professional. That said, there are many in the Realtor ranks that go through a Code of Ethics course when they first become a Realtor and thereafter never open up the Code again even though there are usually changes to the Code every year. For these folks, can they still call themselves a professional just because they are subject to punishment for violation of the COE if those ethical standards are unknown to them. In my opinion, no. Not that lawyers are something to aspire to but at least the Bar Assn makes us take continuing education credits specifically in ethics.

    Thoughts?

    Russ

  6. It’s kind of funny that the author of the nastygram breaches the Code of Ethics in doing so.

    “REALTORS®…refrain from making unsolicited comments about other practitioners.”

  7. Business ethics is one of the more interesting topics that get’s more attention than any other in the pursuit of our corportate/company responsibiliy.

    Our office stuggles with business ethics on a regular basis. That is, when is it right to shut down a signing when a distressed borrower states, “I can’t afford this loan” or learn that the borrower (s) just filed for divorce a day prior to closing or learn that the seller is giving back the downpayment to the borrower immediately post closing (lender fraud). These and other ethical dilemma’s present difficult choices.

    Because escrow companies are a professional service business (in my opinion) similar to CPA’s, Attorney’s, etc..yet we are only compensated for our service if a transaction closes (commission structured), it can present another ethical wrinkle—if we don’t close the transaction our business viability is compromised. It can be particularly charged when we know the chain reaction than can occur if we shut down a closing.

    Where I went to college at Seattle Pacific University, one of the excellent spinoff’s of the School of Business & Economics is the Center for Integrity in Business. It is a phenominal resource for business people and CEO’s that attend their symposiums and I am a regular reader of their publication, Ethix.org

  8. Business ethics is one of the more interesting topics that get’s more attention than any other in the pursuit of our corportate/company responsibiliy.

    Our office stuggles with business ethics on a regular basis. That is, when is it right to shut down a signing when a distressed borrower states, “I can’t afford this loan” or learn that the borrower (s) just filed for divorce a day prior to closing or learn that the seller is giving back the downpayment to the borrower immediately post closing (lender fraud). These and other ethical dilemma’s present difficult choices.

    Because escrow companies are a professional service business (in my opinion) similar to CPA’s, Attorney’s, etc..yet we are only compensated for our service if a transaction closes (commission structured), it can present another ethical wrinkle—if we don’t close the transaction our business viability is compromised. It can be particularly charged when we know the chain reaction than can occur if we shut down a closing.

    Where I went to college at Seattle Pacific University, one of the excellent spinoff’s of the School of Business & Economics is the Center for Integrity in Business. It is a phenominal resource for business people and CEO’s that attend their symposiums and I am a regular reader of their publication, Ethix.org

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