We are discussing a standard listing agreement with a potential client. It begins with the awkward pause after we tell a them our commission rate. The silence tells us that they are building up the courage to ask if our commission is negotiable. The conversation usually goes something like this…
Me: You seem uncomfortable with that Fictitious Frank
Fictitious Frank: No…I get it. I know everyone deserves to get compensated but..is that rate set in stone?
Me: Nothing is set in stone but it is pretty rare that we take on business at anything less than that.
Fictitious Frank: It just seems like a lot for the amount of work that is involved.
Boom…there it is…confirmation that Fictitious Frank does not fully understand what he is paying for. A similar conversation also commonly occurs when we sell a property within the first few days of listing a property. It almost always plays out exactly like this…
Client who’s property I sold quickly: I know we agreed on a commission but you sold that property so quickly that you didn’t have to invest much.
Me: (Trying to diffuse what I know is coming) Hahaha…if only you knew what it took to build our company and network, you would think differently.
Client: Hahah (clearly not letting what I said sync in)…I bet. But in THIS case, you really didnt have to do anything. So I was wondering…actually hoping that…(mustering up courage to ask me to cut my commission)
Me: I know where you are going with this…before we go any further, let me help you understand how we view commission.
We deal with it on a weekly basis…people who don’t understand what they are paying for. I don’t get upset with them. In fact, its quite the opposite. It makes me realize that I am not doing a good job of selling our services.
The point of this article is to help you understand how we (LandCo) view commission. I am also not saying that the following article is a representation of how everyone thinks of land broker commission…it is my opinion, and my opinion alone. I can promise you that I am not alone though 🙂
Sure we get it, the very definition of commission means that it is an isolated exchange…a one time payment for an isolated action. We sell your property, and then get an agreed upon percentage of that specific total sale. It is the very structure of that agreement that leads to confusion on what people are paying for. But we see commission in a completely different light…a very, very different light.
Our view on commission
Ultimately, we see commission as the amount you agree to pay for our company as a whole. Meaning you are paying for our reputation, our team, our network, our client list, our intellect, our ability, our attention, our past performance, our reach, etc… You are not agreeing to pay a commission so we will put a few ads in the local paper. You are agreeing on a commission because you believe our company (or whoever you choose) gives you the best chance of selling your property.
Take for example the client who asks for a discount because we sold their property quickly. In his/her mind, we did not have to invest much. We didn’t have to pay for any advertisements. We didn’t have to spend much time showing the property. But in our mind, we see it differently. We believe we are being punished for doing a good job. I completely get the point that I didn’t have to buy any local ad spots. But that is such a tiny portion of our overall corporate operating budget that I fail to see the correlation. The truth is this… The vast majority of our annual budget goes towards obtaining and holding buyer clients. A large percentage of my time is spent developing a team that represents what we believe we are…a company with a high level of integrity, extreme passion, and deep knowledge of our products. My time is spent increasing our reach and improving our services. Sure we spend a few bucks advertising properties individually. But the majority of our marketing platforms are built to increase our client base. Nearly all my time spent on marketing is analyzing individual campaigns to see if our investment was worth the increase in reach and the growth in our customer base. Our marketing campaigns are fairly complex and strategical. But the principal is pretty basic. We want to build the greatest company possible that puts our seller clients in the best position to sell their property. That is what you are paying for. So when we sell a property quickly, it excites us because we know our efforts are working. The latest scrubbing of our buyer client list tells us that we have just over 2200 buyer clients. That list was built though sweat equity, commitment, dedication, intelligent marketing, and a ton of hard work. That is what you are paying for.
When a commission reduction in appropriate.
Ok so now you get it. Commission is not just a singular act. Its not just a reward for selling a singular property. In fact it still amazes me that brand new land brokerages can ask (and sometime get) the same commission as a company like LandCo. That does not mean that we conceptualize commission as set in stone! Said differently, we do negotiate commission in several instances.
In plain english, we view listing agreements as mutual agreements…its as simple as that. We tell you what we believe we can do. And the seller agrees to do their part…keep property looking good, allow us access, pay us when we produce on our side of the bargain, etc… While it does play out like we expect a majority of the time, there are plenty times where it everything does not go as planned…it happens. And it is our belief that when the seller holds his/her part of the bargain, and we do not hold ours, a reduction in commission is 100% fair game.
The most common example is price. A typical example would be something like this…
We tell a client we can sell his property for $1M within 3 months. 3 months go by and we have not produced an offer of $1M. While rare, this happens for a variety of reasons….often times by variables that are beyond our control. When Caterpillar announced they were going to fire thousands of people, the local recreational market paused. When grain prices tumble, investors and farmers alike hold tight. Whatever the reason, it happens. That does not mean we do not honor our word. So 3 months later, we get an offer of $950k. In many cases, we advise our seller to take this offer. We explain why the circumstances have changed, and let them know that because it is lower than we had promised, we will eat some of our commission to close the differential gap. The seller is by no means required to take that offer…we are just updating the conditions and offering our advice.
Put in its simplest form, we believe that a reduction in commission is fair when the brokerage does not do what they advised that they could.
Random thoughts on commission to finish…
So there it is…what we think commission is…and when we believe it is appropriate to ask for a reduction. So here are some random unorganized thoughts on commission to close ?
1) When a seller asks for a commission reduction right out of the gate, he/she is hurting the likelihood of a sale because cooperating brokers are less likely to show that property. LandCo offers a commission split right down the middle for cooperating brokers (as do many land brokerages). If we offer 3% to any broker to sell one of our listings, they are much more likely to aggressively promote that property…than if we say, only offer 2%. Makes sense right?
2) If you are going to be that guy…the guy that tries to squeeze every penny out of a broker…even when they do exactly what they promised…know your place, know the end result. Our best clients never ask for a penny back. And guess what? They get the best opportunities brought to them! Our good clients develop into relationships. We offer them free hunts, free advice, lease opportunities, we use their business services whenever possible, etc… we swing by and have a few beers with them to chat about their property. Land Brokers only have so much time to allocate. Think it through.
3) The smaller your property, the less likely you are to receive a commission reduction as a seller. Math.
4) We respect honesty…that doesn’t mean that we are always happy with it, but we respect it. If the commission is too much and it doesnt put you in a position to net what you need on your property, say that. Don’t just stop answering calls…honestly it happens a lot. Who does that? If you want to try and sell it yourself first, just be upfront and honest…”I 100% get your commission structure, but that puts me in a bad spot, I need to try this first.” Cool…good luck man. If it doesnt work out, or thing change and we can help…hit me up.
So there they are…my thoughts on commission…unedited and raw. These are only my thoughts but I would wager many, many other brokers think the same way. Thoughts?