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When (and Why) Reduced Commissions Can Be a Good Thing for Your Business

6 min read
author
Porter Farthing
Head of Operations

Making smart decisions about how and when to consider offering competitive (aka reduced) commissions can make a big difference to your business success.  Here are my thoughts and how to do that, and the role that Trusty can play for you. 

Trusty has been on the agents side from Day One.  In an era of iBuying and algorithms, we recognize the unique value that a human agent provides in real estate transactions.  Successful agents and real experts know that once a client goes into contract, or even decides to write an offer, the agent serves not only a technical role, but a human one.  Of course there is always critical agent expertise that benefits the client: interpretation of disclosures, comp analysis, and market conditions to name a few.  But we all know that some of the toughest and most skilled conversations revolve around the client's feelings of fear and uncertainty... not the price per square foot of the house down the street.  Therein lies the real explanation and justification for the agent earning a premium commission.  But not every commission is the same, and sometimes it makes sense to reduce a commission to ensure that clients receive that crucial support they need to reach their real estate goals.  

With big tech invading the real estate space through iBuying and reduced commissions, some form of adjustment to the traditional agent compensation is probably inevitable.  But that doesn’t have to be a bad thing!  There are certainly situations where reducing your commission to secure business or compete with iBuyers is necessary to build a successful real estate business.

The question is: would you be willing to reduce your commission in order to increase your chance of earning a client's business?  And if so, when does it make sense?  In my experience, the answer is almost always "yes," but it helps to have a justification for why.  So let’s review some scenarios where agents offering rebates or discounts might make good business sense. 

Saving time

Saving time is of tremendous value when working in real estate.  Recovering lost time not only increases your bandwidth to focus on more clients, it gives you more free time to spend doing things you enjoy.  But with respect to time, no two clients are alike.  Should you earn the same commission from working with a client who you toured through 50 homes as one who comes to you with having already found a home they love?? 

Increasingly, with so many options to search for homes, buyers find the house first and agent second.  If the buyer has decided on a house before they reach you, it makes clear sense to offer a rebate given the time you’ll save.  Taking advantage of Trusty’s rebate offer field in the review gives you the opportunity to take full advantage of this.

Another consideration of time is the amount spent in your car traveling to listings, caravans / broker tours, and to meet your clients.  Offering to reduce your commission within your hyper local area saves you time in the car, and time saved researching the neighborhood since you already know the important details.  

Many agents have told me over the years that commissions “even out,"  where commission income seems to average out over time with some clients taking less time than others.  But if you could focus more on listings and clients that save you time, you won’t have to rely on this old assumption.  

Personal connection

Anyone who has practiced real estate for enough time has had clients who were difficult to work with, and the challenges they create are significant.  When providing real human support to your client, it’s much easier when you and they see eye-to-eye, and are compatible.  It’s also more enjoyable!  Spending valuable time with clients that you are friendly with, and vice versa, will increase the joy in your day-to-day work.  We’d probably all prefer to work with like-minded people, and would even consider reducing our commission to do so.  But how do you make that happen?

Here’s an example: do you love the water and all things related?  Consider creating a niche around homes with a pool, or beach, or lakefront property.  It will be more fun for you, you’re naturally an expert, and you will connect with like- minded clients.  Offering a large rebate on homes with pools or access to water is a great way to accomplish this.  When you become the local “water” expert, the referrals will increase too.  

Cost of customer acquisition

This is a technical term, but all agents should know its impact on their business.  What each client intro or lead costs should be considered at all times, but it is especially relevant to offering discounts or rebates.  If you are paying a platform hundreds or even thousands of dollars per month to provide you with client leads, it doesn’t make sense to reduce your commission to close those leads.  Not if you want to continue being able to afford the advertising fees.  

On the other hand, if your cost to acquire the client is low, as in referrals, or through providing reviews on Trusty, for example, there is a justifiable business reason to offer those clients a discount.  There have always been ‘friends and family’ deals for a reason, it’s just smart to take care of customers whom you find organically.  

Key takeaway

Trusty firmly believes the agent has a relevant role to play in real estate transactions now and in the long run.  Competing strategically with big tech / low fee players is a key to winning over the long term.  When considering whether to reduce your commission and by how much, consider the hours you can save, your connection with the client, and the cost of customer acquisition.  It will not only help you earn business now, it will help you compete well into the future, so you can focus on more clients and close more deals. 

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