Yesterday one of my agents came to me because her friend is getting ready to buy a house. He went online to look at properties and was solicited by a company offering to give him a partial commission rebate. He called my agent and told her that he wanted to work with her, but he didn’t know how he could possibly give up that commission rebate. She was really upset about it and didn’t even know that a commission rebate was legal so she came to talk to me about it.
I told her the commission rebate was legal although I think it’s weird and I don’t think it’s really in anyone’s best interest.
Then I told her the story about the time I showed my listing to a buyer and her non-commissioned/salaried agent…
I had to be there to show the property because there was a dog in the house, and the buyer’s agent was being paid to show up, but not earning a commission. She leaned against the wall and did something on her phone and just had me show the house to her buyer. The buyer loved the house and was happy to tell me (the agent for the SELLER) how excited she was and that she wanted to jump on it before Amazon opened their Philadelphia headquarters (spoiler alert- Amazon never happened here) and the house prices shot up. I had to tell her not to divulge confidential information to me to protect her interest, but it was too late. I knew how much she loved the house and of course told my seller. The seller played hard ball in the negotiations and she ended up paying full price for it. This simple mistake happened while her own agent was 10 feet away not even paying attention to her. The seller would have sold for $12,000 less than asking. The buyer’s rebate was $3,000, so her rebate ended up costing her $9,000.
How those Companies Make the Rebate Work
Companies that offer these rebates generally hire agents that that either pay on the salary or an hourly or task based fee based schedule. What I mean by this is they might say to their agent “go show this house and I’ll pay you a flat fee. Show up for this buyer’s home inspection and I will pay you a flat fee”. By doing this, by not having to pay their agents a full commission, they’re able to save money and refund it back to the buyer. If this were the entire story it may seem like a win-win situation. But it’s not quite that simple…
- Agents who get paid a flat fee or salary are not incentivized.
- Incentivized agents MUST go the extra steps, or they don’t eat.
- Agents on full commission partially or fully rely on referral business to keep them fed.
- Agents who rely on referrals are incentivized to do an amazing job for their clients.
- Part of doing an amazing job for buyers is to get them a great deal. This includes the best possible price as well as terms and conditions.
- A salaried or flat fee agent has no incentive. None.
- The buyer may have tax consequences on the rebate. In fact, the law states that in order for the rebate to be legal, the broker must inform the buyer that they should consult a tax advisor.
Commissioned Agents are Incentivized, and That is a Good Thing
First of all, let’s admit right up front that on the surface it seems like we as real estate agents get paid a lot of money. I’ve had to defend my commissions in front of people more times than I can count over my career. But there are a lot of things that I have to say about that.
- I only get paid if I close. If you count up how many hours and days and weeks and months I’ve spent with people educating them, giving them advice, giving them counsel, giving them my knowledge & my experience, and never closing a deal… the numbers would be skewed closer towards minimum-wage.
- Getting through a transaction can be a detailed and complicated process with many moving parts and variables. I have the necessary experience and knowledge to deal with these issues and give amazing service to my clients.
- I also concentrate totally on real estate which means that I have a network of service providers who can help my buyers and sellers. I deal with home inspectors, lenders, title companies, insurance brokers, contractors, maintenance people, personal organizers, de-clutterers and just about every other professional that you can think of that whom you need for your transaction and maybe even for your life in general
- If I don’t close deals, I don’t eat. That’s not meant to be dramatic. That is the straight up truth. There is no paycheck coming to me unless I close deals. Why is that important to my buyers and sellers? Well, it’s important because it shows that I’m motivated. No, I’m not just motivated to close deals and make money. That is short sighted. If that were the case, then one could argue that my best interest is for myself and all I care about is money and therefore my being motivated by money would hurt my client.
But I am going to tell you the real truth.
The real truth is if I were motivated solely by money I would’ve burned out along time ago because people would’ve seen through me. I’ve been going strong well over 20 years without a steady paycheck. The way I am able to do that is because I give amazing service and do a great job for my clients and they refer me. And my reputation speaks for itself. Granted I’m not the right fit for everyone but that’s to be expected. What I am is ethical, hardworking, honest and I possess integrity. Those traits and characteristics are what build my business.
The fact that I am motivated to do my best and keep learning and use my experience to help my clients is what keeps me going. If I were not motivated by money and if I were not compensated by commission, there would be no incentive for me to do an amazing job. If I got paid every time I show the house I would get bored and complacent. Not only would I hate that life but it wouldn’t keep me sharp and on top of my game. That hurts my client. By being sharp and on top of my game it causes me to go above and beyond the call of duty as well as negotiate the absolute best deal for one of my clients. There’s a lot more to an offer than the asking price. I use skills, experience, tips and tricks to negotiate a strong contract in the best interest of my client and, in so many other ways, it often translates into a lower selling price for my buyer and the higher sales price for my seller. As well as better terms.
Rebates Actually Cost the Buyer Money
So that little commission rebate that they are dangling in front of your buyer? What is that really worth? The person who works for that company is basically an hourly employee. Although they might do their job well and even be a skilled agent, the fact can’t be denied that there is no incentive for them to work harder for their client.
They are going out and doing a task oriented job for the client during what could be the most expensive and important investment of their entire life.
Would you trust that transaction to anyone, or would you want a seasoned, skilled and motivated agent?
You must know what you are worth and believe in the value you bring to your clients. Pay attention to the next time you are on the phone with clients at night or before the sun is in the sky. Make note to yourself of the times you are emotional support, refer them to someone for something outside the transaction, like a job or a babysitter, and for the volunteer work you do in your community. The podcasts you listen to, the books you read, everything you do to make yourself better and more educated.
In fact, I want you to actually write it down. Make a list in your planner and add to it every time you do something extra. Then when that buyer is star struck by that rebate, show them the math, read them the list of things you do and remind them that you are worth more than a rebate.