Despite the fact that commission rates are how you make a living, there are certain clients who will ask for a discount, while other clients might warrant a reduced rate. Here, we break down the pros and cons of offering a reduced rate.
The average real estate agent’s commission rate is 3 percent. Agents depend on their commission fees to make income, and their rates are set based on expertise, network and time well spent helping their clients find and sell their properties.
Despite the fact that commission rates are how you make a living, there are certain clients who will ask for a discount. For example, your third cousin who is selling her first home and can’t believe you would charge a family member. Conversely, there are other types of clients who may warrant a reduced rate.
Although 73 percent of agents say they would not lower their commission if a client asked, the reality is the real estate market is changing. With the advent of discount brokers who charge as little as 1 percent for their services, plus a plethora of online tools that have made it easier for people to navigate the real estate market on their own, lower rates can make Realtors more competitive.
In this article, we’ll offer a breakdown of when agents should offer reduced rates and the pros and cons of doing so.
When to offer reduced rates
In a seller’s market
During a seller’s market when there is low inventory of homes but high buyer demand, Realtors will be more eager to snatch up clients.
To keep existing customers and attract new ones, a good tactic could be to price match other agents. Moreover, if there are not many sellers in the market, then setting a lower commission rate may motivate owners who have been wrestling with the idea of selling.
During the off-season
During off-peak times when fewer sellers are in the market, agents tend to be hungrier for business. Therefore, offering a discount could be a good way to attract customers.
Some additional ways to attract customers during off season include networking, building your social media presence and taking continuing education courses to sharpen your skills.
If you’ve been working with a client for many years or if a client has sent you many referrals, you might consider giving them a discount if they ask for one or to show your appreciation.
Usually, loyal customers are incredibly valuable when it comes to word-of-mouth business. Also, if a relationship took years to build, then do what you can to nurture and preserve it.
A real estate agent’s responsibilities typically include marketing a property, showing the home and helping clients through the closing process. However, some clients are more hands-off than others.
Perhaps you have a client who will be doing most of the marketing themselves. Or maybe you’re helping sell a home that is quite updated and in a very popular neighborhood. In cases where you will have to put in minimal effort to actually sell a property, offering a reduced rate can be fair while ensuring you capture an easy sale.
If you are both the listing agent and the buyer’s agent and will be keeping all of the commission for yourself, then offering a discount to help your seller with closing costs could be a sign of good faith. However, keep in mind that you will be doing double the work to finalize the sale.
It’s also important to note that dual agency is a rather tricky issue, and it can easily get an agent in hot water. Be sure that you are clear on your state’s legal requirements if entering into dual agency.
Cons of offering reduced rates
Although there are times when giving clients a discount can be welcome, you want to make sure you are doing it for the right reasons. For instance, if you’re offering reduced fees out of desperation to gain more clients, understand that is not a sustainable business model.
Sometimes, you might offer a reduced rate because you think a home will sell quickly. Although this could work in your favor, you could also risk finding yourself in a situation where the property sits on the market for longer than expected. In this case, you could lose money by putting in more work at a lower price.
Before reducing your rates, research how your current income stacks up against other agents in your area. The national average is $72,819 per year at approximately 3 percent commission per sale, but it varies by state (many reports put the average significantly lower, around $40,000).
If you feel like you are already not making enough, then do not cave in when any and every customer asks for a lower rate. If you spend all of your time working at lower rates, you will not have time to attract the customers who will pay higher rates. Moreover, by making a habit of offering reduced commission, you will attract additional clients looking for services at that price. It could also be difficult to try and raise your rates for clients who are already used to paying below market value.
Ultimately, the commission fees you set are all about valuing your own time and skills. Although there might be times when offering a lower rate yields long-term benefits, offering reduced fees could have negative consequences as well.