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Why real estate agents’ commissions are falling — and what to do about it

Why real estate agents’ commissions are falling — and what to do about it

by Martin Grunstein 8 comments

There have been a few industries that have suffered the erosion of margin suffered by the real estate industry. Agents’ commission has fallen from around 3 per cent 15 years ago to around 2 per cent today. That’s a fall in income of a third.

The increase in property values has compensated for some of that, but it’s a radical decline that shows no sign of stopping. At this rate, agents’ commission may be around 1 per cent in another 15 years’ time.

“One percenters” have already entered some markets and while many went out of business, they brought the average commission down in those markets as a response.

The answer to why this has happened is very simple but the majority of agents have been blind to it.

The industry has been commoditised by the very agents that represent it.

Other industries have been commoditised and suffered similar margin erosion.

The motor vehicle industry produced many millionaires in the seventies and eighties. Being a car dealer was a licence to print money back then. Today, the sons of those car dealers struggle to service their mortgages because all the profit has gone out of the industry. I was at a conference of a national car manufacturer where it was revealed that dealer profitability on new cars was half of one percent.

Why did this happen? Purely because of the discounting mentality and lack of sales skills of the industry. Almost every car dealership says “we’ll beat all our competitors on price” to the point where the car is sold at a loss and hopefully some profit is made on service and finance.

It used to be that a Toyota dealer’s major competition was Ford or Holden. Today its major competition is another Toyota dealer offering the identical car at a discount. And the customer goes from one dealer to another until the cheapest price is obtained.

The travel industry used to be about romance and excitement and experiences. Today it’s all about cheapest point to point fares on the internet and tripadvisor.com has replaced the travel agent as a source of information.

Back to the real estate industry.

Like the car industry, the real estate agents discount their fees at the drop of a hat and the vendor plays one against another until the cheapest fee is obtained.

Like the travel industry, the vendor doesn’t believe the claims of the agent and places more credibility in past vendor experiences with that agent, with those testimonials obtained via word of mouth or social media.

How does an intelligent real estate agent make this change?

Simple. Stop doing the crap that doesn’t work and start doing what resonates with the vendor of today.

Here’s what doesn’t work.

The following are not points of difference:

“I can get more for your property than other agents”. Almost everyone knows that the market decides what a property is worth, not a real estate agent. “I’ll get more for your property than my competitor” is a lie that people will not tolerate any more.

“I have a unique marketing programme that will get more buyers coming to your property than anyone else”. Again, rubbish. If there was a “unique” marketing programme that attracted more buyers than any other programme, it would have been copied be everybody.

And my personal favourite, “I am an expert negotiator and my skills will be invaluable to you throughout the sales process”. In most cases, under pressure, these “expert negotiators” will discount their fee to get the listing. If these expert negotiators can’t get a listing without discounting their own fee, how can they claim expert negotiation on the vendor’s behalf as a reason to hire their services.

These lies and many others told by agents in an attempt to get a listing are the reason that most vendors don’t believe anything an agent promises and make their decision of who to hire on who gives them the lowest fee.

So what does resonate with the consumer of today (in your case, the prospective vendor)?

Stress Management.

Vendors appreciate that selling a property has hassles associated with it but they want the agent to experience the stress during the process, not them. That’s what they are paying for.

The number one criticism of agents by vendors, and this hasn’t changed in 30 years, is lack of communication during the sales process. Unreturned phone calls, unreturned emails, unreturned texts that cause the vendor to worry at a time that is enormously stressful for them. Some vendors worry irrationally and those are the vendors that need instant response to their questions and concerns and reassurance that everything is going to be all right. The good agent needs to be a psychologist as much as he/she needs to be an agent.

How do you sell stress management as a point of difference rather than the lies that vendors don’t believe?

How about this?

Mr. Vendor, while other agents promise to communicate and be accessible during the sales process, I guarantee it. If I fail to return your phone call, text or email within three business hours or fail to turn up to a meeting on time, please deduct $200 from my fees every time I let you down. I will do everything within my power to make this sale as stress free as it can be for you and if I ever let you down, I will suffer, not you.

Go ask any of my competitors if they will pay you $200 if they don’t return your phone call. And if they won’t put their money where their mouth is, why would you believe anything else they say?

The key to selling stress management is having strategies and points of difference that show that you are taking on the stress for the vendor so they don’t have to worry.

Another key way of selling stress management is not saying things about yourself that are subjective e.g. I am reliable; I am friendly; I am enthusiastic; I am great with people; I go the extra mile etc.

These motherhood statements traditionally dominate agents’ profiles in their listing kits. And they have zero credibility with vendors who have never met you. Guess what? Even the agents who aren’t reliable, say they are so why should I believe you and not your competitor? Here is where you need to use testimonials rather than your own rhetoric.

Past vendors will tell me whether you go the extra mile, not you. And their words should be the centrepiece of your listing proposal, not your profile which, in most cases, looks like it has been written by your mother and is more applicable to a dating site than a listing proposal.

Agents don’t need profiles. They need a list of benefits and points of difference that will give the vendor reasons to give them the listing (e.g return phone calls guarantee).

Anything subjective needs to be communicated through client testimonials or not at all. If a past vendor says you are great with people, I am more likely to believe it than if you say it about yourself. Does that make sense? If it doesn’t make sense, I am making no headway here and welcome to the future world of 1 per cent commissions.

I was playing golf with a client in the real estate industry after speaking at their conference about 20 years ago and in the locker room of the golf course a client of his came up to him and said “Macka, I’ve got another property for you to sell. 5 per cent like always?” Macka said “Fine. Leave it to me.”

I asked Macka “Do you get 5 per cent commission on all the properties you sell for that guy?”

He said “Yes. And the reason is that he never has to worry about a thing. And guess what? All the people he refers pay 5 per cent too and as long as they never have to worry about a thing I can charge whatever I like.”

I learned a lot that day. It’s time the real estate industry learned as well.

If this makes sense to you, change your marketing to reflect what resonates with the consumer, not what the industry has always done.

If you want me to present to your team on how to make this happen in your business, call me or email me. And don’t forget to ask for a discount. And if I give you that discount, don’t hire me.

Why real estate agents’ commissions are falling — and what to do about it
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 Martin Grunstein is a professional speaker and owner of Success Communications.

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