The Future of Real Estate Commissions: Why They Might Actually Increase
Are agents doomed to make less money with the NAR Settlement? We don’t think so. In fact, commissions may even go up!
One constant concern among agents, and a hotly debated issue among some buyers and sellers, is the discussion about commissions, particularly now, in light of the NAR lawsuit settlement. Traditionally, real estate agents have charged a percentage of the final sale price as their commission, typically ranging from 5% to 7%, then offering the buyer’s agent a portion of that, usually between 2% and 3%.
With the NAR settlement, many agents are concerned that they will make less money because they will be unable to charge their usual commission, or as we like to call it, their professional fee. However, we believe that rather than decreasing, commissions are going to rise.
Related reading: NAR – 10 Skills You Have to Calm Commission Gripes
We have suggested decoupling the professional fees where the listing agent only discusses their own commission of 2% to 3%, and then later, offering options for the buyer’s agent. The key is to discuss them separately rather than the lumped-together sum of 5%-7%.
So, how do you start this conversation?
Step 1: Thinking Outside the Commission Box
Instead of sticking to the traditional commission rates, consider offering several options, giving the choice to the seller. You can start by taking a page out of Australia’s real estate playbook and proposing a listing fee of just 2%, coupled with a $10,000 check from the homeowner to cover marketing expenses. Option two offers a slightly higher 3% fee, but the agent personally invests in marketing efforts, assuming the risk of losing that money in case the house doesn’t sell. Here’s where psychology comes into play: by presenting both options this way, you subtly guide your homeowners towards the 3% fee because while it might be higher, there is no financial risk to the seller.
Step 2: Navigating Buyer’s Agent Commission
As we stated earlier, discussing your fee and the buyer’s agent’s professional fee separately now allows you to offer more flexibility with the options. Whether it’s having the buyer’s agent commission paid directly by the buyer out of pocket, folded into the home price by the seller, paid through seller’s concession, or paid by the buyers by working it into their financing, you empower homeowners with choices and the flexibility to negotiate these terms with the buyers and their agent when they make an offer.
Step 3: Creating Value Perception
Now, let’s talk about perception. We often teach that agents need to master communicating their value, and part of that value is negotiating the buyer’s agent’s commission. By decoupling the listing and buyer’s agent commissions, you are able to position the home as more valuable in the eyes of potential buyers. Some sellers will refuse to offer the incentive of paying the buyer’s agent a professional fee, so when your seller is willing to cover the buyer’s agent fee, that’s an attractive incentive. Buyers feel pressure when it comes to paying their agent’s fee, so when a seller offers to negotiate this or pay it, the pressure on the buyer lessens, and they are more likely to make an offer.
Related reading: Placester – Building your Unique Value Proposition: 8 steps to success
Why It Works: Rethinking Commission Structures for a New Era
In a world where consumers are increasingly savvy and cost-conscious, traditional commission structures may no longer suffice. By framing the conversation around a lower commission rate and offering added value, you are able to secure more business. When you can communicate your value as an agent and be transparent with how that professional fee is spent, buyers and sellers will be more willing (and sometimes even eager!) to pay you what you’re worth.
Related reading: The Commission Breakdown: How Much Real Estate Agents Really Make
Now is the time to get super informed, super skilled, and master your commission conversations so that you can communicate with confidence. We can help.
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