Picture this: you are sitting at your client’s kitchen table and you just gave the listing presentation of a lifetime. They love your marketing, they’re good with the price of the home, and they’re about to sign the listing agreement — when that dreaded question comes up: “Can you reduce your commission?”
You might remember that we addressed this issue in a previous blog, “Your Big Fat Commission: Selling Clients on Why You Deserve It.” In that article, (“Your Big Fat Commission I,” let’s call it), we offered a script for helping your clients understand the purpose and importance of real estate commissions, and we introduced our VIP Client Commission Rebate Program as a negotiation strategy for dealing with clients who still weren’t on board with paying your full commission. Readers were excited about this idea and asked us to go into more detail about the program.
Let’s go back to your client’s kitchen table and hypothetically say you agree to reduce your commission from 6% to 5% on a $300,000 home. A 6% commission would be $9,000 (a 50/50 split with the buying agent), but if you were to reduce the rate to 5%, you’d only earn $7,500. That’s a 17% pay cut before you even get to work! This is not the situation you want to be in. However, if you refuse to reduce your rate, you run the risk of losing the client completely — an even bigger detriment to your business.
This is a great opportunity to explain the importance of real estate commissions as outlined in “Your Big Fat Commission I” — but if your client remains insistent that the commission percentage is too high, then the VIP Client Commission Rebate Program would be your next smartest move. Believe it or not, this program will likely strengthen your client relationship, and it’ll make you more money in the long run.
The program works by incentivizing your client to give you two things that are invaluable to your marketing efforts: quality referrals and positive reviews. In return for each client review or referral, you lower your commission by a set amount. (While you cannot legally pay for referrals, if you have an active client, it is possible to reduce your commission before the close of escrow).
Here’s an example agreement:
VIP Client Commission Rebate Program
Remember your client who wanted you to reduce your commission from $9,000 to $7,500? If you were to offer a $200 rebate for each 5-star review, and your client wrote 5 of them, your commission would only be reduced by $1,000, AND you’d have 5 stellar reviews to hang your hat on!
Now, let’s talk referrals. How much would you be willing to pay for a good one? Most agents pay a 25% referral fee when a colleague sends them a client. So, if a referral resulted in a $9,000 commission, you would usually pay a $2,250 referral fee (25%) to the referring agent. With the VIP Client Commission Rebate Program, you could get 5 referrals (at $200 each) for only a $1,000 reduction in commission! If we were to apply the standard fee structure on a $9,000 commission, those “same” 5 referrals would cost you $11,250 in referral fees. It really is a no-brainer.
Once you bring this program to the table, you’ll find that most clients will appreciate your willingness to offer a rebate, and would be happy to write you a review and send their friends your way. You are helping each other out with minimal effort on either part.
While it’s important to stand behind the valuable service you provide, don’t let a client’s shortsightedness leave you feeling cheated. Instead, be the smart Realtor® who knows how to leverage his/her position to come out ahead.