Why Real Estate Agents Are Like Car Dealers and Grocery Stores (It’s Not a Bad Thing)

The Los Angeles Times recently ran an article about one of the most controversial topics in the real estate industry: commissions. The purpose of the article seems to be educational and geared towards consumers. At the same time, some of the conclusions won’t sit well with most real estate agents; such as the suggestion that many real estate agents are willing to negotiate their commissions.

Evidently, “the average commission rate nationwide on home sale transactions hasn't been 6% since 1992, when it was 6.04%, according to Real Trends, an industry publishing and consulting firm that obtains confidential transaction data from brokerages annually. In 2005, at the height of the housing bubble, it was 5.02% and in 2013 it was 5.38%.”

The above date suggests that most agents aren’t getting 6% commissions anyway, but here’s a catch: many agents aren’t in real estate full-time or they’re not real top producers. Real estate is a very diverse field. There are part-timers, retirees, newly licensed agents; there are brokers with hundreds of agents working under them and sole agents working from their homes. When you think of the diverse players in the field, it’s easy to understand why some are willing to negotiate their commissions and others are not.

Unfortunately, in the minds of many sellers and buyers, all real estate agents are created equal. Many have bought into the myth that real estate agents these days are burdensome accessories to online search tools and that they bring no real value (yes, some don’t, but most do).

Even though real estate may seem very different from all the other industries, the basic structure of talent distribution is the same. As the Los Angeles Times article suggests, there are discount real estate offices, full-service brokerages and everything in between. Just like there are used car dealerships, new car dealerships that sell inferior rides, dealerships that sell solid, reliable cars priced somewhere in the middle, and, of course, there are those that offer luxury and ultra-luxury vehicles.

Take grocery stores as another example. Some of them sell cheap, dubious food that no one knows where it came from and what’s really in it. Other sell standard fare that’s neither particularly good nor outrageously bad; and then there are upscale stores that sell organic food, a wide variety of fruits and vegetables, fresh fish, etc.

You get the gist…

So when your potential client is trying to negotiate down your commission, make sure you bring up the above examples. Yes, they can go to a discount flat-fee brokerage. They can hire a real estate agent who hadn’t had a deal in months and who is willing to do anything to score one. However, just like with everything else in life, you get what you pay for.

Don’t be afraid to have this conversation; in fact, often times it’s beneficial for the agent to bring up the C-word as soon as possible and get it out of the way so you can have an educated client with whom you can have a long-term relationship.