13 Tips for Explaining Real Estate Commissions to a Client

13 Tips for Explaining Real Estate Commissions to a Client

  • Massimo Paternoster
  • 03/1/21

Buyers and sellers are becoming more and more educated about real estate transactions, but they also don’t know what they don’t know. As a result, agents have to answer more and more questions from buyers and sellers about their commission rates.

This can be a sensitive topic because, after all, it’s about money, and agents have to get paid for their work just like anybody else. So what do you say to a client who wants you to take a lower commission?

Above All, Remain Calm

Nobody likes to hear a client say that, essentially, you make too much money and you should be willing to take less. That’s both a blow to the ego and, potentially, the pocketbook. It’s understandable that some real estate agents react strongly to the commission conversation; after all, this is their livelihood at stake.

All that said, do your very best to stay cool, calm and collected while you’re talking about commissions to clients. Getting agitated and lashing out might feel like the thing to do at the moment, and the points you make about your value might actually sink in with your clients, while they’re working with a different agent.

One simple way to smooth your tone when you have this conversation is to practice! Come up with a few responses to commission objections that you can deliver and practice saying them to your pet, your pillow, the wall, your significant other, or just out loud in your car while you’re driving around. Sooner or later, they will feel so familiar that they’ll just roll off the tongue.

Buyers Don’t Pay Commission; Sellers Do

For buyers, there is a very simple argument for why debating your commission is a waste of their time: They aren’t going to be paying your commission, anyway. It comes out of the seller’s list price, and the seller is hardly going to give a buyer a discount because the buyer doesn’t want to pay an agent.

When a buyer asks if you’ll lower your commission, explain exactly how you are paid. After a check is cut to the seller at the closing table, the seller then pays both the listing agent and the buyer’s agent. So even if you take a cut on your commission, the buyer isn’t going to get a better deal on the house.

Sellers might need this fact pointed out to them as well. Some sellers who don’t want to pay a full commission to any agent will realize that it’s tough to attract qualified buyers, especially if you don’t want to pay a buyer’s agent a fair amount. (But more on that later.)

Explain the Current Market

Even the most educated buyer or seller probably doesn’t understand the nuances of the real estate market in the same way that you do as an agent. They might have heard stories from friends or neighbors about a home sale, but those stories might not be at all current, and of course, they’re anecdotal.

This explanation can go well beyond whether you’re in a buyer’s market or a seller’s market; perhaps you can discuss how one block is leaning more toward a buyer’s market while the next block is still firmly at the seller’s side of the market spectrum. And maybe you can share details about the homes that are in the highest demand and why. Seasonal trends, local economic details, and other granular factors that will impact a home sale are all things that real estate agents know quite a bit more about than most people think, and you can leverage those to help illuminate your value.

Show Them the Numbers

One way to illustrate how much you know about the market and what will get a house to sell is to provide raw data that gives both buyers and sellers an understanding of what’s happening in the area and how you can help expedite their particular transaction. Real estate agents have access to much more information than the average consumer, who might have done a little bit of research on the portals around pricing, but don’t really understand it.

Not only is it helpful to share the days on market and average price per square foot with them, but it’s also a kindness to explain as plainly as you can why those things matter to their particular situation. A seller who wants to get to the closing table as quickly as possible is going to want to see days on market data so they know what they’re up against, while first-time buyers will want to know what a reasonable price for a fixer-upper, entry-level home is in that one neighborhood so be ready to provide that information.

Then Show Them Your Numbers

Data is great, but data with context is even better. After you lay the marketplace groundwork and you’re confident that your clients understand what home sales are looking like, it’s time to show them how you measure up to the standard.

Start by explaining how many buyers or sellers you’ve helped in the area in the past six months to one year, depending on how quickly your market moves. You can speak to specific sales that involved similar situations to theirs (without compromising your former clients, of course). Provide your own days on market data, list-to-sales-price ratios, homes sold, and so on, to help give your clients an idea of how their experience will measure up against the standard (and why you’re worth the commission).

Offer Testimonials or References

Everyone gets sold to all the time these days, so it’s no wonder that clients don’t always automatically trust real estate agents. But you know who they do trust? Other buyers and sellers who have been through the process and understand the pain points.

You already know that testimonials and positive reviews can help your business, and you can also use them to help strengthen the foundation of value you’re laying with clients. If other people like them decided to work with you and they already know you don’t negotiate your commission with clients then future clients can be persuaded to work with you, too.

Provide a List of What It Takes to Buy or Sell a House

If you don’t sell real estate for a living, then the amount of money an agent makes on a home sale transaction might seem absurd. But if you’re a real estate agent, then you know exactly how much work goes into that money, and your commission seems utterly reasonable.

So why not educate your clients about exactly what it takes to list a home successfully for its full market value, or what it takes to get buyer clients the very best possible deal on a house they love? Some agents balk at this strategy because they think it will make it easier for buyers and sellers not to hire them. After all, the buyer or seller now knows exactly how to do the agent’s job. But those agents forget that buyers and sellers have their own careers and lives outside of this one-home transaction, and looking at the vast list of tasks that need to be completed in order to get to the closing table can feel overwhelming at best.

This list is also important because it can be a massive leverage point when you’re talking about commission splits. People want a deal and think they should ask for one, but they also don’t want to cut any corners when it comes to their home sale or purchase. You can explain that your commission helps support the services they’re going to get an outline of which ones would need to be cut if your commission were to be reduced, which may end the conversation right there.

Explain How Commission Splits Work

Be warned: This won’t work on every client and is far from a foolproof argument. However, if you think your client will be swayed by the fact that you have to share your commission with other players in the transaction, such as the brokerage, then it’s possible your client will stop pushing for a discount. 

Some people are operating under the assumption that agents get to keep the entire commission, so describing how it’s sliced and diced for different purposes and what you actually get to take home can help them understand why you’re not interested in reducing your commission and why doing so could serve to cost you money on a transaction instead of making money.

Give Context Around Your Personal Authority

If you’re a REALTOR, explaining the difference between your own qualifications and that of a standard real estate agent can be another way to explain value and professionalism to your clients. If you’ve earned any special designations that might pertain to your client’s situation, then you can also reference them and talk about your training and experience.

Some of your authority may come from outside the real estate industry; perhaps you used to work as a contractor or an interior designer and can offer assistance with envisioning upgrades and repairs to a home. Or maybe you used to be a teacher and have insider knowledge of the local school districts. Whatever the case, make your case for why you, personally, can get the job done better than anybody else.

Compare and Contrast

Oftentimes when a client asks about a discount, it’s because they heard someone else talk about how they got a rebate or a discount on their own home sale or purchase, or perhaps they heard an ad on the radio or saw a commercial on television. It’s time to pull out your list of what it takes to buy or sell a house and start pointing out where your discount-offering competitors are cutting corners and why.

It might be worth your time to create a table that lays out everything you offer compared to your competitors if you find yourself having this conversation frequently. This will make it very easy for your clients to see at a glance what kind of value you add and what they’re getting out of the deal.

Show Them Expired Listings

Sellers are more likely than buyers to object to paying the full commission (again, probably because they are paying it). One excellent way to showcase how the cutting commission can hurt a seller’s opportunities on the market is to show them the expired listings in their area and ask them to look at the commission rates on those listings. The odds are pretty good that your potential seller clients will notice a pattern there without you having to explicitly point it out or what it means; then you can use this as a jumping-off point to talk about their preferred days on market and how serious they are about selling. If your possible client is at all motivated to sell, they will probably also be more motivated to adequately compensate their agent once you show them that there are real consequences if they don’t.

Outline Your Marketing Game Plan

A seller might think that marketing a house is as simple as putting the listing up on Zillow, but experienced agents know the price advantage you can gain by being strategic with when you list, the price you list at, how long you’ll accept offers, and what the house looks like when buyers walk through. And marketing tactics aren’t just constrained to sellers; buyers might also want or need to know how to tug a little on a seller’s heartstrings to get their slightly lower than asking price but the most we could afford offer accepted.

Give your potential clients a clear, specific game plan for how you personally are going to help them get to the closing table with a positive outcome for their situation. After laying all of this groundwork, they should have a clear idea of your value and what you can bring to the table, and hopefully, this should be the last piece of the puzzle that helps you cement your relationship with your newest client.

If Nothing Else Works, Don’t Hesitate to Walk

Sometimes a buyer or seller is adamant about getting a discount when it’s not warranted, and instead of taking the listing or representing the buyer and then regretting it later, why not just walk away? This is a step that some agents hesitate to take, but if you’re spending time arguing over commissions that could be better used helping out another client who’s happy to pay you what you’re worth, why fight that fight?

A discount real estate alternatives become more prevalent (and advertise more frequently) to customers, agents should expect more questions around commissions and discounts, but those are really opportunities to talk about the value that you bring to the table.

Work With Massimo

In addition to his expertise, Massimo is praised by buyers and sellers for his courtesy, proficiency, and trustworthiness.