The most irritating blog topic on the current front burners is Realtor commissions being questioned. I’ve seen several commercials that have made me think that as a consumer, I should question ALL commissions!
COMMERCIAL ONE: Best Buy has a great campaign where people note “I need a fridge that is energy efficient… even when we’re not” and “I need X, Y and Z features.” You may know what features you want, but you rely on the “specialist” at Best Buy to help you find the perfect appliance. It is without a second thought that we put decisions like that on others. When I shell out those few thousand dollars, all I get is a receipt with the amount- I don’t get to see how much the profit margin is for the manufacturer or for the retailer. Shouldn’t I get to negotiate this? Shouldn’t I have a say in how much I think the profit margin should be on this product and the service of locating this product?
There is no transparency in the appliance industry. But guess what- I don’t care. I feel that if I am confident in the product that met my criteria and it is delivered to my house that day, they deserve their percentage!
COMMERCIAL TWO: Various musicians sing while riding in (or rapping in front of) different Chevrolets. I love the music in the commercial and find myself humming it throughout the day. We’ve all purchased vehicles and done the price negotiation. Have you ever asked a salesperson to waive their commission? Do you even know what their commission was? Did you think for a minute that it should be standard that they earn 1/8% on the transaction? Some car salespeople are greasy, but our salesman is a wonderfully talented man that we will always stick with. More than once, he has guided us through weeks of fickle test driving and endless lists of questions about torque, grades of leather, number of cupholders and financing. It never crossed my mind to offend him by asking how much he was making and if he could do the same sales job but not make a commission from it.
Consumers don’t question these commissions because they are smaller purchases. They are purchases nonetheless, and we all love rubbing our pennies together. Each individual salesperson works by referral, so their integrity is crucial. Although Best Buy employees are not on salary, I have never asked anyone there to give me part of their paycheck to make sure I get the best deal possible.
I find it insulting that commissions are so rampantly attacked. Sure, Realtors make good money, but the job entails a great amount of effort, expertise and liability. Discounters should discount to their heart’s desire, and full service brokerages should charge their standard fees to their desire. We all know that you get what you pay for, so let’s just do that- get what we pay for! Enough fake blog comments from “buyers” and “sellers,” and enough bashing other Realtors to make your “business philosophy” seem better than another’s. Until ALL commissions of ALL trades are questioned, quit letting the McDiscounts be irritating, and just work to be better Realtors so their “business philosophy” IS NOT EVER better than a full service expert!
Robert Kerr says:
You need better analogies, Lani.
Neither the appliance nor the automobile salesman will make a realtor-size commission on the sale.
June 1, 2007 — 11:53 pm
Brian Brady says:
I think she addresses that in paragraph 5, Robert.
June 2, 2007 — 12:05 am
Greg Swann says:
> Neither the appliance nor the automobile salesman will make a realtor-size commission on the sale.
Best Buy doesn’t pay commissions. That’s why the service is so lousy. But I sold a house to an RV salesman: 25%, and the business — like cars — is all upsell. Of course, hardly anyone can sell two houses — or two RVs — a day.
June 2, 2007 — 12:08 am
Christoph Schweiger says:
I have seen commissions in the automobile retail business up to 40%, however the percentage is based on the commissionable gross profit and not the final sales price.
June 2, 2007 — 12:51 am
Dave Barnes says:
Lani,
It is the dollar amount, not the percentage that drives us buyers/sellers crazy.
Besides, there is a great amount of transparency in the appliance business. You just have to know where to look.
Cars. How much more transparent can it get?
,dave
June 2, 2007 — 6:29 am
Will Farnsworth says:
>He has guided us through…endless lists of questions about torque, grades of leather, number of cupholders and financing.
Wow, you are reaching with this one. How can there possibly be any need for a salesman to explain these simple facts about any vehicle? Is it really that ambiguous?
Mr. Kerr is right, you need better analogies.
June 2, 2007 — 6:45 am
Austin Realtor's Wife says:
No, I’ll stick with my analogies. The point is that Realtors are not the ONLY people making commissions; most people are on a percentage base when commissioned. If I get to scream about Realtors’ commissions so readily, I should be angry that ANYONE gets a commission on ANY product, and I should definitely make bogus claims on blogs about said commissions and I should scream on the news about how car salesmen make too much.
I stand by my analogies- commissions are commissions; you have a choice to use a Realtor or not but I don’t get to choose if I use a car salesman on a new car (nor do I get to negotiate HIS commission), and I don’t get to know the profit margin (nor do I get to negotiate that margin) on appliances.
June 2, 2007 — 7:24 am
br says:
The analogy is fine, especially with cars. You’re speaking of just the salesman, but how about dealer hold back, how about the dealers back end, how about the dealers additional percentage on financing, how about the profit the actual builder of said car makes. This is all a mystery that goes away when the general sales manager pencils off the dealer hold back- so what, he still banked on the transaction. In the total sum, we still have no idea what percentage the seller actually made. I think the other stronger point was we don’t question these things, but maybe we should.
As for appliances, we see it as a retail object, it is in stone. No buyer should have to dig or search the right place for the information if you follow the so-called trasparent revolution stance- should’nt we be able to see the margin? We should be able to not just negotiate the price, but the margin. So what if its a whirlpool, GE looks good to me too…
Lani speaks from a consumers point of view, not that of a Realtor, her point is a generality and simplification of what we’re speaking of and what the general consumer should wake up and ask if they haven’t begun too already.
Conns, frys and various others are commission, and I negotiated frys on my plasma (the general consumer does not know that they can) but I still had no idea what they were making.
I discounted my “2 cents” to 1 penny. If you want this spell checked, that will be an additional 1 penny.
BR
June 2, 2007 — 8:26 am
Will Farnsworth says:
>Lani speaks from a consumers point of view, not that of a Realtor, her point is a generality and simplification of what we’re speaking of and what the general consumer should wake up and ask if they haven’t begun too already.
You are absolutely correct.
A more appropriate example would be that of cellular service providers. The price of purchasing a phone/service package online is no different than in a brick and mortar store, yet in B&M the transaction would be completed through a salesman who would in turn receive a commission percentage.
So is this fair? Absolutely not. Why should an informed consumer, using up fewer of the company’s resources (via their website), have to pay the same amount as an indecisive B&M buyer who a) requires excessive attention that could be given to other customers, b) drives up the cost of business by using their toilet, A/C, etc.. and c) is more likely to be dissatisfied in the long term with their purchase than the informed buyer?
The point is this: if you as a consumer believe that you have all the information you need without the assistance of a commissioned salesman (or agent) then by all means you ought not pay for their services. Unfortunately, many industries are set up where this cannot be avoided, but that doesn’t legitimize the practice. But Lani simply stating “well if I can’t negotiate commission on a car/appliance/whatever then people shouldn’t complain about RE agents commission” solves nothing and perpetuates the belief that RE agents are overpaid.
June 2, 2007 — 11:37 am
Robert Kerr says:
I think she addresses that in paragraph 5, Robert.
Simply declaring the analogy valid is not the same as addressing the point, Brian.
But, anyway, to the larger point: it doesn’t matter what you or Lani or I think is a fair value for our time, the market will determine that and right now, the market is very unhappy with the status quo.
You can argue that you’re worth a $10K origination fee for what boils down to 6-8 hours of work (if you’re efficient) but in the end, the customer has the purse strings and the customers are now scrutinizing everything.
June 2, 2007 — 11:45 am
Jeff Brown says:
Lani – Your points are well taken.
What is forever entertaining for me is how folks intentionally ignore the basis of our economy – free enterprise/capitalist. If someone wants to come along and change the so called standard commission they’re free to do it. If they end up changing the real estate world as a result, more power to them. So far that hasn’t happened in the nearly 40 years I’ve been watching them try.
If electronics retailers could sell for less, but didn’t, there’d be a new company taking advantage of it. It’s naive and ludicrous to think otherwise.
What homeowners won’t admit is they want to get into your pockets pure and simple. They just don’t want it labeled as such. If the public could do it themselves or with discount brokerages they’d be doing it in numbers large enough to transform the industry. But they’re not, so they whine instead, and complain about transparency, and not knowing your profit margin, etc.
Frankly my dear, I don’t give a damn what they want to know about my profit margin. If they find a company that can equal the quality of the results they get with me, go for it. Again, their problem is, they can’t. So they whine, and create false issues to distract us from their real agenda – getting into our pockets and taking the money we earn through our expertise, risk, experience, and hard work.
Every time a prospect asks me if my commissions are negotiable, I say yes, you may pay more if you wish. 🙂 My service is designed to accomplish certain well defined goals. That’s what they’re paying me for – the results they came to me for in the first place.
Keep it up Lani – those who object to your analogies are merely changing the subject to avoid you shedding light on what they’re really interested in.
June 2, 2007 — 12:17 pm
Jeff Brown says:
Robert – Before I comment, I want you to know I’ve been following your comments on different posts, and respect you.
>You can argue that you’re worth a $10K origination fee for what boils down to 6-8 hours of work (if you’re efficient) but in the end, the customer has the purse strings and the customers are now scrutinizing everything.
I suppose by that rationale the surgeon who saved my client’s life with open heart surgery should have been ashamed to have charged tens of thousands for several hours of ‘work’? My client, ‘the customer’ can scrutinize all he wants — he’s alive.
This is the same argument used by Karl Marx, more or less. Skill level, experience, or required years of training have no bearing in his calculation of the comparative value different disciplines.
The problem with your approach Robert, is that Brian isn’t being paid by the hour like a fry cook at McDonald’s who can be replaced with an hour or two of training. He’s being paid for the value of his results – just like the fry cook.
This principle is why the Mona Lisa sells for more money than my attempt at painting the Grand Canyon – even though we probably spent the same amount of time.
His results have been judged by the market as radically more valuable – regardless of the fact he only spent hours painting it.
It’s the execution of great ideas that dominate the market, and command high value – not the time it takes to produce the results so much in demand.
Until those focusing on time spent admit their real problem is how much someone has been valued by the free market, they’ll continue to be frustrated.
June 2, 2007 — 1:16 pm
Anonymous says:
“If electronics retailers could sell for less, but didn’t, there’d be a new company taking advantage of it. It’s naive and ludicrous to think otherwise.”
http://today.msnbc.msn.com/id/18274443/
WalMart undercut “big box” retailers last holiday season on HDTVs and it has left the electronics retail industry reeling. WalMart did the same thing to KB Toys a few years ago, and they no longer exist.
I doubt WalMart would open a discount brokerage next to the McDonalds, but it just goes to show that antiquated methods of compensation can be bested, even if history says otherwise.
June 2, 2007 — 1:33 pm
Morgan Brown says:
As Greg said Best Buy employees don’t make commission, but the analogy could be taken to any store that does provide that incentive to their sales staff.
But in a way, commissions are shopped and questioned in the appliance and car industries. You shop for the lowest price for that washer; you look at Lowe’s, Home Depot, Best Buy, wherever before making your choice. I hope you shop car costs, looking for closest to sticker or below MSRP, looking for the best deal. Just because you don’t know the actual percentage doesn’t mean you aren’t out looking for a function of the lowest one.
The price that you pay is a function of the commission that the retailers charge you. If they pay higher commissions that cost is more than likely passed on to you in increased markup. That money has to come from somewhere. No matter how 6-sigma, lean-production, just-in-time delivery you get – a huge portion of retailer expenses comes from people and that money gets made in the cost of the goods sold.
So while you don’t necessarily ask the salesperson “what’s your commission” and try to negotiate that, you are in effect negotiating what you feel is a reasonable price – all-in – by shopping the open market.
People negotiate commissions with Realtors and loan agents because there is no product and no standard pricing. There is no floor that they seem to run up against (except for zero) when looking at the range of pricing for real estate services. With a washer you might look online, shop 3 or 4 stores and find that $399 is the lowest you can find it. You don’t negotiate that because it seems to be the floor.
With a loan or real estate commission our industry’s competitive nature pushed the consumers to demand “Zero points,” “no closing costs,” “rebated commissions,” and more. Because there is no floor other than free that’s where the consumer heads.
So I think all commissions are shopped regardless of how it is done or said, and I think that there will be people who appreciate full service and full price and there will be people who want the cheapest costs they can get. The market will determine who wins.
Seth Godin wrote a short, great post the other day that sums up my sentiments on the issue. It simply said:
“Maybe the reason it seems that price is all your customers care about is…
… that you haven’t given them anything else to care about.”
June 2, 2007 — 2:56 pm
Jeff Brown says:
Morgan – Seth said it pretty well, didnt he? It leads me to conclude folks don’t question price when they already perceive the appropriate value.
June 2, 2007 — 5:04 pm
Robert Kerr says:
This is the same argument used by Karl Marx, more or less.
June 2, 2007 — 5:21 pm
Robert Kerr says:
This is the same argument used by Karl Marx, more or less.
WHAT?! Transparency = Communism?!
That’s a pretty bad misrepresentation of the argument here.
June 2, 2007 — 5:22 pm
Jeff Brown says:
Anonymous – You make my point very well. Thanks
Walmart sold for less, and still made a profit. The consumers spoke with their wallets. They’ve been doing that in our industry since we had commissions, and they’ll be doing it for the foreseeable future. Will the so-called ‘standard’ commission survive? Only the free market will tell – but its demise has been foretold now since the mid-70’s, so don’t hold yer breath.
Robert – WHAT?! Transparency = Communism?!
I give a clear and concise explanation of real value vs the hocus pocus of how many hours it takes a worker to do his job, and what you take out of it is Transparency = Communism?
Whether I’m as transparent as a newly cleaned picture window, or as opaque as possible – is not relevant. My costs aren’t the point, the time it takes me to accomplish your goals for you aren’t either, except as they meet your required time lines. What is relevant is that I produced results or I didn’t.
Brian’s origination fee must be competitive to the point his clients perceive the appropriate value. That’s what is relevant to them.
Since I know where a particularly nice project is, and have an ‘insider’s’ deal with the developer, do you care I made thousands of dollars by merely calling you? Not if by buying it you made tens of thousands, right? Right.
Transparency is a false issue here, and always has been. It’s blogoshere double-speak with the lone exceptions of full disclosure and just plain telling the truth.
Transparency in most cases is ‘you tell us how much your making, and we’ll tell you if that’s ok.’ The problem there is, you don’t get to tell me how much is ok for me to make – with the lone exception of when it comes to you. Every prospect who speaks with me or my son chooses to become a client or not based upon their perception of the cost to them vs the value we bring to the table.
The rest is mental masturbation.
June 2, 2007 — 7:20 pm
Dave Barnes says:
@Jeff Brown
Jeff wrote: “What homeowners won’t admit is they want to get into your pockets pure and simple.”
Well, as a consumer, I will admit. I think real estate agents are grossly overpaid for a single transaction.
I would much prefer to pay an hourly rate similar to how I bill for my labor or how I pay my lawyer.
,dave
June 2, 2007 — 7:22 pm
Jeff Brown says:
Dave – Thanks for the honesty. I understand your point. I remember one time my dad sold a home in three days, and the seller was of the same mind as you. He asked my dad how he could, in good conscience, take 6% for a few hours work.
My dad very calmly repeated to him how important he’d stressed speed of sale was, because he’d been transferred by his employer to a city pretty far away. He was to receive a raise only starting from the day he could establish residence in the new city.
He then asked his seller if he’d be happier if my dad had taken the full 90 day listing period to sell it, as that would ‘prove’ he’d ‘worked’ longer and harder to produce the same results. He further pointed out those results would’ve meant the seller would’ve missed out on an additional three months of increased pay.
In other words, I gave you the best results you could’ve reasonably hoped for, and you’re still wanting in my pockets?
That was the end of the conversation, and I’ve never forgotten it.
And your lawyer? We both know as soon as you come to him with a potential multi-million dollar payout, the hourly pay approach will disappear. At that point you’ll long for only 6%. 🙂
And since, like Realtors, he’d only be paid if he won, you’d agree. Of course you’d also be required to pay his expenses either way, a luxury we Realtors don’t enjoy.
June 2, 2007 — 7:50 pm
Brian Brady says:
Welcome to Bloodhound, Lani.
It’s like playing in Yankee Stadium; the critics are brutal but nobody knows more about the game than them.
You’ll learn more from the comments than the posts. I’m amazed at the talent that is kind enough to provide feedback here and always grateful for it.
June 2, 2007 — 10:28 pm
Chris says:
People see the commision checks but they don’t see the expenses! I have to pay $500 a month just to say I’m a Re/Max agent! Advertising? A sunday add is $200, the costs just add up from there. This drives me nuts coming from a service business. People see the $80 an hour labor charge and are like, I wish I made that! Well lets break out where that $80 an hour goes.
It costs what it costs, if you don’t like it don’t pay it.
June 3, 2007 — 4:44 pm
br says:
>I have seen commissions in the automobile retail business up to 40%
I find this most interesting (and true). It affirms another point Lani was making-
$2,000 x 3% = $60.00
$2,000 x 40% = $800.00
(just add zeros to reach the price of your car or house)
3% is still a fair commission when you >consider the liability, expertise, experience, and hard work.
When you boil down all commissions from any industry, you still will find that of a Realtor to be the most bang for the buck.
You will argue that the $2k isn’t the same as that of $500k, and I will simply say- exactly, the stakes are a hell of a lot higher when we’re not talking about a house, it’s a home. We aren’t just talking about cash at close, we’re talking about the consumer’s desire to use real estate as a cash vehicle to wealth.
As Lani points out, we mostly just fly off the handle about Realtors, but somehow the car dealers and others make a killing and we know nothing about how they’re paid- yet we simply accept it. A quality Realtor will teach his buyers and sellers how to gain wealth with each single transaction. A car dealer teaches you nothing and they make proportionally more. Ask a Realtor to sit down and show you what they’ve built you in equity and they can; ask a car dealer to show you what equity you have when you drive off the lot- oh yeah, we know the answer already. In context, 3% ain’t bad.
Lani hit the nail on the head. It is a double standard. You can’t ask one industry to show transparency and not the others, especially when the margin is 37% higher.
June 3, 2007 — 8:06 pm
Jeff Brown says:
I refuse to make an argument for or against this mythical transparency issue. Disclosure? Sure – but this whole transparency thing is a smokescreen created to get into not only my pockets, but my business. Go fish. 🙂
The whole commission discussion as it relates to the car business, is, superfluous. The car is worth what the car is worth, and we all know how to establish that market value – and with far less effort than the valuation of real estate.
Whether it’s services or widgets being sold to the public, it’s the value perceived by the market that means more than a hill of beans. The rest is interesting, but just above meaningless.
Why is this so difficult? A crappy Mercedes goes for $30K, and the exact same car in mint condition goes for $45K. So what if the sales guy makes a $5K commission? So what if you’re unaware the dealer paid the ‘crappy car’ price for the mint condition car? Did the market value the damn thing at $45K or not? If so, the rest is someone upset that somebody besides him might made a buck.
The best advice I ever got about doing any kind of business transaction was this:
Be concerned about being happy about your side of the deal, while being honest and behaving with integrity. If you care about what the other guy gets, you’re looking through the wrong end of the telescope.
June 3, 2007 — 9:29 pm
Ryan H says:
Heya! So, I’m committing the ultimate crime here and commenting without having read all the other comments. Truth is, I don’t need to. I simply want to say Bravo. Great illustration of the absurdity of the attack on Real Estate commissions. Somehow though, asking Realtors to work for almost nothing is the chic thing to do now, no matter how insulting and arrogant and flat wrong it is. Thanks for sharing your thoughts!
June 29, 2007 — 1:08 pm
AskABroker says:
Actually you can negotiate price with Best Buy to some degree. Appliances and many other consumer electronics do not always have the margin that you think they have, thats why a cable or hose costs $20, to make up the margin that the retailer has to not make or lose sometimes on a product. I sold computers 12 years ago and you could make $200-$500 on the computer its self. The market slowly became over saturated and now a retailer is lucky to make $20 on a $1500 laptop now days. My point is pick a “Package” fridge, microwave, cords, filters, etc and then negotiate. Sometimes they could only knock off $2 of one big item but the smaller accessory they could give $10 off. For being in sales you might want to take a class or two on negotiation (I’m not trying ot be negative), it will not only help you save money on your own purchases but get the best deal for your clients. Roger Dawson and Mike Summey have some good materials on this at http://www.weekendmillionaire.com/ I would also like to add if you got poor service from someone at Best Buy it was probably a kid that works there that doesn’t know anything, try asking for a supervisor or manager they will be much better to help you out and also be able to negotiate on the prices on a large purchase.
If anyone would like to post a video on negotiation on http://www.AskABroker.TV please let me know.
July 20, 2007 — 4:19 pm