Brokerages Don’t Earn Commissions- Realtors Do

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Today, more than ever, there is an ever-growing gap between commission rates being charged by Realtors. And the gap between value and cost is growing right along with it. As tens of thousands of people have flooded into the real estate industry over the last five years technology and innovation have allowed some to raise the traditional value-proposition. But in Utah about 90% of people who get a real estate license fail- meaning they have gotten out of the business because they could not succeed.

Some of those people who eventually fail and some who actually stay in the business do and say things that hurt the industry as a whole. Some claim outrageous things just to get some business. And with all the competition some brokerages have become more aggressive with their marketing and claims.

It is important to know that brokerages do not sell homes– home-owners do. And brokerages do not list homes or work with buyers- agents do. Individual agents- not brokerages. If an agent from XYZ Realty does a great job for you in Tulsa that doesn’t mean that any agent from XYZ Realty in Orlando will also do a good job for you. Another agent from XYZ Realty in Tulsa may not even do a good job for you. The name on the sign doesn’t matter- the name badge on the agent does.

But brokerages need to promote the brokerage, so they create marketing to persuade the consumer why to use one of their agents. And some of the marketing is really good. Some brokerages have really stepped up their marketing to increase the value for their clients.

Some brokerages just make stuff up and try to scare the clients.

Let’s examine some of the “untruths” and scare tactics that many brokerages use. Remember, this is meant to illustrate how a brokerage tries to get higher commissions for all of their agents, not as example of how some agents are actually worth more or less than others.

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The first untruth is one of the most common and shows how pretentious and blazen some brokerages are with their marketing. They try to convince the client that they earn a higher commission because of their superior negotiating skills.

Now, of course, there are agents who are better negotiators than others, and this is an important part of decided who to work with. But there are two flaws in this claim.

The first is that a brokerage that claims that they can negotiate better is actually saying that all of their agents are better negotiators than all of the other brokerage’s agents, which is absurd, cocky, and delusional all at the same time.

What, do they have Realtors taking negotiating tests to determine which agents they will hire so they can ensure that their agents are the best? Of course not- most brokerages have a mix of new agents, experienced agents, good agents, bad agents, etc. So for a brokerage to say that their agents are better negotiators is crazy dumb.
The other flaw is in the idea that a home actually sells for more simply because of the agents negotiating. As though when a buyer sees a home they like, the listing and buyer’s agents lock themselves in a room and negotiate the price and conditions, with the best negotiator winning. In reality, buyers and sellers decide on price and conditions they are willing to accept and the agents facilitate their clients wishes and coordinate the transaction. Usually agents never meet or talk to the other agent’s client, so how could they negotiate with them?

Negotiating absolutely makes a difference, and many times deals do not close without good negotiating. Negotiating comes into play when an agent can convince another agent to convince their clients of something, or in keeping transactions together when things get sticky. But the brokerage has nothing to do with that- the agents do.

The second untruth is that they are worth more because they have sold so many homes in that neighborhood/city/state/zip code/price range. Buyers do not only buy homes because they are listed by a certain Realtor. They don’t call an agent and say, “I want to buy one of your listings because you sell the most homes.” They look for homes and buy the best one they find in their price range.

Experience absolutely matters and you will pay more for that experience. And networking can sell homes so it helps to have an agent who talks to other agents and can spread the word about their listings. But if they are marketing their homes effectively the other agents and clients will see that home anyway. And again- it is the experience of the Realtor and the networking of that agent that makes the difference, not the brokerage.

The next untruth some brokerages (and agents) will tell people is that the client needs all their “stuff”. I don’t know about all the markets across the country, but in Utah, Colorado, and the Bay Area of California, Homes For Sale magazines do not sell many homes. They are not even meant to sell homes. They are meant to bring in leads for real estate agents. That in itself is not a bad thing. I’ve ran a lot of ads in the magazines, and I try to create the ad so that lots of buyers will contact me. I advertise homes in the local magazines because it certainly doesn’t hurt and the more exposure, the better. But magazine advertising alone does not justify a higher commission or using one agent over another.

“Just Listed” and “Just Sold” postcards are sent out to get business for the agents, not just to sell homes- if an agent is saying that they send out “Just Listed” postcards only to sell your home- ask them how many homes they have actually sold because a buyer saw a postcard and they called the agent and bought the home.

Postcards usually go out to people in the surrounding area, and those are people who would see the yard sign anyway. They probably send them out to get leads.

Moving Trucks aren’t bought by agents just to help their buyers. Agents buy moving trucks so they can plaster their name all over them and have the buyers drive these moving billboards all over town. Sure, it can help the buyer- having a truck to use, but renting a U-Haul is usually about $50/day so it’s not that big of deal, and certainly not enough to choose an agent for.

Very few people find homes in the newspaper anymore. Why would they when they can go online and see all the homes with photos, maps and detailed information? Of course all marketing helps and you never know- someone might actually choose to read about the few homes in one of the many magazines instead of seeing all the homes online, and they might notice the ad for your specific house, and eventually buy that house, but the chances are very slim that the buyer wouldn’t have found the house anyway by looking online.

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A lot of real estate marketing is for the agent, not the seller. Don’t get me wrong- all of these extra things are not bad and they certainly don’t hurt your chances of selling your home, but that’s not my point. My point is that some agents use even one of these things as the reason that you need to pay them higher commissions or choose them over someone else. The value proposition is simply not always there.
At some companies the agents are taught to defend a high commission by saying, “it’s not the cost that matters- it’s the value.” And that is true, but value comes from the Realtor, not the brokerage.

Some agents will charge 7% to sell a home and they are worth it. Others will charge 4% and not only do they not earn it, but they actually cost the sellers money by giving them bad advice and preventing the sellers from having good representation.

Selecting a brokerage is foolish- select the Realtor who you feel will best represent you and your interests. Ask them about their experience and ask them about how they will make you more money when selling your home or how they will ensure that you find the right home and get it for a fair price when you are buying. Ask good questions about the agent and don’t choose your agent simply because of the franchise name on the sign- choose them because they are the best for the job and they are worth whatever it is they are charging.

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And if you want to know what marketing matters most when selling a home? Here’s my opinion…

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6 thoughts on “Brokerages Don’t Earn Commissions- Realtors Do

  1. Thank you for making real estate transparent to the consumer. What is sad to me is that real estate is still not transparent to many Realtors. Many Realtors seem to think it is about the brokerage or their broker and will follow blindly. We charge 6%? OK. We charge a $400 transaction fee? OK.
    Then when the seller asks “why”? That agent answers “Because of all the services”.
    It’s not about the services, it’s about the service.

  2. What’s funny is when I was first licensed with RE/MAX… my broker told me to tell everyone else that “no one sells more real estate than RE/MAX”… to which I said, “what has that got to do with ME?”

    With some brokerages, a great deal of the marketing is handled by the broker… but those numbers are dwindling.

    When you hire an agent – you get an agent. Seldom anything more.

  3. I still dutifully discuss C21 on my listing presentation, though as I’ve gained experience that part has been reduced from a few sentences to one. In the end, the C21 system isn’t going to sell the house. I do.

    Brokerages do have an impact on an agent’s success and either can be positive or negative. Starting splits often are weighted so heavily toward the broker that only volume will allow the agent to survive financially and volume is the one thing most new agents don’t have.

    At the same time, a firm with a solid training program (and some of them really do exist) who can teach the agent something of use vs. the state licensing exams that require knowledge of virtually nothing relevant to the day-to-day can help an agent create a strong foundation on which to build.

    Steep splits plus poor training = disaster for agents and clients alike.

  4. daltonsazhomes,

    a couple questions for you then:

    1. you say “steep splits plus poor traing = disaster for agents and clients alike” Why do brokers do this? 50/50 is a norm in my market. some brokers even push their agents down to 40/60 or a 45/55 if they sell a co-broke listing.

    2. Why do agents go to brokers with poor training or splits? But more so, why do they stay?

    I find it interesting that we have 3 comments( 1 indy, 2 franchise) on a blog from an indy, and we are all in agreement its’ the agents commision.

  5. Greg

    Exactly! It’s about the agent and that’s why we like KW. Damn fine post. I was disappointed that it actually had an end.

    I think you would get a kick out of the one I did on my AR blog today from Peets Coffee in San Ramon. I’m posting the link as my url below.

    I saw that you guys were getting some great snow. It’s dropped into the high twenties here, but I don’t miss those three snowblowers!

  6. Pingback: 11 Things That New Real Estate Agents Do Wrong « More Listings | More Sales

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