Real Estate Agents and Their Commissions
Establishing Value as a Real Estate Professional
The value of real estate services is being questioned, now more than ever. Real estate agents in India are being asked to reduce the commissions every now and then. Recent research suggests that over the last 14 years, the average commission rate has dropped by an estimated 16 percent. Real Estate Commissions are seen taking a hit due to the quick rise in technology that is now making it possible, and more convenient for clients to conduct possibly all real estate related activity themselves, with the help of online portals. While buyers can browse through a variety of properties from with in the comfort of their own homes, sellers put the same technology to use to advertise the property, nationwide and worldwide, for each individual to view, thus bypassing the realtor service. But while technology is a mere tool, real estate is more of a people-business. Buying and selling property, and other successful deals, are transactions that are based on mutual trust and understanding on part of the realtors, so they can keep in mind the client’s needs and expectations, while solving their problems, if and when any.
Another challenge to commissions for realtors in the real estate market, is a steady growth of discount brokers and websites like ‘No Broker’ etc. who constantly insinuate in their marketing communications that clients are being overcharged, as the market continues to become increasingly competitive. Suggestions like these tend to shift the client’s focus from the value of work a broker can provide, to the charges and commissions only.
Most of the time, floating rumors state that realtors and brokers put in very little, or no work at all, to earn or deserve their commissions. However, aside from the fact that clients, sometimes, wish to save on the commission, they do value having their needs met, their questions answered, and reviewing a bunch of homes before eventually settling for one. Clients are satisfied when they feel heard. Once an agent manages to gauge the unique needs of every client who is sourcing for property, they can be addressed one by one. Given below, in this article, are a few tips and tricks revolving around meeting individualistic needs, and learning the art of selling the value of services offered by an agent while also living up to the expectations of the client.
Establishing Value as an Agent
1) Establishing value from the very first interaction
Every individual in the real estate business is well aware of the hard work that the business entails. Buyers might end up paying lesser than the true value of the home if a real estate agent can successfully negotiate with a seller. The buyers are also protected through disclosures and inspections. Sellers manage to get the highest net proceeds while selling their homes because of the bargaining abilities of capable real estate brokers who also ensure reduced liability to disclosures and inspections.
What does Value mean?
Value refers to the benefits provided by a certain thing minus the cost of that thing. There are two ways to increase value:
• By increasing the benefits provided by something
• By decreasing what it costs
While either option could be applied, increasing the benefits provided by something would prove to be more beneficial. In a competitive market like this one, there are real estate companies that often devalue the services provided by other professionals in the same business. Companies often provide discounted brokerage rates and discounted commission options to garner clients. However, in such situations, clients are not only signing up for discounted rates, but they are also signing up for lower value services. In order to avoid any discrepancies, it is imperative for the agent to have an honest and frank discussion with potential clients about the difference in value and services offered by a full-service broker and a discounted one. Discounted agents cannot provide the desired services and liability reduction, and also fail to live up to the expectations of their clients.
A few basic expectations sellers should generally have from the agents:
• Sellers expect their agents to help them increase sales prices, thus increasing the net profit
• Saving sellers the time, effort and money
• Reducing any kind of issues that might arise
• Receiving progress reports on a regular basis
• Developing creative marketing strategies to help increase the selling price
• Reducing liabilities
• Guiding the seller through the selling process
A few basic expectations every buyer must have from the agent:
• Reducing the purchase price, thus saving the money
• Saving them time while looking for their desired home
• Buyers should prefer hiring agents who can offer them a variety of properties to choose from, within the preferred price range
• The agents must be professional in their conduct, showing the buyer properties in an efficient and time-saving manner
• The agents must be smart negotiators who can negotiate their way to a deal of preference for the buyer
• Educate the buyer about the buying process
• Keep the buyer in the loop by providing them with regular progress reports
When a real estate agent shows the client how they can successfully meet the needs, they (the agents) manage to establish value in the clients mind, thus convincing the client of their potential.
2) Competing on Value instead of Price
Real Estate Agents might encounter a couple of problems while competing on price. Many a time, clients fail to understand that one cannot have the lower price at all times. Another issue with competing on price is that sometimes, people might not necessarily buy the cheapest product on the market. Research suggests that while about 15 percent of property buyers are motivated primarily by price values, a majority also consider other factors such as the quality of construction, reliability of the developer and their reputation as well as quality of service provided.
While being a discounted broker seems like an easy way to attract clients, both agents and clients must understand that providing quality service takes time, effort, experience, and the right amount and right kind of training. While some amount of research suggests that clients who perceive high-quality in a product are prepared to pay a premium price for the same, the research also suggests that people will also opt for the most expensive properties assuming that highly priced properties are of the highest quality.
3) Listing the activities an agent offers to earn their Commission
As an agent, one of the most effective ways to demonstrate the value of their services to clients would be to pen down a list of activities they engage in to earn the commission. Below are a list of services that we at Gupta & Sen include:
1) Obtaining preliminary title reports
2) Developing a target marketing plan
3) Showing potential buyers the property
4) Social media & Google advertisements for the clients
5) Negotiating on behalf of the clients
Listing the services an agent is willing to provide will be sufficient to prove to the client that the agent is hard-working, dedicated and committed to the job.
4) Explaining to the client how Commissions are split
Keeping clients informed about how the money is split is essential for them to understand that they are not being overcharged. Clients must be informed that the commission earned by the broker is sometimes split two ways or even three ways with other brokers. The real estate agent’s commission also has to cover miscellaneous expenses, including the rent, utilities, electricity, computers and laptops, management etc. 
In this business when real estate agents take up a client, they are not paid upfront. Payments are always settled once the property deal is done and closed. While this is how the real estate industry works, it also means that agents take a significant amount of risk each time they take up a new client. Though they are not paid upfront, they have to incur expenses to get the marketing wheel rolling. They put in an unbelievable amount of energy to reach out to the other buyer and seller agents, too. While at certain times deals can be closed within the span of a few days, at other times, it takes months for the property to sell. Agents have to risk their time and money with absolutely no guarantee of returns. But since most sellers are not willing to pay upfront, commission rates are higher to make sure an agent gets their share of compensation for a job well done. Hope we have shed some light on the commission structures in the Real Estate Brokerage business 🙂
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