Perfect Pricing II

In another recent coaching session, the topic of a certain competitor and his deeply discounted commission rates—and their impact on the market—came up.  We wondered how the agent could truly serve the many listings in his portfolio, and we decided to do some research.  Of course, we expected to find extra long DOM’s, a low average sale price per transaction, and poor sale to list price ratios, all pointing to a lack of attention and poor service.  In many cases, that’s the result of such discounting.  But for 2013, it turned out that specific agent had an average DOM well below the average, a higher than market average sale price, and a solid sale to list ratio!  How could that happen?

There’s only one way possible.

Total control.

As we think about it, a substantial discount in the commission rate—while protecting the BAC—could only work if it granted the listing agent far more control over the pricing and positioning of the home.  The LISTING AGENT, not the seller, would set the price—at the lower end of a reasonable CMA range.  HE would stipulate price reductions, every two weeks, and they would be included in the listing contract, and would be automatic.  HE would stipulate and approve the seller’s staging of the home.  In other words, if a seller wanted to take advantage of deeply discounted fees, they would have to agree that the goal is to sell the home fast—which some folks may find a positive thing—and they must grant the listing agent the lead in the strategy and tactics of getting that job done.  Good news for the listing agent, but what about for the seller?

Quite probably, money left on the table, as the discounting listing agent’s goal is simple:  sell more and sell ’em fast and sell ’em cheap.

Of course, we don’t recommend or encourage this kind of commission discounting, and, as we said in the previous Playbook—or actually, as Warren Buffett said—“Price is what you pay; value is what you get.”  Bottom line, focus on value so that, when you’re pitching a listing and the seller tells you they want a deeply discounted commission rate, just fill them in on what that really means:  either they will lose control of the pricing strategy and maybe even leave money on the table, in the long run, or, at the very least, they’ll get what they pay for—poor service—and they may find it mighty tough to get that discounting listing agent to respond when they have a question or a problem.  “Mailbox full” is not an ideal way to cultivate your sphere of influence!

And speaking of leaving money on the table, another element to make sure that potential seller understands, if they continue to be pushy about a deep discount, is that any smart agent representing a buyer will likely recognize the firms and/or agents known for their discounting tactics, and, when they prepare a CMA to determine a value for their buyer client to consider in making an offer, they should discount the value of the house in question by maybe 2% since the CMA will be showing other home values where a full commission was likely paid!  Apples to apples, right?  Bottom line, the Seller, in that discounted fee situation, will be—or at least, should be, if the buyer has a savvy agent—getting offers that reflect a true market value of their home, appropriately discounted to reflect the skinny commission they’re paying.  Just as would happen with a FSBO, right?  Yep, probably leaving money on the table.  Again.

So, remember Uncle Warren’s wisdom, and foster the principal of value versus price!  And also remember that NAR survey from a couple weeks ago, where only one percent (YES, ONLY ONE PERCENT) of sellers considered the commission rate the most important element in their choice of a listing agent.

Value, indeed!  Good to know!

David M. Hassler

Director of Coaching