Pay the Commission Up Front

Pay the Commission Up Front

You go on a listing appointment and you state to the Sellers that the commission will be 6%.

Most of the time, the Sellers are so shocked that they sign immediately. Your presentation was so impressive that they were expecting the commission to be much higher. They can't pass up such a great bargain.

Unfortunately, the current market is slow and home values are down. Sellers want to make up for that decreased value any way that they can.

Of course, they will push you to list the house for more than it is worth. If you are persuasive enough, they may do some improvements to the property to increase its value or to put it into its best showing condition.

In the end, many Sellers view the lowering of the commission rate as the easiest way to reduce their costs and hence to increase their net.

Perhaps we will reduce it to some extent, but we can not work for free. We are providing a valuable service and we deserve to be reasonably compensated for our service.

With fewer sales taking place, we need to get every listing that we can. We need to put money into our empty pockets.

So we suggest a compromise. I will lower the rate, if you will pay me a portion of the commission up front.

For example, a 6% commission on a $300,000 house would total to $18,000. We could lower the commission to 4.5% which would yield $13,500 and provide a savings to the Seller of $4,500, and, obviously, reduce our earnings by $4,500. But a portion would be paid up front.

We can see why the Seller would agree to this reduction, but why would the agent agree to it. Once again, obviously, the agent would take a reduction because $13,500, although less than $18,000, is better than nothing.

Before agreeing to reduce our commission, we can, of course, state to the Seller, that while we understand their concern about their loss in the value of their home, that this same loss is having a significant impact on us as well. Let's say for example that this house was just a few short years ago worth $400,000. If they were selling it at that value, then our commission of 6% would total to $24,000, meaning that in today's market we too are feeling the crunch by a whopping 25% reduction of $6,000 in our commission.

If they are still insisting on a lower commission and we are still willing to work for less, then we can talk about them paying a portion of the commission up front, or buying down the rate.

Ask them to pay you $2,000 non-refundable up front in exchange for the lower commission. In this case, they would then owe the balance of $11,500 at settlement. After all, you will be incurring expenses with your advertising of their property and your taking precious time to get and work a contract for them. They get the discount and you get some money in your pocket for these expenses.

If they agree to this, then there is an additional benefit. Since they pay the $2,000 non-refundable up front, they are likely to stick with you as their agent so that they do not lose this $2,000 investment. Just make sure that you want to stick with them.

Remember, things are slow and you need money to pay your bills, to buy food, to stay in your own house.

Naturally, you can calculate the numbers any way that works for you. I was just providing example numbers.