13 Tips For Explaining Real Estate Commissions To A Client
Buyers and sellers are becoming more and more educated about real estate transactions, but they also don’t know what they don’t know. As a result, agents have to answer more and more questions from buyers and sellers about their commission rates. This can be a sensitive topic because, after all, it’s about money, and agents have to get paid for their work just like anybody else. So what do you say to a client who wants you to take a lower commission? Above all, remain calm Nobody likes to hear a client say that, essentially, you make too much money and you should be willing to take less. That’s both a blow to the ego and, potentially, the pocketbook. It’s understandable that some real estate agents react strongly to the commission conversation; after all, this is their livelihood at stake. All that said, do your very best to stay cool, calm and collected while you’re talking about commissions to clients. Getting agitated and lashing out might feel like the thing to do at the moment, and the points you make about your value might actually sink in with your clients...while they’re working with a different agent. One simple way to smooth your tone when you have this conversation is to practice! Come up with a few responses to commission objections that you can deliver and practice saying them to your pet, your pillow, the wall, your significant other, or just out loud in your car while you’re driving around. Sooner or later, they will feel so familiar that they’ll just roll off the tongue. Buyers don’t pay commission; sellers do For buyers, there is a very simple argument for why debating your commission is a waste of their time: They aren’t going to be paying your commission, anyway. It comes out of the seller’s list price, and the seller is hardly going to give a buyer a discount because the buyer doesn’t want to pay an agent. When a buyer asks if you’ll lower your commission, explain exactly how you are paid. After a check is cut to the seller at the closing table, the seller then pays both the listing agent and the buyer’s agent. So even if you take a cut on your commission, the buyer isn’t going to get a better deal on the house. Sellers might need this fact pointed out to them as well. Some sellers who don’t want to pay a full commission to any agent will realize that it’s tough to attract qualified buyers, especially if you don’t want to pay a buyer’s agent a fair amount. (But more on that later.) Explain the current market Even the most educated buyer or seller probably doesn’t understand the nuances of the real estate market in the same way that you do as an agent. They might have heard stories from friends or neighbors about a home sale, but those stories might not be at all current, and of course, they’re anecdotal. This explanation can go well beyond whether you’re in a buyer’s market or a seller’s market; perhaps you can discuss how one block is leaning more toward a buyer’s market while the next block is still firmly at the seller’s side of the market spectrum. And maybe you can share details about the homes that are in the highest demand and why. Seasonal trends, local economic details, and other granular factors that will impact a home sale are all things that real estate agents know quite a bit more about than most people think, and you can leverage those to help illuminate your value. Show them the numbers One way to illustrate how much you know about the market and what will get a house to sell is to provide raw data that gives both buyers and sellers an understanding of what’s happening in the area and how you can help expedite their particular transaction. Real estate agents have access to much more information than the average consumer, who might have done a little bit of research on the portals around pricing, but don't really understand it. Not only is it helpful to share the days on market and average price per square foot with them, but it’s also a kindness to explain as plainly as you can why those things matter to their particular situation. A seller who wants to get to the closing table as quickly as possible is going to want to see days on market data so they know what they’re up against, while first-time buyers will want to know what a reasonable price for a fixer-upper, entry-level home is in that one neighborhood — so be ready to provide that information. Then show them yournumbers Data is great, but data with context is even better. After you lay the marketplace groundwork and you’re confident that your clients understand what home sales are looking like, it’s time to show them how you measure up to the standard. Start by explaining how many buyers or sellers you’ve helped in the area in the past six months to one year, depending on how quickly your market moves. You can speak to specific sales that involved similar situations to theirs (without compromising your former clients, of course). Provide your own days on market data, list-to-sales-price ratios, homes sold, and so on, to help give your clients an idea of how their experience will measure up against the standard (and why you’re worth the commission). Offer testimonials or references Everyone gets sold to all the time these days, so it’s no wonder that clients don’t always automatically trust real estate agents. But you know who they do trust? Other buyers and sellers who have been through the process and understand the pain points. You already know that testimonials and positive reviews can help your business, and you can also use them to help strengthen the foundation of value you’re laying with clients. If other people like them decided to work with you — and they already know you don’t negotiate your commission with clients — then future clients can be persuaded to work with you, too. Provide a list of what it takes to buy or sell a house If you don’t sell real estate for a living, then the amount of money an agent makes on a home sale transaction might seem absurd. But if you’re a real estate agent, then you know exactly how much work goes into that money, and your commission seems utterly reasonable. So why not educate your clients about exactly what it takes to list a home successfully for its full market value, or what it takes to get buyer clients the very best possible deal on a house they love? Some agents balk at this strategy because they think it will make it easier for buyers and sellers not to hire them. After all, the buyer or seller now knows exactly how to do the agent’s job. But those agents forget that buyers and sellers have their own careers and lives outside of this one home transaction, and looking at the vast list of tasks that need to be completed in order to get to the closing table can feel overwhelming at best. This list is also important because it can be a massive leverage point when you’re talking about commission splits. People want a deal and think they should ask for one, but they also don’t want to cut any corners when it comes to their home sale or purchase. You can explain that your commission helps support the services they’re going to get an outline which ones would need to be cut if your commission were to be reduced, which may end the conversation right there. Explain how commission splits work Be warned: This won’t work on every client and is far from a foolproof argument. However, if you think your client will be swayed by the fact that you have to share your commission with other players in the transaction, such as the brokerage, then it’s possible your client will stop pushing for a discount. Some people are operating under the assumption that agents get to keep the entire commission, so describing how it’s sliced and diced for different purposes and what you actually get to take home can help them understand why you’re not interested in reducing your commission — and why doing so could serve to cost you money on a transaction instead of making money. Give context around your personal authority If you’re a REALTOR, explaining the difference between your own qualifications and that of a standard real estate agent can be another way to explain value and professionalism to your clients. If you’ve earned any special designations that might pertain to your client’s situation, then you can also reference them and talk about your training and experience. Some of your authority may come from outside the real estate industry; perhaps you used to work as a contractor or an interior designer and can offer assistance with envisioning upgrades and repairs to a home. Or maybe you used to be a teacher and have insider knowledge of the local school districts. Whatever the case, make your case for why you, personally, can get the job done better than anybody else. Compare and contrast Oftentimes when a client asks about a discount, it’s because they heard someone else talk about how they got a rebate or a discount on their own home sale or purchase, or perhaps they heard an ad on the radio or saw a commercial on television. It’s time to pull out your list of what it takes to buy or sell a house and start pointing out where your discount-offering competitors are cutting corners and why. It might be worth your time to create a table that lays out everything you offer compared to your competitors if you find yourself having this conversation frequently. This will make it very easy for your clients to see at a glance what kind of value you add and what they’re getting out of the deal. Show them expired listings Sellers are more likely than buyers to object to paying the full commission (again, probably because they are paying it). One excellent way to showcase how the cutting commission can hurt a seller’s opportunities on the market is to show them the expired listings in their area and ask them to look at the commission rates on those listings. The odds are pretty good that your potential seller clients will notice a pattern there without you having to explicitly point it out or what it means; then you can use this as a jumping-off point to talk about their preferred days on market and how serious they are about selling. If your possible client is at all motivated to sell, they will probably also be more motivated to adequately compensate their agent once you show them that there are real consequences if they don’t. Outline your marketing game plan A seller might think that marketing a house is as simple as putting the listing up on Zillow, but experienced agents know the price advantage you can gain by being strategic with when you list, the price you list at, how long you’ll accept offers, and what the house looks like when buyers walkthrough. And marketing tactics aren’t just constrained to sellers; buyers might also want or need to know how to tug a little on a seller’s heartstrings to get their slightly-lower-than-asking-price-but-the-most-we-could-afford offer accepted. Give your potential clients a clear, specific game plan for how you personally are going to help them get to the closing table with a positive outcome for their situation. After laying all of this groundwork, they should have a clear idea of your value and what you can bring to the table, and hopefully, this should be the last piece of the puzzle that helps you cement your relationship with your newest client. If nothing else works, don’t hesitate to walk Sometimes a buyer or seller is adamant about getting a discount when it’s not warranted, and instead of taking the listing or representing the buyer and then regretting it later, why not just walk away? This is a step that some agents hesitate to take, but if you’re spending time arguing over commissions that could be better used helping out another client who’s happy to pay you what you’re worth, why fight that fight? As discount real estate alternatives become more prevalent (and advertise more frequently) to customers, agents should expect more questions around commissions and discounts, but those are really opportunities to talk about the value that you bring to the table.
Market - A Quick Guide to Understanding the Housing Market
You hear it on the news all the time: "It's a buyer's market," "It's a seller's market," or "The housing market is on the rebound." And while you probably get the gist of what these folks are talking about, having a deeper understanding of the housing market and how it works can help you immensely during the homebuying or selling process. Let's start with the basics The housing market refers to the general market of houses being bought and sold between buyers and sellers. These houses are either bought or sold directly by owners or indirectly through brokers. Like any market, the housing market is governed by the law of supply and demand. When demand is high and supply is low, the market appreciates. When demand is low and supply is high, the market depreciates. How inventory affects the value In the real estate industry, we think of supply and demand in terms of available inventory. You can measure inventory by answering the following question: At the current pace of sales, how long would it take all of the houses available on the market to be sold? As inventories rise, home prices tend to decline. This is because as inventories rise, so does the competition amongst sellers, which drives prices down. The difference between a buyer's and a seller's market A buyer's market is associated with longer inventory periods. As homes sit on the market for longer and longer, sellers become more and more flexible with their prices. This is great for buyers, as they usually end up getting a good deal (hence the term "buyer's market"). In contrast, a seller's market is associated with shorter inventory periods. Homes sell rapidly, giving sellers a lot of pricing power (hence, it's a "seller's market"). Keep in mind that as with other markets, the housing market is cyclical: There are periods of rapid appreciation followed by periods of stabilization or depreciation. By studying the market, you can learn to foresee such trends.
How To Help Your Adult Kid Buy: Advice For Mom And Dad
As a parent, it's hard to watch your kids struggle with anything, but watching them struggle to buy a house can be especially tough. We all want the best for our offspring, and owning a home is one of the best ways to build wealth -- so if kids are having trouble taking that step, it's normal to worry about how they'll manage when you're gone.The good news is this: There's a lot you can do as a parent to help your kids get their feet on the property ladder. Follow this advice and you'll be able to both assist your children and ensure that your own financial future is secure. Understand your 'why' "Because I want to help my child" is a great reason to do just about anything -- but a house is a huge financial investment and responsibility, so you need to dig a little bit deeper.Ask yourself these questions about your child and their life circumstances, as well as your own financial circumstances: How does my kid handle finances? Is my kid in debt? If so, how much is that debt? Does my kid know how to save money? Is my kid living in a real estate market where prices are steadily increasing -- and if they don't get in the door now, they might be locked out for years? Do I want to transfer my wealth to my kid now, when they arguably need it most, or would I rather wait? How would that decision affect my estate taxes and other financial considerations? Is my kid attending a college where they'll stay for several years? (And would it make sense to buy a house there instead of help them pay rent?) Can my kid already qualify for a mortgage? If so, would it make sense to help them qualify for a bigger one? After you've taken time to answer these questions, you should have a better idea of exactly why you want to help your child buy a house. Whether you want to encourage financial responsibility or help your kid buy a bigger house than they could on their own, knowing why will help guide your decision-making during the process. Manage your own credit first It's admirable to want to help your kids -- but not at the expense of your own financial well-being. So before you make any tangible offers to help, make a full assessment of your income and expenditures, your savings and assets, and decide how much you can afford to give. Put a dollar amount on it, and don't be tempted to exceed what you've decided you can spend.There are a lot of options for helping your adult kids buy that will directly involve your credit, too. For that reason, all of the advice that applies to buyers also applies to parents who want to help their kids buy -- whether you're buying a home to rent to your kid, or co-signing or co-borrowing the loan, you'll want to make sure your credit is in great condition. Don't open a lot of new lines of credit or make any big purchases on credit, and follow all the standard best practices, too, like paying your own bills on time.And maybe after all this assessment you've come to the conclusion that you don't have a lot of financial help to give. That's OK! You should know by now that parenting is about much more than spending money, so think about other ways you might be able to help, from offering advice, to connecting your kid with a mortgage broker or real estate agent, to cleaning and repairing the home when it's time to move in. Get your kid's credit in order A credit score is really important when it comes to a mortgage loan -- it helps the lender figure out how reliable (or not) each borrower is, and it directly influences the interest rate on the loan, which adds up to tens of thousands of dollars over decades.If your child doesn't know what their credit score, then help them find it, and then work with them to improve it. Maybe your kid has trouble paying all their bills on time, so help them make a budget or set up automatic payments. Settling debts like student loans or car loans can have a significant positive impact on credit score, so if you're in a financial position to clear a large debt for your kid, this might be a good time to do it.Mortgage lenders are also going to look at your child's bank account statements, seeking red flags like frequent overdrafts. If your kid frequently overdraws accounts, then think about how you might help them balance their finances. Savings now go a long way later There are essentially two reasons why you might want to encourage your child to save as much as possible right now. One is obvious: Down payments on houses are expensive, especially if you want to avoid mortgage insurance and put down 20% or more on the home purchase. That 20% of a home's sales price adds up pretty quickly, and most kids probably don't have tens of thousands of dollars handy in their bank account.Another reason to facilitate savings for your kids is, again, the fact that mortgage lenders are going to want to see bank statements, and it will help your kid's mortgage rate if the lender sees a decent savings account that grows over time instead of being wrung dry every month.As a parent, there are tons of ways you can help your kids save money, including inviting them to come live at home with you again for a spell, which can decrease their rent payment significantly. If you go this route, then make sure that any agreements you make with your kids about rent and contribution to utilities or household chores are documented and signed.But you don't have to invite your kids to live at home again; you also have the option of taking over some of their bills (cell phone, car insurance, utilities or others), dropping off groceries or meals, handing down a gently used appliance or car and buying yourself a new one -- there are tons of ways that parents can help subsidize a child's savings account. Time to buy? Consider all options Once your kid's credit is in decent order and he or she has a down payment secured, you might not feel like your work is done. Some parents like to chip in with the actual purchase of the home -- and if that's you, fantastic! Just make sure you know what all your options are before you decide on any given path.An incredibly common way to help your adult kid buy a house is to give them money for a down payment. This is a significant upfront expense for buyers, who may need tens of thousands of dollars to avoid mortgage insurance, and oftentimes parents make that possible.But backing up your kid's home purchase with a down payment is far from the only option open to parents. Some choose to buy the house themselves, either as an investment rental where the kid can stay for a few years before selling, or as a rent-to-own deal where the kid pays the parents back for the house over time. If you have the ability to pay cash for a house, this can be an especially good deal for both the child and the parent: You can set an interest rate that's lower than what the market's currently dictating (a win for your kid) and make all your money back plus a profit over time (a win for you).Other parents might prefer co-borrowing or co-signing a mortgage loan. These can be good options for a kid who can already qualify for a mortgage -- often, they can increase their price range with a co-borrower or co-signer. Think about both; a co-signer doesn't accrue any equity in the home and is responsible for the balance of the loan of the borrower defaults, and a co-borrower does accrue equity in the home, but co-borrowing might have a bigger immediate impact on your credit. Cover your bases One thing never to forget about adult kids: They are adults, and adults are going to make their own decisions. And some of those decisions might have an impact on your real estate deal.Decisions that impact your real estate deal go well beyond paint or landscaping preferences. If your child has a common-law relationship or decides to get married while they're living in a house that they're renting from you -- or a house that lists you as a co-borrower -- and things go sour, that partner could have a claim on your real estate, especially if the partner was paying rent or helping with the mortgage.Make sure that whatever agreements you're making with your kids are thought through in their entirety, and do your best to consider any changes or contingencies that might change the agreement. Document them and incorporate them into any legal verbiage for your own protection -- and to protect your kids, too.
Categories
Recent Posts
