How to Negotiate Your Commission

Commission negotiation is something that scares a lot of agents. But did you know that you can set yourself up to get the commissions that you want and more importantly that you deserve? We know how hard you work, now it’s up to you to show your clients that so that they don’t fight you, but actually appreciate what you do, and are willing to pay whatever commission you want to charge!

How to Negotiate Your Commission

When the topic of commission comes up, a lot of people freak out because they don’t know how to handle the downward pressure that we’re experiencing on your commission rates. I’m going to show you how to counteract that downward pressure and set it up so that you get what you want and truthfully what you deserve because we know how hard you work for that commission. However, it’s up to you to show your client that so that they don’t fight you on this, but they actually appreciate what you do and are willing to pay whatever commission you want to charge.

Anchoring Effect

The anchoring effect is this: when somebody throws out a price or a commission percentage, that sets the anchor around which all negotiations are going to take place. It’s a psychological tactic and what happens is most people don’t like to stray too far from that anchor. The first person who sets the anchor then controls the negotiation.

So what happens if your client says something like “well you know what? I know agents who are willing to do it for 4% or 3.5% (or whatever it is…)“? How do you counteract that? You’ve got to negotiate around that and bring it back up. The worst thing you could do is try and split the difference. Never try to split the difference or you will lose.

Remove the Anchor

What is the tactic for removing that anchor? Very simply it’s this: a little bit of humor and a little bit of being incredulous. You say something like this: “4%?! My gosh, that’s ridiculous! We charge 8%.” And you let that sink in. Because most people are going to go “8%?! That’s terrible!” and you go “I know, right? It’s almost as bad as 4% isn’t it? In fact, what we do is we charge 3%. The question is: what do we want to give the other side?

Do you see what I just did there? I removed the 4% anchor, I raised it to 8%, and then I said what we charge is 3%. Because let’s be honest, if it’s a 6% commission that you’re negotiating, you don’t get 6% do you? You get what? 3%. What does the other side get? 3%. Most people don’t understand that. So what you need to do is you need to help them understand that you only charge 3%, the question is what do you want to pay the other side?

By structuring the conversation that way, you remove your side of the commission off the table and you say “the only thing we’re going to negotiate over is what we want to pay the other side. Now let me help you understand what we want to pay the other side and what’s traditional in this market.” By doing that, you control the commission conversation.

Bring Up The Conversation

I want you to be the first one to bring up the commission conversation. I want to hear you say something like this “by the way, Mr. and Mrs. Seller, I want to talk with you about how we structure our commissions. We charge 8%.” Use the humor because they are going to go “8%?! That’s ridiculous!” and you go “No, you’re right. I’m just kidding! We only charge 3%, so the question is what do we want to give the other side?

Use the 8% humor anchor to get them up in a high price point then bring them down off of that with the 3%. Don’t tell them it’s negotiable. By setting the anchor and controlling the conversation, you’re in much more control of your commissions.

Justify Your Commission

The last thing is this: not only do you need to understand the power of anchoring, you also have to be able to justify what you’re going to do for that commission percentage. What is the marketing plan? How are you going to market their property? What are you going to do that other agents aren’t going to do?

And how much is all of that going to cost in terms of an investment ? They need to understand that you have out of pocket expenses that you don’t recoup unless you sell their house. Once they understand all that you’re going to do for them, more often than not, you won’t need to negotiate those commissions.

What do you do in a commission negotiation? How do you structure that conversation? Leave a comment below and share your strategies with the community!