The False Choices of the Real Estate Commission Crisis
The Department of Justice (DOJ) has waged all-out war on the National Association of Realtors (NAR) largely because of their commission policies. Since these probes were launched, it seems that almost every day a new article arrives in my inbox with an opinion on the subject of traditional brokers with higher fees and new disruptors with lower fees.
If you want to see this debate in real time, hang out on any of the many agent social media groups and you’ll see they’re inundated with messages from someone who lost a deal to a cheaper competitor. Agents in these groups are pleading with their peers to stick it out, to stand firm on their higher fees, not to cheapen themselves, and to know their worth.
These conversations quickly turn into insults, but I think many agents are forced to consider a choice they’ve been brainwashed to hate:
“Should I lower my fees?
My wife, Kelly, and I answered emphatically “Yes” when we founded 1 Percent Lists, a full-service “discount brokerage” that has seen incredible growth both locally in Louisiana and nationally since 2020. , when we started the franchise. We started this company because we wanted to spend more time doing business and less time trying to find it. We wanted a better work-life balance.
We don’t mind charging a little less and making more offers; Please don’t ask us to call or go door to door for hours. We are obviously in the minority when it comes to our opinions on the subject.
The overwhelming majority of agents are trained by their brokers and peers from the start not to deviate from the “accepted” office commission rate. These new entrepreneur agents launch their new businesses and are literally trained not to think like any other entrepreneur or business owner. I would say that our peers have been forced to make false choices regarding their real estate careers.
When considering sales commissions, should an agent maintain the status quo, continue to fight for higher fees and hold the line with fellow agents, or should those agents “sell”, reduce their fees , work harder and earn less money?
Contrast this flawed thinking that most agents buy into with the innovative mindset of successful entrepreneurs. Businesses around the world, from small startups to Fortune 500 companies, ask themselves a very simple question about every service they offer or every product they sell.
What is the sweet spot for pricing a product or service that will generate the most profit based on customer acquisition costs and volume sold?
In simpler terms, what should I charge to bring me the most profit? I would bet that Apple asks this question when launching a new product. I guess Tesla, Amazon, Google, and every other successful company big and small are doing it too.
Listings are gold for real estate agents, so consider this: If I cold called 100 homeowners for sale today and tried to get them to list their home at 6% (3% each side, list and buy), how much would I make? convert? If I cold called the same 100 FSBOs and tried to list their homes for just 3.5% (1% list side, 2.5% buy side) commission offering the same level of service, how many would I convert ?
Which scenario gives me the most ads? Which scenario is most likely to generate more buyers, increase my sphere, and generate the most long-term profit?
The fact that agents and brokers refuse to ask this question is the very reason the DOJ is so interested in us, isn’t it?
Every agent knows in their heart that charging less and putting a ton of panels in the ground is faster, more efficient, less stressful and ultimately more profitable – but they never seem to make that choice. Their loyalty to a higher commission model prevents them from considering a different business concept that many other entrepreneurs would choose.
New agents are trained to buy more leads, work harder, or join teams and give up half their money. They never seem to be trained to lower their fees to get deals under their belt, learn, and build their sphere. Instead, these newbies learn to charge the same fees as the veteran agents around them with years of experience and a track record of success. Should we be surprised at so many failures?
I think many agents are too proud to consider a lower priced model to drive ads, even if they’re struggling. I think the reason they are unable to generate business is because the public thinks agents are offering the same services for the same price and frankly everyone knows multiple agents.
The supply of new, inexperienced agents continues to increase, which means our value is diminishing. Potential customers simply don’t see a true value proposition.
Oddly enough, many of these agents are oddly comfortable spending their money buying buyer leads from big tech and making those demanding deals. It seems like a socially acceptable move for agents who can’t get listings, but it’s the great tragedy of our profession.
Agents are completely fine with paying big tech a lot of money so they can get a deal, because that doesn’t make them a “discounter”. Unfortunately, these same agents refuse to consider making an offer to themselves by charging a lower fee and delivering real value to a client. In short, feeding the big technological beast that wants to destroy our profession is more socially acceptable to the average agent than saving his clients money.
I believe a willingness to work harder for longer than everyone else to get ahead can work to some degree, but it’s definitely not in line with my concept of working smarter. I think buying leads makes it much easier to acquire customers, even if it eats away at your bottom line. But that sounds suspiciously like what low-cost disruptors do, doesn’t it? A little less profit, a lot more easy transactions.
So why not charge less to list homes, get a big ad market share, and then use that massive ad book to generate buyer leads and leads? In this situation, at least your buyer lead generation is now a profitable business, listing many homes.
For the few disruptive companies that have made the choice to charge a lower fee structure and generate more business, almost all of them have chosen the path considered very “anti agent”. These companies turn agents into employees who receive salaries and small bonuses for the properties they sell.
Do great salespeople really want to be employees? After all, if we accept the safety net, we also install the glass ceiling, right? This presents another false choice for the agent.
Should I remain an independent contractor with no boss, unlimited earning potential and complete freedom, or be an employee with a low cost brokerage job and lose my freedom and earning potential?
Compare this false choice with the logic that any other forward-thinking entrepreneur or company would use:
If I have a much stronger value proposition, how can I use it to reduce my customer acquisition time and cost while driving higher profits by doing more volume, more easily? Would it make me richer and happier because I spend more time doing business (which I love) and less time trying to find business (which I hate)?
Those of us who have made the choice to charge a lower fee have a much better value proposition for our customers, and we’re using that to capture more ads. We use these listings to generate more buyers.
We are surrounded by thousands of agents with incredibly similar business models and fees, all trying to convince the public that they are the best. My task of simply convincing the world that I exist and am just as good for a fraction of the cost is a much easier hurdle to clear.
They say we are no good because we charge less. I say we are better because we do a lot more transactions, so we have more experience and know the market better.
Our peers often criticize us for being “bad for the industry”. From my perspective, if an agent can charge less, grind less, sell more, profit more, and save their customers’ money, how can that be bad for the industry?
If this is really bad for the industry, should we be so shocked that the industry itself has come under such recent scrutiny by the DOJ?
Grant Clayton has been a real estate agent since 2011 and is a second generation real estate professional. Family-owned Clayton is a commercial real estate development that has been in business since the mid-1970s and has completed many landmark projects in and around the city of New Orleans.