Is Commission a Dirty Word?
Recently we have seen a lot of media hype regarding the different styles of real estate remuneration. The campaign has been a direct attack on one sector of the industry and an attempt to fool the general public into thinking “commission” is a dirty word.
Firstly a pig’s ear cannot be sold as a silk purse. A commission is a FEE. It is a charge or a method of calculation for the amount of reward for a service. A FEE is a FEE is a FEE.
There are three main ways in which a fee is calculated in Real Estate sales
*Commission, a percentage of the final sale price once a sale is affected
* Upfront fee, an amount charged BEFORE any services commence.
*Flat fee, an amount specified before commencement of services paid after a sale is affected.
Following I have two extracts from an international business post on salary paid agents (flat fee) and secondly commission based from a company perspective.
A straight salary has little ability to motivate. It provides stability, but when salespeople know they get paid regardless of performance, they might not be motivated to go above and beyond the minimum performance level. A salary can also limit a salesperson's pay. If you need to make more money to cover additional expenses, such as a new home or new child, you don't have many options beyond asking for a raise. Another downside of salaries is that they don't encourage a competitive spirit in the sales force, which can limit growth in the organization.
Commission salespeople are usually motivated to produce more sales because their paycheck is tied so closely to performance. Each sale means more money, and there is usually no ceiling on potential income. For ambitious and money-driven sellers, commission pay drives them to make more sales calls and work to close more sales. For the company, paying salespeople on commission means it only pay for results.
My question is how would this relate to the consumers experience and final result?
A Flat Fee or Fixed Charge
This is basically a discounted service that affords the seller the prior knowledge of their costs should a result be achieved. What reasons could be given for a company to discount their service?
*Need more clients
*Clients won’t pay a higher fee for the service
*Consumer confidence in service or product
*Lower perceived value
*Bad precedent
Would you agree every business charges the maximum amount for their product or service possible?
Do you think that Hyundi would charge BMW prices if they were able and still sell cars?
Upfront Fees
This is a very new model and seems to be getting the most attention.
My question is simple.
Once you have already paid for a service that has a variable result (final sale price) what incentive is there to achieve the best result? 10 or $20,000 to a final sale price has NO consequence what so ever, they are being paid no more for the service; in fact they have already been paid!
If a service has been paid for in advance and no result is achieved no matter how low the fee IT’S NOT CHEAP.
Commission Based Fees
An amount charged calculated as a percentage of the final sale price once a result is achieved.
My Questions are
*Do you know what your cost is? A: yes XX % of sale price
*Does the sales person have motivation to achieve a better result?
*Is the amount you pay for the service reflected in the result?
The fact is “commission” is a fee, in many case studies commission based sales people are some of the highest paid people in the world. Do you think that a true sales professional capable of consistently achieving great results would be attracted to the lowest remuneration package? Or do you think that the “commission based remuneration package” will attract the most competent sales people capable of delivering you the best result?
You decide.
