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To Cut, or Not to Cut Your Commission: That is the Question.

Blog Contributor Business Challenges, Code of Ethics, communication, ethics, Personal Fulfillment, Professional Development, Working with Clients 15 Comments

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Subhi J. Gharbieh

Subhi J. Gharbieh

By Subhi J. Gharbieh

A week or so ago, I was approached by a long time friend who I have known since elementary school. We grew up in the same neighborhood, went to the same high school, and even graduated from the same university. I remember as kids, we would always talk about how successful we wanted to be when we grew up, and how we were going to help each other become successful.

He called and asked me a few real estate related questions. He said that a relative of his had a property in mind that he was ready to move on, and needed some consultation. I thanked him for the referral, and gave his relative a call. We met, discussed the whole buyers representation process, and everything went pretty well.

A day or so later, I received a call from this friend of mine, saying that his relative was going to approach this property representing himself, without a REALTOR®. I respectfully accepted that and didn’t think too much about it. Immediately following that, he calls me again, this time saying he would convince his relative to purchase the property with myself as his REALTOR®, only if I gave him 50 percent off my commission. (The subject property listed at a little over $2 million dollars.)

Just remembering the friendship that this person and I had as kids, this “offer” felt like a slap in the face (I’m 22, it wasn’t that long ago). I explained to him that it might seem like he is dropping a large amount of money in my lap, but the process to acquire a property of this value takes a lot of time, knowledge, negotiation, and liability.  He wasn’t convinced. Long story short, I declined to represent the buyer.

This whole situation made me really ponder about many things. Most importantly, it made me realize that we don’t do a good enough job of showing people the value of working with a REALTOR®. Most everyone thinks that we have a really easy occupation, which requires very little work or effort. Little do they know about all the expenses we incur, the professional liability insurance we pay for, the time and money we spend negotiating/marketing/meeting with inspectors etc., and the significant amount of taxes that we take out of our not-so-big commission checks.

Lets make our goal from now on, to really do a better job to show our potential clients the value of our time and services.  You know I will be doing just that.

Subhi J. Gharbieh is the broker owner of Gharbieh & Associates in Dallas. Connect with him at www.Gharbieh.com or on Twitter @subhig.

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Comments 15

  1. The results of your action seem sad; however, your decision was the correct one. If this same person were about to have major surgery, would he try to get the doctor, anesthesiologist, hospital, ect. to do their work for half price? If they were willing, would he even want them to perform the work or would he be more apt to put his trust in experts more professional in their conduct?

    The industry has done a poor job educating the consumer! Do you realize that if a buyer sees a house that he/she might be interested in investing into, that person would probably call the number on the For Sale sign rather than calling their own agent because nobody ever taught them the right thing to do?!

  2. Nice article wish there was a way to repost this on my active rain blog (there probably is I just don’t know how)

    I wrote a blog a couple days ago because I had a similar situation with one of my childhood friends. In this instance, one of the wife’s “other” friends that was a Realtor agreed to not only give her his MLS access info, but also agreed to give her almost a full kickback of his commission.

    We could have a lengthy discussion on realtor ethics, but bottom line is that if I run a shady business I will get shady results. I told my buddy to screw off essentially and have fun with it, because as my friend if I give him that type of deal what do you think his referrals would demand out of me?

    You did the right thing by walking away from the deal. At the end of the day we run a business and need to always keep that in mind.

  3. You definitely did the right thing! In Kentucky paying someone for a referral is prohibited and can get a Realtor in lots of trouble. Cutting commission to make a deal work or to help out the seller that is in financial trouble is one thing but your friend should never have approached you about basically paying him to set you up with his relative.

  4. Great post and I hope this is read by more agents. You stated it correctly that the public does not realize that this is our business and we don’t share our income just as they don’t share theirs. Those of us who hold firm on this are the true professionals and will continue to excel and continue to be successful.

  5. I’m sure your “Friend” wouldn’t have even cared that you would have been risking your real estate license / livelihood by giving him and or his friend a “Kick-Back/Referal Fee”

    I’ve also had more than several friends and or aquaintences aproach me for a “Kick-Back/Referal Fee” for refering their friends and/or family members to me. Even after explaining to them why it was not legal for me to do so…. they all said they knew Real Estate Agents that would. However, because of my great reputation and expertise they wanted to give me a chance!!?? I declined because of my “Great Reputation” and they went to the questionable agents…. Go figure..

  6. I love this one it has happened to most of us at one time or the other. Though the years I have had various friends do work for me. I would say to them ” I am not looking for a discount all I want is a good job/service “, likewise when they would ask me to do a job for them or their friends I would use the same philosphy. I have also asked those that want to cut my commision ” What do they do for a living and if they would like to take a pay cut for their services”. I heard this a long time ago ” I don’t argue with what other agents charge they know what there worth”

  7. I am not sure, you migh have just walked away from aprox 30k. Although it might be insulting 30k is alot of money for a deal to be dropped at you after all he found the buyer without him you would have nothing. If times are tuff perhaps you should reconsider discounts and commission is all part of business bottom line counts

  8. @George- I absolutely love your surgeon analogy. I will definately use that one in the future.
    @Chris- I couldn’t agree more about what their future referrals will expect.
    @Melinda, Thank you!
    Thank you all for your kind words, lets get so busy that little things like this wont even bother us!!

  9. As a REALTOR for 29 years and a National Real Estate Speaker, Coach and Trainer I have been educating Real Estate Professionals for the past 14 years to the value of services. I have an exercise where I ask them to write down at least 20 services they provide in a Successful Sale excluding anything that has to do with Marketing: ex. info on company, agent, open houses, any and all websites, any media, mailings,signs, networking,etc. The outcome is the agents, of all levels of producation, are lost. When I show them the listing consulation visual of over 40 services they are floored. It is an eye opener. Hats off to Subhi.

  10. I would have taken that in a heartbeat. $30,000 commission just for doing some paperwork and going to the inspections? That is a great deal. If you had to drive him around to 20 properties with no guaranteed offer that would be another story.

    Comparing us to surgeons is way off. We are not dealing with life and death issues, and look at the training that we get compared to surgeons. Surgeons can’t get their license via a home study course and then just sit for a test, but Realtors can.

    The rules in my state allow the commission rebate, so that is not an issue, and I believe I pay something like $100 dollars for E&O insurance on this deal so again, no big deal, there is no risk here to do it.

    Would you walk away from a $1,000,000 deal at full commission? Just think of it like that because the bottom line is the same.

  11. I didn’t read into this as a “referral fee”. I guess there are too many “f”s in “off” where it should really have been “of”? 50% “of” his commission versus 50% “off” his commission? REALLY helps to proofread before you hit the send button. A mistake like that on a contract could cost your client or you some trouble and/or bucks down the road.

    Although I’ll agree with Larry and Bryn that even if Subhi ended up with approx. $30k and no real driving around, figuring of market values on numerous homes, and, the buyer is given to him – not a bad deal; but, then the area where he is working, a cut could be insulting inasfar as he may be working for pretty much nothing. Then again, your “friend” could be a “tester”.

    If you’re REALLY into being an excellent agent, you keep up with real estate education above and beyond just the basic education you need every few years to renew your license. You learn enough about things that you don’t know so you have enough knowledge alarms going off in your head to tell any client that a particular situation possibly needs further investigation by a professional who specializes in that area. It’s our day-in/day-out education and experiences that we should value ourselves in – that’s where our real value lies. Sure, we all passed the basic real estate exam (and some of us, the brokers exam), but it’s everything after that which we have learned that makes us valuable or not valuable.

    Here’s an excerpt from a situation on a post I read lately that had to do with working with relatives and I think it could be used in any situation: “Finally, one day at a family get together, a distant cousin asked if I would handle his home sale for free like I did for my immediate family. I told him no but I would offer a discount. My older brother popped up with “oh, do it for free, it doesn’t cost you anything.” My answer was, “it doen’t cost anything for you to go to work either, but you still insist on a paycheck don’t you?””

  12. I would argue that realtors played a part in the most recent and devastaing housing market collapse. However, they still want their their 6% and sometimes 7% commisions on homes that have lost value. In other words, they want more for less. In my case, they want more than 50% of the proceeds and are unwilling to take any less. Why? What is the justification for not taking some of the loss via less commissions? I know ALOT of realtors that only became realtors to jump on the housing market bandwagon and made a lot of money doing so. Realtors made money, builders made money, mortgage brokers made money; however, we home buyers didn’t make one single dime. Now when we want to sell, we sell at a loss, and guess who makes money; not us, the realtor does.

    I have a credit score north of 780, bought a house I could afford, got a conventional loan that I could handle; all in all, I did the right thing, but I still lose…..you win

  13. I ran across this post hoping to find some input in this subject matter. This is what happened to me: I was working with a client as buyer’s agent. Showed him about 20 homes so far, written several offers (none of them accepted), researched MLS daily, spent hours and hours previewing homes myself before taking him to the homes (he is very cheap, yet he will not compromise and wants a perfect home that is move in ready and priced undermarket). So he wanted me to make sure these homes meet his criteria before he views them. By the way, he is paying 3% down and financing the rest. So of course, in this market, cash buyers reign and so he has not had any of his offers accepted. Anyways, we went to a new home development and he finally decided to purchase a new home. He put EMD on this new home and I thought all was good. He calls me a few days later and asked me to kickback 1% of my commission because he is strapped to the max buying this home and he could sure use the money. I was shocked when he approached me and then it just made me angry. I had spent countless hours researching, driving around, gas, preparing comps, writing offers, etc. on this person. He said that if I didn’t “work” with him, then he would find another home with another realtor that would give him a kickback. This home he chose is at $250K and we’re talking a couple thousand dollars of my hard earned commission that he wants to take from me. I thought about it for a day or so and finally told him I would give him the kickback. I now feel stupid having done that. I feel like I have been manipulated and cornered into it. He’s such a scumbag because I really did a good job for him giving 100 percent of my energy. And then he has the nerve to threaten me that if I don’t do what he wants, then he will find another realtor. Has anyone out there had this type of situation happen to them? I wish he would have told me upfront before I started spending all this time and energy on him that he wants me to work for 2% because he wants the other 1% of my commission. I would have never worked with such a tightwad. We Realtors work very hard for our commissions, and yes, commissions are at an all time low with the price of properties in this economy. And these slimeballs have the nerve to ask for $$ from our paycheck????

  14. You did right thing. This needs integrity and courage. However, I look this thing in a different angle. I believe if dual agent was forbidden in California, the selling agent would be treated much better. Many buyers go directly to the listing agent and ignore selling agent. Besides they want to get good price through the listing agent directly and cut selling agent, many buyers feel selling agent is useless. That’s why those buyers dare to ask for 50% commission. They don’t look selling agent as important as listing agent. Why??? Why??? The problem is the DUAL AGENT REGULATION. In many other states DUAL AGENT is not allowed.

    I represented buyers more than I represented sellers. I encountered the same problem as you had. I do feel as a selling agent, I don’t get enough respect for what I paid. It’s not the problem that I don’t educate the buyer. Today’s buyers are very different from 20 years ago. They google everything before they start to look for house. Don’t forget while we educate buyers, listing agent also “educate” them from his/her positon. Can someone ask 50% kick back from his mechnia, dentist or even gardener? Of course not. Why? Because they are necessary in someone’s life. Unfortunately, today many buyers feel the agent who represents the buyer is not that NECESSARY because they can depend on the listing agent. Only someday when dual agent will not be allowed, selling agent’s role would be important and necessary.

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