Thinking of Discounting Commissions? Think again.
Updated: Mar 12, 2021
If you don’t properly value your expertise and the services your agency provides, neither will anyone else and the effect on the agency business could be catastrophic.
When looking at marketing material for property management services, I am very surprised by the number of agencies offering discounted commissions (they have every right to do so but it’s at their own peril!), but what really astounds me are those agencies offering incentives, including commissions sometimes as low as 1 per cent or, as another example, an agency offering 12 months free property management. An offer like the latter means no commission – the agency is actually working for free!
Such irresponsible and reckless practice is the type of behaviour that destroys real estate agency businesses. How? Because the type of client it attracts does not value the expert skills, knowledge and experience that a property manager and their agency offer. A client who does not value these attributes will not be prepared to pay a price commensurate for the highly specialised services an agency provides – well, certainly not a client that most solid agencies would want to add to their database! Equally, an agency that does not value itself as a business offering highly specialised services, will not have the confidence to set that right price.
So, how do we measure the worth of what we offer to see if our pricing is right?
Breaking down your annual fee into an hourly or daily rate will show you how much you’re really being paid. It’s basic maths but the answer can be both revealing and shocking. I’m certain that I don’t want to work for $1 a day or an hour, however, if you’re discounting, you may well find that you are. Now do the maths and discover the devastating impact a commission-free discount can have on your agency’s most valuable business asset – the rent roll. You can apply any multiple (2.5 or 3 is the industry standard) you like to value, but a rent roll on zero commission multiplied by anything still equals zero!
Discounting devalues you, your staff, your agency, and you are actually doing a huge disservice to the rest of the professionals working in the industry because the practice devalues the profession as a whole.
In my business, I do not practise discounting commissions and in my consultancy business when providing advice to commercial property managers and agencies, I strongly advise against it. I know that by providing an exceptional property management experience and a level of customer service excellence, an agency can deliver true value to a property investor client – and have the right to expect to be remunerated accordingly.
Discounting commissions is unnecessary because it’s not about price: it’s about value. Commercial property managers work very hard to minimise exposure to risk, maximise income and protect and enhance the value of an investment property for their client. Agencies are dealing with property assets worth millions of dollars, which is a huge responsibility and ultimately, a major source of stress, particularly with unprecedented events such as the COVID-19 pandemic, so remuneration needs to reflect this. We offer so much to our clients through our knowledge, skills, experience and personal qualities, including:
expertise in the commercial property sector
customised property management advice
currency of knowledge and change in a dynamic industry
access to valuable networks
flexibility and responsiveness to change
an ability to anticipate need/change and be proactive
taking our responsibility to clients and their all-important investment seriously
Discounting is unsustainable and discounting to get the edge on the competition is a sure way to push a business over that edge very quickly. During 2020 and the challenges of the COVID-19 pandemic, any agencies already routinely discounting commission or offering commission-free deals would have succumbed very rapidly to the economic effects of lockdown.
I would rather have long-term clients who recognise the unique value of our agency to them and their property investments than transient clients who are constantly moving on to the next cheap deal. To achieve this, we need to ensure that we put an appropriate value on ourselves and the work we do. We have a wealth of knowledge, skills and experience. If we do not value ourselves for the services and expertise we provide, then no-one else will see the value in us either.
© Wendy Thomson 2021