The pros and cons of cutting your commissions to get more listings

In the field of real estate, it can be difficult to get an edge over the competition. One commonly used tactic is to cut your commission in order to obtain more listings. Taken in moderation, this can be an extremely useful strategy–as long as you maintain a high volume of listings. However, there are certain drawbacks that need to be considered as well.

When cutting your commissions in exchange for additional listings, you’re betting on making up the difference in the sheer quantity of listings that you will be managing. This scenario is fine if–and only if–you know that the quality of your work for each individual listing will not suffer. Becoming a bargain basement agent that leaves a trail of unsatisfied or neglected clients in their wake will only do you a disservice in the long run, especially in a business that thrives on the word of mouth. It also needs to be considered that your word-of-mouth clientele from then on will be expecting that reduction in commission as well.

The amount you cut your commissions is delicate to determine. Because there is a certain amount of work that is going to have to go into your listing, you need to ensure that you don’t cut your commission so far that you’re barely making a profit. There’s no reason not to say no to business that is not worth your time. Furthermore, there’s no reason to cut your commission down significantly past your other competitors. You should take time to thoroughly review the competition and calculate out your own expenses. Remember, just because one agent can afford to drastically reduce their commissions doesn’t necessarily mean that you can. They may have an entirely different overhead picture.

As a final note, while cutting your commissions to get listings may work well on an individual basis, it is probably a bad practice for the industry as a whole as it create a “race to the bottom” in which agents cut their commissions more and more to be competitive with a quickly lowering average. Were commissions to bottom out, it’s likely that only agents in large firms with distributed overhead costs would be competitive at all. While this may not be a consideration for any individual real estate agent, it’s nevertheless something to think about.