Are you thinking about working with us? We’re hiring real estate agents! Get the culture, leads, accountability, and training you need to make $100,000+ a year selling real estate. Attend a Free Training
What’s the difference between commission compression and margin compression?
Commission compression is when consumers demand a lower commission rate that agents can charge. Margin compression is when the profitability of a transaction goes down.
I’ve seen a lot of studies disproving the notion that the commissions agents can charge are declining in our industry. There are certain commission-cutting agents and companies out there, but remember that there are iBuyers out there charging fees that are higher than a commission in many cases. What is decreasing is profitability per transaction. When this decreases, it doesn’t mean commissions are lower; it means the cost of the transaction is increasing.
What’s impacting our margins like this? Well, a lot of transactions are being done with referral fees and paid leads. Whether you use Zillow, Realtor.com, social media advertising, etc., there’s a cost to generating those leads. That adds a heavy expense to your transaction, so by the time you get your normal commission, the profitability is lower. The same goes if you’re getting referral fees from third-party referral sources.
As agents, the best thing we can do is continue to provide value so we can charge whatever commission rate we feel we’re worth. More importantly, we need to look at our bottom line. How can you generate more business at a lower cost? How can you decrease the cost of lead generation? One way is by learning how to generate leads at no cost. That’s what I coach my agents to do every single day.
If you’d like to talk more about this topic or want tips on how to increase your profitability and grow your business, don’t hesitate to call or email me. I’d love to speak with you.
