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The Value of Commission

Riddle me this: Which multifamily investor sees considerably more deals than their competition and oftentimes before a listing hits the market? Is it the investor who consistently negotiates and beats up real estate agent fees or the one that pays real estate agents fairly? You will find that there is a direct correlation between the size and quality of a multifamily investor's pipeline and the way in which they treat commissions with brokers.

Let me first point out I did NOT put this video together for the sole reason of protecting my own future commissions or those of my colleagues in the business. If you keep that narrative in your mind, you'll miss out on valuable guidance. One of my biggest goals in this business is to help multifamily investors of all sizes do more deals.

Forget about real estate agents or investors for a moment. It is just human nature that when one feels valued by another, that person wants to return the value. On the other hand, when one feels devalued by another, they will avoid that person. This is true in every business or interaction. Real estate investing is composed of people who naturally like to do business, negotiate deals, and squeeze every bit of return from each deal as possible. That's normal. However, when real estate investors beat up real estate agents on commissions, they are only hurting themselves in the long run. Since real estate agents are human beings, and human beings avoid those that devalue them, real estate agents will NOT bring future listings to those that devalued them. There are plenty of other real estate investors that don't negotiate already fair commissions and that don't squeeze a real estate agent's fees during a transaction. As a result, real estate agents will bring deals to those real estate investors who pay them fairly and who don't look to disproportionately beat them up when issues arise during a transaction that requires financial corrections. Here's a simple, mathematical example. Let's say on a deal there's a $100,000 commission and a $20,000 property issue comes up. The seller asks the broker to split that with him, so the broker and seller each take a $10,000 hit. That $10,000 represents 10% of the fee, whereas it represents 0.25% of the seller's profit. The broker doesn't have anything to do with the property's faults and why there needed to be a $20,000 adjustment. The seller takes 99.75% of the deal the broker brought him and the broker takes 90% of the deal he brought to the seller. 

Pretty simple stuff to understand in theory but as an agent myself, I can tell you that real estate investors consistently violate these simple human motivations. And when done consistently, they have cut off their future deal flow.

Real estate agents talk to other real estate agents about real estate investors and the word spreads quickly about whether a certain real estate investor is good to work with or not. The video in the link below is a small snippet of a larger podcast with Will Daube, a commercial real estate agent himself with Coldwell Banker Commercial.


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