Commissions vs. Fees
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Editor’s Note: This article first appeared in the June 1973 issue of the Real Estate News Observer.
In Webster’s Dictionary, the word commission has eight varying but synonymous definitions, the first of which is, “A formal written warrant or authority, granting certain powers and authorizing certain duties.”
As an example, one receives a commission (authorization) to paint a portrait. The fifth definition of the eight finally refers to a percentage of a transaction. Harcourt, Bruce’s Dictionary’s number one definition is similar to Webster’s. Reference to a fee or percentage is ranked eighth!
I am sincerely puzzled as to why we constantly refer to the remuneration for our services as commissions based upon a percentage fac¬tor. It is degrading and automatically categorizes us brokers who work for “commissions” as a “peddler.”
Why not work for a fee, based upon the type of transaction, the time and money you will have to spend on the transaction, the size of the transaction, and its complexity?
I personally work strictly on a fee basis, and I judge my fee based upon the aforementioned criteria. When I explain this to a client, he never objects. In fact, I have yet to have any client or lawyer object to this.
My most recent “fees” translated into percentages were 7%, 8.5%, 9.2%, 10.6%, 11.3%, 15%, and 18%. Why should I grovel for a 5%-6% commission?
Does the surgeon cut his fee because the patient is handsome or attractive? Doesn’t he charge a different fee for different surgeries? How about lawyers? Don’t their fees vary greatly? Do they charge the same for fighting a traffic ticket as an “errors and omissions” suit? Of course not!
We, too, should work on a fee basis. Not long ago a client offered to exchange three vacant commercial pieces of encumbered ground and one free and clear piece for some units. Our offer was accepted, but after inspecting the units he decided he didn’t want to include the free and clear piece.
My fee was originally $8,500. We drafted a new offer using only the three encumbered parcels. This, surprisingly, was accepted.
My client said, “Since we’re using less land, how much are we going to decrease your ‘commission’?” I replied, “I work on a fee basis, and since I’m getting the job done with less of your property than you originally offered, I considered raising my fee to $11,500. In view of the fact that we’ve worked together numerous times, I’m going to hold my fee to just $8,500.”
He smiled and said, “I’m sorry I asked,” as he signed the papers. On another occasion, a client took in a house equity as part of a larger exchange. Another broker brought me an offer to purchase. He asked what my commission was, and I replied, “It is 6%. Why?” He replied, “Some are getting more.”
I called my client and explained the situation, plus the fact that I wanted to include one of my associates in the transaction as well. He offered another $1,000. He felt that I had over-performed in order to earn my just fee, and he knew I would be representing him in other profitable transactions in the future.
My fees are probably 80% cash. I refuse to agree to accept a cash fee and then get down to closing only to discover I will be receiving an “in kind” fee. I will accept “in kind” fees as long as there is a mutual understanding to do so. I don’t recall not receiving an “in kind” fee equally as good as cash or, usually, considerably better.
As capable and knowledgeable brokers, let’s not back up to our clients looking for handouts. If we do a proper job, then let’s be paid appropriately just as other professionals are. It’s up to us. No one is going to solve this problem for us except ourselves. The responsibility is clearly ours. Let’s forget commissions and work on a fee basis.
