Commentary May 29, 2012

“What is Your Commission Fee?”

According to Gene Kranz in his book, Failure Is Not an Option, “When reporters asked (astronaut Alan) Shepard what he thought about as he sat atop the Redstone rocket, waiting for liftoff, he had replied, ‘The fact that every part of this ship was built by the low bidder.'”

I received a blank email this morning with the following not so cryptic subject line : what is your commission fee. Nothing was capitalized, no punctuation, just the five words in sequence.

I take absolutely no offense to the question. It has in the past been the opening of a discussion about hiring me on any number of occasions, and I truly believe that many consumers don’t know how else to best start the dialogue. The thing to understand about the question is that, while nobody wants to overpay, 99% of the people who ask the question don’t view commission rates as being the most important reason to hire a broker. They want what they pay for, which is service, results, professionalism, and a successful outcome.

That said, the construction of the email gave me the distinct impression that this person was email canvassing any number of agents and was deliberately seeking the lowest rate. If that is the case, this person has a long road ahead of them. Hiring a professional just because they are the cheapest is the recipe for a disaster.

Imagine your daughter was in an accident and her face was horribly disfigured. You are told of a renowned reconstructive plastic  surgeon right in the city where you live who can make her look like the day she did before the accident. Do you ask how much?

Or imagine returning home from a business trip to an empty house. Your checking account was raided and there are divorce papers on the kitchen counter. Do you go out and get the cheapest lawyer you can find?

Would you jump out of a plane with the cheapest parachute? Would you plan your wedding at a car wash?

While my examples may be incredulous, consider the fact that surgery, legal crisis like a divorce, jumping out of planes and weddings occur very seldom in our lives. Moreover, when they do, the stakes are high. Your health is at stake. Your finances are on the line. Your well being hangs in the balance.

And yet some people, for what is often the largest financial event of their lifetime, decide that they have to be frugal in choosing their agent. It is as if we are all the same, so you might as well get the cheapest for their rubber stamp and save some money. This is of course flawed thinking, and when the inevitable does occur and the low bidder screws up, the consumer feels let down. They should. They let themselves down.

Real estate mistakes are far more expensive than the percentage one theoretically saves when they hire someone who can’t sell their own value except to promise a low rate. Hiring a broker solely because they are the cheapest is the financial equivalent of having a vasectomy performed in the back of a van. And the outcomes are often similar.