As a homeowner, you want an agent who will look out for your best interests. Isn't that why you are paying them many thousands of dollars?

The problem is, if you ask them, "Are you going to look out for my best interests?", every real estate agent is going to say "Yes!". They will talk about how their clients are like family, how many homes they have sold, and they will pull up online reviews and testimonials. Maybe every real estate agent really is client friendly and maybe the cost of that friendliness is a 6% commission.

If you want to really understand if an agent will look out for your best interests, the best way to do this is to ask them if they will use an incentive commission. After you ask that question, you'll probably also be required to explain to them what an incentive commission is because they aren't that common. (Quick incentive commission refresher. An incentive commission structure involves a low base rate, say 1%, plus an incentive payment. The incentive payment is often 20% of the proceeds above some agreed price threshold. Consider a home worth around $1 million with an agreed price threshold of $950,000. At a sale price of $950,000 the agent would earn a 1% commission, at $1 million they would earn roughly 2%, and at $1,030,000 they would earn about 2.5%.)

If an agent is willing to use an incentive commission structure, it tells you a few things. First, it means an agent is willing to be held accountable for the results they achieve. Second, the price they propose using for where the incentive payments start tells you a lot about what they think the home will ultimately sell for. Finally, it is a signal that the agent is willing to align their financial incentives with yours, making it easier to establish trust and know that you both have the same objectives.

If an agent says they aren't willing to use an incentive commission structure, you might ask them why. The usual answers center around the agent saying that they don't control what a property sells for. However, why should you hire someone if they don't impact the results?

Sometimes the agent may reply that they impact the result of the house, but the market is beyond their control. Yes, that's true, but the market could go up or down, it's symmetric. Also, over the long run real estate prices have tended to go up, so this isn't a very reasonable concern if an agent is planning to be in the business for many years.

Other times agents will say they won't discount their commission. Here, clarification is necessary because nothing in the incentive approach requires an agent discount their commission. An agent's total commission is a function of two values: their incentive price and the final sale price of the home. The agent can propose whatever incentive price they feel is appropriate. However, if they don't hit their target sale price, then they won't make their target commission. Accountability is directly embedded in the ListWise incentive commission process; agents are rewarded based on their performance relative to their own expectations.

My mom always used to say, "Actions speak louder than words." An incentive commission transforms the abstract notions of accountability and expectations into tangible dollars and cents. It cuts through the rhetoric and reveals an agent's true commitment to their clients. The next time you're on the quest for a real estate ally, ask them, "Would you consider an incentive commission?" We've found it's the single most telling question you can ask a real estate agent.