“I’ve had my home listed with my real estate agent forever! I didn’t figure it would sell in this market, but he has it up for rental and rent-to-own as well on the Multiple Listing Service. Still, there are no takers yet. What gives???” (Charlotte Landlord)
Dennis Rodman was one of the most prolific rebounders in NBA history, a 2-Time All-NBA Defensive Player of the Year, and an integral member of five championship teams. Known affectionately as the “Worm”, his off the court antics were even more noteworthy. Countless stories of his late night partying in Las Vegas, riding his motorcycle in drag in downtown Chicago, and his penchant for drinking large amounts of tequila (hence, the “Worm”) were legendary. His philosophy was “work hard, play hard”; however, he soon found that when he became an established player, he could play more because his contract was guaranteed. He got paid the same amount of money whether he was in the line-up or not.
When Rodman’s contract was up at the end of 2007, the Chicago Bulls had a dilemma. They needed him to win championships, but couldn’t fathom paying him a huge contract when he missed 33% of the previous year’s regular season’s games (picture yourself taking work off every third day- great gig!). So, the Bulls came up with a solution: the incentive-laden contract. They would pay Rodman up to $ 10.5M, with only $ 4.5M of that guaranteed. The rest of the contract was based on performance metrics and actually playing in the games (imagine that!). The genius was that for every game he played after the 59th (in an 82-game season), he would earn a bonus of $ 185K/game. Mrs. Rodman didn’t raise no dummy; The Worm got paid- he hit his performance metrics and played in 80 of the 82 games (earning a nice $ 3.9M in bonuses).
The same wisdom can be used when determining commission for your agent (and the buyer agents who bring in the prospects) in listing agreements. Ask yourself two questions:
What do you want your real estate agent to accomplish for you? Sale? Rent-to-own tenant? Rental Tenant?
What are you paying them for each?
What we see commonly in the Charlotte market are the following commission rates:
3% of the purchase price for sale
$ 100 for a rental tenant
$ 100 for a rent-to-own tenant and 3% if the tenant winds up buying
What does this say? It says EMPHATICALLY that you want to sell your home and really do not want rental and rent-to-own tenants. It also says that you are willing to stay in your house until it sells and/or eat the monthly rent as it sits empty. Is that true? Usually, no, but your incentives say otherwise!!
Bottom-line- You must align incentives correctly with the activities you want to encourage! The Worm isn’t going to drive a rent-to-own tenant to your home for a $ 66.67 commission (after his Firm takes its 1/3 cut!).