In a study, a group of testers was given three samples of wine. They were told each sample came from different bottles: a high-end, luxury wine, a moderately-priced wine, and a low-cost, “budget” wine. 

Each tester was asked to rank the three wines blindly. And the group as a whole overwhelmingly ranked the luxury wine as the best of the three. 

What these testers did not know was that all three wines were the same. 

What does this have to do with real estate? 

It’s all about perceived value. 

Same wine, different expectations

All samples came from the same bottle. But when testers were told they came from three different bottles—one luxury, one middle-grade, and one cheap—they declared the wine from the highest-priced bottle to be the best. 

When we have three options, and one of those has a higher price than the other two, that higher-priced item stands out. We find ourselves already believing it must be the best option. That’s the power of perceived value. 

The same goes for our business. How do we position ourselves in our market to stand out? 

We don’t want to be in the middle. We don’t want to be the same as everyone else. If the cost of doing business with us is roughly the same as the competition, we’re going to blend in. 

Standing out means going to one extreme or the other. 

How low can you go?

Agents who position themselves as the cheapest option put themselves out of commission. 

If you’re the lowest-price agent, you have to be the absolute lowest to stand out. That’s the only way to stand out at the low end. It’s a high-stakes race to the bottom. And once you’re there, clients expect you to be mediocre at best. 

If that weren’t bad enough, being the cheapest option makes you invisible to clients who prioritize quality over cost savings. Consumers put more value on services they pay for. And when you’re the cheapest there is, you might as well be free

What to do when a prospect wants to negotiate a lower rate?

If you’re an agent who charges anything north of the bare minimum, you may have had prospective clients ask you to lower your commission rate using one of the following arguments: 

  • “I talked to another agent willing to work for __%.”
  • “I don’t know if I can afford that. Can you go any lower?”
  • “Maybe I’ll just hire my cousin. They’re new, but their rate is half what you’re asking.” 

Tom Toole had a great response to objections like this in a recent episode of the Over Ask Podcast

A lot of agents will do just anything they can to take a listing. So, how many homes has that agent sold?… Tell me what kind of marketing plan they had or what their sales track record looks like. In a lot of cases, the home will sell itself. The question is, are you leaving money on the table or not?

What I know is our team’s listings sell for 8% more than the average agent in our marketplace because we have a documented pre-launch plan to make sure we get people interested. And we’re seeing tons of clients leave money on the table when they go with these discount brokers because they don’t have the training, they don’t have a marketing plan, they just don’t know what to do to get people competing for the home…

Tom Toole

Why would you charge an average rate when you know you can deliver more value than the average agent in your market? If you excel in your work, your rate should reflect that. 

The price alone sets you apart

People naturally gravitate toward luxury brands. For some, it’s FOMO. They wonder what they’ll miss out on if they go with the middle-priced or lowest-priced option—maybe because those are the only ones they’ve tried so far. 

Who doesn’t wonder, if they’ve only ever drunk cheap wine or bottom-shelf whiskey, what the luxury label wine or top-shelf whiskey tastes like? Or what’s the difference between a pair of off-the-rack dress pants at JC Penney and a tailored pair from a high-end clothing store? 

For others, the high-end price point is the only one they’ll consider. Going cheaper, for them, is more expensive in the long run. 

Whatever the reason, consumers see the highest-priced product or service as the one most likely to bring the highest value. So, if you’re the agent with the highest commission, they’re already imagining how you’ll stand out from the agents asking less. 

What’s your value?

How are you positioning yourself or your product? Are you just like everyone else at the middle? Are you trying to appeal to consumers looking for the cheapest agent they can find? 

Or are you reaching for the top and saying, Yes, I am worthy of that luxury price tag”? 

Positioning yourself at the top doesn’t give you permission to render mediocre service at a higher price point. Always provide the kind of service you would expect to receive at the price you’re setting. 

If you’re priced above and beyond the competition, your product or service should soar along with it.