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While I don't disagree with any of the above, I will point out that for most consumers of real estate brokerage services, these facts are mostly irrelevent. They don't care how many people have to split the money. They don't care what portion of it you have to give to your broker. They don't care how much your gas is costing. They shouldn't care about any of these things, for the most part. They don't care how much or how little respect you or our profesion get in the media.
What they care about, what they should care about, what they & you should focus on is what THEY GET FOR THE FEE. So many of us want to justify our fee by providing the litany of costs & fees associated with our business. And sure they're all accurate, but not the consumers concern. Their focus is and always should be on what the benefit is to them. And if we can't show that what we do is worth what we charge, do we have any right to expect them to be happy about that?
Location: Jonquil City (aka Smyrna) Georgia- by Atlanta
16,259 posts, read 24,754,704 times
Reputation: 3587
Quote:
Originally Posted by Captain Bill
Kev, I believe you are being sincere in how you think the real estate business works. And I believe a large population has the same belief. The reason I believe that, is due to the large number of people each year who jump into the real estate business thinking how easy it is to make a lot of money, and they fail.
Unfortunately, those people are allowed to take a 90 hour course and pass a state exam, and get their license. Within a month after hanging their license with a broker, the culture shock sets in. They begin to realize that no one hands them leads on a silver platter. They soon realize that they are having to pay money out of their pocket each month just to be with a broker, and pay more money to actually learn about the real estate business.
They soon learn the high cost of overhead for running their independent contractor business, and marketing/advertising costs.
They soon learn that being a "good" realtor requires many more skills, knowledge, and time commitment than they ever imagined.
Probably 95% of these people don't even know what a "business plan" is.
A poster on the forum is a prime example of this. He asked about getting a "part time" job as an agent, while keeping his day job for 2 years, and then getting his broker license and opening a brokerage business.
There is a recipe for disaster. That person will have severe culture shock because what he is after is not going to happen.
The broker is the responsible party and a very important figure in the industry. The 2 years (3 in AZ) experience requirement is "full time" experience, not part time. If the person has been working part time, then the number of years will be extended. The brokers where they have hung their license all have to verify their experience, and if the experience is not good enough they may never get a brokers license.
If you really want to learn what the real estate business is all about, then get your license and try to make a living at it for one year. I guarantee you that you will come back with a very different picture of how easy you think the real estate business is.
I am of the opinion that you do not need a broker. To me a broker is much like a pimp- somebody that sends agents out to do all the leg work and then collects half of what they make. You should not need to work with of for a broker at all. If you take the required courses (which should be more than 90 hours BTW) and pass your exam, you should be able to hang your own sign out or team up with other sales people in a small office.
Location: Jonquil City (aka Smyrna) Georgia- by Atlanta
16,259 posts, read 24,754,704 times
Reputation: 3587
Quote:
Originally Posted by Captain Bill
Here's a way to look at fee reduction and how it relates to customer service and performance.
Le'ts say for example purposes that Agent Jones is a Listing agent and only works with sellers.
His hypothetical fee is 3% (That represents 100% of his gross revenue)
His operating expenses are 30% of gross revenue. (I'm being conservative because many are higher than 50%)
Agent Jones is a great agent, however, he does not know how to, and has never prepared a business plan.
In this hypothetical example, Agent Jones can provide his clients with excellent service at18 transactions per year. Over 18 transactions will cause a reduction in service to his clients because of the additional time requirement.
Agent Jones decides to reduce his fee to 2% and increase his volume to make up for the 33% loss in revenue.
That reduction requires an increase in volume from 18 to 27 transactions per year in order to bring his revenue generation back up to 100%.
That is a 39% increase in transactions. If you're a business owner, consider for a moment what you would need to do in order to increase your business by 39%.
It will take a tremendous amount of time (and money) for Agent Jones to generate the 39% increase in clients, and to market the properties. He will also have less time to spend working for each client. This is where every client is affected by Agent Jones decision to decrease his fee and increase the volume.
Now let's say that Agent Jones decides to lower his fee to 1%. That is a reduction in revenue of 66%.
If Agent Jones only gets his 18 transactions then he will operate at a loss because his expenses were 30% of the original 100%. He won't realize this right away because he doesn't have a business plan. When it finally hits home that he can no longer afford to take and market any listings, he will be out of business.
Let's examine these numbers.
He reduced the revenue per client by 66% hoping to generate more volume to maintain the original 100% revenue stream.
By not having a business plan, he didn't use a spread sheet to examine this new model. By doing so it would have shown him that in order to reduce revenue by 66%, and add the volume required to maintain that 100% revenue amount, he would have to increase the number of clients from 18 to 54. If my math is correct, that is a whopping 200% in growth.
Let's double check my math.
100% less 66% = 33%.
Now to get back up to 100%...
increase 33% by 200% and you have 66%.
Add that to the original 33% and you're back at the original 100%.
The math is correct. Agent Jones, who reduced his fee to 1% would have to increase his business by 200%. Every business owner knows the difficulties of growing a business by 200%. His clients would suffer a serious decrease in service in his attempt to do that.
One agent cannot generate and service 54 clients alone. This requires adding transaction coordinators, assistants, runners, and another one or two agents, plus workmans comp, and all the other things required to hire employees (assistants, runners TA's, etc.) That puts the agent into a completely different ball game.
Agent Jones didn't know enough about business to prepare a business plan before changing business models, and didn't realize that discounting could put him out of business. Therefore, how could be be in a position to hire the right people to increase his business by 200% and operate it successfully.
So who suffers in the long run? All of the clients who thought they were getting full service from an agent who didn't know how to run his business.
The client will receive less service, and if the agent goes out of business, which is happening every day today, they will be faced with having to start all over with a new agent.
My feeling is that even a decent agent should be able to sell at least one house a week. Even accounting for 4 weeks of vacation a year, that would be 48 sales a year. At 3% per house- let's say each house is $150,000- it would be $4500 a house. That is a pretty decent living even at 65% net!
My feeling is that even a decent agent should be able to sell at least one house a week. Even accounting for 4 weeks of vacation a year, that would be 48 sales a year. At 3% per house- let's say each house is $150,000- it would be $4500 a house. That is a pretty decent living even at 65% net!
I guess I'm just not trying then! Or maybe I'm not a "decent" agent! I think your expectations are extremely unrealistic KevK...it is incredibly market dependent for one thing, secondly I don't think it is realistic to actually SERVE that number of clients at a time effectively, with the service they deserve...as an individual agent. You would need a team...but wait, then we are back to a "broker" situation again! Yikes.
I am of the opinion that you do not need a broker. To me a broker is much like a pimp- somebody that sends agents out to do all the leg work and then collects half of what they make. You should not need to work with of for a broker at all. If you take the required courses (which should be more than 90 hours BTW) and pass your exam, you should be able to hang your own sign out or team up with other sales people in a small office.
You can't, nor should you be able to, get a brokers license in NJ just by taking some courses. You need practical experience. The current requirement is that you have been working under the supervision & authority of a broker for the past three consecutive years before you are even allowed to take the class. If your suggestion is implemented, even with additional course time, you'd have a legion of brokers out there who have never sold a house. What purpose would that serve?
You can't, nor should you be able to, get a brokers license in NJ just by taking some courses. You need practical experience. The current requirement is that you have been working under the supervision & authority of a broker for the past three consecutive years before you are even allowed to take the class. If your suggestion is implemented, even with additional course time, you'd have a legion of brokers out there who have never sold a house. What purpose would that serve?
People with nothing else to offer typically start off cutting price of service. That is the goal. "Nothing for Less."
My feeling is that even a decent agent should be able to sell at least one house a week. Even accounting for 4 weeks of vacation a year, that would be 48 sales a year. At 3% per house- let's say each house is $150,000- it would be $4500 a house. That is a pretty decent living even at 65% net!
It isn't physically possible for me to serve 48 clients per year by myself. There is so much time that's spent on paper work, travelling, etc., that those who are not in the business don't see.
I would need two full time assistants in order to do that. One to handle my marketing, pre-listing agreement package delivery, appointments, communications, and computer software, data management system, etc., and another one to handle all of the transaction paperwork, coordinating and scheduling of inspections, and all that goes into the escrow transaction period.
My time would have to be spent solely on appointments and handling the client communication that the assistants couldn't handle.
I can handle 24 per year alone, and that's it. And with that I need a transaction coordinator that will handle a lot of the paperwork and escrow time line scheduling. Any more than that and my customer service will suffer, without hiring the two full time assistants.
The other option is to grow beyond 24 per year is to have a Team. Both options add more growth problems, and one must have a business plan worked out prior to doing either one of those options.
My feeling is that even a decent agent should be able to sell at least one house a week. Even accounting for 4 weeks of vacation a year, that would be 48 sales a year. At 3% per house- let's say each house is $150,000- it would be $4500 a house. That is a pretty decent living even at 65% net!
While I don't disagree with any of the above, I will point out that for most consumers of real estate brokerage services, these facts are mostly irrelevent. They don't care how many people have to split the money. They don't care what portion of it you have to give to your broker. They don't care how much your gas is costing. They shouldn't care about any of these things, for the most part. They don't care how much or how little respect you or our profesion get in the media.
What they care about, what they should care about, what they & you should focus on is what THEY GET FOR THE FEE. So many of us want to justify our fee by providing the litany of costs & fees associated with our business. And sure they're all accurate, but not the consumers concern. Their focus is and always should be on what the benefit is to them. And if we can't show that what we do is worth what we charge, do we have any right to expect them to be happy about that?
I like this answer, it is a properly trained professional salesperson answer.
Rule number 1 of sales - the sales person has to sell themselves first and most importantly sell the customer on what they can do for them.
As pointed out by others here, it is about building value.
If I go into a listing appointment and come out with the listing contract signed I have obviously built enough value in my services for the seller to accept the fact that I am worth what ever percentage they sign for.
If my presentation has not shown that it is worth what I am asking for I most probably will not get the listing.
A discount broker will not need to build as much value in a presentation because they are asking for less. I am not saying that they will not build as much value but that is another discussion.
There are choices for every buyer and seller out there from no cost on up.
It is all dependent upon which you would like to use.
If you choose $0 cost then you buy and sell by owner. (There will still be cost you just don't see it as easily)
If you choose an agent, you will choose what you pay. That's right I said you will choose what you want to pay. The only catch is you might not get the agent you want with what you want to pay.
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