Below I attempt to make an argument that perhaps REALTORs are not allocating enough resources to marketing real estate, and are incurring too much expense in other areas of their lives. Marketing real estate is supposed to be the primary goal if you are a listing agent. If you are a buyer's agent, most likely you are going to have more trouble earning higher commission levels since having a diverse portfolio of listings allows you to capture commission even if someone else sells it. Theoretically, the listing agent will always make more money because of this as long as they have an effective marketing campaign.
I usually see the buyer's agent become a listing agent as they become more successful and perhaps even a broker with agents underneath them in the end. It seems like buyer's agents are unable to develop strong marketing campaigns, so they choose to focus on the parts they can do. Perhaps, if I personally build a marketing plan and competing real estate sales team that I will be more effective in demonstrating an effective way to sell real estate. In the process, we can refine our web site systems to more accurately to facilitate the needs of REALTORs through our own experiences selling real estate. The additional income will fund these developments and help create a more diverse range of services.
The concern is that if all my clients refuse to allocate the proper amount of resources, then we will be perceived as a failure to them. However, we have all the talent and skills of any world-class design, development and marketing firm. I am continuously trying to consider ways to achieve more affordable services, but there are always sacrifices with reducing price. In the future, it may no longer be effective to offer certain services unless there is a reasonable chance of success for both sides of the transaction. This philosophy of feeling responsible for mutual success should apply to all sales, not just our business.
What does the income per hour worked come out to. How does this average out with failed contracts and unqualified time wasters eating up your days? What are the pay expectations for a REALTOR and have they become unrealistic? I don't understand why many REALTORs are unable to afford a reasonable amount for their web site and marketing, yet they dream of selling homes that have $100,000 commission checks. A successful business demands around 80% of its expenses to go towards advertising / promotion efforts even if you need to use your personal time & resources to achieve this. Certainly, smaller businesses have trouble doing this, some sacrifices are made, but perhaps a marketing budget that is 5% of your gross income is too small. Finding a better balance of perhaps 1/3 or 1/2 income is a more sure way to grow.
If you spent half your money on advertising and shared commission/desk fees and worked 175 hours to make 3% on a $235,000 home, that would be around $7,000 gross income, $3,500 net. This works out to making $20 per hour and you'd have to sell one a month to make the equivalent of a $45,000 annual salary. $45,000 is actually quite a good salary and this is like the equivalent of having a college degree and some seniority in a normal job. Even at this modest level, it would be possible to invest several thousand per year into additional advertising to grow your business.
If you take home only 2% commission on a 1 million deal, that's $20,000 gross, $10,000 net perhaps in reality. If someone had spent an equal amount of time selling this more expensive property (175 hours), that would be $57 per hour, equivalent of a $120k annual salary assuming another $120k was eaten up in expenses to achieve this. This is what a full time realtor should be making if they have some actual skill and a small team selling homes between $300,000 and $2 million every month.
In the worse case, someone makes $40,000 and best case $200,000 annual salary at current 2012 median home prices. So lets say a full time realtor expects to make $80,000 a year to have a decent year. To live a modest life close to work, you might need $25,000 for the whole year. If you have a mortgage, maybe double that. If you have your own office space, an assistant and a mortgage, you might need all $80,000 to barely cover it. So that leaves like $0 to $50,000 per year for buying things, investing, starting a family, etc. Investing in the growth of your business seems like it should be a higher priority expense especially if you are already close to maxing out your expenses because you need to be able to get ahead to be able to afford your current expenses.
If you have almost no time or money to spend on doing the marketing for a job that is essentially a marketing job, something is wrong? Managing yourself to go back and forth between sales efforts and marketing is what I already do so this process of selling homes is nearly identical to my job and I realize it's not easy. Pushing yourself to be a market leader demands you to manage your time better then the competition and not overemphasize one aspect of your business.
If you simply can't afford to spend any additional time or money, it sounds like steps should be taken to downsize your mandatory recurring expenses and recover your time so you can once again invest in growth. I have been doing this for the last year and have managed to decrease my monthly expenses $600 and increase monthly cash flow $600 without raising prices. This leaves me in a much healthier situation with being able to grow my business without financial pressures. If you aren't closing deals, maybe downsizing is better until you grow again. Don't think you can downsize any further? Here are some ideas:
If you do all of this, suddenly, you'll have another $1000+ per month in free money just like I was able to achieve. You'll be back on the healthy track to enjoying life and growing again.
When the seller calls to complain that their house is not sold yet and they want to drop you as the listing agent, this is the probably the most stressful situation for a REALTOR. You want to figure out a way to salvage the 3% in additional commission. You try to manipulate them into re-listing at the last minute and lose the battle half the time. Perhaps, this is another part of the importance of not overindulging with the commission money. Ultimately, your job is to sell homes and the seller expects you to put your due diligence into marketing their property.
This is not about getting a $10,000 commission for nothing. It's about you effectively selling the home within a reasonable amount of time. Don't make agreements with sellers that you can't honor and be realistic when you fail. Lying to get ahead will eventually come back in the form of increased pressure & anger from the people you have hurt.
Making a profit on every sale might not be a reasonable expectation for you to become a market leader. In fact, most of the largest most successful businesses have intentionally lost money for a period of time to beat their competitors. For example, Netflix was quite affordable until Blockbuster went bankrupt and they have been continuously raising prices ever since. Nearly all cell phones, printers and game consoles have been sold at a loss with the intention of making the profits back in subscriptions, accessories, licensing and software. Gaining market share in a tough economy might be more important that amassing a fortune. You want to build a reputation and network of people that can ensure your future. A more successful marketing campaign can give you the momentum at the right time to have it all come together. Later, ensuring that your marketing campaign is up to date and modern becomes important as well. This means, comparing yourself to competitors, other web sites and to investigate emerging technologies.
Over the years, some REALTORs have secretly told me they have a distaste for the actual work of showing homes, talking with buyers and helping people. I would urge REALTORs to reignite an interest in caring about the people they are working with and reduce the negative energy they feel. Providing a service to someone else is an important part of living a good life. It doesn't matter how large or small your act as long as it is with good intention. Don't forget that you're taking a large commission check for relatively unskilled work and if you applied these skills to other industries, you may find your pay to be substantially less and the work even more difficult.
Of course, it's important to make sure buyers aren't lying to you by qualifying them properly. If you have a qualified buyer, you must have the patience and determination to see that they are taken care of regardless of whether you will profit to the level you'd prefer. By treating people with honesty and fairness, you'll earn a reputation for really helping people. Becoming rich at the expense of everyone around you has to be one of the worst choices a person can make. Don't forget to reward the people who influenced your deals appropriately and stay true to your word. Imagine a world where the rule of law did not exist and you had to answer to that person directly - This is a situation where your true integrity would be tested. We all need to treat each other with respect and not hide behind contracts and legal processes.
Steven R. Covey has written one of the most popular and true self-improvement books titled, The 7 Habits of Highly Effective People (1989). I have read this book and I can guarantee that if you live your life according to these principles, you will be happier. I believe sales people are often put in a dangerous position where abuse can easily arise if they start to believe that selfish closing practices are ok. You want to ensure both sides will meet their goals, but this can often only come by first solving the problems that cause you to think you need to be selfish. It can become more important for a salesperson to have strong ethics then people in other types of work because a bad deal can ruin the lives of the buyers.
For my web design business, we've previously always let the clients take the risk by paying us in advance for services that may someday let them profit excessively. This limits my equity and security in the relationship quite a bit since there is no reason for them to pay us after they are successful or even to have a web site in the future.
In 2012, we will be able to have new pricing levels with low cost template offerings and perhaps a shared equity offering that only costs after leads occur.
I'm also considering finding a unseasoned REALTOR to partner with that I would do the online/offline marketing for free, and I'd own the web site / marketing materials 100%. I'd develop resources for buying/selling presentations, videos, copywriting, link building, web sites, subscriptions to third party services, signs, brochures, everything. I'd take a cut of the gross commission earned regardless of the lead source in exchange for their efforts and hopefully deliver the best real estate marketing in town. The realtor would be responsible for managing the leads, showings and closing processes. This could provide me the ability to build the best real estate web site for our sales efforts above and beyond what we can achieve on web sites for individual clients.
My future business partner will want to do it because they will receive world-class marketing services at no cost until the money is earned. We could perfect our web site conversion rates and do tests and take risks without having to get permission to do so. I could flood the market with sites in different niches. We could figure out additional problems with our systems that aren't visible now because I'm not yet a realtor. It could be a good way to grow our services into other areas.
It often feels like my client undervalue technology and online marketing by having more limited budgets with us and a lack of interest in getting involved. Starting a competing real estate business where we invest aggressively into becoming a leading sales team may give us the evidence and system that are needed for other to succeed and our hopefully high sales volume will further justify the value of our marketing services.
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