Tag Archives: discounting

The “Ideal” Business Plan

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[photopress:meeting.jpg,thumb,alignright] In answer to Russ’ comment on my post of this morning, How to Choose a Client, let’s break down how an agent can do a super-duper job at representing their clients’ well, choose their clients wisely, and also make a good living AND price their services fairly….all at the same time!

John Q. Agent wants to make a six figure income of $100,000 a year after gross expenses. He decides to work with no more than 2-5 active clients at one time, so that he can do “Whatever it takes” to help his clients fulfill their objectives. By focusing on 2-5 good-hearted, honest and serious clients, he is able to sell 2 houses a month and loses only 1 in every 15 clients he accepts to “take on”. By focusing on only 2-5 clients at once, he does such a super job, that he doesn’t have to pay for leads or spend the bulk of his time looking for leads, because his very happy, good-hearted clients send him business. By recognizing that he represents people for a living, and doesn’t sell houses for a living, he leaves a long trail of happy closed transactions in his wake. All of this “good will” brings him a steady stream of new clients, so he can spend all of his time representing his clients and very little of his time dredging the bottom of the barrel for “new leads”. His “good-hearted” and happy past clients, know other “good-hearted” people because, “birds of a feather flock together”.

Average home price is $400,000 in the Seattle/Eastside Market. That’s a little under the actual median price, but let’s assume that the best clients don’t necessarily have the most money 🙂 Let’s assume that John Q. Agent charges slightly less than 3% for clients buying and selling at $400,000 or less and 2% for clients buying at $750,000 or more and 1% for clients buying at $1.5 million dollars or so and also has varied programs in between, depending on the timeframe and actions needed to fulfill the client’s objectives.

So John Q. averages $13,500 per client, but gives $4,500 of that back, even after the reduced rate, on average, because he only needs to make $9,000 apiece X 24 sales (two a month) to make $216,000 of which he pays his broker a cap of $20,000 annually leaving him $196,000 before “expenses”. Keeping Russ’ figure at 20% for “expenses”, John Q. Agent exceeds his goal of $100,000 by making $156,8000 after expenses working with only 2-5 good-hearted, honest clients per month and selling 2 homes a month and “being the glue” that holds them together so ALL of them close, and it is NOT a numbers game…in fact, it’s not a game at all.

John Q spends 20 hours a week on his “in escrow” transactions and 20 hours a week on helping his “next to come out” listings get their homes ready and 10 hours a week doing all that other stuff that agents do. He spends so much time focusing on these few clients that none of them “leave him in the dust” or “screw him”. Though a few do decide not to buy or sell…and he wishes them well.

And they all lived happily ever after…

Negotiating the Commission vs. “Discounting”

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[photopress:album2.jpg,thumb,alignright]My very first entry here on RCG discussed the manner in which a buyer and their buyer’s agent negotiate the buyer agent commission. Being a “Discount Broker” and Negotiating are not one in the same. A “Discount Broker” usually has a set fee or menu of services with set prices. Many traditional brokers have a set range within which their agents cannot deviate. “Negotiating the commission” is a simple phrase for no carved in stone set amount. It means sitting down with a client and determining a fair and reasonable price for this client given this particular client’s needs and expectations. The end result being an unknown factor until the end of the interview. The end result could be higher than the client’s desire, lower than the client’s expectation and in many cases no change at all from the agent’s expectation. Negotiation is about an intelligent discussion with a mutually agreed upon end result.

Last night before I went to sleep I popped over to Greg’s excellent blog and his article that referenced my feelings on the topic of buyers and buyer’s agents. I was a little surprised to see a “nastygram” comment there aimed at me personally and my feelings on this topic. It amazes me that agents who sit down with sellers every day to negotiate the commission, become absolutely outraged at the suggestion that buyer’s should do the same with their agent.

I would like to dispell the myth that I am a “Buyer’s Broker” who exclusively works with buyers only. Not because there is anything wrong with that business model, but because it simply isn’t true. The only reason I highlight buyers with regard to commission negotiations is because agents negotiating with seller clients is a given. There is absolutely, never a listing appointment with a seller, that does not include the topic of commission. Consequently there is no reason for me to evoke change or explain the parameters within which the seller consumer can negotiate with their agent.

One of the main reasons to highlight the difference between “discounting” and “negotiating” is the fact that Buyer Agent Bonuses are on the rise. Every night I receive emails and “Zip Your Flyers” from agents around the Puget Sound offering “$5,000 EXTRA Buyer Agent Bonus!” and “4% SOC!”

The mere concept that a Buyer Agent will be enticed to lead a buyer to one house over another, because of the amount of money that Buyer Agent will make when it sells, shoud be offensive to every single agent in this country.

The Buyer Agent represents the Buyer. The Buyer Agent is not “Selling a House to Make Money”. The Buyer Agent, in representing the Buyer’s Best Interests, should never be offering advices based on the fee structure of each property. That doesn’t mean that a low fee doesn’t infiltrate and influence the thought process. We are human. It would have to be a perfect match for my client and a great house for me to truly buckle down and recommend a house that is paying five bucks or nothing. But there have been times when I recommended a house and walked away with absolutely nothing, just as there are times when I have represented a seller and found that my walking away with nothing was the only way to achieve the objective. It happens once in a while the same as a lawyer does a pro bono case once in a while. I don’t make a business model out of it, but I don’t rule out the possibility of that end outcome either.

As for the jab at the end of the “nastygram” comment “NOTE: Ardell is NOT a REALTOR”, it is absolutely true that I “stepped out of the pew” after having been a member for 14 years or so. I have given NAR over ten years of those 14 years I was a member, to raise the status of the buyer to CLIENT level. I am disappointed that Buyer Agency has not progressed further than it has, and clearly I have given them sufficient time to meet my expectations.

Does anyone really think it matters if I go over and slap my $500 or so over at the Board of Realtors on Monday to “become a REALTOR”? Does taking five minutes out of my day and $500 out of my pocket really make any difference in who I am or how I do business with my clients? I think it is more honest and ethical to be true to myself, and stay out as long as I agree with the DOJ’s position. I think it is more honest and ethical for me to stand outside the fray until our basic thinking is more in line, than to be a member who dissents from within. I’m the one who has to look at myself in the mirror in that regard, and make a personal choice. At present, this is the one I can live with.

As long as the buyer is not expected to discuss commissions when they meet with an agent, the same as a seller – no more, no less, I will remain where I am. Discussing commissions with a seller does not automatically translate into discount nor does discussing commissions with a buyer automatically translate into discount. It is a matter of equal treatment and respect, pure and simple. How can that possibly be wrong?

ON A LIGHTER NOTE – THERE WILL AGAIN BE A PRIZE, ON BOTH SITES, FOR NAMING THE BAND AND ALBUM TITLE OF THE PICTURE IN THIS POST. Same era, late sixties, fabulous Rock and Roll band from the West Coast that might have done better on a different label. Not a One Hit Wonder, with many albums in our collection, and one of Kim’s favorite bands of all time. There are other clues to the band’s name in the photo itself, but this one should not be an easy ,”googleable” answer. Good luck!