[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…
Hey, no fair. You switched posts on me.
Let’s look at some more numbers closer to home. 2005 existing home sales in King County (big year!) were 50000. Median price according to WSU Real Estate stat guys was 375K. Again, let’s assume a 5% avg commission rate and that all of these sales paid the full 5% (ignoring all FSBOs). Total commission dollars is about $950 Million. There are approx. 8500 members of Seattle King County Assn and probably another 1500 non-Realtor licensees. Let’s assume that 70% of those folks actually call real estate their “job” We do the math again and the avg. compensation (post expenses and self-employment tax) is almost exactly as I laid out in my other post – about 60K.
We also know that there are a lot of folks well above the mean so that means that there must be a lot of folks well below.
You provide a great perspective on how to make a nice living selling homes but the numbers would seem to indicate otherwise.
Russ
Hey, no fair. You switched posts on me.
Let’s look at some more numbers closer to home. 2005 existing home sales in King County (big year!) were 50000. Median price according to WSU Real Estate stat guys was 375K. Again, let’s assume a 5% avg commission rate and that all of these sales paid the full 5% (ignoring all FSBOs). Total commission dollars is about $950 Million. There are approx. 8500 members of Seattle King County Assn and probably another 1500 non-Realtor licensees. Let’s assume that 70% of those folks actually call real estate their “job” We do the math again and the avg. compensation (post expenses and self-employment tax) is almost exactly as I laid out in my other post – about 60K.
We also know that there are a lot of folks well above the mean so that means that there must be a lot of folks well below.
You provide a great perspective on how to make a nice living selling homes but the numbers would seem to indicate otherwise.
Russ
Russ,
I thought lesson #24 in your Bloginar was “All’s Fair in Love and Blogging!” 🙂
You ended up back where I started from there, Russ. You made it back to Seattle and your $ per agent side is $9,375 (2.5% x $375,000) compared to my $9,000. Same difference, isn’t it???
Say one “CHOOSES” only TEN (10) clients in a WHOLE YEAR’S TIME based on your statistics. Five of them are first time buyers (5 X $9,375 = $46,875) and Five of them are buyers who also have something to sell (10 X $9,375 = $93,750). Total TEN PEOPLE equals $140,625.
Using your figures, IF AN AGENT CHOOSES TO WORK WITH ONLY TEN(10) PEOPLE IN A WHOLE YEAR, THEY WOULD MAKE ALMOST $150,000!
So are you saying MOST licensees including both Realtors and non-Realtors make only $60,000, meaning they are only representing THREE to FIVE people, in a whole year’s time, well enough to get paid at the end of the road???
If only 3-5 people find them to be skilled and knowledgeable in a whole year, they need to go find something they LOVE to do and can be Passionate about. For their own sake, they need to do that
We both know the numbers on a grand scale are meaningless to my original article. My article tells agents who do a fantastico job of representing people, to make sure that very good people are getting that very good representation.
Leave the “Pigs to get Slaughtered” by the agents who can’t find “ten good men” to work with them..
Russ,
I thought lesson #24 in your Bloginar was “All’s Fair in Love and Blogging!” 🙂
You ended up back where I started from there, Russ. You made it back to Seattle and your $ per agent side is $9,375 (2.5% x $375,000) compared to my $9,000. Same difference, isn’t it???
Say one “CHOOSES” only TEN (10) clients in a WHOLE YEAR’S TIME based on your statistics. Five of them are first time buyers (5 X $9,375 = $46,875) and Five of them are buyers who also have something to sell (10 X $9,375 = $93,750). Total TEN PEOPLE equals $140,625.
Using your figures, IF AN AGENT CHOOSES TO WORK WITH ONLY TEN(10) PEOPLE IN A WHOLE YEAR, THEY WOULD MAKE ALMOST $150,000!
So are you saying MOST licensees including both Realtors and non-Realtors make only $60,000, meaning they are only representing THREE to FIVE people, in a whole year’s time, well enough to get paid at the end of the road???
If only 3-5 people find them to be skilled and knowledgeable in a whole year, they need to go find something they LOVE to do and can be Passionate about. For their own sake, they need to do that
We both know the numbers on a grand scale are meaningless to my original article. My article tells agents who do a fantastico job of representing people, to make sure that very good people are getting that very good representation.
Leave the “Pigs to get Slaughtered” by the agents who can’t find “ten good men” to work with them..
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Ardell,
The 9K per side is a gross number based on avg. sales price. You net it out and it seems to be to take way more than 3-5 sales to make a good living in the business (six figures). Maybe my figures are way off but I just tried to do simple math around the macro market.
Are there other agents out there that can weigh in here as to the amount of business it takes to “make it”.
Russ
Ardell,
The 9K per side is a gross number based on avg. sales price. You net it out and it seems to be to take way more than 3-5 sales to make a good living in the business (six figures). Maybe my figures are way off but I just tried to do simple math around the macro market.
Are there other agents out there that can weigh in here as to the amount of business it takes to “make it”.
Russ
I dig it Ardell. I’ve actually limited the amount of clients I work with in order to offer excellent service and representation. However the median price in my market is barely 200K so I haven’t cracked 100K in income, but I’m not sour about it.
I think if more agents followed your lead that they’d be happier, and as a result clients would be better served.
Russ,
Remember that in areas where the price of homes is lower, the cost of living is lower as well. There is no ONE business plan for every real estate market. I have sold in seven different real estate markets ranging from averaging $4,000 per sale to averaging $21,000 per sale.
Also, the more I make on a sale, the more time I spend on that transaction. Getting a 4,500 square foot home “Positioned To Sell” takes a lot longer than getting an 870 square foot condo “positioned to sell”.
It can’t be all about what the agent “needs to make”. It has to be a fair price for the job at hand.
Russ,
Remember that in areas where the price of homes is lower, the cost of living is lower as well. There is no ONE business plan for every real estate market. I have sold in seven different real estate markets ranging from averaging $4,000 per sale to averaging $21,000 per sale.
Also, the more I make on a sale, the more time I spend on that transaction. Getting a 4,500 square foot home “Positioned To Sell” takes a lot longer than getting an 870 square foot condo “positioned to sell”.
It can’t be all about what the agent “needs to make”. It has to be a fair price for the job at hand.
Russ,
Last night, I checked the average sales price of homes sold last week in Bellevue, Kirkland and Redmond and it was more like $650,000. So using $9,000 per side is very conservative.
Tacoma agents may average less per sale, but they probably also live in Tacoma, so their own mortgage payment is more like that of their clients. Not every agent in the country has a six figure income cost of living.
Is it your presumption that every single real estate agent in the country needs to make six figures, when their average client may make half of that?
Russ,
Last night, I checked the average sales price of homes sold last week in Bellevue, Kirkland and Redmond and it was more like $650,000. So using $9,000 per side is very conservative.
Tacoma agents may average less per sale, but they probably also live in Tacoma, so their own mortgage payment is more like that of their clients. Not every agent in the country has a six figure income cost of living.
Is it your presumption that every single real estate agent in the country needs to make six figures, when their average client may make half of that?
I’m wth Ardell on this. We believe in taking care of people, no matter what the consequences. But if you take care of people, they’ll take care of you. One person telling a happy story over and over — “I can’t believe what they did for us!” — is worth thousands of dollars in advertising. We do well by doing good — but we do good regardless.
I am also in agreement with your philosophy. My point was only that the economics of the business mixed with the number of agents chasing deals may not make it so easy to buy into the philosophy.
Also, an agent that is “making” gross commission dollars of 100K is taking home a lot less than 100K when all is said and done.
-Russ
I am also in agreement with your philosophy. My point was only that the economics of the business mixed with the number of agents chasing deals may not make it so easy to buy into the philosophy.
Also, an agent that is “making” gross commission dollars of 100K is taking home a lot less than 100K when all is said and done.
-Russ
Russ,
When an agent passes 36 transactions in a year’s time, they need to hire an assistant. Then they need to make a whole lot more to break even after the cost of the assistant. Managing expenses is better business than stacking up more and more clients, until none of them is getting what they are paying for.
What the agent “takes home” has to do with how many dollars they shell out, and to whom. Way to many, spend way to much, and delegate “agency level” tasks, that should not be delegated, to people who make $15 an hour.
According the the National Association of Realtors, the average income for Realtors in 2004 was $49,300. The U.S. Dept. of Labor and Industries shows average gross pay of $52,090 for agents on the whole. This is gross and this is before taxes, health insurance, business expenses, etc.
The trouble with averages is that it takes into account the very low and the very high. Most agents are barely doing a few deals a year, because they got the license for part time friend/family work. Of the remaining agents who want a serious business, most don’t have the skill, discipline and techinical knowledge to make it. Others don’t understand the concept of advertising and farming. What we end up with is a top 10% or fewer agents who do 90% of the volume.
Here’s how it breaks down in Austin, TX. Average home is $180k. At 3% commission and 20% broker split (for me at least), I can make $207k gross, before expenses, with just 4 deals a month. That’s reasonable volume. The trick is to work efficiently, by being selective about time-wasters and focusing on good clients, as well as recognizning that old school prospecting methods such as cold calling and door-knocking are now officially worthless. Internet marketing is much cheaper and a more effective use of your time.
Nick,
Sometimes good clients do take a lot of time, simply because their needs and circumstances are more complex.
A “good client” can be buying a condo in Juanita for $175,000 and who takes 3 months to do it. A “not good client” can be someone with two million dollars to spend who wants to treat me like a gopher and find something worth three million that he can “steal” for two million.
Good clients come in all shapes, sizes and income brackets. They can take a year to fulfill their objective or a few days. Good clients are ones where the client and I have a good, open and honest relationship.
As to your comment that agents don’t “understand the concept of advertising and farming”…I suggest that TOO MANY understand the concept of MAKING MONEY and NOT ENOUGH understand the concept of what they do for a living.
There are LITERALLY NO…NO…NONE…NADA….ZIPPO classes on how to BE A GOOD AGENT! They are all about how to make more money!
Nick,
Sometimes good clients do take a lot of time, simply because their needs and circumstances are more complex.
A “good client” can be buying a condo in Juanita for $175,000 and who takes 3 months to do it. A “not good client” can be someone with two million dollars to spend who wants to treat me like a gopher and find something worth three million that he can “steal” for two million.
Good clients come in all shapes, sizes and income brackets. They can take a year to fulfill their objective or a few days. Good clients are ones where the client and I have a good, open and honest relationship.
As to your comment that agents don’t “understand the concept of advertising and farming”…I suggest that TOO MANY understand the concept of MAKING MONEY and NOT ENOUGH understand the concept of what they do for a living.
There are LITERALLY NO…NO…NONE…NADA….ZIPPO classes on how to BE A GOOD AGENT! They are all about how to make more money!
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