You are a real estate broker, an ordinary real estate broker – which means you charge sellers something like 6% of their homes’ sale prices and hire a bunch of agents to work in your behalf.
Since the day you started learning about this ordinary business, you understood that the way to build your business, the way to grow and make a healthy profit was to recruit more and more agents.
Agent’s, you learned, come to you with their own sphere of influence, their own un-tapped client base. Every time you add an agent you acquire the ability to pocket some of the dollars that will fly when he or she sells something to their family, friends or neighbors.
You attended seminars where you learned you weren’t actually in the real estate business, you were in the people business; and your single most important task was to recruit!
You lusted in your heart over 500 agent offices! You bought mahogany desks and Herman Miller chairs in hopes of attracting more and more agents.
You also made adjustments in your commissions splits to make your office more competitive on the recruiting front. You started brand new, ‘green’ agents at 65%. After 3 closings, they went to 70% and then more as they did more and more production. You even had a 100% program that kicked in for the balance of the year once an agent generated $24,000 in Company Dollar. Your average commission split to agents is 75%.
All of this emphasis on recruiting has netted you 30 agents! Very good! So . . . how’s that workin’ out for ya?
Because you have a mix of new and experienced agents, your average per person productivity is 8 closed sides a year (about industry average). That’s .67 closed sides per agents per month.
Since your average sale price is $300,000 and your average commission % per side is 2.65%, your gross per closed side is $7,950.
Because you average paying your agents 75%, you get $1,987.50 of that! Since your agents average .67 closed sides per month, you can count on $1,332 per agent per month and since you have 30, that’s almost $40,000 in company dollar each month!
Here’s a breakdown of your monthly expenses:
Franchise fees (6%): $9,587
National Ad Fee (2%): $3,196
Office Rent: $6,500
Dues/Memberships: $300
Office salaries: $6,500
Your salary: $5,000
Insurance: $500
Equipment/supplies: $800
Utilities: $600
Vehicle Expense: $800
Miscellaneous: $1,000
Marketing: $4,000
Total: $38,783
All of your hard work has netted you $1,217! That’s a 3% profit! I know that sounds really low. Any reasonable business person would be looking for 15% at least, right?
Well . . . I’ve looked at the profitability of ordinary real estate companies for years – 30 years to be exact. There were 10 years at the end of the last Millennium that I looked at balance sheets a lot. The very best offices I saw made between 3% and 5% in profit. Most made 0% and many lost money every month.
But the solution to your problem is right before your eyes! Obviously, you just need 3 – 4 new agents! Your costs will not go up significantly and 3 more agents will add almost $4,000 to your bottom line!
But, wait a minute. Currently 35% of your gross is being generated by your top producer, Sally. She’s been with you for years and loves you! But your biggest competitor just converted his office to a new franchise that pays agents a residual based on the production of the agents they recruit. Sally’s just announced that she’s leaving – she’s going over there and is planning to build a nice team of agents. And where are most of these agents going to come from? Right: your office. That’s where her closest friends are. I think you can expect your gross to drop by 50% in the coming months.
You might need to start looking for a second job.
This nightmare is sooo common in our industry. I’ve seen it over and over again. And the problem is right up there at the top. The ordinary broker believes that he is in the recruiting business, that hiring agents is the way to expand his business and profitability. History clearly shows that that’s simply not true.
If you want to be successful in the real estate business, GET OUT of the recruiting business. GET BACK INTO the real estate business. Expand your business by:
1. Having a superior offer for consumers. It can’t be nebulous stuff like professionalism, quality service, a personal touch or anything like that. You have to give them MORE than your competitors and charge them LESS.
2. Becoming a Marketer. Market your superior offer aggressively to homeowners in your target market. Track meticulously, adjust constantly, and own the leads that are created.
3. As your business grows (and it will), hire agents ONLY when you have more business than you can handle with your current staff. Hire them not to save you, but to help you take care of the business you have created. Pay them accordingly.
And if you’d like to make this shift easily and with excellent support, become a Help-U-Sell broker. That’s who we are and how we operate.