Make More Real Estate Money Despite Slow Sales
- Nov 02, 2007
This week, Denver, Colo.-based Real Trends, a residential brokerage analysis company, released a report that said real estate agent commission rates had risen last year — and are likely higher this year, too, although it’s too early to offer finite data.
If your reaction to that was "How is that possible?" — well, so was mine. All the agents I know are having one of their worst-ever years, dealing with hesitant buyers who will get to the bid stage and decide to "just hold off for another six months;" willing buyers with credit issues that are blocking them from getting an affordable loan; and, some months, just very few buyers.
Let’s just say these agents are not going to be splurging on a boat anytime soon.
But, statistically, their commission rates have risen — from 5.02 percent in 2005 to 5.18 percent last year. And yet, that doesn’t mean more money for agents: Average broker profit margin in 2006 actually fell to 4.3 percent from 7.6 percent in 2005, according to Real Trends.
Which makes more sense. First of all, agents have a number of expenses involved in each sale — car upkeep and gas costs to take clients to properties, promotional expenses for Web sites and advertising, etc. — and the longer a house sits on the market or a client delays buying a property, the more those costs escalate and cut into a sale profit.
Secondly, home prices have fallen — single-family home prices have been on the decline for 21 months, according to Standard & Poor’s — and that means sale prices are lower, which means an agent’s cut of the sale is lower, too.
Negotiating a larger percentage of a home’s sale may be a more common practice in today’s desperate seller times, but that doesn’t mean more money for the agent if the home doesn’t sell for much.
What can agents do to increase their profit? Some quick tips:
- Use Your Ad Money Wisely. A recent Classified Intelligence and RealtyTimes.com study showed agents are advertising more but carefully considering where their ads will appear for maximum impact. Are you targeting first-time buyers? Online ads may be the best way to lure younger clients. Trying to strengthen your presence in a specific neighborhood? Ads in community bulletins and highly local papers may offer more return than a pricey ad in the area’s largest urban paper.
- Give Information; Get Clients. Today’s buyers and sellers have another option — the Internet. Don’t lose clients to a sell-it-yourself Web site. Stress how having an agent guide you through the process is a true benefit in low-cost ways like teaching a free seminar on homebuying at a local school or restaurant (or anywhere you can get free space).
- Make Smart Plans. Try to reduce small costs — it can have a big
overall effect. This is a service industry — but that doesn’t mean you
have to be available to take a client to see a single property a day.
Urge clients to let you book showings in three to four hour blocks to
save on gas, parking and other expenses. Hold open houses for your
seller clients instead of always meeting interested parties there at
random times. You won’t be able to turn every showing or visit into a
consolidated activity, but handling some that way can mean savings.
- Create a Permanent Ad for $50 or less. If you don’t have a Web site, it’s time to get one. If you’re not tech-savvy, buy a program from your local computer store or try one like rapidlistings.com that allows you to build a basic site for free. If you have one, add an e-newsletter or other section to take the focus away from the featured listings (which may be few and far between and on your site for months). A newsletter or news section can help you cheaply — and regularly — inform nervous homeowners about the market outlook. If potential buyers and sellers see you as a source of trusted information, they’re more likely to turn to you when they are ready to look.