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REDUCING PRICES: A FIVE-STEP FORMULA

Pricing recommendations hit troubled waters at two predictable times. One is when clients have unreasonable price expectations that need to be brought into line before the home can be sold. The other is when an agent gets ready to list a property that owners want to sell at an inflated, unrealistic price.

Both circumstances require caution. The following presents advice to follow as you troubleshoot your way through to a successful pricing decision.

When clients have their minds set on a price that is out of line, follow this process to bring their thinking back to reality:

1. If you’re dealing with prospective new clients, address the pricing issue at the listing presentation. Don’t think the difference of opinion will just go away, and don’t think you can make an easy adjustment later.

Be proactive. Present your analysis of market realities as they are, not as your client might wish them to be. If you delay the discussion, you’ll just spend the time, effort, and emotion later on when you could and should be using your energy on new business development and other income-producing activities.

2. If clients suggest they “start high and come down later,” gain their agreement to a scheduled price reduction at the listing presentation. In order to start at their desired price, sellers will often say something like, “I’ll reduce the price to your recommendation in 30 days.” When they make such a statement, usually they’re simply trying to end the discussion, hoping they can wait you out and ultimately achieve their target price. That’s why you need to take action and lock in a price reduction agreement right there and then in order to avoid the same discussion a month into the future.

Use the following script as you respond to the seller’s willingness to take action in 30 days:

“Mr. Seller, What I hear you saying is that you will reduce your price in 30 days. Is that correct? You want to try your price for 30 days, but, after that, we will move to the price I recommended, correct?”

When your client answers yes to both questions (as clients do in nine out of ten presentations, mainly because they have been able to delay the pain and want to move on), proceed with the locking technique, using this script:

“Mr. Seller, since we are both in agreement about a price reduction in 30 days, and due to your business schedule and mine, let’s go ahead and acknowledge your approval of the scheduled price adjustment, post-dated for 30 days from now.”

Though all you’re doing is formalizing your client’s suggestion, the above script will likely be met by a long moment of silence, perhaps accompanied by a confused look. The key to a successful outcome is to sit silently. Whoever speaks first will lose this battle of wills. If you break the silence, almost certainly your client won’t sign the price adjustment form. Wait patiently and in more than half the cases, you will get a signed form agreeing to the upcoming price adjustment.

In the remaining cases, you will at least pave the way for the future reduction, although some sellers will develop selective amnesia on the subject. If you talk to them 30 days later and hear, “I don’t remember ever talking about having to reduce our price”, you can then remind them that you even asked them to sign a price reduction the night of the listing. That will usually jog their memory back to reality.

3. Begin compiling pricing feedback from the day the listing hits the market. When other agents show the home, follow up by asking them to share their pricing opinions. At the same time, review the prices of comparable homes that have sold while your listing’s been on the market.

When interviewing another agent, really probe to obtain useful feedback. Ask, “What were the top three things the agent’s client liked about the home?” Ask for suggestions for enhancing the salability of the home.

Most importantly, ask if the price seemed competitive with other homes shown. If the agent says the price felt out of line, ask what price seems more reasonable and then ask if the agent would be willing to scratch out a quick note summarizing the opinion. In future price-reduction discussions you’ll be able to back your own recommendation with recommendations from other experts. In essence, you’ll be demonstrating that the marketplace has spoken in favor of your advice.

4. Revisit the price-reduction discussion within weeks of the listing. If you wait until 30 days have passed, you will have waited too long, and here’s why. It usually takes one or two weeks to re-open the pricing subject, gain a price-reduction agreement, obtain a signature on a price-reduction form, and get the new price posted. Therefore, if you wait a month to get started, the price likely won’t be reduced until week six. Studies repeatedly prove that once a home’s been on the market six to eight weeks, showing activity drops significantly. So if you wait until 30 days to revisit the pricing conversation, your window of marketing activity will be almost closed by the time you finally post the reduction.

5. If a phone conversation doesn’t prompt an agreement to a price reduction, schedule a meeting in your office. You raise the odds for a successful outcome exponentially when you make the pricing recommendation in a face-to-face meeting on your own your turf in your professional environment. Don’t meet in the sellers’ home; have the sellers come to your office.

When you call to set the meeting, use the following script, in which the key word is “exposure.” “Mr. Seller, I need to meet with you later this week to discuss the strategy to increase the exposure of your home. Would Wednesday or Thursday be better for you?”

The word “exposure” leads the sellers to think you’ll be rolling out a whole new marketing strategy for their home. For that, they will gladly clear their calendars.

If you say the meeting is to talk about a price reduction, chances are good that the sellers will try to stall you, after which they may even start ducking your calls. You have to use the right script and right approach.

The truth is that the meeting will in fact lead to increased exposure for the listing, because the factor that most controls exposure is price. If you can move the price into the competitive zone, agents will be more likely to show the home, and ads will more effectively reach a larger group of better buyers.

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SUCCESSFUL PRACTICE

We all have a fundamental choice when we fall short of our goals and dreams. We can choose to modify our goals and dreams or magnify our skills needed to reach them. These are the only two solutions to this quandary we are in. Which are you going to choose? We must focus on acquiring the skills to create abundance in life. The mastery of the skills will create a life full of rewards. To acquire the skills in sales, in order to create abundance, we need to break it down to two components.

The first is – we must talk to a lot of people. Great salespeople talk with more people than mediocre salespeople. By talking to lots of people daily, we insure victory. Mediocre salespeople let their feelings dictate their success in prospecting. When they don’t feel like prospecting, they don’t. Great salespeople cause their minds to control their actions in a positive manner. George Patton, the famous general, said, “You have to make the mind run the body. Never let the body tell the mind what to do. The body will always give up. It is always tired — morning, noon and night. The body is never tired if the mind is not tired. You’ve always got to make the mind take over and keep going.” Which is winning daily in your life? The mind or the body? Resolve to control your body and talk to lots of people daily.

The second solution is practice. Daily practice is as valuable as making the sale. To develop a high level of skill in life we must practice. I spent hours in my youth practicing on the racquetball court my variety of shots. If I had not, I would never have won any tournaments. For me to be able to play at the professional level in racquetball, I hit hundreds of thousands of cross-court, backhand shots. This allowed that shot to be automatic under tournament pressure conditions. What do you need to practice on to become a world-class real estate agent? Is it your prospecting, qualifying, listing presentation, lead follow-up, negotiating? Each one of these areas needs practice. To achieve mastery of these skills it will take thousands of opportunities to improve your skills. Do you want to make the errors on “live” buyers and sellers or do you want to practice on partners where it is cheaper? Which do you choose? Let me share another example. Your child is learning to ride a bicycle. Do you send your child out on the busiest street for their first day or do you keep him or her in the backyard? I am sure the answer is obvious. Practice in a controlled environment gives us confidence and the skill to compete. It allows us to create wins in practice before we have to play the game.

Make sure you adopt these philosophies and make a concerted effort to talk to a lot of people. You then need to practice daily so you improve your ability to execute in the moment.

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THREE AREAS OF YOUR BUSINESS

Any successful businessperson, over a span of years, has embraced the focus to build three areas of their business simultaneously. These three areas are the growth areas, working “in” the business, and working “on” the business.

Growth

Growth is the engine that drives sales growth. It’s the part of the business that brings in the revenue of the business. The more time invested in growth daily, weekly, monthly, the greater the resulting income. The vast majority of Agents spend too little time in growth. Growth is the DIPA activities that I have talked about throughout my writings. Growth is the critical part of the business, without growth, a business will fail.

I know a lot of Agents who are highly skilled at growth, but poorly skilled in administration and business planning, who earn large amounts of money. I know very few Champion Agents who are not highly skilled at growth. You can have huge deficiencies in administration and even customer service (I don’t recommend it) but still win the income game through growth. You can’t be deficient in growth and win. Growth is the engine that powers the train; you must first pay attention to growth. Your prospecting should comprise 65% of the time you invest in growth daily. If you don’t prospect, the other growth areas won’t happen.

“In” the business

Working “in” the business is the administration or production supporting activities. These need to be done, but not at the expense of growth. The “in” area focuses on you being an employee working in your business doing functions any employee would do. Our goal through the segment of working “in” our business is producing results for our delighted clients. We are trying to turn clients into evangelists so they generate referrals.   Their transition to that level of customer satisfaction comes from working “in” the business. If you create good systems, processes, checklists, and have highly trained staff you can reduce the time you invest in this area.

“On” the business

This segment is the segments most Agents neglect until they want to retire and find out they have nothing to sell. In Michael Gerber’s book, The E-myth, he talks about the myth of an entrepreneur. He describes that most entrepreneurs have really bought a well paying job and don’t really own a business. Realtors® clearly fit into that category of entrepreneur. We also clearly fit into buying a well paying job.

When we work “on” our business, it really shapes our long-term success and growth from just running faster on the treadmill of your business and life. Your long-term financial wealth is contained in the working “on” your business segment. Your ability to earn a profit and increase the profit is key. Remember, sales is a margins game. The more time we invest to plan, read, strategize, evaluate, and implement new ideas, tactics, and strategies, the more we evaluate the market, our time, our numbers, and return an investment, the more ownership we gain. Becoming the owner of your real estate business only happens through diligent working “on” your business. Instead of being a highly compensated employee who pays the bills, why not become the one who orchestrates the growth of the company? Be the one who has something to sell when you want to transition or retire.

Working on your business is critical to helping you move to the next level of production, or to decrease time worked without reducing income, or finding where to cut expenses by 10%. Working on your business will help you create economies of scale in administration and new ways to produce growth and income in your business. You need one hour per day of working “on” the business. For every minute you plan, you will save ten minutes in implementation.

What do you think your business would look like in 90 days, or even six months, if you were to implement the below daily routine?

Growth:                  3 hours

Administration:   1 to 2 hours

Business:                1 hour

By following the review patterns or pausing at the end of a day, week, month, quarter, six months, and year, you automatically increase the “on” time in your business. Another technique would be to schedule a block of additional planning and execution time at the end of each week. Most of our clients have ninety minutes of planning time each week where they work to improve their business. If you work to employ these techniques, you will transform the results of your business in a few short months.

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BECOME THE EXPERT

Do you have the skills that will make you massively successful? Are you making the most of them? The people who are compensated the best in life are highly skilled and highly specialized. They perform few functions, but the ones they do are performed exceedingly well, and they are paid handsomely for performing them.

Let me share an example. When my father had open-heart surgery, he was blessed to have an excellent heart surgeon. That was exactly what this doctor did — heart surgery and only heart surgery. Of course, there were many other steps to the process, and the surgeon had a skilled team to handle those other steps. There was an anesthesiologist who put my father to sleep. There was another surgeon who retrieved a vein out of my father’s leg and prepared it for by-pass. There was another surgeon who opened the chest cavity and readied the heart. After all those functions were complete, the heart surgeon stepped in for his part. He completed his sections of the surgery and then left the rest of the team to complete the operation. What if we had the skills and the systems to run our businesses that way? What would our production look like if we did? How balanced would our lives be with this type of a business? It is truly an exciting thought.

If you had that level of sales skills and consultation skills and had a strong team that would enable you to operate your business on that system, you would be paid better than that heart surgeon is paid. You have a bigger market to sell your services in than a heart surgeon has; there are more people who truly need your services than there are who need heart surgery. The question is whether you are truly taking advantage of that market and preparing yourself to be a leader in it. Strong, specialized skills and a team with the skills to support your work will free your time, so you can serve an increasing share of the market and enjoy a healthy personal life, as well. Imagine the life and the business you would have if you operated in this fashion.

What is your area of specialty in real estate? Where do your strongest skills lie? We all have exceptional skills in specific areas. When we know what they are, and are able to focus our efforts to make the best use of them, our clients benefit, and so do we. Specialization is very much a fact of life in the world around us. We see it more and more, not only in medicine, but in law, accounting, insurance, and even sports.

Let me share another example. When the NFL was first formed, players played both offense and defense. But, within a few years, we had players playing only offense or only defense. Starting in the 90’s, we had specialists: designated pass rushers; nickel backs; pass-catching running backs; blocking running backs. Each NFL team may have twenty guys, each of whom is on the team for only one function. They are specialists in the career of professional football.

To create a specialized, team-enhanced real estate business, you must first evaluate what you are skilled at doing, what you enjoy doing, and what needs to be done regardless of your specific skills and interests. Separate out those activities that you really dislike and those you are less skilled at doing. Then construct a plan that will, over time, remove those activities and delegate them to skilled and enthusiastic staff members.

For example, maybe you like meeting with clients but really don’t enjoy the escrow process. Solidify your escrow processing system, so a staff member can take it over, freeing you up to do the activities that you do enjoy. Or maybe you have a high level of skill in qualifying the buyer but don’t feel highly skilled at showing property. Set appointments in the office to qualify the buyers, but have someone else show property to them. The possibilities are endless.

Life is truly too short; each of us has only a limited time to enjoy life’s treasures. Why not make the most of your time by creating a business that is structured around your skills and your desires? Then hire, train, and coach a team of specialists who will complement your skills and help you achieve success. I truly believe that everyone involved — your clients, your staff, your family, and you — will win. With a system in place that makes the most of your abilities and of your staff, you’ll be able to achieve success faster than you can say: “Pass the scalpel, please.”

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TAKE ACTION OR ACCEPT THE RESULTS

In all areas of life, taking action is the key to success. Most people who fail to achieve what they want, fail for lack of action. The ability to take action is the skill that ultimately separates the winners from the losers in the game of life. There are a number of truths that I have come across in my business and while coaching clients. These truths should be reviewed and lived by to produce the abundance in life that you desire.

Truth #1: It’s more essential to success to be consistent than to be precise.

The power of consistency is one of the most significant forces in the world. It far outstrips the power of exactness. If you are consistently doing enough things right, you will reap a huge reward. If you are waiting until you have it down to perfection, you are not going to take any action.

In sales, more than any other profession, consistency of your actions pays big dividends, while infrequent action, even when right, pays very little. The daily consistency of prospecting and lead follow-up is the gateway to sales success and high profitability. Again, it’s more essential to success to be consistent than to be precise.

Truth #2: A step toward your goal is a step in the right direction . . . even if it is a misstep.

Too often, we fail to act due to fear of failure. We can become paralyzed by the need to be right or correct in all our actions. My late friend, Jim Rohn, says that to achieve your goal you need “measurable progress in reasonable time.” That doesn’t mean all the progress we make will be going in the right direction every time.

Earl Nightingale said, “Success is the progressive realization of a worthy goal or ideal.” To achieve a worthy goal, we have to progress toward it through the trials. We must proceed with consistent action. It also says there are times when we will be heading in the wrong direction and have to adjust our course of action.

In the end, success is a poor teacher. The real teacher in life is adversity and short-term failure. You will always learn more from your defeats than your victories. In sales, you will learn more from the sale lost than the sale made. Most salespeople think that when they make the sale, they did everything right. What happens if that assumption is not true? What if you did just enough right to beat out the other guy, but he wasn’t any good? What will happen when the competition gets tougher or the marketplace gets tougher? Will you have the skills you need to dominate then?

Too often, we fail to face reality. This comes back to us in unfulfilled potential. Unfulfilled potential eventually manifests itself as regret. We have to be fixated on taking steps to obtain our goals daily . . . even if they are the wrong steps. It’s better to make a decision and find out it was wrong than avoiding making a decision at all. At least you know what you should not do next time.

Truth #3: Even when you choose not to decide, you have still made a choice.

Far too many of us just hope things will get better. We hope to become healthier or thinner, or we hope we will earn more. We have wishes and dreams but no commitment or definitiveness to change what we are doing to ensure the desired result. We fail to take action on what we know we need to do now.

Many of us can vacillate over a decision for days, weeks, months, or even years. We must realize that by not making a decision, we have essentially made a choice. We end up making decisions by default because we did not decide and act. The decision was made for us.

As salespeople, by not preparing for a changing marketplace or changing economy, our choice is solidified. We have chosen, by default, to not do as well or earn as much when the marketplace change occurs. Would it be reasonable to assume that our marketplace will always remain the same or improve? Would we be protecting our families and assets if we assume that we don’t need to improve our skills and abilities in sales? Our decision to not act in truth means we still have made a choice.

Take ten minutes to evaluate these truths. Are you embracing these truths in how you run your business and life? Are there changes that need to be made? When do you need to make the changes? Here’s a hint…NOW!

Don’t get paralyzed by inactivity or perfection. Turn action into your asset. That’s what true Champions do!

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ESTABLISHING AWESOME SERVICE

A service encounter happens any time that a consumer interacts with a servicing organization. Every Website hit or incoming ad or sign call is a service encounter. When a prospect talks to you, your staff, your company Receptionist, your Closing Coordinator, or your Broker, Owner, Lender, Escrow or Title Attorney, or anyone on your service team, that person is having a service encounter.

 If one person in the long chain of people who help you get your job done says or does anything negative, it affects the impression of the nature of the service you provide. There’s no way to separate yourself from your colleagues if they mess up. It’s even possible for your service to be tainted by those outside your service team. For example, say that a Buyer uses a Lender other than the one you recommend. If the transaction closes late and with a higher interest rate than originally quoted, that client will leave with a bad impression about the whole transaction and everyone involved in it. Your future business and referral opportunities will be affected by the actions of someone entirely outside your influence.

To direct your service toward superb outcomes, follow these steps:

    • Do what is necessary to right the wrong.

 

    • Find out from the client what it would take to turn the unsatisfactory situation into a satisfactory outcome. Ask what would it take for them to be delighted. Be cautious here. I don’t really believe that forgoing a fee or a reducing a cost ever creates a more satisfied client. The service and the cost are not linked at this stage of customer satisfaction.

 

    • Avoid the blame game. If you point out that it was the client’s decision to use the service provider who caused the problem, you only make the situation worse. Conveying that “I told you so” is never a way to soothe feelings.

 

    • Follow up. Eventually sore feelings will wane, but the only way to replace the negative impression is to make a better one through continuous and professional contact. In the early stages after the sale mishap you may not see many referrals, but when they start to come through you’ll know that your service recovery plan was a success.

 

    • If you can’t turn the situation around, don’t concede your profit. Some clients will only feel placated if they get into your pocketbook and win cash compensation. If you did something that caused them to be hurt financially, you might have to buck up. Most of the time, though, that won’t be the case. I caution you, before you ever give up your hard-earned money ask yourself three questions.

 

A. Will doing offering cash really turn this client into a raving fan?

B. Is there another way to turn this client into a raving fan?

C. Is there a reasonable chance that I will win future business and referrals from this person?

If your answers don’t cause you to feel confident that giving up money will net a future return at a low risk, keep the cash in your pocket.

 I am an ardent supporter of Hyatt Hotels and a good part of the reason is because years ago they took a bad situation and turned it around. I’d flown to Tampa, Florida from Bend, Oregon, which entailed leaving at six in the morning and arriving in Tampa sometime after 7:00 at night. I was tired, hungry, and faced a full schedule the next day. From the airport, I called for the shuttle van three times before it showed 45 minutes later. My last call had gotten through to the manager on duty. She was sympathetic to my weary travel story, but I expected only an ear.

When I arrived at the hotel, which was less than ten minutes from the airport, the manager greeted me as I stepped off the bus. She told me she had already personally checked me in. She walked me to a wonderful room where wine, cheese, and fruit were waiting. While walking to the room, she took a genuine interest in my day and travel trials. She later sent up a tray of desserts. She knew how to create a raving fan out of what could have been a lost situation. She had a great plan for service recovery.

Create your own service recovery plan today so you will be well prepared! Not many Agents are – you will be well ahead of the game in client retention.

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SELECTING YOUR TOP TEN GOALS

Because none of us have the capacity to work on all of our goals at once, the more focused and specific we are, the more successful we can be. I would suggest a top ten list of goals that you apply your goal action plan. Determine the most important ten goals and create a goal action for each. Then list the resources you need or have available for each goal.

RESOURCES:

Money:

  • Is there an amount of money I need to invest to accomplish this goal?
  • Where can I acquire the money to reach the goal?
  • Do I need to take it out of my working capital, savings, or borrow it?

Skills:

  • What skills must I acquire and perfect to reach this goal?
  • What is the best way to acquire those skills in terms of ease, timeframe, and cost?

Knowledge:

  • What knowledge must I secure to achieve this goal?
  • Is this knowledge specific or general?
  • What’s the best pathway to obtain this knowledge in terms of ease, timeframe, and cost?

Time:

  • What time investment must I make personally?
  • What’s the timing or order of steps to ensure the accomplishment of this goal?

Other People:

  • Who else can help me?
  • Who can help me reduce the time or timing?
  • Does who I know make a difference?
  • If it does, who do I need to know and how do I get to know them?

 

The process of setting and achieving goals is a process of clarity and commitment. It’s easier to have the commitment we need if we have the clarity of our goals. I am a firm believer that everyone has the opportunity to live a grand and glorious life. Everyone has the opportunity to accomplish anything they desire. The biggest barrier between you and your dreams is the clarity you lack to write down what you really want out of life.

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ATTITUDE AND OBJECTIONS

It is amazing how an objection raised in the sales process can make most Agents look like a deer in the headlights: they get that blank look of disbelief that you see just before the front grill of your car connects with deerskin at full speed. If the deer manages to move at all, he does it at the last split second before fatal impact, leaving you to experience heart-pounding adrenaline for the next 30 minutes. Many Agents treat objections the same way that a deer treats oncoming traffic. They are frozen in terror, and move only at the last second before the buyer or seller runs them over.

Often, Agents will view an objection as a big wall between them and the sale . . . a wall so tall that they can see no way around, over, under, or through. But objections are really like a two-to-three-foot-high picket fence. There are, in fact, many ways over it; or you can walk down its length and find the gate. An unskilled salesperson fears hearing an objection, but a great salesperson views objections as opportunities.

Your mental approach to an objection will determine your success or failure. Most Agents dread hearing an objection, but most objections result from one of two situations. One is the seller or buyer has legitimate concerns regarding the property and/or your skills to sell his home. The other occurrence of objections is because your presentation was not good enough. You did not convey the confidence that you are the person for the seller to hire for the sale of his home. You did not make a convincing enough presentation for the buyer to purchase the home you showed him. The clients’ desire to work with you is a natural ending to a good presentation. If the presentation is weak, the objections will flow like a river. There are really only about forty possible objections in the selling process of real estate. The question is why haven’t you learned them all? If you wrote them all down and practiced them for half an hour a day for the next six months, you would know them automatically. You would be prepared for any situation in selling. You would then have the confidence to say, “Bring them on; I am ready for them.” There are about ten to fifteen most common objections that will stop unprepared Agents in their tracks 90% of the time. How difficult would it be to learn just those ten in the next 30 to 60 days?

The problem is we do not regularly practice countering objections in real estate. The Denver Broncos spend four to six hours a day practicing football. The players and coaches spend a couple more hours a day reviewing film and studying their playbooks during a two-month span in spring training, then they play four practice games in pre-season to prepare for the real NFL season. Next, the players and coaches spend a few hours a day practicing and watching films, five or six days a week, to prepare for one 60-minute game. They will spend 40 to 50 more times practicing and preparing for the game than actually playing the game. How skilled in sales would you be if you adopted that regiment? How about if you practiced even one hour a day on your skills at overcoming objections? You would become an unstoppable real estate sales person.

Your attitude and mental approach to objections will determine your success level. Do not relinquish control of your mind to your client. Step up with mental authority and clarity to handle any objection a client raises. Practice being successful daily, and you will be amazed at your progress in as little as 30 days.

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CREATING YOUR REFERRAL STRATEGY

There should be a well-defined and developed strategy for each segment of your business. If referrals is an area you currently generate a lot of business from or hope to generate a lot of business from, you must spend the time to create and implement your strategy.

Most agents rely too heavily on the mailing strategy: mailers such as calendars, recipe cards, football schedules, and other so called “items of value.” This marketing for referrals, through what I call the “trash and trinket strategy”, is marginally effective. It falls far short of the personal phone calls or personal visits that allow you to make a personal request for referrals. When creating your referral strategy, you must realize that people send referrals for a number of reasons that are personal to them. There are two reasons that are usually high up on most people’s lists of reasons.

Trust and Friendship: Most people are willing to help people that they trust and like. If you have done a wonderful job for them, if you ask, they will send you future business. Share your goals and vision for your business with these people, and they will help you even more. If they can catch your passion and enthusiasm and see how they can help you with your dreams, you will create a valuable referral source. You can elevate them to a level where they feel a vested interest in helping you achieve more success.

People want to be Champions for others: When we deliver world class service and the outcome or the result meets or exceeds the expectations of the client, our benefit beyond the commission we earn is that we create clients who are willing to champion or promote our business.   These people know the quality of your performance and service first hand. They know the service quality their family and friends will receive is very high. They become heroes to those people for connecting the parties together.

Another strategy that many agents are trying to achieve is a 100% referral-based business. That strategy seems to be very popular. We profess to be “by referral only”, as if that is some elite statement, and our worth or value in the marketplace is enhanced because of this objective. Let me be honest, that stance comes from the sales trainers who teach referrals as a marketing strategy in order to sell more tickets at their seminars. If that is a primary focus of your business strategy, there is danger lurking.

Relying entirely on referrals for new client creation is a very narrow, exclusive, and un-balance approach to business. You leave yourself, your business, and your revenue extremely vulnerable to the changes in the marketplace. When real estate is appreciating at a rapid rate and everyone’s equity is growing in their home, it’s easy to generate a lot of referrals. The awareness of the market is very high and very positive. In those marketplaces, real estate sales and investments in real estate are topics at every cocktail party, reception, and dinner table in America. When the newspaper and the media are reporting the positive trends of the real estate market, the motivation to move and invest in real estate increases. Referrals are at an all time high in these markets.

However, when markets are at normal levels or below level, referral volume drops dramatically because everyone in the world isn’t a potential buyer or seller anymore. This same phenomenon happened in the late ‘90s with the dot.com stocks. Everyone was talking about how much they were making on Internet stocks; everyone had a piece of dot.com explosion. Then the bottom fell out, and everyone moved back to the blue chip stocks. The exuberance was so high about the dot.coms, we were buying stocks in companies that had not or wouldn’t turn a profit in years. Referrals reduce when the reason people want to sell and buy is more than for the frenzy of investment purposes, whether they live in the home or not.

It’s a poor business decision to put all your eggs in one basket. Solid businesses have multiple lead generation areas and multiple customer types they sell their products and services to. If you don’t have some level of diversity, something bad can (and probably will) happen. Look at Delphi Industries in 2005. Delphi’s a large multi-billion-dollar company that manufactures automotive parts. Their primary client is General Motors. General Motors accounts for over 70% of their gross sales receipts. When GM fell on hard times, Delphi had to declare bankruptcy because their biggest source of business revenue dropped significantly. The parallel between Delphi and the 100% Referral Agent is startling.

If your referrals decline, you won’t have other prospecting or marketing systems in place to dig yourself out of trouble. The trouble you will experience will come fast. The referral gurus don’t bother to reveal these truths because it would be bad for their business. Your strategy must be balanced.

Lastly, your strategy must focus on sellers. The 100% referral strategy without a seller focus as well will tip your business to the buyer side. You will end up with more transactions from buyers than sellers.   You will generate more buyer leads and buyer transactions through referral sources. Most consumers view agents as people who place people in their car and drive them around to sell a house. They don’t view us as salespeople who represent their interests in the sale, marketing, exposure, and market evaluation to maximize equity to our clients.

I have analyzed hundreds of agents’ businesses and tracked their numbers. When you evaluate the referral segment of the business, it produces more buyers than sellers by at least two to one with some approaching four or five to one. To become a Champion Agent with the earnings and quality of life you want, you can’t be four or five buyers to one seller or even two to one. The referral pillar of your business should be the strongest and should create the best quality leads and the most transactions of all other sources. It just can’t be the only source, as many agents are trying to make it.

 

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REFERRAL TRUTHS AND CONSEQUENCES

Salespeople love referrals. They’re the sincerest form of compliment and a remarkably cost-effective route to new business.

The idea of attracting referrals is so popular that sales trainers who bill themselves as referral gurus make fortunes promoting magical systems that supposedly deliver more referrals than an agent can handle, all in return for tuition at a three-day seminar. What they talk about for three days is a mystery to me. Referrals are really pretty simple stuff. A lot of it you can only acquire through perfect practice of your scripts, over and over, of referral-generating and referral-cultivation tactics.

Before you turn even a moment of effort away from prospecting activities and before you put all your hopes into winning business through a full-tilt referral-generation program, be aware that in addition to all the benefits that come with referrals, a 100% referral-based business has some downsides. Proceed with awareness of these ironclad truths:

  • Truth #1: Especially for newer agents, over-reliance on referrals results in slow-growth simply because early in an agent’s career there isn’t a large enough database of existing clients and contacts to draw upon.
  • Truth #2: Relying entirely on referrals for client development is a narrow, exclusive, unbalanced approach. For one thing, if incoming referrals decline you won’t have other prospecting systems in place to bail your business out of trouble. What’s more, when referrals do come in, most will be for buyer prospects rather than seller prospects. What the referral gurus never say is that their approach develops buyers’ agents – when sellers’ agents are the ones who experience greatest success and build the strongest long-term real estate sales businesses.

A referral-based business is a business that generates most of its leads as a result of contacts provided by friends, family, clients, colleagues, and other associates. Sounds great, doesn’t it? It is great, if – and here’s a big if – you have a large sphere of influence and enough patience to wait out a lag time of at least 90 days, and most of the time longer, between when you begin to cultivate referrals and when referrals begin to generate revenue for your business.

Building a referral-based clientele is a long-term strategy rather than a quick-fix tactic. If you’re looking for near-term results (and what newer agent isn’t?) you’re better off developing clients through a traditional lead-development program that involves prospecting, conversion of expired and FSBO listings, and open houses.

Relying exclusively on referrals, especially when you’re a new and undercapitalized agent, is a quick form of business suicide that will move you out of the real estate industry within a year, guaranteed. Instead, consider referrals a second-stage strategy – one that follows your initial round of business development ­and contributes to the long-term growth and health of your business.

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