Coaches Corner Newsletter - Issue #942
 
July 19th, 2019
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Words of a Champion...

Most Agents begin their real estate career with the hope of gaining financial independence.  They are attracted by the possibility of earning large sums of money.  Even when Agents make more than a six-figure income, the vast majority have not dramatically improved their financial balance sheet.  After looking at hundreds of agents’ profit and loss statements and personal spending habits, I’ve determined that real estate agents are poorly prepared for financial independence.  Why should real estate agents be any different from the American population in general? 

According to the Social Security Administration, statistics indicate that, out of a randomly selected one thousand people from age twenty-five to age sixty-five:

  • 190 would have died – 19%
  • 150 would have incomes over $30,000 – 15%
  • 660 would have incomes less than $30,000 – 66%

Let’s look at these numbers.  There are more people who have deceased than are earning something even close to a decent quality of life.  Of the people still alive, 66% exist on less than $30,000 per year.  My question is which group do you want to be in?  Which group are you heading for based on your financial plan, investment choices, and savings plan?  These are the top three reasons people fail in their finances:

  • They never create a financial plan.
  • They make poor investment choices.
  • They put off starting a savings plan.

In this week’s Coaches Corner, let me share with you a few simple rules that will ensure that you don’t join the 66% group!

To Your Success,

Dirk Zeller

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Establishing Awesome Service
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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:

  1. Control service encounters by using your own people to conduct transactions. Direct and drive as much business as possible to the best providers. Work hard to convince the client to use people on your team when securing a mortgage or closing the deal. Some might call this “steering”, but I view it as taking care of your clients.

  2. Make sure that your client works with Lenders who know their stuff and are responsive. Be aware that the Lender triggers the chokepoint in most transactions. Take time to counsel your client toward a resource you know will perform.

  3. Have a plan for recovering from service disasters if necessary. If your client is reasonable, no situation is too far-gone to salvage. In fact, handle the problem well and you’re apt to turn a disgruntled client into one of your most vocal supporters. Take 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.

      1. Will doing offering cash really turn this client into a raving fan?
      2. Is there another way to turn this client into a raving fan?
      3. 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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Four Rules for Your Financial Future
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Most Agents begin their real estate career with the hope of gaining financial independence.  They are attracted by the possibility of earning large sums of money.  Even when Agents make more than a six-figure income, the vast majority have not dramatically improved their financial balance sheet.  After looking at hundreds of agents’ profit and loss statements and personal spending habits, I’ve determined that real estate agents are poorly prepared for financial independence.  Why should real estate agents be any different from the American population in general? 

According to the Social Security Administration, statistics indicate that, out of a randomly selected one thousand people from age twenty-five to age sixty-five:

  • 190 would have died – 19%
  • 150 would have incomes over $30,000 – 15%
  • 660 would have incomes less than $30,000 – 66%

Let’s look at these numbers.  There are more people who have deceased than are earning something even close to a decent quality of life.  Of the people still alive, 66% exist on less than $30,000 per year.  My question is which group do you want to be in?  Which group are you heading for based on your financial plan, investment choices, and savings plan?  These are the top three reasons people fail in their finances:

  • They never create a financial plan.
  • They make poor investment choices.
  • They put off starting a savings plan.

Let me share with you a few simple rules that will ensure that you don’t join the 66% group.  I have used these rules with hundreds of agents to transform their financial picture in a short period of time. 

Rule #1 – Track your expenses, both business and personal

You must know where your money is going.  Separate your business expenses from your personal expenses.  Establish a business checking account and pay all business bills through it.  Too many agents co-mingle their business commission checks and business bills with personal and household expenses.  It is more difficult to control your money when you can’t track it.  Enter all of your expenses and revenue in an accounting software program.  I think the easiest is Quicken.  Quicken will allow you to accurately track your costs to run the business, then you can run a monthly profit and loss statement to see where you are spending your money.  The money you earn in real estate can come in bunches.  It can become very easy to spend that large commission check that’s burning a hole in your pocket.

When we have money, a want looks like a need because we have the ability to buy it.  We begin to rationalize our wants into needs.  For most of us, a want is something that our neighbor already owns, so it becomes a need.

Rule #2 – Adjust your lifestyle

Spending less than you earn makes up 90% of financial planning.  The premise involves saving money and making sacrifices.  The ability to pay now, in the form of adjusting your lifestyle and saving the difference, will allow you to play later.  To play later, you will need more than $30,000 per year.  Thomas Stanley, who wrote the book The Millionaire Next Door, summed up how the vast majority accumulated their millions:  “They lived well below their means.”  Living beyond our means is a national epidemic.  Consumer credit card debt in the United States is in excess of $528 billion.  Roughly two-thirds of Americans who have credit cards do not pay off their monthly balance.  We are clearly living beyond our means.  Take a close look at your monthly obligations and evaluate where you are spending your money. 

Rule #3 – Aggressively reduce your debt

There is an old Proverb that speaks of a borrower being a servant to the lender.  The weight and pressure of debt can be crippling.  I have seen this happen to Agents for years.  I have even seen it manifested in my own life.  I have not always made the wisest choices with my money.  Fortunately, I have made wiser choices than foolish ones. 

If you have credit card debts, make a decision to pay them off.  Start with the highest interest rate credit card first.  Decide on a monthly amount that you can commit to start reducing your debt.  If you stretch, you will be able to find a few hundred dollars per month to pay towards your debt.  Most credit card companies require you to pay 2% of the balance owed monthly.  Let’s look at that practice.  Let’s say you have a debt of $2,705 with an interest rate of 18.38%.  Your 2% toward the outstanding balance would take you twenty-seven years and two months to pay off.  You would pay $11,047 of total interest.  How do you feel about eating out more often now?  If you increased your payment to 8% or to $216.40 per month, it would take two years and one month to pay it off.  You would pay $94.00 in interest.  You need to accelerate your payments to reduce your debt.  You must adopt a cash mentality.  This cash mentality will allow you to charge only what you have funds to pay for. 

Rule #4 – Create a savings plan now

The biggest enemy in financial planning is procrastination.  People wait too long to start saving.  The truth is becoming a millionaire is not very difficult.  The power of compounding interest will take care of your needs.  According to Investors Business Daily, a twenty-year-old person only needs to invest $1,014 per year, or $2.78 per day, with an annual return of 11% to have $1 million saved by the age of sixty-five.  Look at the daily number of $2.78.  Who couldn’t save that amount per day, even at the age of twenty?  Even someone working for minimum wage could do that with ease.  My mentor, Jim Rohn, used to say, “What is easy to do is also easy not to do”.  It’s easy to save the $2.78, but it’s also easy to buy a latte every day at Starbucks instead of saving.  That’s all we are talking about here – choosing financial independence planning rather than the latte. 

We need to create a system to automatically remove the money when we receive it.  We need to transform ourselves into savers.  Savers pay themselves first.  It’s amazing how little you miss money that never comes into your possession.  We are not a nation of savers, although we really need to be.  On average, Americans save less than 5% of their disposable income. 

The secret to saving is writing the check to savings first.  Do it before paying other bills and obligations.  Savings is a habit to be forged.  Here is the formula I used on each of my commission checks for many years:

20%    went to a tax account
10%    went to a retirement savings account
10%    went to a business savings account

These percentages ensured that my taxes were always current and my retirement account was always fully funded.  There were also reserves for an investment opportunity or slow closing month.  The more you make your money disappear into protected accounts, the more you will have for later.

 
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Six Rules for Fee Counseling
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Champion Agents have a structure or set of rules they follow when discussing their fees for service.  I will share with you my rules to follow.

1. Never over the phone

We often get asked what we charge in commission on the phone.  You will automatically lose if you give them an answer to this question that remotely resembles a number or percentage of sales price.

When you call a car dealership, they will never give you a price on a car over the phone.  The reason is you can't buy a car over the phone.  In most areas, you won't secure a listing over the phone, either.  You will need a face-to-face appointment to get the contract signed.  Your timing is off if you discuss services or costs of your service over the phone.  You can discuss the value your clients receive.

If you give the prospect a number or percentage, they can use it against you in the future.  They may cross you off immediately as a possible service provider based on fee, not value, or they could use your number to shop others to secure an even lower commission rate.  You lose every time . . . guaranteed. 

The best response to that question over the phone is "it depends".  The response "it depends" doesn't commit you to either a full fee or discounted fee.  It doesn't cross you off the possible listing agent list.  You will need to explain to them what it depends on.

It depends on:

  1. The competitiveness of the marketplace segment they are in.  You want reasonable odds of earning a fee.  A listing in a highly competitive market segment might demand more of your time, energy, and dollars to create a sale.

  2. The price they want for the home.  If they want to overprice and under commission the home, again, your odds of earning any fee get pretty long.

  3. Their expectation of service.  What does the seller expect from you in terms of marketing, communication, time invested, and results?  They may want extensive advertising and marketing, even though they are searching for a reduced fee arrangement.  Maybe they desire and expect multiple open houses per month conducted by you personally.  Their expectation, in terms of sales price and days on the market, could be outlandish based on the current and emerging market trends.

  4. Your anticipated return on investment of your resources.  You invest resources to create every sale.  What is your estimate of time, energy, dollars, and emotion against the projected return?  It's hard to evaluate that without interviewing the seller, evaluating the competition and market trends, and understanding the condition of the property.

  5. The condition of the property.  The property condition can influence the days on the market, eventual sales price, and whether or not the home actually sells.  Even a Champion Agent can't make a prudent decision in most cases without evaluating the condition of the property.

I have listed for you six key factors that relate to the probability of the sale of a home, effort involved on your part, and the eventual ROI or return on investment for your professional service.  "It depends" is the correct over the phone response because you don't know all of these factors through initial phone conversation with a prospect.

2. Never discuss commission before you have fully explained your services

Often, the commission discussion will be moved to the front of the listing presentation by the seller.  They want to know what you will be charging them.  The problem is that they have no idea, at this juncture, how to compare your services to what another agent was offering or even how your services compare with their expectations.  They haven't been told by you that, based on the marketplace, here are the services they must have to achieve what they desire in a sale.

A Champion Agent doesn't allow a seller to move the commission discussion in front of explaining their services and demonstrating value.

3. Always demonstrate your value and benefits before discussion fee structure

We must clearly explain the benefits of doing business with us.  Being able to quantify the value of your services in dollars or percentage of sales price can help quantify the value you bring to the table.  When price is the question, value is the answer.

Let's go back to our equation Value = Benefits – Cost.  Without first raising the level of benefits before you discuss price, you run the risk of them being so fixated on the cost of the service that they hear nothing about the value.  Our job is to increase the value and benefits to such a level that the cost of our service is inconsequential.

4. Never show desperation

You could have zero listings and zero buyers currently.  You could be down to your last $100 in your checking account, and your house and car payment are due.  The minute they sense you are desperate, only two things will happen and both are bad.

They go for the jugular.  They sense your need to take the listing at any commission because you are out of inventory.  They intensify their focus to grind you on the commission, costing you even more money.

The second thing that could happen is they decide you are desperate and decide that it's not in their best interest to be represented by a desperate agent, even if that agent is willing to take any commission level.

5. Always show the mutual fairness and the risk you assume

You must get them to understand that you are being fair with them; that you don't get all the commission because the co-op agents receive about 50%; that the Broker receives another _____%; that your expenses to run your business are at the _____% level; that you are self-employed and pay _____% in self-employment tax; that you pay another _____% in federal and _____% in state taxes; that the check goes through a lot of hands before you actually receive the money to pay yourself and your bills.

You must tell them that you are assuming all of the risk of expenses to market, advertise, and promote their property to consumers and agents; that you might entertain a fee change provided they write you a check for a $5,000 non-refundable retainer with the money released to you in the next 24 hours.  For you to assume all of the risk, as most agents do, while lowering your fee really exposes you to a greater risk, rather than a lesser level of risk.

6. Always highlight your key points

  1. Market position, market competitiveness, market differentiation.  You can easily do these by driving home the Big 3:

    1. Average list price to sales price
    2. Average days on the market
    3. Average listings sold versus listings taken

    These statistics are the stats of Champion Agents.  They use them to create competitive differences between their services and the results of other agents.

  2. Full service, what they receive, and their advantages.  By clearly conveying the advantages, benefits, and how the odds swing in their favor by working with you, Champion Agents effectively link the answers of why someone should hire them with the benefits and advantages of their service, philosophy, and results.

  3. You can't get me with a discount rate.  It fundamentally matters who you select to represent your interests.

    Through strong conviction, you more skillfully get them to realize that you will not discount; that you have strong beliefs in your value and service; that an agent who won't fight for their own income and value will be hard-pressed to fight for their sales price and sales equity.  It really matters who you select to represent your interests in the largest investment that most people possess.

    A Champion Agent has the ability to balance all of these factors to be able to convince the prospects of their value to secure clients who are willing to pay them what they are worth.

 
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