I was recently
speaking to a large group of brokers and salespeople and found myself
in a firestorm at the first break.
It all started with
an innocent question. An agent asked me, “What should we pay
a buyer’s assistant?” I proceeded to answer the question and
then added that I think most agents have a tendency to pay
their buyer’s assistants too much because they don't know the
profit numbers in their business.
At the break I had
two buyer’s assistants of a prominent agent in the community
find me and try to “set me straight.” These buyer’s assistants
believed that they brought in so much business to their selling
agent that they had tremendous value. They felt that they were
bringing in business that the agent would have never had. These
buyer’s assistants were receiving 60% and 70% respectively
of the gross commission. This pay structure is more of the
norm than the exception. The truth is their agent was losing
money on every transaction they did. He might be able to walk
on stage and receive a bigger plaque at the award presentations.
But when tax time came around he was poorer for the fact they
were on his team.
The interesting thing
was they never listened to the logical response I gave them.
They were more focused on themselves rather than on the truth
or their bosses’ well-being.
My position on buyer’s
assistants is if the selling agent can’t make a reasonable
profit, why bother? You will need to determine what a reasonable
profit is to you. For me it was a minimum of $1,500.00 profit
per transaction.
Let me take you through
the process I used to determine profit.
First, you need to
know what it will cost you to do a transaction. Take your total
expenses for the calendar year. Then divide your total amount
for expenses by the number of transactions you did. It should
include everything such as car, phone, staff, marketing, and
advertising expenses. To be accurate don’t neglect any of your
expenses. Let’s say it costs you $50,000.00 in expenses for
last year and you did 30 transactions, $50,000.00, 30 = $1,666.00
per transaction.
Second, you need to
understand your value per hour. Take the total commission dollars
earned and divide them by the hours you worked. For example,
you worked ten hours a day, five days per week for fifty weeks.
10 hrs per day x 5 days per week x 50 weeks = 2,500 total hours.
Total commission earned was $120,000.00, 2,500 hours = $48.00
per hour.
Third, you need to
factor in how many hours you have to invest on average to close
a transaction. The actual time you need to invest from the
time the offer is presented and accepted until the transaction
is closed. Multiply the number of hours you invest in a transaction
by your hourly rate and you will arrive at the cost of your
time to close a deal. Example, five hours invested at $48.00
per hours, 5 x $48.00 = $240.00.
Fourth, add your cost
per transaction to your personal hourly labor cost. That will
truly tell you what it costs you to do a deal for a buyer’s
assistant. For our example it was $1,666.00 per transaction
+ $240.00 time cost per transaction = $1,906.00. That is what
it costs you to do a transaction in real estate. What a staggering
number!
This is what those
buyer’s assistants didn't want to look at. They were only looking
at what the gross revenue was that they brought to the table.
It isn't realistic to look at gross revenue since it doesn't
look at the total expenses and costs to close the transaction.
Gross revenue is great for plaques, but unfortunately plaques
don't pay the mortgage.
Here is the truth;
we see many buyer’s assistants getting paid 50-60% of what
they bring in. If you really analyze the numbers, the average
commission check would need to be in excess of $7,000.00 to
make a reasonable profit, in our model, to come close to making
sense for the lead agent. This is because the agent's average
commission check was $4,000.00. He sold $4,000,000.00 worth
of real estate to earn $120,000.00. If that agent had a buyer’s
assistant at a 50% split he would only generate $94.00 of net
profit. Hardly worth taking the risk of entering into a real
estate sales transaction.
Agents need to understand
their business and the specific costs to run them. As business
people we need to turn a profit. We also need to reduce our
egos and look at the profit. Being on the stage receiving production
awards at the end of the year has no value unless we were profitable
in getting there.
Check your pay and
profit structure for your buyer’s assistants. Make sure they
are the profit center that you think they are. You may be surprised
by the results. Make sure that you are the one netting the
most dollars since you are the one taking the risk in your
business.
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