The 7 Critical Errors some agents make when creating a business plan item Number 2.
•2) Excluding Transaction Costs from your Business Plan - This includes all sorts of costs from "Allowance for Terminated Transactions" to "Deal - Savers". These are the variable costs in a real estate business. The more transactions you do the more money you will spend, your plan should take that into consideration.
In business, and yes real estate is a business, there are two basic types of expenses; variable and fixed. Variable expenses are those expenses that occur as more volume is produced. Example: If it takes $1,000 the market a listing and you only have 3 listings in the year then you will spend $3,000, but if you have 15 listing you will spend $15,000. A variable expense is associated with production, the more you produce the more you spend. This is contrary to fixed expenses such as desk fees, cell phone and farm mailings.
There are two great reasons for understanding your TRANSACTION cost
1) To Get a handle on what you really spend when working with a buyer or listing
2) To understand the WHY part of the money you spend so you can ask the question "What do I get from spending this money?"
ACTION ITEM: In your business plan examine a typical listing and write down all the things you spend money on to get the listing sold. The expenses you write down should only be associated with the listing and not fixed expenses (we will address this in a separate blog). Do the same with buyers. Total these numbers up and this is your DIRECT cost of taking a listing or working with a buyer.
In your business plan when you determine how many transactions you must do to cover your costs than add in the transaction costs and ------------ This calculation becomes a headache ... technology to the rescue ... CreateAPlan http://www.createaplan.com/is a real estate specific business plan that walks you through how to set-up your plan and does all the calculations for you. CreateAPlan has been awarded the Quality Tested Product Seal by CRS.
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