Leverage: A Way To Give Yourself a Raise

By
Education & Training with The Lones Group, Inc.
http://actvra.in/54Fr

The Lones Group, Inc.

Leverage: A Way To Give Yourself a Raise

In my two previous Zebra Reports How Much Money Do You REALLY Make? and What's Your Net?, I talked about how to calculate your gross and net rates of pay per hour. This week's article will show you how to take this information and make good decisions based on this information.

Working smart is about knowing how to leverage your time to make more money. By knowing what you make per hour you make smarter decisions with your time. Knowing your "rate" means you can quickly calculate the risk/reward factor of any possible transaction, working relationship or client.

Let's say you work in the Seattle market. You have determined your net rate of pay is $50 per hour. You have a past client who has determined they want to buy in nearby, but still 45 minutes away, Snohomish county. What should you do? Should you help this past client buyer? Should you refer it out?

Although agents typically determine if they will work with a client in this situation like this on an emotional level, I encourage you to start looking at the math to determine how you should move forward.

When you are determining if you will work with an out-of-area buyer or seller, start by looking at your  travel time, time required to learn about the area, time required to find/meet/build relationships with local vendors and real estate professionals, days spent driving to show properties, and days spent dealing with all that goes with the transaction. It is only when you factor in this time can you determine if it REALLY make sense for you to be doing that transaction.

Imagine this transaction has an estimated net commission of $4,000. If this transaction is in your local area, it might take you 70 hours start to finish (or a net of $57.14 per hour). However, what if the out-of-area time from start to finish was 140 hours (or a net of $28.57 per hour)?

Wouldn't you be better off to refer it out and get a 25% referral (or whatever percentage is the norm in your area)? With the decrease in your rate of pay because of the additional hours, and the business you can't take on in the additional 70 hours that you are expending on this transaction, making only 25% on an outbound referral doesn't seem so bad anymore.

Smart agents are aware of what it truly costs them to work in this business both in time, stress and money. Every transaction has the following costs:

  • Time costs: The amount of time it will take you to complete the transaction from start to finish.

  • Money costs: The actual dollar amount it will cost you to complete the transaction. If you are driving to another county fifteen times to finish a transaction, you might be incurring a few hundred dollars in gas, wear and tear on your vehicle, and the extra Starbucks to get you through.

  • Stress costs: Every transaction you do should have a stress rating….yes a stress rating. Out-of-area transactions will always be more stressful because there is a learning curve and a lack of area knowledge that will cause you stress. Don't overlook this very important part of any transaction. Out-of-area transactions bring more stress because you are working out of your normal area of expertise.

If you have done two prior deals with a past client and each of them had a stress rating of 10 (out of 10). Why would you even consider working with that client again? They money might have been good, but what did it really cost you in terms of time, stress, and energy? What if instead you politely let them know that you are not available but that you do know someone who could help them. Take the 25% referral fee and let the stress of the deal pass you by! Dodge that bullet so to speak.

On every transaction you do you should have a rating system for that transaction so you can learn where your perfect fit is. I like to color code the rating system so I can quickly see if this transaction went smoothly or if there is something I can learn from this transaction. Include this in every file:

TIME COSTS 29 hours from start to close
MONEY COSTS $1150 (client wanted a special video)
STRESS COSTS Very demanding client  Stress rating =  10

In the example above, this particular seller client took 29 hours of my time, which I felt was okay for the type of property we were selling. The costs however were above what I normally spend so I color coded this yellow. The client was a nightmare but I was able to get the property to close, I don't ever want to work with this client again.  The money is not worth the stress I had to endure.

TIME COSTS 89 hours from start to close
MONEY COSTS $150 spent entertaining this client
STRESS COSTS This client was a little stressful but overall not that bad  Stress rating = 5

This Buyer took a lot of time but they were a complete pleasure to work with. I would love to work with this client again. I just need to learn to watch my time better because this client was so much fun I went out for coffee with them too many times.

When you analyze your current hourly rate of pay, projected rate of pay per transaction, as well as your time, money and stress costs, you can make better decisions about the clients and transactions that are the best fit for your business. If something isn't a good fit, refer it out!

Imagine the instant raise you get when you refer a client out. Let's imagine you make the initial call to the agent who is the referral recipient, you keep in touch with the client you referred out just to make sure they are happy, and overall you have spent perhaps two hours on that transaction. Those buyers buy a $500,000 property. The referral fee you receive is $3,750. You just made whopping $1,875 PER HOUR.  Are you kidding? That is ridiculous! That is amazing…it is a brilliant way to leverage your time and energy. That is leverage in action.

 

By Denise Lones CSP, M.I.R.M., CDEI - The founding partner of The Lones Group, Denise Lones, brings over two decades of experience in the real estate industry. With expertise in strategic marketing, business analysis, branding, new home project planning, product development, and agent/broker training, Denise is nationally recognized as the source for all things real estate. With a passion for improvement, Denise has helped thousands of real estate agents, brokers, and managers build their business to unprecedented levels of success, while helping them maintain balance and quality of life.

The Lones Group, Inc.
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Topic:
Real Estate Best Practices
Location:
Washington King County
Tags:
leverage
stress
money
client care
time management
business planning
business management
denise lones
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Show All Comments
Rainer
158,404
Janine Boulay-Seibert
Keller Williams - Andrews, NC
Real Estate Broker

Stress, could we add in hair color? Stress equals gray, sleep disorder, high blood pressure, hum looks clear to me.

May 18, 2017 07:01 PM #1
Rainer
161,361
Greg Mona
RE/MAX Platinum Living - Scottsdale, AZ
YOUR Local Real Estate and Design Resource in AZ!

Good post Denise Lones, and something that I sometimes don't like to think about!  We've all had deals where we make about $5/hour when it is all said and done, but just today I showed a long time client two investment properties (very close to my home office, I might add) and he wants me to write one up. Cash, and a 2 week close.  So if this goes through my hourly rate will be many hundreds of dollars per hour!  I'd like to think it all evens out, but looking at it per your example it would be intriguing to see how a few deals all shake out as an hourly rate from start to finish.

May 18, 2017 07:02 PM #2
Rainer
352,556
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton

Dear Denise,

That is why I do not work in other states, despite them being close distance-wise. The stress of sitting in traffic to get there is just not worth it for me. If I had family in the other state & went there regularly anyhow, it might be a different story.

May 18, 2017 07:40 PM #3
Rainer
329,332
Rose Mary Justice
Elite Realty Group - Dandridge, TN
Elite Realty Group

Doing the Math may give us the answer we need to make the decision of- to go or not to go.

May 18, 2017 08:26 PM #4
Rainmaker
243,718
John Wiley
Jones & Co. Realty - Cape Coral, FL
Lee County, FL Real Estate GRI, SRES,SFR,PSA

Very thought provoking post.

I think in terms of the consumer and what is best for them.

If I am not very up to date on the market for the area in question I know it will involve a lot of my time to bring myself up to speed. I generally think that the consumer benefits if I refer to a good professional in the area.

May 19, 2017 04:28 AM #5
Rainer
176,029
Chris Lima
Atlantic Shores Realty Expertise - Port St Lucie, FL
Local or Global-Allow me to open doors for you.

If you think in terms of the consumer, helping in an unfamiliar area isn't doing anybody any favors. Referral is the right thing to do, IIMHO.
Nicely written post.

May 19, 2017 05:13 AM #6
Ambassador
3,128,615
Jeff Dowler
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

It's certainly a good way to msre closely evaluate what makes sense to do or not do in our business. I can do a much better job in this arena.

May 19, 2017 07:21 AM #7
Rainer
5,245
Marvel "Kay" Peterson
Coldwell Banker Residential Brokerage - Palm Desert, CA
Marvelous Desert Homes

I found myself in this situation and referred my client out to an area that I really had never even been to an hour away. The agent took the task on and spent an entire day with my client.  My client then decided to come back to our town and bought one of the homes I had showed him.  Yes, the agent didn't sell them but what that agent did was give me the confidence to refer to her again and vice versa.  So it's a win win but the win might have to happen  later down the road. Good post Denise!

May 19, 2017 07:38 AM #8
Rainmaker
1,787,638
Sharon Tara
Sharon Tara Transformations - Portsmouth, NH
New Hampshire Home Stager

I bill more money if a consult is out of my travel area to cover that lost time driving.

Excellent tips here and something anyone in business should be considering!

May 19, 2017 09:10 AM #9
Rainer
43,546
Dave Hymes
RE/MAX Gold - Placerville, CA

While the dollars and cents approach certainly makes sense, and I've actually considered it myself in the past. On the other hand...years ago (the bottom of the market) I received a lead, a gentleman was interested in a $50k condo, I would have to pay a 25% referral. Dollars & cents wise this made no sense for me to pursue. After a lot of thought I called, primarily because I just wasn't busy. It turned out this gentleman was an investor and this purchase became the first of many, about $2 million in total plus referrals amounting to another $1 million+. And he became a good friend!

The bottom line I think is, you can't calculate future business in your equations.

May 19, 2017 11:06 AM #10
Rainmaker
376,307
Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Specializing in Brookside, Waldo, Prairie Village

I've never analyzed a transaction this way--figuring up how much time I spent, marketing costs, hourly rate. Interesting!

May 20, 2017 09:51 AM #11
Rainmaker
791,475
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Excellent thoughts on why we should carefully examine our business as to the rate of return for reach.  Smart advice!

May 21, 2017 04:50 PM #12
Rainer
6,535
Julie Trivers
Denver, CO

Great article, thanks!  Question... suggestions for how to go about estimating the time spent on a trasaction?  Obviously I can track time doing showings, closing appointments, etc, but how about the 50 or 500 or ?  times I write a 30 second or 1 minute or 5 minute email... etc. etc. Thoughts?  Thanks!!

May 21, 2017 05:24 PM #13
Rainmaker
80,263
Stavrula "Sam" Crafa, RNC,GRI, CDPE, PSA
Future Home Realty - Seminole, FL
Providing the integrity and service you deserve.

What a great post. Time costs, money costs and stress costs. I'm going to calculate those costs from now on. I've always done money costs but not the other two. 

May 25, 2017 01:05 PM #14
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Denise Lones

CSP, MIRM, CDEI - Real Estate Coaching & Branding
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