It Costs $$$ to Do Business

By
Real Estate Broker/Owner with 3:16 team REALTY ~ Locally-owned Prosper TX Real Estate Co. #9001154
https://activerain.com/droplet/dt4

Chris Somers wrote on his blog yesterday about Zip Realty eliminating Buyer's Rebates and he questioned about the Rebate business model. Great thoughts there.

Before I share my thoughts on the subject, I thought I'd make this disclosure: I love CAPITALISM. I love that consumers get to choose the type of businesses they want to engage in and various types of business models to support consumers' desires. I love consumers get to change their oil by themselves, or bringing it to Walmart, Kwik Lube or high-end auto dealerships to get the same thing done.

I do not want to go into questioning the "QUALITY" of such companies. I believe if someone wants to be in business, doing what s/he does best and not wanting to charge at all for the service, that's not my issue.

What I want to touch on is that it costs $$$ to do business in the real world.

When I started my business part-time, it costs me no more than $2,000 per year to stay in business. I worked with friends and family with no marketing to speak of. I considered it a great supplemental income to my corporate job, earning typically $20,000-$30,000 extra per year. All I thought of was, "It sure beats having to stand in Walmart checking out items for so many hours per week!"...

Working real estate full-time, and on top of that, being my own broker and own company, I have much more dues and business expenses to pay for.

Here's just a small fraction of where business expenses go to:

  • Errors & Omission insurance
  • Long-term disability insurance
  • Life insurance
  • Marketing for business and promotional items
  • Business expenses to maintain websites, blogs
  • Listing-related expenses
  • Buyer's related expenses
  • Auto expenses
  • Computer-related expenses
  • Office machines & office supplies
  • Phone, Internet, Wireless expenses
  • Dues & subscriptions to maintain license
  • Continuing education costs
  • Referral expenses to other licensees
  • Taxes (this is HUGE!!!)

 

Just a few months ago, a real estate agent from the East Coast referred her client to me. Our agreement was for me to pay her a referral fee. After working with the client for several weeks, the client whose budget is about $500K wanted a 1% rebate, saying that a $5,000 cost will help her offset her closing costs.

In an instant, the business relationship was terminated. The math doesn't work out when I had to pay 1/4 of my check as a referral fee, then 1/3 of my check to the client. In the end, who does all the work? The client was not explained why but I mentioned that it's not in my business policy to rebate.

Math had me calculated that once business expenses and taxes are paid on each dollar, only very little is retained and the better part is that I don't split my check with my broker, because I am the broker.

So for those whose math can work out, or even part-time agents like I once was could work the rebate model, good for them. In a rebate model, more than likely, businesses rely on working more transactions to "make up" for the "loss revenue". When I'm working this business part-time and now full-time, it's a world of a difference on expenses.

It's the same concept of owning a $100,000 house versus owning a $1,000,000 house. It just simply costs more to run a bigger, more expensive household. Hence, a bigger, more expensive business. So consumers, when your business owners tell you they can't sell it to you at that price, they may have very well-deserving reasons to accept or decline the business. It goes far beyond just being greedy.

When you live in a $1,000,000 house, you can't accept a $40,000 per year job. When you live in a $100,000 house, perhaps a $40,000 per year salary is sufficient to make ends meet. It has nothing to do with greediness. The math just doesnt work out.

This is to assume that the agents are of similar capabilities, similar experience levels. And we know that's not true.

 

***************************************************************

This information is provided to you by 3:16 team REALTY with a commitment to support the Frisco TX community.

3:16 team REALTY is a locally-owned Frisco TX real estate brokerage that serves buyers and sellers in and around the Frisco TX areas.

Super-serving Frisco, Plano, Dallas, McKinney, Allen, Little Elm, Prosper & North Dallas area communities.


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It Costs $$$ to Do Business

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Re-Blogged 1 time:

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  1. Cheryl Ritchie 07/06/2011 01:32 AM
Topic:
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Rainmaker
420,686
Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease

Loreena, 

Excellent post.  We do not offer rebates.  It just doesn't make sense for us, as we truly work for our clients best interests!  Typically, when we do this there are "savings" to them.  

For instance in a recent home sale, the owner asked me to discount my rate during negotiations.  I did not, but I DID get him that additional amount in the sale price!  The net to them was the same. 

As well for buyers, I work to get the absolute best price.  It sounds SIMPLE, but truly, nothing in Real Estate is simple today.  

I appreciate that some folks are "trying to save", but I am just not convinced that they truly get the savings.  They might, but they might NOT!

All the best, Michelle

Jul 06, 2011 07:54 AM #57
Rainmaker
484,157
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

I'm proud of you for standing up for yourself here, but there is one area this "math" doesn't quite work out.

You mention this was a $500,000 buyer and that between the referral fee and the rebate, the final paycheck wouldn't cover your cost of doing business. But does this mean that you would turn down a $150,000 buyer (with no referral fee or rebate)? It would result in a similar payday and perhaps even more work since, depending on your market, a $500,000 transaction might be a bit easier than a $150,000 one. But even if that's not the case, your cost of doing business is not significantly different between a $500k buyer and a $150k one.

I'm not trying to argue with you at all - just pointing out that this is one of the places our traditional compensation simply doesn't make sense to the consumer - that we get paid more on higher-priced properties and less on lower-priced ones, even though the cost of doing that business is the same.

Thoughts?

Jul 06, 2011 07:55 AM #59
Rainmaker
541,691
Jeff&Grace Safrin
F.C.Tucker 1st Team Real Estate - Valparaiso, IN
SpousesSellingHousesTM

Too bad it was several weeks later Loreena...In the 1st meeting with clients discussing mutual expectations, agency relationship + consumer handbook, disclosures , etc..we go over commission, disclose referral fees and state our no rebate policy before proceeding forward before any showings (plus they need to be pre-approved for a loan already before we even meet)  - that saves us time (which is the most valuable commodity of all IMHO). Also, in our area (real estate is local) it is more common for buyers to ask for their agent to write in closing costs in the purchase agreement to be paid by sellers ...that request is much more common than asking for rebates from the hard working agent who represents them?

great post

sincerely

grace

Jul 06, 2011 10:16 AM #60
Ambassador
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Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

I agree with you assessment completely, I too work for a small company and we have to spend the same $$ in many areas as the big guys - as you noted. It gets darn expensive for us - and to dwindle the income even further would put us out of business.  Good post Loreena.

Now, because i'm also such a huge fan of Jennifer Allen Hagedorn, i'm going to dissect her comment for a bit and think about her logic.(#59)

Good post, I love it when a blog gets the brain going - especially after a long day in the trenches with many distractions.

Jul 06, 2011 11:34 AM #61
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Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Loreena - This is important information for consumers to understand.  There are a lot of expenses and decisions have to be made as a result.

Jul 06, 2011 12:27 PM #62
Rainmaker
908,388
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Loreena, sometimes it just makes sense to turn the business away. Although I am not a broker, I can't cut commissions, and I don't.

Jul 06, 2011 05:58 PM #63
Rainer
158,808
Adam Mallory
eBroker Real Estate 619-566-ADAM - San Diego, CA
Broker, ABR, e-Pro

Great post Loreena!  Thanks so much for illustrating typical expenses.  Most consumers have no idea the costs we face on a daily/monthly/annual basis.

Jul 06, 2011 08:37 PM #64
Rainmaker
3,237,555
Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Divorce

We pay to go to work....and should be paid when we Do work...good for you...rebate...oh not !

Jul 07, 2011 12:50 AM #65
Rainmaker
243,596
Lina Robertson
RE/MAX Solutions and RE/MAX House of Brokers - Springfield, MO
REALTOR® Serving Springfield, Nixa and Ozark, MO

I'm amazed at how many clients think we earn the full 6% when only representing one side of the transaction.  They have no idea how much money we spend just to stay in business.  My favorite saying is, "I really don't do this for charity.  If I were going to devote myself to charity, it wouldn't be in real estate, it'd be at a women's shelter."  Great blog!

Jul 07, 2011 01:28 AM #66
Rainer
26,100
Christopher W. Earl
Sutton Group - Showplace Realty Ltd. - Chilliwack, BC

No matter what business model you choose, obviously you should only work with people who see the value in what you do.  

Jul 07, 2011 03:02 AM #67
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Loreena and Michael Yeo
3:16 team REALTY ~ Locally-owned Prosper TX Real Estate Co. - Prosper, TX
Real Estate Agents

@JA - I know what you mean. In my specific example - the math doesn't work out when I have to share 1/4 of my check as a referral fee, then 1/3 of that as a rebate leaving me 42% of the balance. The "math" didn't work out when I have to do ALL the work and the everyone else gets a stab at my check. There's where I see the problem. Not the "number" on the check.

Fairness is a big ticket item in my books. That's how I was raised.

If I rebated to one client, then how about the other? Then what about the one who didn't ask?

There's where I draw my line. It isn't about the dollar value, the amount of work that needs to be done - whether I spent 100 hours or 5 hours. It's part of the business. But in my books, the "numbers" have to be right and just.

Jul 07, 2011 03:08 AM #68
Rainmaker
484,157
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

Loreena - thank you SO MUCH for your comment to my comment. And I agree with you 1000% that it's not fair to rebate for one buyer who has the "nerve" to ask you for a rebate, but not for another who doesn't. I'll be blogging about that one very soon - it's another one of my soapboxes...

Jul 07, 2011 03:14 AM #69
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Brenda Mullen
RE/MAX Access - Schertz, TX
Your San Antonio TX Real Estate Agent!!

Loreena-Love your post.  Occassionaly I will help out a client to make a deal work, but I'm not in the practice of "rebating" a client.  I gotta say, the math on that didn't look right to me either and I would have most likely done the same thing. I would have thrown the ball in her court as far as the rebate and let her decide, but ultimately if she wasn't willing to pull off of the rebate, she wouldn't have been my client either. 

Jul 07, 2011 04:13 AM #70
Rainer
85,066
Christine Koch
eXp Realty - San Antonio, TX
Realtor - eXp Realty San Antonio TX

Loreena, when taking a listing I typically show the commission as two numbers, the percent the listing broker gets and the percent the buyers agent gets.  This lets them see right up front that they are not paying a single person the full commission.

Jul 07, 2011 04:29 AM #71
Rainmaker
232,729
Ken Barker Realtor® GRI, E-Pro Certified
Dilbeck Real Estate - Burbank, CA

Loreena - I so agree. I work with some referral services that are so high and clients just don't realize what costs we have. E&O, Broker, admin fees etc....And what bothers me is that the buyers that ask for that are RICH already.

I throw it back to them. Do you discount your services as a doctor or a lawyer or a hedgefund agent? Or, what part of the home is mine since I am giving part of my commission?

Jul 12, 2011 05:29 AM #72
Ambassador
769,886
The Somers Team
The Somers Team at RE/MAX Access - Philadelphia, PA
Real People. Real Dreams. Real Estate.

Loreena - I applaud you for standing up for your business principles.   There may have been ways where this could have worked out such as the referral agent only agreeing to a 10 percent referral perhaps, but then again you would have then agreed to rebate and that would not have been fair to your other buyers.   Am curious though if before terminating, if you simply said no and tried to work it out with the buyer with a no before terminating ?

Jul 13, 2011 12:35 AM #73
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Loreena and Michael Yeo
3:16 team REALTY ~ Locally-owned Prosper TX Real Estate Co. - Prosper, TX
Real Estate Agents

Chris - Great question!!! I never thought about going back to the "referral agent" for less because I gave her my word that a 25% was what I will do.

However, with the buyer - as soon as a buyer starts to whine on and on justifying the rebate, my patience on this really runs short. It was just a flat out No because in the end, that's all she wanted. Not my expertise.

Jul 13, 2011 01:24 AM #74
Rainer
217,273
Andi Grant
310-508-4354 | FirstTimeHomeBuyerRealEstate.com - Los Angeles, CA
Helping 1st time buyers and home sellers in LA!

Interesting post Loreena!  I too wondered if you had any further discussions with the buyer about it.  Sometimes we know when the talks are going tosimply go nowhere based on prior conversations.

I love what Phillip and Ken had to say as well.  The requirement for buyer rebate is they do all of the driving, and I get part ownership of the house perferrably the kitchen where the fridge is. 

Jul 15, 2011 01:17 PM #75
Rainer
58,062
Johanna Roy
Counselor Realty - Minneapolis, MN
The Name Friends Recommend

Hello Loreena,

 

I am in a Homes for Heroes program, don't know if you heard of it, but I will give policemen, firefighters, teachers, military (they are all considered heroes in this program) 25% of my commission and the program gets 5% of my commission. Then give KW my fee as well. Would you do this if you were me? I feel that I am helping out others and in return it will come back to me ten-fold. What goes around comes around. But of course it's always in the back of my mind, on how much work I do for so little in the end.

Aug 13, 2011 03:07 PM #76
Rainmaker
1,079,379
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Loreena, we ran into this a couple of months ago with a woman who was just using us to get a market analysis. Turns out she had already decided she was going to work with an agent all the way across town who would do the listing for 1% less and we were giving a referral fee. Really same situation but with a listing vs. buyer and the dollars were about half, it was a $230,000 listing. We told her we would not lower our commission, so she went with the other guy. We then knew that was her plan all along...It feels good to stick up for your principles.

Sharon

Sep 12, 2011 04:37 PM #77
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