Risk/Reward ratio when selling Real Estate

Real Estate Agent with LocateHomes.com

This is the last of three posts I'm writing today inspired by Brian Larson  http://activerain.com/blogsview/279189/The-Uninteresting-Tale-of



Ive been bugged for a long time by agents that complain about the money they have lost and the time they have wasted when a transaction that seemed to be moving forward smoothly to a closing is lost. In  recent post here on Active Rain one agent said (I assume tongue in cheek) that she sent a bill to the guy that didn't show up for an appointment after she had invested 5 hours preparing.   The fact is that unless we are super salesmen most of the folks we work with don't buy. But does that mean we have lost money or wasted time?   I don't think so.  As Brian Larson said in his post we need an understanding of how co-op commissions work.

MLS compensation: Most (though by no means all) brokers get paid on a commission, often a percentage of the gross selling price, paid only when a transaction closes. The listing broker puts the listing into the MLS, offering a coop compensation (often between 2.1% and 3.0% of the gross selling price in our market - let's assume it was 2.7% on this listing). The cooperating broker earns that commission by being the procuring cause of a sale. Even though the cooperating broker may be the buyer's agent (under Minn. license law), he receives the lion's share and usually all of his compensation from the listing broker. (This is a quirk of history dating back to times when sub-agency was the common form of relationship between listing and selling broker.)

Note also that the price structure of the traditional commission factors in Steve's risks. In other words, if he works with a buyer from scratch, he is betting his efforts showing the buyer around will pay off in a coop commission. But he may get nothing if the buyer declines to buy. Presumably, he receives enough on the transactions that DO close to cover his time on ones that never come to fruition. Brokers can address this issue in other ways (with different fee structures, etc.) but doing so swims upstream against the prevailing MLS compensation approach, where the listing broker appears to pick up the tab.


I know we all know this stuff but I think we forget the fact that we get paid enough on the transactions that close to compensate us for the time and money we have spent on the ones that don't or to put in another way the money we make is enough to compensate us for risk we take......Or at least it should be.


The question for today is, what can we do to increase the reward or minimize the risk

I suggest a good place to start is to 1) prequalify, and not the kind of prequalification that's no better than a note from your mother 2) question your buyer on what they need and want in a home 3) know your market. If that means previewing every new listing ...do it. Know what has sold and for how much. Know the best deals in your market and show them...not the dogs 3) know your clients motivation and time frame. If they are the classic: "When we see the right home we'll know it, we have plenty of time" Don't waste your time 4) Develop triage systems ie  spend your time working with the 20% of  your leads that will result in 80% of your business

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