The Cost of Doing Business?

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Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141
https://activerain.com/droplet/4FcK

The Cost of Doing Business?

 

 

     The $20 for that credit report?  The $15 to run automated underwriting?  $400 for an appraisal here & there?  The gas burnt driving buyers around?  At one time or another I've heard each and every one of these things referred to brushed off as "the cost of doing business".  Let's say a loan officer closes 5-6 loans/month with a few of the above costs considered "the cost of doing businesscost of doing business".  That's $2175 in a month, minimum.  Now being a licensed loan originator isn't cheap, but it also sure as heck isn't that expensive.  I've noticed a trend amongst loan officers and real estate agents alike to consider a lot of expenses "the cost of doing business" when in true business terms these things are really business mistakes and nothing more than losses on paper.

 

 

     A funny trend I've seen & have experienced myself is that when a company covers things like printer toner, credit reports, marketing pieces, and appraisals, these things are considered by individual employees as "the cost of doing business", but when those bills fall on the individual completely, they are referred to as "expenses".

 

 

     Let's face it - the real estate industry is a people business.  People don't like to be nickel and dimed, so we tend to avoid charging for small things along the way.  The mistake is made when business people don't consider the fact that those small things add up to some very large bills.  Another mistake is being afraid of discount companies - discount brokers, internet lenders - sure, they're out there serving their niche, but they're not stealing your business because they're saving someone $15-20.  Consumers aren't afraid of paying for things if you show them what they're paying for.  Most people just want to ensure they're getting their money's worth.

 

 

     The cost of doing business is something we should all consider very strongly.  In the past, I used to charge for an initial credit report unless a potential client was a referral from someone I trusted.  Sure, credit reports are only $20, but when you're taking 10 applications/week, that monthly bill can get steep for an individual.  It was also a good gauge to see if someone was serious about the process.  If someone wasn't willing to contribute $20 toward the purchase of a home, what were they going to do when they saw the costs of appraisals, inspections, or surveys?  I don't charge people for credit reports anymore.  I do charge for the big ticket items.  Appraisals, any type of credit repair work, and usually anything that costs more than a minimal amount (in my mind, $50) is being passed along to the people having the work done for them.  Am I stingy?  No.  Am I cheap?  Hardly.  Am I frugal when it comes to my business?  Absolutely.  You should be too if you're serious about your business.

 

 

     Good businesses of all shapes and sizes strive to do 2 basic things to achieve success - minimize losses and maximize profits.  Many businesses struggle to stay above water because they don't manage costs and expenses effectively.  As owner-operators of our own business, we all have the opportunity to analyze our expenses and decide for ourselves what "the cost of doing business" truly is.  Are you content burning through gas to show people 20 homes all over town without buyer agency?  Are you OK risking $400 for an appraisal for someone on the fence?  It's OK if you are, as long as you're considering the big picture, and are smart about the cash you're tossing away. 

 

 

     For the sake of most consumers, though, the "cost of doing business" is a figment of your imagination.  Think of every other industry on the planet, and name 3 where the workers work with no expectation of payment.  Can you do it?  Off the top of my head, I can't.  People are accustomed to paying the people they hire for work.  Why should we be any different?

 

 

What do you consider "the cost of doing business"?

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Rainmaker
1,923,051
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

John - it doesn't pay to nickle and dime things.  Creating value means looking at the big picture.

Jun 16, 2015 10:40 AM #21
Rainmaker
2,394,954
Evelyn Johnston
Friends & Neighbors Real Estate - Elkhart, IN
The People You Know, Like and Trust!

You have to spend money to make money, keeping track and not over spending is the key.  Also making your expenditures pay or dumping them is critical too.

Jun 16, 2015 01:05 PM #22
Rainmaker
164,588
James (Jim) Lawson, DBA
DomainRealty.com LLC - Bonita Springs, FL
Broker Associate, RSPS, BPOR, HI & PE

Interesting post John. Profit optimization is all about maximizing the difference between total revenue and total cost. To do so means both parts need to be managed well. In turn this requires that time and effort have to be managed well to avoid managing one part well at the expense of the other. 

Jun 16, 2015 04:04 PM #23
Rainmaker
2,456,239
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

I remember finding out about closing costs for the first time. Why are all these people charging me to buy a home and what do they have to do with it all? I just thought buyer and seller meet and change funds for paperwork.  LOL

Jun 16, 2015 11:36 PM #24
Rainmaker
834,431
Dan Dee McGinnis The Pumpkin Man
HomeSmart - Phoenix, AZ

John

Great message, it is interesting how people are unaware of costs

in doing business

Jun 17, 2015 04:32 AM #25
Ambassador
2,694,866
Liz and Bill Spear
RE/MAX Elite 513.520.5305 www.LizTour.com - Mason, OH
RE/MAX Elite Warren County OH (Cincinnati/Dayton)

John, So many things taking a bite out of our income if we're not careful.  The ever present "but just one closing will pay for it for years"....and we know how many of those actually turn out to work at all.

Jun 17, 2015 12:38 PM #26
Ambassador
4,300,186
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

John Meussner  very well said..

" Most people just want to ensure they're getting their money's worth."

And yes, there are discounters in every business.

We have to decide what we want to do - make customers happy with that EXTRA or cut EXTRA from our own income...

Jun 18, 2015 01:54 PM #27
Ambassador
2,008,677
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

 John - We do have to look at the cost of doing business, especially since, as you point out, we take so much risk in getting paid.

Jun 18, 2015 04:20 PM #28
Ambassador
2,559,638
Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

I take all my costs seriously ans keep a daily log and post to a spread sheet monthly so the end of year summary is complete enough for both my accountant and the IRS if needed.  Every thing we do has a cost and it can be used against the income at end of year

Jun 18, 2015 11:50 PM #29
Rainer
5,464
Dex Hubbard
Murphy, NC

Some things though they may cut into the bottom line, reap great rewards down the road. I once paid for a clients hotel room through the weekend because there was a hiccup at the court house (deed office randomly closed due to a leak) on a Thursday, and they were closed Friday for Easter weekend. The sellers were not comfortable granting a buyers pocession before closing. A good realtor/ business man knows what it takes to put them over the top and generate good pr.

Jun 19, 2015 01:03 AM #30
Rainmaker
195,659
Jill Moog
Coast & Country Homes and Estates, Inc. - Carlsbad, CA
Carlsbad, CA Homes for Sale

Yes, there are many expenses and costs of doing business in our industry. That is fine as long as we get paid in the end. I mean, I would never expect someone to work for free!

Jun 19, 2015 01:43 AM #31
Rainer
82,770
Jim Miner
Miner Noh & Associates - Phoenix, AZ
Loan Modfication & Short Sale Specialist

When the market crashed, they were called expenses, first, and cost of doing business, second.  Now that the market has been recovering the two are reversed.

Jun 19, 2015 03:45 AM #32
Rainmaker
1,431,210
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I cannot really pass on my itemized cost.  But I am getting more leary of people that are not willing to jump through the hoops to show me they are serious buyers.  

Jun 19, 2015 03:49 AM #33
Rainer
477,739
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

There's a difference between cost of doing business and expenses, yet it depends on your cost of doing business as to what your budget or cost to maintain your business really is, isn't it? Think of it as essential costs (CODB) and discretionary cost (expenses).

I pass through all my expenses to my clients but inform them about any additional expenses to my fees for service during my client profile interview.

I haven't had any issues or concerns about added expenses with any of my clients and if any issue is challenged during my initial client profile interview, that would disqualify them as a client.

Jun 19, 2015 04:46 AM #34
Rainmaker
637,325
Mike McCann - Nebraska Farm Land Broker
Mike McCann - Broker, Mach1 Realty Farmland Broker-Auctioneer Serving Rural Nebraska - Kearney, NE
Farm Land For Sale 308-627-3700 or 800-241-3940

There is alway s a line where the costs become a burden for someone.  I try to work with each individual or company to find a happy solution that all cam agree with.  I try to be as fair as possible in all aspects of the process.

Jun 19, 2015 05:45 AM #35
Rainmaker
1,538,011
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

John - I agree with much of what you say, but not all. 

Business people should expect that there will be some cost to doing business. We all have to have a certain amount of equipment and supplies and we sometimes need to pay for marketing our services. Depending upon the business we may have to buy or rent office space or pay someone to maintain a website. 

Employees don't have those costs, because they're not actually "doing business." They're just working for someone who is. However - they do have some costs of working. 

Depending upon the job, they may have costs of getting to work and costs of keeping their appearance appropriate - clothes, hair cuts, etc.

Speaking just from what I witnessed in 19 years in the real estate business - many agents failed because they weren't willing to bear any of those expenses. They wanted "the office" to pay for everything, so had no equipment at home, did no personal marketing, paid only for required continuing education, etc.

Jun 19, 2015 05:51 AM #36
Rainer
283,971
Ron Aguilar
Continental Mortgage - Saint George, UT
Mortgage & Real Estate Advisor since 1995

Revenue minus expenses equals net income. Running in the Red versus the Black. 

Jun 20, 2015 11:41 PM #37
Rainer
498,283
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear John,

It is interesting, that many auction companies charge extremely high buyer premiums, which often equate to a marketing fee, in addtion to having transfer taxes for the seller paid by the buyer. Unfortunately, many buyers are not able to cover all those fees.

Jun 21, 2015 04:59 AM #38
Rainmaker
978,722
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

I agree with Evelyn  - you have to spend money to make money.  Sometimes it depends on how much, but either way, being in business costs money.  You're spot on - understand the big picture!

Jun 22, 2015 02:15 AM #39
Rainmaker
299,380
Jim Paulson
Progressive Realty (Boise Idaho) www.Progressive-Realty.info - Boise, ID
Owner,Broker

You should spend your hard earned money doing a return on investment type of calculation.  Sometimes we eat fees and costs that belong to our clients in an attempt to keep them as long term customers.  

Jun 22, 2015 03:37 AM #40
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