Many years ago, I read the first couple of chapters from a book by an investment guru — “How Dilberts like you made me rich” or something like that. I must have seen it while I was staying with someone, because, as you might guess, I don’t have a huge store of respect for that kind of book.
But the first chapter, at least, was interesting. The author was talking about his youthful experience as a taxi driver, how he discovered that every other driver’s ideal — the long trip out to the suburbs — was in fact a money-losing proposition. His epiphany was that the real profit in driving a cab came from dropping the meter arm, and the more times he could do that — the more short trips he could make, in other words — the more money he would make.
When I started thinking about moving our compensation for buyer representation to a flat fee, I went through my own sales for last year. I had a great year, as did every agent with a pulse in Phoenix. I sold some very expensive houses — although Cathy landed my ultimate prize when she showed for me one day when I had a class. But I did many less expensive homes, along with some work that I did for no compensation at all. At the end of the year, I netted out to $7,638 a side. Not great, not awful.
But you can look at $7,638 as my gross value “per trip,” in taxicab terms. My belief is that, with the right marketing, engineering and support, I can do at least five times as many trips, and possibly more than that. I believe that one good agent, properly supported, should be able to sell 300 buyers a year, maybe many more. And, incidentally, throw off a lot of listings and referrals.
I did rentals when I was first licensed. I knew I needed experience, and I wanted it fast. New residential agents can starve for months, but I made money in my first week. It was lousy money, but the demand was unlimited, so it was easy to engineer it to be better money. I split my day into six 90-minute appointment slots, and my goal was to work with six parties a day. The best month I ever had, August of 2001, I closed on 30 leases for around $6,000. The money seems absurd by now, but the production was and is much to be desired.
The point of all this is that I think the money is in the meter drop. I want to do a lot of short trips, and I’m willing to pay a premium to well-prepared clients to bring me their business.
Can you say “smart”? Can you say experienced, integrity, strong negotiation skills, family values, sports hero, beauty queen? The question is, what can you say that 30,000 other agents aren’t also saying?
What I’m doing — and I may crash and burn at it — is giving a certain type of buyer an incentive to prefer my taxi to all those others out there. I could be giving up $25,000 that I might have earned on a million-dollar home. But, instead, I could make $5,000 while other agents make nothing, because that buyer came to me and not to them. And, as a bonus, I have a shot at the listing on that buyer’s current $800,000 house.
I like our business the way it is now. We make good money, and I know we’ll make better money year-by-year. But there is no limit to how big I can grow this business if we take a different approach.
This is not about discounting. This is about turning a poor way of marketing a personal service business into a better way of marketing a personal service business…
Technorati Tags: compensation for buyer representation, real estate marketing
Jeff Brown says:
>This is not about discounting. This is about turning a poor way of marketing a personal service business into a better way of marketing a personal service business…
Exactly, and that’s why your chance of succeeding on an impressive scale is huge. You’re not trying to be the Dollar Store.
The key to your success in this approach, in my oh so humble opinion, is 1) the effectiveness of your marketing and 2) how quickly you can locate the fee amount that’s the highest possible but still perceived as a great deal to your client.
Greg, it’s more likely than not you’re going to be the most hated man in Phoenix, and the most loved by your banker. I wish you massive luck.
October 7, 2006 — 10:05 am
Jeff says:
Greg,
I have been following and tagging your posts for the past few weeks regarding proposed Agency reforms and the potential benefit to the early adopters who embrace them. It is some of the best discourse I have read regarding these hotly debated subjects. Coming from the mortgage side, I have always praised the ‘quick nickel over a slow dime’ approach, and it works, very well.
Your opinion is well repected here…looking forward to further posts!
October 7, 2006 — 1:16 pm
Larry Cragun says:
It appears you have been building up to this day with your intensive posts. What was once passion now looks like marketing. They now look self serving.
Perhaps you will break the mold and do a credible job for your clients. I have yet to see it with any flat fee brokers. I give you the benefit of the doubt. Good Luck going forward. Larry Cragun
October 7, 2006 — 2:16 pm
Jonathan Dalton says:
As I said before, I wish you the best of luck … such models clearly work to some degree, as you’re not the only company who does this. We’re looking at working a particular farm area and this concept appears to be used there by others.
The challenge, I believe, is in positioning yourself to not appear as a discounter. From a business standpoint, the taxi meter analogy makes sense … it’s the reason I have worked rentals at all, it’s the reason why I work corporate relocations when the dollars are minimal after splits, referrals, etc.
But at the end of the day, the idea of dropping the meter more often, no matter how it is worded, is the mantra of the discount crowd – quantity, quantity, quantity.
I believe you’ll also provide the quality which is rare for the service model.
October 7, 2006 — 5:22 pm
CJ, Broker in L A, CA says:
I’ve been late to the party all last week. Hope you are still checking comments on this post! Greg, is it just you and Cathy? Or do you have other agents working under your license? If you do have other agents, how would you see this play out commission-split-wise? We are a small office, but we do have a few agents.
And since I’m the gal who writes the checks to pay the lights, water, advertising, receptionist, supplies, etc. etc. I sorta like to see enough income each month to cover all those expenses…..
October 8, 2006 — 9:14 am
Greg Swann says:
> how would you see this play out commission-split-wise?
Right now, it’s just the two of us. In Arizona, you don’t have to have a Policies and Procedures Manual if you’re a self-employed broker or an entity of two or fewer licensees.
But: When we add agents, we’ll be 100% for everyone (we’re 100% now). Maybe a monthly fee, a broker fee per transaction and an E&O deductible. Our E&O underwriter insists on advanced education, so we couldn’t take on trainees if we wanted to — which we don’t.
If we get so busy with this work that we need to add agents, we’ll take a referral fee on any warm leads we generate. At least at first, I’ll be working prospects through to the Buyer-Broker agreement anyway, because I want to make sure we have a happy and lawsuit-free marriage. But if we can give buyer’s agents a slam dunk at, say, $3,750 after everything, I think we’re pretty attractive as a brokerage.
Ask me a year from now and the numbers may all be different. Liniger didn’t know for years why the Re/Max idea wasn’t making any money.
October 8, 2006 — 9:29 am
Jeff Brown says:
>Liniger didn’t know for years why the Re/Max idea wasn’t making any money.
Historically I’d have to move up two levels to be apathetic about whethter Re/Max made money or not. But now I have to know. Why didn’t they make money for years?
October 8, 2006 — 9:39 am
Greg Swann says:
> Historically I’d have to move up two levels to be apathetic about whethter Re/Max made money or not. But now I have to know. Why didn’t they make money for years?
Re/Max was pertpetually broke, always about two weeks away from bankruptcy, even though the franchises were selling like hotcakes, even though the agents were all top producers. Then they sold a bunch of franchises in bulk into Canada. At that time (maybe still), you couldn’t pay 100% in Canada, so the franchisee had to set them up as monthly fee + brokerage fee + E&O PLUS a 5% split. Canada was profitable when nothing in the U.S. was. When Liniger finally figured out it was the 5% split, they rewrote their franchise agreements and Liniger became a billionaire. There are true 100% shops, but Re/Max ain’t it.
Everybody Wins is in the book links to the right.
October 8, 2006 — 10:40 am
John L. Wake says:
“I believe that one good agent, properly supported, should be able to sell 300 buyers a year.”
Greg, that sounds impossible to me! I just can’t see it. For a team, sure, but not for “one good agent, properly supported.”
What am I missing?
October 8, 2006 — 11:26 pm
darin persinger says:
explain to me how you will explain this to a buyer.
agent- “Mr. Buyer, I will help you buy a house and it will only cost you $5000, not 3%.”
Buyer “Huh? Why do I have to pay anything?”
agent “well actually the buyer does. There is already 3% built in for the buyers side to be paid to the agent”
buyer “so what happens to the rest of the money?’
I could do this all night. What’s the presentaion? Does a buyer really know? reall know how their agent gets paid?
October 9, 2006 — 2:05 am
Greg Swann says:
> explain to me how you will explain this to a buyer.
Do it the other way around:
“Mr. Buyer, since we’re talking about a $400,000 home, I would like to rebate as much as $7,000 to you at close of escrow. Would that be to your liking?”
Now I can explain everything. Mr. Buyer is an avid listener.
Plus which: People understand a lot more than you might give them credit for.
October 9, 2006 — 9:32 am
Jeff Alexander says:
Flat fees work, problem is you bring bottom fishing product & clients; which in turn brings in first time home buyers,a phoenix market..better than hawaii.
I worked in a real estate office in NYC, a flat fee to sell foreclosures. The offic sold 100 / I sold 10 on average and made 30k, not bad for a young guy but if you go with this concept, you need to always be hiring new agents, you will have to focus on a very effective advertising campaign. I think their is a company in sacramento high volume store.. I believ WhyPay6.com
google it.. I think you like the model..regards JA
October 13, 2006 — 8:04 pm
Greg Tracy says:
BlueRoof gives the buyer a rebate from the buyer agent commission on every home we sale.
The buyers are always happy about it, and it’s a unique selling point for us, because I don’t know of anyone else who does it, at least in the Salt Lake market.
October 16, 2006 — 5:33 pm
Greg Swann says:
> The buyers are always happy about it
Strong word of mouth referrals? People we’re working with can’t shut up about it.
October 16, 2006 — 8:31 pm
Stephen Downarowicz says:
Greg,
Do you select the post to appear on your blog editing out the unfavorable? (profane or off topic notwithstanding or course)
October 16, 2006 — 11:50 pm
Greg Swann says:
> Do you select the post to appear on your blog editing out the unfavorable? (profane or off topic notwithstanding or course)
I’m not sure I understand the question. We write all the posts, of course. With respect to comments, we won’t cut one unless it is outrageously profane or is identifiable plagiarism.
October 17, 2006 — 6:09 am
Lu Feng says:
Very intelligent analysis, Greg. People like me understood right away that I am actually paying the 3% of my multi-million transaction to my buyer agent for just opening a few doors. Will certainly see the value of your “taxi” and rather give you 0.5%.
But why can’t I squeeze out even more, as a buyer, by bypassing the buyer agent directly, including the flat-fee types like yourself, and ask the listing agent to rebate the entire percent 3% to either myself or (equivalently) the seller? I can always hire a real-estate attorney to do the paperwork at much less cost.
May 4, 2007 — 10:31 pm