How to Budget Real Estate Commissions for 2014

Sometimes in commercial real estate brokerage it is easy to think that we can market, negotiate, and close on just about any sales or leasing listing that comes our way.  As an extension of that we can attempt to cover a far broader property area than we should.

Specialisation in our industry is really important if you want to build market share.  Don’t try to do too much or cover the entire city or town.  Pick your segment of the market and then drill down to specialise.

As we enter the next calendar year it is a good time to look at what we are doing now and how we can refine that for better results.  Understand exactly what you are good at and then drill down into it.

Here is a prime example that could apply to your real estate business plan and budget:

  • What is your territory?  Define it in geographic terms.  Set road boundaries and suburbs of focus.  Look at the numbers of listings and deals that have come out of that area over the last 12 months.
  • If you are good at selling and leasing particular size industrial properties, then define that in size and location.  Understand the niche that works for you by property size and type.  If you can relate to (and show success in) selling and leasing warehouses of up to 1,000 m2 (10,000 ft2), then set up next year’s budget around that fact.
  • How much in gross commission do you want to earn next year?  Is it $200,000, $400,000, or perhaps $600,000?  Perhaps it is more; some top agents bring in $1m to $2m in gross fees.
  • How many of these niche property deals will you need to reach the commission targets that you have set?  Break that commission number down into the average deal size of projected leasing and sales transactions.
  • Is your market a sales market next year, or should you average your fees across leasing and sales?  What will be the ratio?
  • When you know your targeted commissions, it is really easy to look at your average deal size and bring it back to closed transactions.
  • Consider also how many exclusive listings you can close on (it should be better than 50%)
  • How many exclusive and open listings do you need to write to make all of this work for you?
  • What prospecting will be required to capture those listings?

These important questions will help you greatly in setting and achieving your business targets for the coming year.  When the numbers are realistically set you can start the year prospecting so you can get ahead of your competitors.  Good luck!

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