If you are working as an agent or a broker in today’s property market you will understand that there are plenty of costs to manage and control. At the outset of your career or at the beginning of a new brokerage lifecycle, it is important to manage those costs realistically and directly. Expenses can easily outweigh income so care is required in the times of growing your business.
A budget is required and that budget should be based on established market related costs; seek out the industry averages that apply to running a real estate business in your location.
The Main Expenditure Categories
Here are some tips for managing some of the bigger expenditure issues in a commercial real estate business today:
- Marketing – You will have the costs of marketing listings for sale or for lease. Don’t make the mistake of paying for that marketing through the brokerage. Any quality listing should be captured exclusively, and the listing should be supported by vendor paid marketing funds. To achieve a positive outcome in that way, it is necessary for every agent in the brokerage to be skilled in the processes of property presentation, marketing packages, and strategic listing. Every agent should be prepared to ask for the required marketing funds for the listing and support that process through a strategic marketing campaign. Get away from generic marketing; it doesn’t work.
- Exclusive Listings – Avoid open listings unless you really have no listing stock to work with; in open listings you have little control on the property, the client, and the negotiation. The exclusive listing process is the only way to drive market share and better client services.
- Administrative Staff – Who will support the sales team in the administration sense, how will that be paid for, and how will that be done? Every property listing today will involve a degree of administrative activity related to marketing, signboards, listing documentation, and property paperwork. A contract or lease doesn’t just happen without a good degree of background administrative processing. Most salespeople are not very good at the administrative process given that they are salespeople first and foremost and not office administrators. In saying that, it is also worth remembering that documentation inaccurately prepared or processed can frustrate the property transaction or commission claim at a later time. So how will you support and pay for administrative duties within the brokerage? How many backup people do you need for the sales team and how will they be paid? Successful brokers and agents today will usually have one or two people within their support team to back them up with the required paperwork. When you have plenty of inbound commissions coming in from transactions that cost of support is not normally a problem. It can however be a big issue when a brokerage is starting up or a new agent enters the industry. Keep your costs under control from the very start of brokerage operations.
- Commissions – Understand the commission ratios that apply to the typical sale or lease transaction, the size of deals being processed in your town or city, and the skill mix or market share of the other local agents. As agents begin to grow market share and commission frequency, the commission ratios will rise within an established and agreed formula. Do your research through your local area to understand the standards and the averages that apply in your market segment. The brokerage administrative fees will be background costs as will rents for the office, electricity, car parking, and office marketing material.
- Franchise fees – If you are part of a franchise business structure, question the cost of the process and the support provided to the brokerage; where possible compare the services of different franchise groups so you know what is on offer and where the best value is. Most franchise business structures should provide discounts across advertising, industry branding, training, and office materials. Similar rules apply when it comes to any real estate business that is based on membership of an organisation. They call those organisations marketing groups and the members of the group will share similar branding and marketing initiatives, thereby giving the impression of a corporate structure to the public. Both franchise groups and marketing groups apply fees to the process of membership. Typically the fees for a broker’s membership of a franchise group will be larger than the fees applied to the membership of a marketing group. The fees for a real estate franchise group are usually in the range of 8% to 12% of gross income, whereas the fees for a membership type group are typically a fixed fee per month (averages are $3,000 to $5,000 per calendar month). The underlying question is always whether the brokerage or agency is getting what they are paying for.
- Communications and Technology – Every agent will require a modern and reliable mobile telephone system, but also a desktop computer, mobile internet access with plenty of bandwidth, tablet computer or small laptop to use out of the office, and a digital camera with high megapixels capability. Ideally an agent should be able to access their database at any time, make calls, and get online to handle emails professionally and directly. Cloud based storage is useful in many different ways to store important documents and client related files.
- Fuel – Our industry is based around meeting people and growing relationships for the long term. That means you will be out and about in your territory meeting new people and finding listings. Ideally it is better to have a fuel efficient motor vehicle than one that takes too much petrol to keep on the road. You have choices when it comes to finding a new motor vehicle so consider the mileage to be covered each week and how that will impact your operational costs.
Manage your costs as you build your real estate business and listing bank of quality properties. When the commissions start to grow, the financial pressure will shift and change so refine your budget accordingly.