We have a reputation problem. The various lawsuits tell a story – the public doesn’t know what we do, doesn’t understand how we get paid, and doesn’t see the importance of the structures we have in place to do business (MLS/NAR).
I have three ideas to help.
Change the aspirational nature of the business by raising the fees
Real estate has always been an aspirational business and its brokerage economics count on it. Look around your office, how many people pay a monthly fee, but sell very little? This makes it too easy (cheap) to stay in the business with little to no production to show for it. That increases the chances the 1 or 2 deals that do get done aren’t done very well.
Now I do believe everyone should have the opportunity to get in and figure it out, and I also believe it’s unpredictable as to who is going to succeed and who will not. Therefore the aperture to get into the business should remain wide. But then the bar to stay in the business should be dramatically raised so people don’t linger, year after year, without productive operations. This is bad for our industry, and bad for them. Stringing agents along and saying, “hey, you’re a late bloomer. Maybe in year 5, you’ll make it work!” Isn’t good for anyone.
The solution: raise the fees to force a real conversation about the viability of the business.
Business goals have to be higher than lifestyle requirements
Most agents get into the business with lifestyle goals and most satisfy them at about $200K a year. The problem is people think in terms of cash to themselves to satisfy lifestyle goals and set their horizons there. But some quick math shows you that to net $200K after business expenses and taxes, you’ll need to gross a lot closer to $700K. The reality then is most agents need to grow their business 2-3 times the size of their current plan just to meet their lifestyle goals.
In my experience both as a realtor and at Alchemy, agents hit painful ceilings in their business and operating skill set at $200K in gross revenue, making the climb to $700K a struggle. The result is an unhappy agent who inevitably provides inconsistent service to their clients as they burn out.
The solution: set bigger goals in shorter time frames so we don’t get stuck and burn out making too little money to leverage properly to maintain great service to our clients.
We must run our businesses as businesses, not lifestyle brands
Being good at what you do and articulating it are two very different skill sets. This is clear based on the fact the public thinks we pocket the full commission and go on a cruise with our family. This is our fault.
The truth is most agents can’t explain how $100 into their business in gross commission flows through to the bottom line. Most agents cannot say what percentage of their gross is spent on servicing their listings or spent in business development, or education. Most agents cannot tell you today what their profit margin is and how that compares to their budget.
We’ve gone too long being very unserious about our business and focused too much on ego and lifestyle objectives, to our reputation’s detriment.
Do you think your potential client can’t tell who is running a business based on financials and who is winging it or only performative? You bet they can. It’s no longer acceptable not to have business skills commensurate with your sales skills. Your financial goals have always demanded it, and now your clients do too.
The solution: for starters, you need a P&L for your business, (which is distinctly different than a P&L for tax purposes only, btw) and you need to know how to read it and articulate the dynamics within it. From there you need to perform other business functions such as planning and budgeting and much more.
You don’t have to do this alone, or all at once, but you cannot ignore these important business functions, assuming you can just sell another house and it will all work itself out. If the last couple of years have taught us anything it’s that those days are over and it’s time we step up to meet the challenges of tomorrow. Do that and your future will be bright.