“20 Minutes of Successful Niche Secrets – EPISODE 53”,
Calculating how much it really costs you to sell a home (the results will shock you)
“20 Minutes of Successful Niche Secrets – EPISODE 53,”
Calculating how much it really costs you to sell a home (the results will shock you)
Glenn: Hi! It’s Glenn McQueenie, and welcome to my 25-Minute Success Series Podcast. This one is really a follow-up to the earlier podcast when I talked about breaking down your hourly time and the hours you spend on each part of the real estate transaction and then explaining that to buyers in a really big way, so that they see that the value they’re getting for really the money that they’re not paying, but that you’re receiving, is really nothing. So the more that we can “big up” what we do with what we actually do, the better off we’re going to be, because buyers are going to go, “Oh my gosh. There is actually a hard cost to this.”
So in this podcast, I’m going to be talking on the other side – the listing side. And that’s about breaking down each step you do when you list a home, breaking it down to time, putting a dollar value (an hourly amount) next to it, and then summarizing that and presenting it to your sellers. I think a lot of sellers just kind of believe that their house will sell itself, that it doesn’t matter which agent they get, that if the agent put a sign on the lawn, put it on MLS, that the market will clear because of how efficient our system is. And I wish that was true. I think that’s our big challenge in our industry – inside our industry, we know who you list your property with could be a 2%, 5%, 10% swing on what you net. I’ve seen lots of people list with the wrong agent and really give their house away, or not get the full market value. And I know this is why sellers will interview four or five agents, and then they usually pick the agent who’s going to do it for the cheapest price, because they believe that “My house is worth ‘x.’” So it’s only rational for them to follow if it’s x-6% commission – x-3.5% commission. “I’m going to gain the extra 2.5%” – and it’s just simply not true. You know it. I know it. But we’re terrible at actually explaining that to our sellers, because we all show up and tell them that we’re basically all going to do about the same thing. I don’t think anyone’s really broken it down the way I’m going to break it down for you today, where you can actually build that value and get more full commissions and stop taking listings or giving your services away for free.
So let’s just work through the hourly breakdown and the different steps that are required to actually get a house sold. I think you can find this online. It’s called “The Real Estate Transaction in 180 Steps: What Your Realtor Does for You.” If you just Google “180 Steps Real Estate Transaction,” I found this at, I believe it was the Orlando Regional Realtors Association. I think they just do a great job in actually breaking down and really listing that there are 180 typical actions, research steps, procedures, processes, stages that a full-service realtor can do – anywhere from the pre-listing activities to the listing appointment presentation to once the property’s under contract to even getting it all onto MLS, doing all the marketing, getting all your feature sheets done, from when the offer comes in and what happens to following up and making sure it closes to receiving home inspection reports, appraisal reports, getting ready for closing, and following up after closing.
So those are the big steps (and I’m going to be just pricing the big steps right now), but know that there are actually 180 steps that are required just to get a house from when you meet that person to closing (to where the sellers get paid the money). So let’s start with the half hour phone call. You get referred to a seller or you meet a seller, and you’re going to have the pre-listing presentation. And sometimes, either at the door or on the phone, you’re going to have almost the pre-conversation before the appointment, and I think that can easily take anywhere from 20 minutes to an hour. But let’s just use 30 minutes, and we’re going to price this at $250 an hour. And again, the reason I picked $250 an hour (you can change these numbers depending on your marketplace), but remember: $250 is the gross fee that you’re charging; it’s not the net that actually comes to you. Many realtors are running anywhere from 30-60% expenses, so their true net cost back down to them is maybe $125 or $150 or $175 an hour. If you’re in a marketplace where prices are lower, maybe you’re going to use $100 an hour. But if that’s your gross number, and you’re giving up $40 or $50 an hour just in your expenses (which is your splits with your Brokers and your marketing costs and phone and car and all the different costs that we have in real estate), then you’ll see, you’re going to get down to $40 or $50 an hour pretty quickly. If you’re working 2,000 hours, that’s only $80,000 – $100,000 a year. But you can’t charge $50 an hour, because after your expenses you’d be way down. So we’re using almost between what a dentist charges per hour (which I think is about $200 to get your teeth cleaned), and what the base, new lawyer makes, which is probably $300, $350-$400 an hour or $500. So we’re just going to use $250 for this exercise.
So the pre-listing’s the 30-minute call, and that’s $125. Then we have to do the prep work to actually go on the listing appointment. You don’t just print off the CMA and run to an appointment. Usually you have to do all the research on the computer. You have to print out and look at all the comparable sales. You have to adjust the comparable sales. A lot of people get in their car and drive around and look at all the comparable sales and the comparable listings, and they look at the expires. And that can easily be four hours’ worth of work, so that would be $1,000 of your time. Then the actual listing presentation is probably going to be an hour to three hours, depending. I’m going to use two and a half because of the travel time to get there. You’re going to do your presentation, travel time to get back. So that’s another $625. Then we have probably about 10 hours of prep from when we actually get it listed to meeting the stagers, doing room by room reviews, helping people move furniture, get stuff out. We’ve got to get our marketing done. Then we have to get our feature sheets done. We have to get Facebook targeted ads. Whatever it is, I think it’s easily 10 hours of your time just to get that done. So that’s $2,500. And then what happens if you have to go run back and meet a stager, or even pay a staging consultation? That’s usually $250. Then as we get it up to more market-ready, now we have to go back and do the final walk-throughs, the final touches. We’re doing the final updates, we’re reviewing the CMA, we’re seeing if any other listings have come out, looking at our competition. That’s easily, I think, another 10 hours of your time. That’s $2,500. If you’re going to be doing some pre-marketing, which is door to door, inviting people to the Open House, or if you’re going to do a “Sneak Peek” Open House, and actually doing the Open House – I mean, if you just do two in a week, most people will say it’s 2-4, but a lot of them are doing probably 1-4 or 2-5 – so that’s three hours per day. Plus you had to set up. Plus you had to take down. So I think you could easily be at another 10 hours there, just on your Open House time. So there’s another $2,500. We have to respond to all of the inquiries, whether it be buyers calling you, other agents calling you, keeping everyone up to date, following up with people. That’s easily another 10 hours. That’s $2,500. When you have an offer date, then you almost are going to spend sometimes half of the day, sometimes all of the day, responding to agents, trying to get other agents to bring in offers, all that stuff. Let’s just say that’s five hours. That’s $1,250. Then actually doing the offer is going to be anywhere from two to 10 hours, depending on how many different offers there are. Maybe it’s three. Maybe it’s four. Maybe it’s five – but there’s going to be at least, I’m going to say, five hours’ worth of time in there. That’s $1,250 – and that’s if we get it sold on the first day. Then we’ve got another two hours of just post-offer follow-up. We’ve got to again call back all the other agents, tell them they didn’t get it. Then we have to make sure, whoever we accepted, that they’re reported to our office. We have to get that, make sure we get the cheque in on time. We’ve got to follow-up with the other agent, answer any of their questions, send it over to lawyers, get mortgages. Whatever it is, that’s another two hours at $500. And then from there, until closing, I think it’s easily another 10 hours of follow-up, or you’ve got to go and show up to be there for the pre-closing inspections. If problems come up that you’ve got to solve (if there’s any problems with the home inspection) I think it’s easily another 10 hours, and that’s $2,500.
So when I add all of this up – and I think I’m being pretty liberal with the time here – we get to about 72 hours of your time at $250 an hour, which is $18,000. Yeah. $18,000 is the cost of your time for every single listing you take. Now, is it going to be different if you’ve got more of a team and you’re going to be leveraging off listing assistants and all those different things? Yeah. But your costs are still the same, because you’ve got to pay those people. Maybe you’re not doing it – you’re leveraging off their time. But you’re still going to have some fixed costs of running it. I think the fixed costs of just even having any listing, just to keep it every month is probably $1,500 to $2,000, just because it costs time and money for you to keep it going.
So if you’re in a marketplace where your average sale price is $400,000, your average commission is $10,000. When you look at these numbers, you go, “Wow. I’m losing money on every single listing I take.” And I don’t know if that’s exactly true, because you might be down more at the $100 an hour activity, so now it’s $7,200. But still, at $100, 72 hours, $7,200 – it doesn’t leave a lot of margin for you, because you still have to pay splits and have all those costs.
So the reason I wanted to break this down is that we can actually put this on one piece of paper, list that there are 180 activities, break it down in front of our sellers, give it to them in the pre-listing package or at the listing presentation (I would do it beforehand, because as I’ve said many times, you always want to let the data do the heavy lifting). Let the CMA get them priced right. Let the other sales affect their perception. You standing and arguing with them or justifying what you need to do verbally by conversation is not usually the best winning formula. When you can reduce this down to paper, and people believe it, and they read it, and they actually see what you’re doing, you can actually say to somebody, “Okay. Well, here’s the deal. Here are my costs.” And what I would argue for most realtors that they should be doing on listing presentations is having three commission platforms. This is nothing new. People have talked about it before. But what if we broke it down even more? Look at some of the “For Sale by Owner” companies, or some of those where they’ve got just the set fee to list it. It doesn’t matter if it sells or not – that’s the fee you’re going to pay. What would your fee be just to do the offer? What if you were an agent, and all you did right now is you just negotiated offers? Let’s say they weren’t even listed. Let’s say it’s just two neighbours who wanted to buy each other’s property. I mean, I think you could charge 1% just to do the negotiations on that. I think that’s a reasonable fee that most buyers and sellers would pay you. And if they split it, where it was a 0.5% each, it’s really not that much to get a good agreement together and make sure that it’s going to be safe and get it to closing.
So that’s breaking down just one step of what you do when you list a property. So couldn’t you have a tier program, where you had, “I just do this,” and maybe it’s 4% or 5%. “Or you can get this,” which is the 72-hour list that I’m giving you right now, and that’s 6%. “And if you want this, this, this, and this (the Platinum, Premium package), that’s going to be 8%, and you’re going to get the staging, and this, and I’ll dance on your roof,” and whatever. I think when you can give consumers three choices, they typically will pick the middle, because the first one they won’t get any value, the second one they’ll get tons of value, and the third one they’ll get so much value they don’t see it as necessary. So they’ll always pick the middle price. If you don’t believe this is true, just realize you get hoodwinked by this every time, whether it be your cell phone plan. If you start looking at the service fees, or if you start signing up to websites for different services, online databases, they’re the masters of triple pricing. One is the basic. You get nothing. It’s free. Two, for just a little bit more money, you get all of this. Or for the professional, premium, platinum edition, you’re going to get this. Most people will always pick the middle one. They’ll always pick the middle one, because that’s where they see the most value.
So that’s what I love about doing this exercise. You break down the 180 steps of what you actually do for your clients, and really, I would say, “big up,” or just be honest. “This is actually what needs to be done. If I’m selling your house, I can’t skip doing the CMA. I can’t skip talking to you on the phone beforehand. I can’t skip prepping your house for the market. I can’t skip Open Houses (unless you choose not to do them). I can’t skip feature sheets. I can’t skip updating it onto the MLS. I can’t skip following up to all of the other agents. I can’t skip offers. I can’t skip following up after the offers. And I can’t really skip the follow-up from when we’ve sold your house all the way to closing. These are just the basic, root things that need to be done in the transaction, in order for a transaction to occur.”
So I think what I love about this whole concept is, when we just break everything down and we actually put a price towards it, I think we’re actually becoming more honest and more transparent with the consumers here, where it’s like, “This is my actual cost to do this. Now, I know you think that we get paid way too much money and that anybody can sell your house.” When I’m teaching, especially on the listing side, I always ask people, “How much time does it actually take for you to sell a property? If it’s priced right and shows well, how much of your time?” And inevitably, someone will say, “Three hours,” but the room average will be between 10 and 20 hours. That’s what realtors actually think is the time. So if they think that’s the time, how can they really explain that to the seller, and justify 2.5% or 3% commission? When you break it down and you actually go, “You know what? It’s 72 hours of my time – and that’s without any expenses. That’s just the labour cost. I still have all of the rest of the expenses that I have to get done in order for me to actually earn a living” (which they don’t really care about), or build wealth for the future (which they don’t care about) – but you should! There’s a certain profit margin that you need to be able to make on every transaction in order to build wealth for the future. And I know that most agents are terrible at this, because in my 29 years in the business, I’ve still only been at one realtor’s retirement party. One realtor’s retirement party. How many have you been at? Yeah. I bet you can’t think of one that you’ve been to. Or maybe you’ve been to one. So what a shame that people are working in this industry hard. I mean, realtors work very hard. We have two full-time jobs. We’re expected to be in the office from 9-5. That’s when our clients are at their office. And then we’re expected to work evenings and weekends. So we’re doing a double job, and our net result for a double job is people trying to beat you down on your commission. They don’t see the perceived value. And that’s not their fault. It’s your fault. It’s my fault. It’s all of our faults. It’s our industry’s fault, because we don’t do a great job of building up the perceived value of what we’re truly worth to our consumers.
So if you want to change the game, why don’t you start listing the 180 steps that you actually do when you’re listing a property? Just break it down and start charging for it. Is there anything wrong with doing a listing retainer, where it’s a 1% retainer? That’s what the hard cost is. At least 1% is what it’s going to cost me just to get my machinery in. I mean, lawyers don’t do anything without retainers. And you might say, “Oh, well, that’s not our industry.” I’m like, “Yeah. So what do you want to do? Do you want to still play the game that everyone else is playing? Or do you want to take a stand for what you’re actually worth?” Because 1% is barely covering your costs. If your average sale price is $400,000 and you’re making $10,000, and you’ve got a $4,000 retainer and you’re putting in 72 hours’ worth of work (or even 60 if you don’t have to do the offer) – you’re still making, what? $70 an hour? Which is nothing. And that’s why so many agents never retire, because they just make nothing a lot. Or, they make a bunch of money in wades, and then they kind of, “Okay, I’ll get caught up on my taxes and CRA and debt and all that stuff.” When the truth is, if you really want to build wealth, you need to triple the amount of money you make to cover your lifestyle costs. So if $10,000 a month is your hard cost to run your family, you need to get up to $30,000, because $10,000 has got to cover your lifestyle. The other $10,000 starts going to debt, and the other $10,000 goes to investments. But we know there’s tax in there. So the real game of real estate (if you want to build wealth in it), is you have to triple the amount of money that you’re making every month just to get prepped for retirement and take care of your family.
But maybe that will be the subject of my next podcast! How much money you really need to actually build wealth, buy investment properties, set yourself up for the future. Hmm. I think I just got a new idea!
Anyway, I hope you enjoyed this podcast. Take care! Have an awesome spring market! This is the time to get out there and make as much money as possible! And remember, if you work flat out right now for the next six to seven weeks, it’ll set you up to have some great rest and recovery time and spend time with the people you really care about.
So have a great day! Talk to you soon! Bye.