“20 Minutes of Successful Niche Secrets – EPISODE 52,”
Calculating how much it costs you to work with a Buyer (the results might shock you!)
Glenn: Hi! It’s Glenn McQueenie, and welcome to my 25-Minute Success Series Podcast. Today we’re going to talk about how you build the perceived value of your services to your buyers and sellers. The way we’re going to do this is we’re going to actually be breaking down every single step of the real estate transaction and just assigning an hourly fee to that, and the multiplier of how many hours you’re going to be doing the activity.
For example, if you were to just do the initial phone buyer consultation where maybe you’re referred to a buyer or you’re talking to a buyer, a lot of times, that can be anywhere from 10-30 minutes. Then the next key step is to figure out what you’re worth per hour. I’m going to use, for this call, a figure of $250 per hour. Now I know some of you might think that’s less than you’re actually worth, and many of you think it’s probably more than you’re actually worth, but I came up with that number when I was thinking about what you typically pay for professional services. If you want to go and get your teeth cleaned at the dentist and you’re there for an hour, your bill’s going to be pretty close to $150-$200 just for that one hour of services. The cheapest lawyer in Toronto, a graduate, would probably be charging anywhere from $295-$350 an hour and up (and that’s someone who just graduated law school and doesn’t really have the experience).
So if we were just to pick a number of $250 an hour as our professional fee (and you can use any of these numbers and tailor it to the market. If you think you’re only worth $100, you can change my numbers – $150 or $200). But for this example, I really just want to use $250. So let’s break it down. If that initial consultation is 20-30 minutes, and if you multiply that by $250 an hour and we use 30 minutes just for simple math, then the actual cost is $125 for that initial phone call. And then there might be another cost where you’re going to actually go and meet them and do a whole buyer consultation, and that will typically take an hour. So there’s another $250. Sometimes it’s longer, depending on what exactly they’re looking for.
So in this podcast, I’m going to be really breaking down your true costs. I think you’re going to find it quite shocking when we get to the end, what the true cost of your time and your hourly rate is for every single buyer you work with. Now, keep in mind, I’m not even talking about your splits with your Broker, your license fees, your gas – any of your expenses. This is just your gross time cost. There’s a great thing I found online, and I think you can Google it. It’s called “184 Steps: The Transaction Checklist,” and I think it’s from the Orlando area Association of Realtors. What they did is they actually broke down every single step of what has to get done to make the buyer process go smoothly. So it’s 184 steps. I’m not going to go through all 184. What I’m going to do today is go through the big steps, so I’ll be grouping some of these together just to give you an idea of what it actually costs for you to work with any buyer. As I said, I think you’re going to be shocked with the results. Then I’m going to introduce this new concept that I’ve been thinking about lately, is maybe the buyer retainer fee.
So let’s break through it. So we have the initial inquiry or initial referral call. We said that was half an hour, and that was $125. Then we have the consultation, which is an hour. That’s $250. We have to follow-up with that and send them an email afterwards, saying, “This is what I heard you say. This is what your concerns are, what we call your ‘dangers.’ Here’s what your opportunities are, and here’s what the strengths are of your covenant.” You’ve got to type up that email and you’ve got to respond. You have to put them into your Board Prospect Match system and set that up. You also have to do an initial search, because it takes some time when you get referred to a different buyer or you work with a new buyer that says they’re going to be in this area. So you need some time just to familiarize yourself with that neighbourhood. So I think I’m going to put a time of about an hour and a half, just to do the email follow-up, including your driving time there and back. And then setting them up in Prospect Matches, doing all your pre-searching, even setting them up on their initial orientation tour – “Hey, we’re going to go and see five or six properties. It’s probably going to take two or three hours.” So just the email follow-up is an hour and a half. That’s $375. The orientation tour is typically 2-3 hours. That’s $750. Then we get to where you’re actually searching for them, so that’s the time you’re on the computer and the time you’re pre-viewing houses, the time you’re running out and showing them homes. That can easily be another 20 hours, so that’s now $5,000 at $250 an hour. When they do their first offer, by the time they agree, you prep, you do it, present, that could be easily three and a half hours, so that’s $875. If the offer’s accepted, and you have to go and do a home inspection, with your travel time and being at the inspection is easily four hours. That’s another $1,000. Once it goes firm, we’ve got to be contacting all your allied service providers, whether it be the mortgage brokers or the lawyers. There’s a little work to be done. You’ve got to submit the deal to your office, there’s a bunch of paperwork. That can easily be two hours worth of activities. That’s $500. And then from, really, the last 30 days, you’re actually calling them, checking in. They might want to go back and see the house. They might have one, two, or three visits. I think that could easily be four hours, so that’s another $1,000. And then you might have other expenses like client gifts or whatever. But I think that you’re going to see that just based on $250 an hour, when I add up all of those totals (initial consultation, email, prospect, orientation tours, doing offers) that gets us to a grand total of $13,400. Think about that for a second. $13,400 is your hard cost of working with every single buyer – and that’s assuming that we actually have the first offer accepted. We know in this marketplace that a lot of times, they’re going to lose their first offer. The second time, they’re going to get really close, and usually they’ll get the home on the third. But sometimes, it could be the eighth. If we even used four offers at three and a half hours each, that’s another 14 hours. That’s easily another $3,500 added onto your true cost and your true time to actually get this done. So we could easily move it up to $15,000 or $16,000. I was using about 65 hours – that’s where I came up with the $13,400, give or take (I’m just doing the math in my head). So if you were actually in a marketplace where you think your time’s worth $100 an hour, you’re at $6,500 just in your hard cost.
So what I thought would be really interesting, and why I wanted to do this podcast is I
think the public thinks that we get paid way too much money and we don’t do a lot of work. They can easily calculate what 2% or 2.5% is of a purchase price. They’re attracted to this industry because they’re like, “I like people. I like homes. Why don’t I just get into real estate?” But we know, and if you’ve been in the business for a long time, there’s a lot more than that. You’ve got to learn the market. You’ve got to learn your product knowledge. You’ve got to fail your way forward. There’s a lot of different steps that you have to do in order to even get to this point that I’m talking about today, where you actually know what you’re doing, and it still takes you 65 hours, or $13,400 at $250 an hour to work with every single buyer. And at $100 an hour it’s $6,500. I’m working in Toronto, but most markets don’t have an average sale price of $750,000 or $800,000. A lot of times you’re in markets where the sale price is $250,000, $350,000, or $450,000, so when you actually look at your commission, it will probably (and I think this is the point of my podcast) be a wake-up call for you to sit there and start valuing your time more. It’s so interesting right now, because I think many of the public don’t think we do that much for our money, and so a lot of them are asking us to give half of our commission back if they’re going to work with us. “Oh, I talked to another realtor. They say they’d give me half of their commission back.” I just don’t understand it. So what if you were to actually put this on a sheet and put it inside your buyer presentation, and actually handed it to them, where you broke down all 184 steps, priced them all out, and just put a total at the bottom? I’ve always believed that it’s not conversation that does the heavy lifting; it’s data that does the heavy lifting. So what if you put this on a piece of paper, so now it’s printed (and people usually are trained to believe what they read), and you actually gave this as part of your pre-buyer consultation, before you even met them, or at the buyer consultation, and just went through what the actual costs are for you to work with every single buyer?
And this is where the retainer fee idea comes from. What if, at the bottom of that, we just started including a retainer fee, which was the equivalent of, say, either half a percentage or 1% of the price that they’re going to be paying? So if they’re buying a $500,000 home, the retainer fee is anywhere from $2,500 to $5,000. Now the way this works is it’s actually a refundable retainer, because when we get paid on the closing of a transaction is the exact moment that we refund that money back. But if they don’t buy a home from us, then we get to keep the retainer. If you think about it – $5,000 – and you go through this whole process with somebody and they do a couple of offers and they get frustrated and they get panicked. A lot of people will just sit there and go, “I’m not going to buy any.” The bane of our industry is that we get paid really poorly with people who we spend way too much time with, and we almost get overpaid by the great people who know what they want and buy a home really quickly. It’s the same thing with listings. On the listing side, when a house is priced right and shows well – (this is going to be my next podcast I’m doing. I’m going to break down all the costs there) – but those ones, you get paid a lot of money. It’s the listings that don’t sell. When you actually start figuring out that you’ve got hard costs of $1,500, $2,000, or $3,000 per listing (and especially if it’s staged), the longer it goes on, the more you’re probably giving almost half your commission away just to a staging company.
But let’s get back to buyers. How would you feel about presenting this to your clients? Some of you might feel anxious right now, going, “Oh no. I could never do that.” And I’m like, well what if we just tried it? What if you actually broke down the cost and actually presented it to somebody, and only three or four out of your 10 buyers actually paid you a retainer? Is that better than what you’re doing now? Or is that equal to probably what’s going to happen? I think for every 10 buyers most agents work with, only three or four are actually going to go through with the transaction, because life happens. People get married, they get sick, people die, people move away. There are lots of different things that occur. It’s not like every single buyer you’ve ever worked with, you get paid on. If you want to double check this, just go through all of your leads last year, and break it down to your serious leads of people you worked with, and then look at how many of them actually resulted in closed transactions.
So is it worth trying? What’s the worst thing someone’s going to say? “No, I’m not going to sign it.” And then you can still make a decision on whether or not you want to work with them. But what if you could get some money upfront from these people right now, that would help offset all of your time and your costs as you start going through the process? Really, we’re paid on results in real estate, so it requires us to go first and really work for free, until a successful closing occurs. But if it doesn’t, yes, it’s part of our business, but does it really have to be part of our business? Do you have to play the game that all the realtors are playing? Or do you get to play the game that you want to play?
I always think that when the industry’s going one way, the best thing you can ever do is pivot and go the other way. That’s where you get your market. When you just keep trying to do what everyone else is doing and copying and mimicking, there’s no marketplace for copying. There’s no value when you copy what other people do. What you actually get paid for in this market is innovation. You get paid by creating value and adding value to the buyers and to your sellers, and you add so much value that you reinforce that they couldn’t have done this without you. I think that’s a big battle that we’re facing right now in our industry, is how do we increase the perceived value of a realtor when you’re buying a home? How do you stop those clients you’re working with from just calling up all of the other listing agents and trying to go directly, or going through Open Houses, or doing all that stuff? I think the way you do it is you blow up what you actually do and fairly report it. “You know what? There is time involved from the initial consultation.” Think about it. What would a lawyer be charging right now if they had to do every single step? They would be charging $350-$900 an hour, and they don’t even know anything really about the lead generation, sales, marketing, and selling of real estate, which is why they don’t do it. They do the closing part of it. They don’t do the hard work.
The hard work in real estate is converting a lead. It’s taking someone that you don’t know, or even someone you just get introduced to, and actually converting them into a buyer contract that you get to go and work with. So I think it’s kind of interesting when we actually break down every single step of this process, and actually start assigning a value to it. And as I said before, it’s all about getting it down on paper. It’s about putting it in your pre-buyer kit, or your buyer consultation kit, and truly showing them how much work actually has to get done in order for them to find and buy a home. I think the great buyers are always grateful and loyal, and appreciate what we do. I think the good buyers are like, “Alright. Whatever.” And then you have the other “use you and lose you” buyers, who don’t really value what we do, and maybe think that we’re an unnecessary person that they have to work with. The only way that we get to change that game is by breaking down exactly what the costs are and increasing the perceived value of what you do in front of the customer. If you want to get paid, what I’ve noticed in this world is you usually only get paid when you create value, or when you add value. If you’re an “order-taker” in real estate – take it, shove it into a house, move, “Next!” – I don’t know how much value there is. That’s why those “be everything, do everything to everybody, show anywhere” agents are also the lowest paid agents in our industry. The really highly paid agents are the people who specialize in a farm area, or they specialize in their niche market or their target market, and then they just constantly think about how they can get out of being perceived as a commodity. How they can add so much value (and specialized value) that that customer goes, “I can’t do this without you.” And then, of course, the next step is to get to become the celebrity specialist in your niche, where you get paid all of the money.
It’s no different than if you look at recording artists right now. The commodity band, let’s say, is the one that plays in the local bar for $100 or $200 a night. Then you have the specialist, who goes on tour just for very niche markets, and maybe they would fill up a 2,000-seat venue, but they couldn’t sell out a 25,000. So they get paid maybe this amount of money for that (maybe it’s $10,000 or $20,000 for that gig). And then you have the celebrity specialist, and they’re the people who fill up the local stadiums – the soccer stadiums of 25,000, 50,000, 100,000 people (or football stadiums) – and they’re the people who make $1 million a show. Well, they’re actually all doing the same thing. They’re getting an instrument, they’re going on stage, they’re performing for two hours, and they’re leaving. But the end result is one gets paid 100 or 1,000 times more than the other. And that’s what The McQueenie Method, and this book, is all about. It’s about creating so much value and perceived value that people just figure they can’t do it without you.
I hope you enjoyed today’s podcast, because it’s really just about breaking down and almost doing the value creation of every single step of the buying process. There are 184 of them, and I’ve only really talked about nine, and blew those up today. I think if we actually got this list together and put a dollar figure next to everything, I think you’d be shocked at how much it actually costs you in your time to service every single buyer. I hope that you can use this podcast and use this conversation with your buyers to say, “Listen. Here’s the actual cost. This is just my hourly fee. This is not my gas, my splits, all my expenses. That’s what has to come off of that.” Even if in your mindset you’re in, you’re like, “I’m not worth $250 an hour,” your $250 an hour, after expenses, could be down to $150 an hour or $100 an hour, depending on what your expenses are. So never make the mistake of equating what I’m talking about (the $250 an hour), with what you actually get. That’s just the fee you charge. It’s just like a lawyer who charges $500 an hour and maybe nets $200 an hour after all of their costs.
So I hope you enjoyed this podcast. My next one that I’m going to do is I’m going to
break down all of the costs on the listing side, and I think you’re going to be even more shocked by what it really costs you to take every single listing that you take! So thanks for listening, and have a happy, happy spring market! And let’s just go out and sell, sell, sell, and make as much money as you can, but always that’s a result of just showing up and being awesome and giving great service to every single buyer that you meet (or that deserves it). It’s that whole notion: “Treat every client (or every buyer) like my best friend – the same way I would my best friend – until they prove otherwise.” Just think people are awesome until they prove otherwise. When you start focusing on what’s right in the transaction and how great people can be, not only does your mindset shift and your current thinking shifts, but the people you attract in your business will shift also.
Have a great day! Take care. Bye bye!