In my two previous Zebra Reports How Much Money Do You REALLY Make? and What’s Your Net?, I talked about how to calculate your gross and net rates of pay per hour. This week’s article will show you how to take this information and make good decisions based on this information.
Working smart is about knowing how to leverage your time to make more money. By knowing what you make per hour you make smarter decisions with your time. Knowing your “rate” means you can quickly calculate the risk/reward factor of any possible transaction, working relationship or client.
Let’s say you work in the Seattle market. You have determined your net rate of pay is $50 per hour. You have a past client who has determined they want to buy in nearby, but still 45 minutes away, Snohomish county. What should you do? Should you help this past client buyer? Should you refer it out?
Although agents typically determine if they will work with a client in this situation like this on an emotional level, I encourage you to start looking at the math to determine how you should move forward.
When you are determining if you will work with an out-of-area buyer or seller, start by looking at your travel time, time required to learn about the area, time required to find/meet/build relationships with local vendors and real estate professionals, days spent driving to show properties, and days spent dealing with all that goes with the transaction. It is only when you factor in this time can you determine if it REALLY make sense for you to be doing that transaction.
Imagine this transaction has an estimated net commission of $4,000. If this transaction is in your local area, it might take you 70 hours start to finish (or a net of $57.14 per hour). However, what if the out-of-area time from start to finish was 140 hours (or a net of $28.57 per hour)?
Wouldn’t you be better off to refer it out and get a 25% referral (or whatever percentage is the norm in your area)? With the decrease in your rate of pay because of the additional hours, and the business you can’t take on in the additional 70 hours that you are expending on this transaction, making only 25% on an outbound referral doesn’t seem so bad anymore.
Smart agents are aware of what it truly costs them to work in this business both in time, stress and money. Every transaction has the following costs:
- Time costs – The amount of time it will take you to complete the transaction from start to finish.
- Money costs – The actual dollar amount it will cost you to complete the transaction. If you are driving to another county fifteen times to finish a transaction, you might be incurring a few hundred dollars in gas, wear and tear on your vehicle, and the extra Starbucks to get you through.
- Stress costs – Every transaction you do should have a stress rating….yes a stress rating. Out-of-area transactions will always be more stressful because there is a learning curve and a lack of area knowledge that will cause you stress. Don’t overlook this very important part of any transaction. Out-of-area transactions bring more stress because you are working out of your normal area of expertise.
If you have done two prior deals with a past client and each of them had a stress rating of 10 (out of 10). Why would you even consider working with that client again? They money might have been good, but what did it really cost you in terms of time, stress, and energy? What if instead you politely let them know that you are not available but that you do know someone who could help them. Take the 25% referral fee and let the stress of the deal pass you by! Dodge that bullet so to speak.
On every transaction you do you should have a rating system for that transaction so you can learn where your perfect fit is. I like to color code the rating system so I can quickly see if this transaction went smoothly or if there is something I can learn from this transaction. Include this in every file:
|TIME COSTS||29 hours from start to close|
|MONEY COSTS||$1150 (client wanted a special video)|
|STRESS COSTS||Very demanding client Stress rating = 10|
In the example above, this particular seller client took 29 hours of my time, which I felt was okay for the type of property we were selling. The costs however were above what I normally spend so I color coded this yellow. The client was a nightmare but I was able to get the property to close, I don’t ever want to work with this client again. The money is not worth the stress I had to endure.
|TIME COSTS||89 hours from start to close|
|MONEY COSTS||$150 spent entertaining this client|
|STRESS COSTS||This client was a little stressful but overall not that bad Stress rating = 5|
This Buyer took a lot of time but they were a complete pleasure to work with. I would love to work with this client again. I just need to learn to watch my time better because this client was so much fun I went out for coffee with them too many times.
When you analyze your current hourly rate of pay, projected rate of pay per transaction, as well as your time, money and stress costs, you can make better decisions about the clients and transactions that are the best fit for your business. If something isn’t a good fit, refer it out!
Imagine the instant raise you get when you refer a client out. Let’s imagine you make the initial call to the agent who is the referral recipient, you keep in touch with the client you referred out just to make sure they are happy, and overall you have spent perhaps two hours on that transaction. Those buyers buy a $500,000 property. The referral fee you receive is $3,750. You just made whopping $1,875 PER HOUR. Are you kidding? That is ridiculous! That is amazing…it is a brilliant way to leverage your time and energy. That is leverage in action.