What Are You Worth?

Real estate author Jim Lee shares one effective approach to explaining your value to reluctant sellers:

It's not unfair or unreasonable for consumers to ask about the fees brokers or real estate practitioners charge. Most people only buy or sell homes infrequently, they aren’t familiar with what you do or the complexity of your work.

For these reasons, I often find it useful to explain some of the time commitments and financial costs that go into transactions. I explain to consumers that — like them — I need to make certain assumptions. I based the figures below on a $75,000 annual income and in our market I expect that a typical house will take 16 weeks to sell.

I also need to establish an hourly billing rate to show the value of my time. I've picked $40 — not a lot in many metro centers and perhaps not reflective of my training and experience, but a reasonable figure in the Knoxville, Tenn., area I serve.

So how do the numbers add up? Let's take a look:

First Visit. It's important to visit with a consumer. Figure one hour for the first visit, $40.

Comparative Market Analysis. If I'm representing a seller, or if I'm helping a buyer bid on a property, then I need to do a thorough market analysis. This typically takes two hours minimum, $80.

Listing Appointment, Measuring, and Consultation. When a home is listed, it's important to make certain that the listing information is correct. Tour the home with the owner, suggest fix-up type items to make the home more appealing to buyers, and also review the marketing process with the owner. Three hours, $120.

Sign and Lockbox. In some areas of the country larger firms will have specialists who install signs and lockboxes. In our area, that's a job most licensees perform themselves. Thirty minutes, $20.

Photography. I want to have a good set of photographs for prospective buyers and also for my records. In this case, I have costs for time, film, and development, or if you use a digital camera, there are still costs for photo paper, disks, and so forth. $50.

Broker Open House. Because I have been active in my market for many years I may know of prospective buyers at the time a property is listed. However, owners are best served by having the property shown to a wide array of possible purchasers and for this reason I ask other members of the brokerage community to view the property privately. Given four hours of time, refreshments, and promotion my cost is typically $385.

Advertising Preparation and Placement (Including Internet Exposure). Real estate brokers are really local marketing experts and part of the marketing process involves paid advertising. It takes time to write strong ads and place them in appropriate media. I allocate six hours for this purpose, a total of $240 for my time. There are various hard costs associated with my marketing efforts. A reasonable breakdown might include:

  • The cost of advertising can vary extensively, depending on how long a property is on the market, and which advertising venues are selected. In my market, figure a minimum of $72.
  • Before you can advertise, you need to create suitable materials. With one hour of my time and the cost of graphics, the cost is typically $65.
  • Graphics are great, but they need to be distributed. It takes 30 minutes, $20.
  • I have certain areas where I concentrate my services, what most people in real estate call a "farm." I write and send out "Just Listed" cards to my farms, an activity that takes three hours and has some minor costs, a total of $130.
  • A major part of my marketing program involves targeted distributions by mail to my farms and to prospects who I feel may be interested in a listing. My stamp cost is about $42, an expense that will rise somewhat with the recent postal increase.
  • A large percentage of all transactions involve buyers brought in by other brokers and salespeople. I produce special picture postcards for other brokers that are active in the area where my listing are located. It takes three hours, and I have some hard costs, so the total is $168.75.
  • For many listings I find it useful to install a "Talking House" radio transmitter. This device allows individuals driving by to obtain basic information, something many consumers like. It takes three hours to write, record, and install a single "Talking House," $120.

Communicating with clients. They want to know what's happening, and I want them to be aware of all changes and contacts that may impact their transaction. Over the course of a listing, I estimate that eight hours are spent talking about market events, showings, feedback, and other calls with clients, a total of $320.

Scheduling appointments. It's often difficult to arrange open houses for individuals who are busy, or who may be in town for just a few days. Over the course of a listing I probably spend 16 hours arranging and holding appointments for prospective buyers, $640.

Follow-up showings. Buyers want to go back and examine the home with care, something I like to encourage. I often spend eight hours (over the entire listing period) with follow-up showings for a single home, $320.

The negotiating process. Depending on the particular property, this activity can take from six to 12 hours, $480 to $960.

Follow-up work to assist the parties with the various details needed to complete the transaction. This process also can take from six to 12 hours, $480 to $960.

Inspections and checks as a condition of the sale. I typically meet with mechanical inspectors (three hours), termite inspectors (one hour), and appraisers (one hour), a total of five hours, $200.

Prepare for closing. I generally allot one hour to review closing papers as well as one hour to physically attend the closing, $40.

My total costs? Between roughly $4,150 and $5,100 for a home on the market 16 weeks.

At this point, someone will look at such numbers and say, "Wait a minute. You sell homes with an average price of almost $210,000. Commissions are negotiable, but if you get what HUD allows for the sale of its properties then your fee is $12,600. Isn't that a huge profit?"

The math here is fine, but the facts are not quite accurate.

  • First, not all homes sell. Even for someone with my experience, there is risk every time a home is listed — there are no "sure things."
  • Second, I don't get all the money. If there is another broker involved who brings in a purchaser, he or she gets a portion of the fee.
  • Third, the commission is typically split between a broker and salesperson. Even in a 100 percent commission company such as Realty Executives or RE/MAX there are still company fees that must be paid in exchange for the salesperson keeping 100 percent of the commission. Mine average about $1,000 per month, not counting any other costs such as advertising or marketing.

These factors, and others, explain why there is a lot of turn-over in real estate — and why individuals like myself work hard and take risks to earn our fees.

Copyright 2007 Realty Times. All Rights Reserved. Used With Permission.

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