Agents don’t charge by the hour and they absorb all marketing, travel and administrative costs within their fee up front.
There is the odd occasion when someone loses sight of what matters – working in the real estate trenches can teach you that. Recently there were two separate such occasions where lawyers, hired to help close a deal by my clients over stepped their boundaries by making comments about our services with the contention that they were acting in the best interest of the client – a shared client.The comments revolved around commission fees and their perception of value. Acting upon their views these individuals attempted to renegotiate signed listing contracts to reduce broker fees during the closing process of a deal – to relieve the legal commitment of the client. To clarify, a deal had been reached between buyer and seller, due diligence was underway at which point these attempts were made. Quite unprofessional in my view and somewhat insulting. Following the comments I of course engaged each individual in conversation to enlighten them on the importance of the role of the realtor and to remind them that they have been hired for a specific task which did not include attempting to renegotiate a signed listing agreement. Furthermore, without The Deal they would not be hired in the first place. The issue was subsequently dropped and apologies were made. It turned out that in both occasions the solicitors expressions of value were not a professional concern for the client, but a personal one. Each person had a bruised ego because they were not earning as much on the trade as the broker. It dawned on me that these individuals didn’t really have a firm grasp on the scope of work and time commitment involved in being a realtor. They were not cognizant about the risks inherent with the job and the value a good realtor brings to the table. So, for those who may also be in the dark here are few pertinent facts to digest:
1. The Deal is King: Without the efforts of the agent pushing people to move forward and running around to find the opportunities there would be no deal, no money, no profit. Even a lawyer would not have an opportunity to get hired without the deal. Besides the owner of the property, think about all of the professional services who rely on real estate deals to come together so that they can then have a chance to earn a living too. Contractors, bankers, property inspectors, environmental engineers, land surveyors, designers, equipment suppliers, sign manufacturers and the list goes on. This is not to say that in every case real estate deals are their only source of income, but there is a valuable influence.
2. Money Earned: Commission paid by sellers and landlords is not money lost. It is a tax deductible business expense drawn from proceeds of a sale that generates income for the seller or landlord. It’s the cost of making money – funds that didn’t exist without The Deal.
3. Hourly Wage: Agents don’t charge by the hour and they absorb all marketing, travel and administrative costs within their fee up front. The moment a listing is signed, money is going out. Unlike lawyers or some other professional services there is no billing for individual items above labour. For brokers, business costs are not typically recoupable so money earned from commission is not pure profit. Agents run a business like any other.
4. High Risk: Realtors assume significant risk with every project and every client. Listings cost time and money without any guarantee of a sale. Agents depend on the seriousness of their clients, their commitment to making a deal and the desirability of the property. The economy and general real estate market are also an important factor outside of the agent’s control. If there’s no sale then the agent loses all his or her investment into their client’s property and marketing campaign.
5. It’s Got to Close: Brokers also have the high risk of relying on deals to close, for money to change hands and in the case of a lease, for tenants to take possession of the premises before being paid. Unlike other professional service providers who get paid immediately upon completion of their work, realtors are subject to very long lag times between doing a deal and collecting payment. Often landlords will even delay payment until the tenant completes its interior fit-up and opens for business to the public. This action attempts to tie the realtor to the tenant’s performance, which should never happen, but is a topic for another newsletter.
6. The Big Whammy: Of all the points mentioned here, this one stands on its own. Think about this. Of all the professional services a seller or landlord will hire, whether it be a lawyer, accountant, architect, contractor, designer or other, realtors are the only ones who generate income. Realtors are your sales force and without a sales team no company would survive. Whether you feel you can do it on your own, hire a full time person or hire an agent. Someone has to spend their time, energy and money on sales. It’s indispensable to the success of any transaction and any business. Other professionals might help reduce your tax bill, or prevent future legal problems, but these services still cost money. In other words, brokers don’t put clients in the red, they put them in the black.
As a proud realtor, please remember that in the real estate world, no other professional service provider assumes the same level of risk for a client and that without The Deal, many other professionals would not even have a chance at making a living. The fact is that realtors have a vested interest in getting The Deal because it is a commission based position. And because of this, I’ve always held the view that the relationship between seller, landlord and agent is more of a partnership. Agents don’t win unless their clients win first and there’s no way around that. In my experience most people are aware of this and show their appreciation with repeat business and referrals. It’s extremely gratifying when a deal comes to a successful conclusion and a client profits as a result of my efforts. So the next time a realtor helps puts a deal together that benefits you directly or indirectly don’t hold back your joy or your gratitude. Perhaps in recognition of the positive contribution realtors make to The Deal there should be a national hug your realtor day. What do you think? Feel free to lobby your local MP.
Until next time.
– Mitch Gauzas