Use the Ten Percent Rule to Stay Profitable
One of the most important business principles is to track not only how much you make, but how much you keep after expenses.
To illustrate this point, I was once at a conference where the speaker said that he made $1 million in commissions. When he was asked about his marketing budget, he said he spent $950,000. Needless to say, this agent wasn’t managing his resources well.
To avoid falling into this trap, limit your total marketing budget to 10 percent of your gross commissions. If your income increases, you can spend more. If it decreases, cut back. This simple approach is one of the smartest ways to keep your business profitable.
Stop Making the Real Estate Business Look Easy
Many agents do their best to not upset their clients when something goes wrong while they have a property under contract. The result is that most buyers and sellers have no idea how much we do to not only market a listing, but to put it under contract, and get it closed.
A key example is what happens in multiple offers. The seller may think that all you had to do is to put up a sign and then put the property on the MLS. If you get 10 offers, however, you’re now doing ten times
the work on the negotiation process. On the buyer side, they may put in 5-10 offers before they finally are able to purchase.
Moreover, when properties sell over asking price, the appraisal comes in low. This often causes the buyer to cancel or ask for a price concession. Managing low appraisals and ultimately closing takes time and extremely strong negotiation skills.
In each of the examples above, we don’t get paid until the transaction closes. In other words, many times are we are working very hard and never getting paid.
This is why it’s important to let sellers know what is really going on during the transaction. Explain all the forms. Let them know the appraisal may come in low and discuss strategies for dealing with that.
The better informed your clients are on the services you provide, the more likely they are to value you as an agent, pay a full commission, and send you future referrals.
The DOJ Attack on NAR’s Clear Cooperation Policy
In our last edition of RealClues, we discussed the reasons the so-called “bombshell” lawsuits that are trying to force buyers to pay their own commissions will probably be a dud. NAR, the four top brokerages in the country, and a number of Missouri MLSs were named as defendants.
With the judge granting certification to the class last week, this means the suit can now move forward and the attorneys can solicit other class members to join their lawsuit.
While these lawsuits are important, they pale in comparison to the actions being taken by the Department of Justice (DOJ). The DOJ is attacking NAR’s Clear Cooperation Policy (CCP) that allows listing 
agents to pay buyer agents a commission through the MLS system. The DOJ is alleging that NAR’s policy on this issue and pocket listings violates the Sherman Anti-Trust Act. At stake is whether listing agents will be able to share commissions with buyers’ agents in the future. As I state in today’s CoachingClues, the DOJ seems intent on forcing buyers to pay their own commissions.
If you’re an agent, the smartest step you can take is enroll in a course that teaches you how to become an exclusive buyer’s agent. This means the buyers pay you the commission and they sign the equivalent of a listing agreement for you to represent them.
If you’re a broker, owner, or manager, get as many of your agents to take this training as soon as possible, so if this DOJ does prevail, your company and your agents will be prepared to deal with this major shift.
A Terrible Week for NAR
If you haven’t seen the headlines over on Inman News, this has been a terrible week for NAR. In the so-called “bombshell lawsuit” that seeks to stop listing agents from cooperating with and sharing commissions with the buyer’s agents, a judge certified the class. This means the suit can now move forward. NAR, the four top brokerages in the country, and a number of Missouri MLSs were named as defendants. This week’s RealClues contains a deep dive into that topic.
There were two other pieces of bad news this week for NAR. The pocket listing MLS lawsuit that was dismissed by a lower court, was reinstated in the appellate court. 
The most important issue, however, is that NAR’s Clear Cooperation Policy (CCP) is now being accused of violating the Sherman Anti-Trust Act. This is being pursued by the Department of Justice. At stake is whether listing agents will be able to share commissions with buyers’ agents in the future. I’ll be doing a deep dive into these two topics next week.
The good news is that there’s no need to panic yet about the litigation. That can drag out for years.
The issue with the DOJ is something else entirely. My sources say the DOJ’s ultimate goal is to make buyers pay their portion of the commission. The question is whether achieving that goal will result in the elimination of the MLS. If that were to happen, it would be a cataclysmic event for the entire industry.
Couple these developments with the drops in the stock market, the increasing interest rates, the inflation, and the Russian invasion of the Ukraine, and we have all the makings for a major market slowdown.
No matter what happens, the industry always moves forward. We’ll be here to help you weather whatever lies ahead.
How to Easily Explain the Amount of Closing Costs to Buyers
If you’ve been in the business for any length of time, you probably know that many buyers are unaware that closing costs are on top of the purchase price. Since most buyers don’t anticipate these costs, it’s important to explain them when you first start working with the buyer.
The first step to take when you first working with a new buyer is to give them an approximate percentage, not an exact number. As a rule of thumb, the buyer’s closing costs will be approximately three percent
of the purchase price depending on their lender and their down payment. Explain that those costs go to the title company, to the lender, the closing agent, as well as other fees such as the proration of taxes. (For sellers, closing costs are about two percent plus the commission amount.)
To soften the blow, remind the buyers that their mortgage payment is paid in arrears. In other words, unlike their rent where they must pay ahead of time, the mortgage payment you make on May 1 is actually for the month of April. For most buyers, that means they may go four to six weeks before they must make their first house payment. The money they save is usually enough to cover the closing costs.