Will You Work for Free?

Got an interesting comment on one of my recent posts. It seemed to be from a investor interested in working with me to find and buy foreclosure homes. Being the dutiful Realtor that I am, I emailed him back and setup a customized MLS search that would email him whenever new foreclosure homes hit the local MLS.

The man emailed me back, several times over several days with (among other things) the following information (the spelling errors are his, not mine):

“has there been a professional short sale package filled out by the lender of the defaulted mortgage? That is the first step i would start if I am going to pursue workign with any of these listed properties/. . . . what i am wanting to do is actually contact the homeowner myself . . . I dont want to pay for any services . . . You take a lot of the leg work out from underneath me . . . ” (emphasis is mine)

Today I finally got tired of getting these spelling-error riddled emails. I emailed him back with the following:

“So let me get this straight. You want ME to do all your legwork and research but you don’t want to pay me for it? Ummmm, let me think. NO.”

I never stop marveling at the gall of people who think it’s perfectly OK to come right out and say that while Realtors’ services are valuable to them, they still openly refuse to compensate Realtors.

I guess the extremes of our current marketplace are bringing out the nasty in me too. Maybe it’s time for a day off to readjust my attitude.

Update: In this man’s defense, I must admit that he emailed me back and said I’d misunderstood. He wanted to work with me only because I already have all these short sale listings. I would still make my regular commission but he’d help me and the homeowners with the short sale paperwork.

That raises a bunch of other questions: When I emailed this man  foreclosure listings, there were about 400 of them in the list. Does anybody really think that I personally represent each one of those 400+ sellers?

I’ve already got a 100% success record in getting my short sale listings closed, including  a good system for handling all the baffling and irritating paperwork required by the lenders. Why would I need help?

Is he doing this out of the goodness of his heart, for free? I doubt it. He’ll want a cut of my commission for sure.

Sounds like more help I don’t need.

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Top 10 Ways to Tick Off A Realtor

The following is a true story about a prospective client of mine, a married couple living in the Midwest. We’ve emailed each other for about 6 or 8 weeks about their desire to buy a foreclosure home in Arizona as an investment. I usually avoid writing about clients and prospective clients online, because it’s just a little weird & squicky to expose private conversations in a public forum. However, I couldn’t resist posting this gem.

What follows is a snapshot of my Friday afternoon and a lesson in how to make a Realtor very, very angry.

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10. Fly to town unannounced. Call Realtor Thursday evening to say “We’d like to go out looking at homes all day tomorrow and Saturday too.”

9. Act exasperated when Realtor apologetically says that since she didn’t know you were coming, her calendar is pretty booked… but she can shift a few things around to show you homes from 3p-7p on Friday and get a colleague to show you around on Saturday.

8. Present a list of 8 homes in the North Phoenix area which you found online. Explain that you’ve ”done the research,” these are the homes you feel are a good bargain, and generally ignore the Realtor’s attempts to recommend additional areas.

7. Midway through the first showing, insist you don’t want to see condos or townhouses (even though 2 of your original 8 picks are condos).

6. Become frustrated when Realtor says that of the original 8 properties you asked to see, 2 are sold or under contract, 2 are condos (which you don’t want to see), and 1 we can’t see without 24 or 48 hours’ notice to the tenant living in it.

5. Let Realtor drive you to the remaining 3 properties on your list. Describe the 1st as “acceptable”. Decline to go inside homes 2 and 3 because you don’t like the look of the neighborhoods.

4. Announce that you want to call it a day. While Realtor drives you back to hotel, lecture her about your extensive research into foreclosures and the real estate market in general. Explain to the Realtor that it will take 20 years for the Phoenix market to get back to normal, “there are no buyers today” and “we know these desperate sellers will be happy to get our offer, even though we won’t offer higher than 60% of list price.”

3. Listen while your Realtor notes that:

• While Phoenix has tons of foreclosures for sale, we’re selling an average number of homes monthly (about 5,000 each month)
• While outlying towns are down 40% or more from peak prices, central and North Phoenix are generally down about 12-15% from the peak
• The North Phoenix home you said was “acceptable” is located in a ZIP code that’s actually turned into to a Seller’s Market in past weeks, since there’s now only 5 months’ supply of homes for sale (6 is considered balanced, higher than 6 a buyer’s market, lower than 6 a seller’s market).

Listen quietly to Realtor’s statistics, but ignore her information.

2. Tell Realtor that:

• “We’re ready to buy today. We have money in hand and are serious about buying. We want to sign a contract today.”
• After 2 or 3 sentences of polite chit-chat about your lives in the Midwest, tell Realtor “We aren’t in a hurry to buy. If we can’t find a great home at the right price, we’ll just wait these sellers out. The prices are going to drop, they’ll see and they’ll be sorry.”
• Realtor assures you that the ideal home you’ve described is available, is in your price range, and located in a part of town you drove through this morning and said you liked. Perhaps North Phoenix just isn’t the right area for your needs.

Realtor takes a call from a partner agent. She hangs up and says none of her 5 partners are free to show you homes tomorrow but she will cancel her personal plans for the afternoon and meet you again at 2pm to look at homes in the other neighborhood we’ve agreed is good for you.

1. Twenty minutes after the Realtor drops you off, call her and leave this voicemail message: “We’re sure you’re a very nice person, but we just don’t feel that our time is being well utilized. We only have 2 days in Phoenix and we can’t afford to waste our time. So we just wanted to say we don’t want to work with you anymore.”

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I should add that by the time I went to sleep that night, I was over it. In fact, the sheer absurdity of the whole thing made me giggle. Just another day in the life! At least my job is never boring.

I Am Interviewing For A Job

Found this interesting post over at Bloodhound Blog. Normally I just lurk over there from time to time, skimming and browsing and trying to avoid the flying fur from the commentary wars that erupt all too often.

For those too busy to click over, Greg Swann’s post is simply advice to Realtors that you buy gas with clients in the car. Why? It reminds them that you’re spending your money for their benefit.

Readers. Dear Readers. I’m so glad you’re here! Thank you! I hope you come back often. I hope that you find what you’re looking for. I hope this blog is a useful tool for you and helps you figure out how to handle this topsy-turvy real estate market we’re all living through. I hope that my readers eventually become my clients.

If you don’t find what you’re looking for during your browse, email or call me and ask for it. I’m happy to provide any advice and information I can. That’s what I do, 8 or 10 hours a day, 6 or 7 days a week. You’re not bugging me when you call or email. If you’re in need of advice about real estate, please contact me. Contact me even if you’re “not ready” or “just looking” or “thinking about it”. Contact me even if it’s “your friend” you’re calling about. If I know the answer I’ll tell you, gratis. If I don’t know, I’ll find out for you.

I’m happy to speak with you and provide all the advice I can about your unique situation. But please remember that in every contact we have, I’m auditioning for a job and hoping for a future paycheck.

This is one of the few professions I can think of where all the expense comes out of the practicioner’s pocket up front and there’s no guarantee of payment. You pay your doctor before you leave the office. Lawyers take a retainer to cover out of pocket expenses. Accountants won’t release your taxes unless you pay them. Teachers, fire fighters and police are guaranteed a salary. That salary is lower than it might be, but that’s a topic for a different blog.

Realtors do not get a salary and most make middle-class wages at best. Realtors do not get sick days or vacation days. Most brokerages do not provide a Realtor with any help towards marketing, advertising or buying materials like signs & flyers, toner cartridges and businss cards, lunches and closing gifts. Those expenses all come out of my pocket, up front.

Ultimately, I do not get paid for the work I do unless you acknowledge me as your agent, in writing, when you buy or sell a piece of property. For most people, this seems like a reasonable proposition – I spend a lot of time and expend lots of my expertise to find you a home or sell your current home, and then I get paid at the end of it all. If you’re someone who thinks it’s OK to use someone else for their time and expertise without paying for it at the end of the deal, well then I invite you to keep reading but I implore you not to contact me.

Putting you in my car and driving you around town – at $4.00 a gallon and 112 degrees – is only fun because I know that I’m helping you find The One. I like watching people react to houses, I like finding the perfect home for you, and I genuinely like hearing about your kids, your dogs and your last summer vacation. I’m going to give you the most up to date information about area comps that I can find, and help you negotiate the best possible price and terms on the home of your dreams. I’ll watch your back and make sure you don’t inadvertently get into a situation where someone could sue the pants off you. But I’m also hoping that you’ll buy through me when the time comes, and then I’ll get to pick up that commission check that I worked so hard for.

If I provide you lots and lots of personalized staging advice, a comparative market analysis on your home, and a unique-to-your-house marketing plan, well that’s because I genuinely like spending time analyzing MLS statistics and creating individual marketing programs. But I’m also banking on being able to trust that you’ll list your home with me when you’re ready to sign the listing agreement. Just like you, I need to pay my mortgage, the electric bill, and buy food and clothing.

Plus I must pay the dozens of little invoices associated with my online presence. The Internet is free, except when I have to pay a little fee here and a little fee there to maintain my website, host this blog, network with colleagues so I have an extensive database to which I can market your home, advertise on various websites, continue my lockbox and MLS access, and so on.

Of course things can change while we’re working together and I understand that. Maybe you thought you needed to sell because of a job transfer, and then it didn’t happen. Or maybe you thought it was time to buy but a setback at work or at home shook your confidence, or a promised bonus didn’t come through. Please be honest enough to tell me why you broke up with me (so to speak). Otherwise, I’m left thinking I disappointed you but not knowing how.

If I spend time and money helping you find your way in this crazy real estate world, I’ll only ask for 2 things in return. Please acknowledge the time & money I’ve spent helping you by actually using me as your Realtor when you sign the contract. Then, when it’s all over and the keys are exchanged, please remember to encourage your friends and family to call me too.

Oh, and one more thing which (I admit) is totally selfish: please put me on your email distribution list when you send out pictures of the kids, the house, the dogs and your vacation. Your photo updates always make me smile.

Dear readers, thank you for visiting! Thank you for coming back! Thank you in advance for becoming my client someday when you’re ready to buy or sell! Finally thank you for remembering that I am working for you and no one will pay me if you don’t.

Where Does The Commission Go When I Sell?

In metro Phoenix where I work, sellers typically pay the Realtors’ commissions. Buyers don’t pay any Realtor commissions. The biggest chunk of change buyers come up with is their down payment. For sellers, the biggest hit you take on closing day is the Realtors’ commissions.

Comissions are negotiable. So not every scenario will fit this one exactly, but this is pretty common.

Let’s say the seller agrees to pay a Realtors’ commission of $12,000 for selling her house. I can almost hear readers screeching already — “Wow! That sounds like a LOT of money! How could it possibly cost anybody that much money to sell a home?!@?!  Realtors make too much money!”

That’s why I’m posting, to explain where all that money goes.  Let’s skip ahead to closing day. The title company subtracts $12,000 from the seller’s proceeds at sale. It goes to the seller’s Broker. Not the Realtor with whom the Seller dealt every day, but to the Realtor’s “employer”, the Broker (see below about how Realtors aren’t really employees at all).

Usually there are 2 brokerages involved in 1 deal, the Seller’s Broker and the Buyer’s Broker. The Seller’s Broker splits the commission with the Buyer’s Broker according to what was agreed between them in the MLS advertisement. In metro Phoenix in today’s market, the Brokers usually split the commission 50%-50%. In this case, the Seller’s Broker gets $6,000 and the Buyer’s Broker gets $6,000. 

Then the Brokers turn around and split that commission with their respective Realtor agents. Again, the way they split it up is determined by individual employment agreements between the Realtors and the Brokers. Sometimes the Realtor gets 80% of the commission and the Broker takes 20%. Sometimes the split is 70% – 30%, 60% – 40%, or even 50% -50%. Sometimes the Realtor gets 100% of what the Broker ‘earned’, but in that case the Realtor paid the Broker a fee every month in lieu of splitting the commissions when they come in. I’ve never worked for this type of Broker, but I’ve heard other Realtors talk about fees approaching $2,500 a month.

In any case, that $12,000 was split into two 6’s. Now it’s split again; let’s say in this case it’s split 70% – 30% between Realtor and Broker.

The Broker gets 30% of $6,000, or $1,800. From that, the Broker pays for the cost of running an office, providing phones, computers, printers and toner. The Broker also provides Errors and Omissions Insurance for the Realtors. Brokers have to pay the clerical staff who handle data entry, phone service, and general document and transaction managmenet. Most Brokers are so busy managing the business that they do very little in the way of conducting actual real estate deals. So they have to take a big enough split to create a salary for themselves. This scenario probably describes the big boys like Coldwell Banker, Prudential, and RE/MAX. Smaller brokerages do things with fewer staff but the jobs listed here still have to get done & paid for. Whether the Broker takes a split or a monthly fee, they pay the bills somehow off of the work their Realtor agents do.

What about the Realtors? In this scenario the Realtor in the example got 70% of 50% of the $12,000 it cost the seller to hire that Realtor. Seventy percent of half of $12,000 is $4,200. Already, the Realtor who did all the work of selling the house watched his “paycheck” get whittled down from $12,000 to $4,200! Out of that, the Realtor must pay for:

• Federal Taxes – Realtors are independent contractors and, unlike W-2 employees who only pay 6.25% of their gross wages to Social Security, Realtors pay about 12.50% of their income to the feds (I might have my percents a little off but the idea is dead-on, we pay double whatever wage-earning employees do);
• State & Local Taxes – don’t forget ‘em!;
• Liability Insurance in case a client gets hurt while they’re together;
• Auto insurance at above-normal rates because Realtors drive a lot with other people in the car who aren’t covered by their own auto or medical insurance;
• Medical Insurance – Realtors are independent contractors and don’t get insurance through their employers;
• Dental Insurance – same as above;
• Vision Insurnace – again, same;
• Disability Insurance – same again;
• Annual MLS dues;
• License renewal fees (in metro Phoenix, we renew once every 4 years);
• Annual lockbox access dues;
• Individual lockboxes for use at listings;
• The cost of attending various seminars to continue learning and growing as a Realtor;
• Staging Supplies, if any (I have a bedroom closet & dresser filled to bursting with towels, soaps, baskets, shower curtains, sofa-sized art, fake greenery and decorative tchotkes);
• Website developer fees and monthly or annual maintenance fees;
• The costs of buying and installing yard signs, sign riders, posts, and so forth to put at listings (and the cost of removing them all at the end);
• Advertising costs including web, print, billboards, radio, TV, newspaper, supermarket checkout divider thingies and whatever else the Realtor threw into the ad mix;
• The costs of maintaining a home office complete with color printer/fax/scanner/copier, computer with high-speed Internet access, data backup resources, hi-quality digital camera & supplies;
• Buying your own business cards if your Broker doesn’t provide them (most don’t);
• Maintaining a big car that holds lots of people;
• Open house supplies like drinks & snacks, pre-open advertising and buying the actual open house signs;
• The cost of client entertainment and closing gifts;
• Referral fees to other agents who sent you business based on your good reputation;
• The costs of various supplies for printing flyers, postcards and the like as well as buying general office supplies; and finally
• Astronomical monthly cell phone bills – because you’ve gotta have unlimited data, text, web if you’re going to compete in today’s mobile market

Not every Realtor pays for every item on this list every time he/she sells a property or works with a buyer. Me? I run a medium sized business on a very tight ship with minimal expenses. For the past 3 years running, it’s cost me about $30,000 to $40,000 each year to be in business. Big operators spend more. Russell Shaw wrote a post a while ago in which he revealed he’d plowed $500,000 into his business by May 18 of this year. For me, I’ve got to make at least $30,000 in gross commissions before I can begin thinking about my earnings in terms of a salary instead of overhead. That’s a lot of houses sold at $4,000 to $6,000 a pop.

I guess my point is that Realtors pay for all the above out of their own pockets, and do it because doing so helps us service our clients’ needs better. If we don’t focus on our client’s needs, that shows over time and pretty soon we’re out of business.

In any case, next time you catch yourself thinking that Realtors make too much money, remember this post.

And please don’t let this post give you the mistaken impression that I spend all day, every day thinking about me and how much I earn. In fact, I don’t. This post took me longer to write than most because I had to go through last year’s tax files to compile the list of my expenses.

I spend my days and nights just like my clients do – thinking about about how I can get your house sold, or whether now is the right time for you to buy. In short, I spend my days thinking about my clients and their needs. The money follows.

Real Estate Agents Make Too Much Money! – Insert Schedule Here

There’s a lot of myths about Realtors. One of the most persistent is that we make a busload of money for very little work. Not true!  The most amusing recent incident is when a date told me that Realtors make too much money. He’s a computer network consultant and probably earns $300 an hour. It made a little angry to realize he thinks I make too much money! Believe me, I don’t make anything like $300/hour.  But he’s cute, so I let it slide. As promised, here’s my schedule for the day.

8:30 – 9:30 Weekly Sales Meeting
9:30 – 10:30 Weekly New Listings Tour
10:30 – 12:00 Call affiliates for update on each home in escrow
12:30 – 2:00 Continuing Education Seminar
3:30 – 4:30 Loan Signing in Scottsdale
4:30 – 6:00 Travel to & complete Buyer Walkthrough in North Phoenix
7:00 – 9:00 Catchup on blog posts & emails
9:00 – 11:00 Movie with above mentioned computer consultant who thinks I make too much money. He’s buying!

Mind you, the schedule changed 3 times today. At 9:00am I called Buyer’s Friend Lender only to find that he didn’t get his loan docs to title on time. No Loan Signing today! The closing will probably be delayed too. Super!

At about noon, Buyers decided they will do Walkthrough at 4:45 today after all. Lender still doesn’t have loan docs to title and the actual closing is still delayed. I’m waiting to see if Computer Network Guy bails on me too.

The point of posting this? I want folks to realize that most Realtors do actually work a 40 hour plus week. And we often have very little control over our own schedules. Things pop up, a client needs you at unexpected times, and you go.

This isn’t a complaint. I love my job and wouldn’t do anything else if I could help it. But the misconception that I do nothing but collect fat commission checks gets on the nerves from time to time.

Real Estate Agents Make Too Much Money

I’m starting an ongoing feature of this blog, which is basically just a recounting of my daily schedule. It will always be called “Real Estate Agents Make Too Much Money” and it’ll always start with this little house made of 50’s.
 
Why? Because I’m tired of defending myself to people who think I earn tons of bucks for very little work. This? Is a myth. I work a few more hours than the average US white collar worker, and I make a few more bucks than the norm.
 
Case in point: I’m about to launch a listing program with a home seller. The project outline includes repairs, staging, marketing, coordinating showing feedback, negotiating the eventual purchase offer, negotiating all over again when the buyer’s inspections are done, shuttling paperwork back and forth between the seller, buyer, lender, title company, inspectors and appraiser, and finally! helping my seller move out of his old home.

The project timeline is 3 months from start to finish and I’ll be putting in an hour to four or six hours every day, on this home alone. Monday through Friday and weekends too. Holidays too, while we’re at it.
 
My expected gross pay for this deal? $7,800. That’s before taxes and expenses. I’m estimating 3 hours a day, 6 days a week, for 12 weeks. That’s 216 hours of work to get that home sold. Do the math – I’m making $36 an hour, gross. Is it a lot? Probably sounds like it. But wait, there’s more!

That $7,800 is mine only if the home sells. If it doesn’t, I get bupkis. Nada. Nothing. I spend my money marketing the home whether it sells or not (flyers, yard signs, MLS membership, ads sent to other Realtors, postcards sent to the neighbors, open houses & parties hosted in the home, etc., ad naseum). Then add in the typical overhead of cellphone, printers, toner, fax, Internet connection, website maintenance, car expenses & insurance. Then add in the IRS’s cut of my take home pay because on top of my regular income taxes, I pay 12.5% in to the Social Security system where regular employees only pay 6.25%. Don’t forget to add my insurance & liability expenses.

My expected take home pay on this deal is about $3,800. That pays my mortgage, food, pet care, and all the daily expenses of life. Compare that to 3 months worth of your own paychecks and get back to me on whether I make too much money. While you’re comparing, remember that you get paid for sick days and have a vacation package and a 401k too. I have none of those.

I’ve traded all that security for the luxury of arranging my schedule to suit me, and the fact that my potential for earnings is only limited by my own hard work. I don’t get up until 7am and don’t usually start “real” work until 10am. I deal with emergencies, emails and my little-used gym membership until about 10. But I work until 12:00 midnight or later. Some days I get a 3 hour lunch to eat & run errands. But some days are 13 hour marathons and I eat in the car on the run, out of my little cooler stocked with apples, trail mix, water and hand sanitizer. My first summer in the home selling biz was 2005, the year of our real estate boom. I survived on apples & trailmix for 6 weeks straight because I never put in fewer than 13 hours a day, 7 days a week in that time. That was the bad news. The good news? I lost 15 pounds in 6 weeks and helped 3 families realize the American Dream of home ownership.
 
Next installment of Real Estate Agents Make Too Much Money will have an actual schedule from my dayplanner for this deal. I’ll keep posting from time to time, and let readers decide whether Real Estate Agents Make Too Much Money or not.