Have You Calculated Your Real Estate Buyer ROI?
You just may be surprised to find that you are under-valuing buyers.
If all you do are listings, and it's all you've ever concentrated on, read this anyway. It could change your future marketing plans a bit. Real estate buyers are not given enough value by many real estate professionals. The old saying "You live or die by your listings" simply isn't true anymore, though it may have been before buyer brokerage and the Internet.
We all try to stay busy in our real estate practice, but one analysis you should take some time to do is where your listings are coming from. If you've never handled buyers, or had a team that did, then this isn't going to help you. But, if you work both sides of the real estate sale, better records of the original source of a listing may reveal something interesting.
Sit down and take every listing that you've taken in the last few years, and do a quick chart showing:
- A trace back to the original source of the listing, making sure that it indicates the true source
- Break the chart out as much as possible, with type of marketing, whether it was a previous buyer you represented, etc.
- How many you actually sold for a commission, how many expired, and any that were withdrawn from the market or went into foreclosure,etc.
Though this exercise is primarily to see what percentage of your listings actually came to you because you handled the owner when they bought the home, the other items will be useful in the context of the rest of this analysis. And, it's possible your numbers may be skewed a bit if you got the buyer from a listing, handling both sides. Try to break those out if you can.
If you've been in the business for some years, and you've been handling both buyers and sellers, you may just find that many of your listings came to you because you helped the owner as the buyer on that home. NAR surveys show that most clients return to their agents, with good satisfaction ratings for how they handled their previous transaction.
Knowing if you're getting listings from past buyer clients is valuable knowledge, as you can adjust future marketing for better efficiency and cost savings. If you're still mailing in mass to farming areas, perhaps you can cut back on some of that high cost marketing and work your website more. It's far more economical. And, you may want to be sure that you're staying in touch with your buyers regularly. They may still like you, but they meet new people, thus new real estate agents, all the time.
If you find that a significant number of your listings are coming from past buyers, you can make marketing adjustments toward getting more buyers in the future. It's more than just the fact that you'll get listings out of this pool of past buyer clients. You also have a better ROI (Return On Investment) in buyers. Though many Realtors say they don't like to work with buyers because of the time involved, and they make more money for the time spent with sellers, that could just be a self-fulfilling statistic.
Not setting commissions, but taking a common set of numbers, if both the seller side and the buyer side get 3% of a 6% commission, it's not a problem to compare the two for ROI. We're getting the same amount of money to handle a buyer or a seller, so which provides the greater ROI?
- What percentage of buyers do you work with that end up in a commissioned deal?
- What percentage of listings you take end up in a commissioned deal?
- How many hours do you work with the average buyer who buys through you?
- How many hours do you work with the average seller who sells through you?
- What is your average expenditure in marketing for a listing?**
- What is your average expenditure to get a buyer, if you can quantify it?
The first item isn't too difficult to calculate, but it is very much a result that's in your control. If you're only getting transactions from half or fewer of the buyers you show homes, you can improve on this number. Too many of us take on a buyer we haven't pre-qualified. And, that's not just financially. A little bit of discussion can help you to figure out if a buyer is REALLY a buyer, or someone looking for a tour guide, or free transportation for fun weekends.
The second item, the percentage of listings you actually sell, is less in your control, unless you're picky about the ones you take. With a buyer, you have hundreds or thousands of homes from which to choose. With a seller, you have to work with the one they have. And, if they're not willing to price realistically, your success rate drops off dramatically. So, be realistic about the time you put into setting up a new listing, taking photos, doing virtual tours, designing print ads, taking phone calls and reassuring the seller. Don't drop the ball here. You must add in the time you spent on listings that didn't sell. Your average time spent per listing will be higher, but it's part of the analysis.
As far as marketing costs, they're obviously much higher for a listing than for a buyer. Before you say that you don't pay these, your broker does, you do pay them. They come out of your commission split. And, this method takes you out of the control loop, as the broker makes the major advertising decisions. So, you do pay for this advertising, even if not directly with a check. And again, the money spent advertising listings that didn't sell should be added to the ones that did for an average.
The real kicker is in today's marketplace. The Internet is turning things upside-down. Sellers see the growth of the Web, and they are placing more value on Internet marketing, while the value of print is declining. The problem with this is that they also believe, and usually they're quite correct, that it's less expensive for you to market their home on the Web. Or, they believe that they can go it alone, or with a discount brokerage, if they can get enough Web exposure. So, they want to pay less in commissions…for the seller side!
It's really easy to talk a seller into adding to a buyer side commission to get their home shown more. But, try to add to the seller side and see what happens.
Take a few hours and really drill down into an analysis of where your income comes from and how much it costs to generate it. You just might raise your opinion of buyers.