Creating a Buyer Agent Compensation Plan
Most agents have never considered the profit margins of Buyer’s Agents. Many people believe they are making a lot of money off Buyer’s Agents, but this is not true. It’s a minimal profit per transaction. Find the best buyers agents Sydney.
Assume your average commission check from your Buyer’s Agent is $6,000 per transaction. You have an 80/20 split with your company because you are an excellent Agent. The total fee you will share with your Buyer’s Agent is $4,800. You split the money 50/50 between the two of you. You each get $2,400. You must pay your advertising, marketing, overhead, other assistance, and all other business expenses out of your $2,400 portion.
Most agents’ initial transaction costs (what it costs them to do a deal) range between $1,500 and $3,000. This is determined by advertising, marketing, personnel, expenses, a car, and a cell phone. Everything you spend to run your company is divided by the number of transactions you complete. As your unit count increases, your cost per unit decreases.
The Buyer’s Agent will assist you in lowering your cost per unit. If you were on the low end of the $1,500 fee per transaction, your net profit in this transaction would be $900. That’s before you consider the personal time you put into the trade. That is not a large sum of money.
Let’s say you’re worth $200 per hour and work with a Buyer’s Agent for two hours per transaction, which is doable when you consider training, monitoring, managing, assisting clients, and closing the deal. In reality, two hours is nothing. You would then net $500 for a transaction after deducting your time.
Using Buyer’s Agents isn’t very profitable for a single transaction. I always tell agents they will make between $500 and $1,500 before deducting their time. The only exception would be if your average commission check were over $6,000. If the average commission in your market is $15,000, you will make more money and have more options. Most Buyer’s Agents will work with you to make a small, short-term profit.
Buyer’s Agents will also improve one’s quality of life. You will be able to take the majority of your weekends off. (or maybe even all of them). This will improve your relationship with your family, who prefer spending more weekends with you. Over the weekend, you won’t take ad calls, make sign calls, or hold open houses. Over the weekend, you will indeed be able to turn off your cell phone and be free. My Buyer’s Agents were in charge of the weekends.
They responded to inquiries about my listings from other agents. They were responsible for ad calls, sign calls, and open houses. Their job also included responding to Agents who had written offers when I was out of town every weekend and instructing those Agents to fax the requests to my office so that they could be presented on Monday when I returned. I didn’t work weekends.
You can focus more on securing listings when you have a Buyer’s Agent. My Buyer’s Agents requested that I concentrate on listings. They assumed they’d get more leads if I got more listings, which was correct. I’m curious where they heard that. What was beneficial to them was advantageous to the team as well. You use your time better because working on a listing takes less time than working with a buyer, even when prospecting time is factored in.
Agents and Buyer’s Agents have asked me this question hundreds, if not thousands, of times, as many compensation combinations as there are stars in the sky. I’ll try to explain the guidelines I believe all Agents should follow to arrive at a fair and equitable compensation plan. I’m sure some Agents will disagree with my findings, beliefs, and recommendations… and that’s fine. I’m sure there will be a large number of Buyer’s Agents who object as well.
I was speaking to a large group of Agents in Eugene, Oregon, a few years ago. A Buyer’s Agent inquired how to structure a Buyer’s Agent’s compensation. I tried to avoid answering the question because I could tell from her demeanor that my and her perspectives differed. She explained that she was on a 70/30 split, receiving 70%, and her Agent received a great deal on the 30% she generated.
Finally, I couldn’t take it any longer and told her and the other Agents that her Agent was losing money on every transaction. She became enraged and told me I was wrong. That 30% was a lot of money to her Agent because it was “money she wouldn’t have had otherwise.” That is the argument a Buyer’s Agent will use whenever they want more money. Prepare for it. My job is to tell you the truth about the pay.
The proper way to determine how much you can pay a Buyer’s Agent is to look at your average cost per transaction. Whatever it costs you on average to complete a transaction must be applied to your side of the ledger. There are costs associated with every transaction you conduct.
Each transaction must cover a portion of your overhead, marketing, advertising, time, staff time, gas for your car, MLS dues, and all other costs associated with being a real estate agent. The Buyer’s Agent receives a net dollar check with limited expenses. You must still process the transaction through your system, incurring costs that they do not.
Assume you and your Buyer’s Agent have a 70/30 split like this lady in Eugene. Her most recent gross commission was $6,000. You and your employer have an 80/20 split. You and your partner now have $4,800 to divide. She receives $3,360 of the commission, while you receive $960.
You cover all your company’s expenses, and your average transaction cost is $1,500. You just lost $540 for the pleasure of carrying out that transaction. Even if you didn’t make a dime, you still have the legal liability of a transaction in our sue-happy world. Make sure your compensation package is balanced using your cost per transaction. Your regular commission check will also play a role. Instead, if your average commission check were $15,000, your broker would receive $3,000.
The Buyer’s Agent would be paid $9,600, while you would be paid $2,400. A $15,000 check would net you a whopping $900 after transaction costs. That, in my opinion, is not worth the effort. You’re usually in the ballpark if you use a 50/50 split with Buyer’s Agents. However, in some cases, a 60/40 split would be preferable. You must perform the calculations to determine whether you will be profitable.
Read also: 8 Questions To Ask Any Realtor Before Signing Anything