How do you set the right price for your services?

By
Real Estate Agent with HomeSmart Realty West CalBRE #01458572

I made a conscious decision to become a Realtor. That decision, though, was based on much more than saying to myself, "Gosh! My Realtor just made $5,000 for having me sign a bunch of papers saying that he didn't know anything about the house I bought and that he didn't do anything illegal while he was having me sign all the paper telling me that he didn't know abything about the house I bought. I can do that!"

My decision was based on getting doing some calculations for projected sales, projected income, projected expenses, and net income.

After working with so many people throughout the years, I think the 80/20 rule works magnificiently here:

  • 80% of people who change jobs just look at gross income and insurance benefits; perhaps a couple of other minor things.
  • 20% of people actually analyze the situation to see what kind of ramifications there might be, such as extra drive time because the new office requires driving on the freeway in rush hour traffic, so gas expenses go up and aggravation and stress go up.

RealtorRealtors are pretty lucky in my opinion, because they have a monopoly throughout the nation in charging a percentage of the purchase price of a home. It doesn't matter whether they are selling a $5 million, 3,000-SF mansion with a view of the world or a $500,000, 3,000-SF home with a view of the mall dumpsters. Set the price right and the home sells. At least, that seems to be the predominant message here at ActiveRain.

There are many surveys out there, though, that indicate that only about 15% of people consider price to be the major factor in buying something. I'm pretty sure that those 15% shop at Nordstrom and not Wal-Mart. Of course, everyone wants a bargain, even the Nordstrom shoppers. They just have different definitions of what a bargain is.

Other major factors that consistently rank higher than price are:

  • confidence
  • quality
  • service
  • selection

The MLS allows Realtors to provide selection, but confidence, quality, and service are a little more difficult to indicate to a prospective Client that yours is better than the competition's. Help-U-SellThere have been many different pricing strategies through the ages, including even discount pricing (IPayOne, Help-U-Sell, Help-U-Buy, etc.). They did okay as long as the real estate market was booming because they relied on volume, the same thing that Wal-Mart does. If people aren't buying, even though everyone is hurt, the discounters are hurt the most. Do we have any discount Realtors here at ActiveRain? I haven't seen any.

Even though it's not always about price, it's always about price. Why? Because no one ever talks about net proceeds. Ask anyone how much they sold their house for, and you're going to get the purchase price, not the net price. Ask someone how much money they made last year, and you're going to get the gross, before taxes amount, not the net, after taxes amount.

Income and expensesThat can be problematic for we who are self-employed because we've been taught by society to think of gross dollars, not net dollars. Analyze your income AND EXPENSES on a weekly basis but track of it on a daily basis. That allows you to be able to tweak things more readily and to do a lot of your income tax returns themselves rather than paying the CPA and his expensive bookkeepers to do it for you.

If you are wondering if you're making any money in real estate, it might be time to sit down and do an analysis of your business plan and income/expense projections. If you can't adjust your pricing, you might need to adjust your expenses, such as doing your grocery shopping on the way home from showing properties rather than going home and then going back out.

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Rainmaker
141,609
Ana Hitzel
AccentPositives Home Staging - Corona, CA
Home Stager Inland Empire & Palm Springs

Hi Russel,

Setting pricing has been the biggest challenge for me and it seems to be with many other Stagers.  We tend to let others tell us we are too expensive for what we do, even though we offer a valuable service that contributes to a great return for everyone but us for a pretty small fee considering. (really long sentence, I know)

I made a big effort to consider much of what you were talking about before jumping into this business but there have been many u turns.  Those four qualities you listed work with most homeowners but not with a lot of realtors it seems.  Thanks for a great post.

Oct 07, 2009 12:44 PM #1
Rainmaker
1,476,692
Rebecca Gaujot, the GO TO REALTOR
Coldwell Banker Stuart & Watts Real Estate - Lewisburg, WV
Lewisburg WV Real Estate, Greenbrier County

Russel, a well written post.  There was a Realtor here that did a listing presentation along with three other realtors.  THe others had a commission as 6%, his was at 8%.  He was not selected...he is good, but at time thinks...well you know....

Oct 07, 2009 02:08 PM #2
Rainmaker
284,882
Carra Riley
Realty ONE Group Premier Colorado - Denver, CO

Russel,

Great points! Really makes you think about income, expenses and how to make necessary adjustments in your business. Thanks for sharing.

Your friend in the Cosmic Cow Pie.

Oct 07, 2009 03:03 PM #3
Rainmaker
256,368
Robin Rogers
Robin Rogers, Silverbridge Realty, San Antonio, Texas - San Antonio, TX
ABR, CRS - Real Estate Broker & Investment Adviser

Excellent post, Russel. If you try compete on price, you'll always have to undercut the other guy to get the business. It makes it hard to compete on quality. It is difficult in real estate, especially in today's market, since we're talking about some big numbers.

Cheers,

Robin

Oct 07, 2009 04:34 PM #4
Rainer
287,194
Leslie Helm
Tennessee Recreational Properties - Jamestown, TN
Real Estate For Trail Riders

Hi, Russel. I was really enjoying this post until I got to the last paragraph! You sure are right and you sure nailed it! Great post!

Oct 07, 2009 07:10 PM #5
Ambassador
1,493,084
Anna Banana Kruchten
Phoenix Property Shoppe - Phoenix, AZ
Arizona's Top Banana of Real Estate!

Good read.  It's not about price it's about  the bottom line for SURE!  Once agents get this it's a real eye opener.  Right on Russell. Hey that kind of rhymes!  Can you say new twist - or have you used it before?

Oct 07, 2009 07:57 PM #6
Rainmaker
142,123
Brenda Archambault
The Real Estate Investment Institute - Houston, TX

Very good post and very well presented.

Oct 07, 2009 08:27 PM #7
Rainmaker
583,342
Susan Neal
RE/MAX Gold, Fair Oaks - Fair Oaks, CA
Fair Oaks CA & Sacramento Area Real Estate Broker

HI Russel - I have had people ask me at listing presentations why they should use me instead of someone who charges a smaller commission.  I show them a list of what I will do for them in marketing their property and suggest that they ask the other agent whether they do all of that.  I explain the kinds of expenses I have and that I will not ask them to reimburse me for any of them, but I will not lower my commission.  I haven't lost one listing of those who have brought this up.  We can't let ourselves be intimidated into working for free.  Good post.

Oct 08, 2009 12:00 AM #8
Rainmaker
583,342
Susan Neal
RE/MAX Gold, Fair Oaks - Fair Oaks, CA
Fair Oaks CA & Sacramento Area Real Estate Broker

P.S.  I meant to mention, that I have just seen proof that Zoey can read.  Why else would she lie in wait in a chicken box?  I'm sure she thinks the chicken just might come back and she'll get a tasty meal.

Oct 08, 2009 12:02 AM #9
Anonymous
Anonymous

Hey, Ana - I have a similar problem with my home inspection business. I seem to have solved it by becoming not only a middle-of-the-road home inspector, but a Nordstrom inspector and a Wal-Mart inspector, too. I created different services for those wanting different services. The Nordstrom shoppers can have my PREMIUM and TECH inspections, the Wal-Mart shoppers can have my BASIC inspections, and the average Joe Blow can have my STANDARD inspection.

Hey, Rebecca - As a young Realtor back in Texas in those days, I thought the guy in our office charging 8% was also, well, you know.

Hey, Carra - The easiest thing in any business is to control expenses because you have virtually full control over them. You don't always have control over getting people to pay you, especially if they think your price is too high to begin with and they go elsewhere.

Hey, Robin - I know many brokers forbid their agents taking listings at less than 5%, but I think that's where the real estate industry fails. Those who do the minimum get 2½-3% just like the person who goes above and beyond.

Hey, Leslie - At least I got you to thinking.

Hey, Anna - It's a real eye opener when someone tells me that they made $100,000 last year but need my help. Why? Because their bottom line wasn't anywhere near six figures. By the way, I liked it better when your name was under your picture instead of "Designated Broker/Owner."

Hey, Brenda - Thanks for the kind words.

Hey, Susan - When you are prepared to answer the objection, you often can overcome that objection, as you seem to do. And Zoey the Cool Cat has another thing coming if she thinks she's going to get a big, fat chicken - LOL. Everytime I go to Costco, I try to bring home a good box that Zoey the Cool Cat will enjoy. Rarely do I fairl, but she gets bored real easily with boxes. Now the red ring from around the milk jug is a different story. It's the only toy that she has never gotten bored with, and I have a few billion of them laying on the floors so she can choose which one she wants to bat around like a hockey player at any time. Here she is sleeping next to one:

 Zoey the Cool Cat and one of her red rings

Oct 08, 2009 07:37 PM #10
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Rainmaker
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Jim Frimmer

Realtor & CDPE, Mission Valley specialist
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