By Lloyd R. Manning
It’s a given that each year across the county, real estate offices waste many dollars because they fail to adequately control costs. Some, such as the agents’ commission splits, are fixed and perpetual, which management can do little about. Most others are controllable and in some instances can be eliminated or at least substantially reduced. It’s not a couple of thousand dollars here, and another thousand or so there, but those nickels, dimes and single dollars that soon add up. It’s been said that there are only a few places to save a million dollars – but a million places to save a dollar.
Real estate brokerages are caught in the middle. Costs are steadily increasing while for many, income is decreasing. Due to the continuing pressure of the discounters, com-frees and the like, and the continuing upward movement of the cost of just about everything, many brokerages are seeing lower profits for more effort. You can’t raise prices like a retail store, but you can reduce operating expenses. So much money comes in and so much goes out. It’s the bottom line, the glue factor, the amount that sticks that counts. This involves undertaking a detailed examination of every expense generator, asking and answering, “Is all of this really necessary?”
Questions to ask include whether the office is compatible with the type of real estate you sell and the services you render; the number of clerical staff you actually need (as opposed to the amount you assume you need); how your location identifies with your clientele; furniture, fixtures and equipment; variable costs compared to productivity, and other inputs that would include how your clients, agents, and employees view the relativity of these various factors.
Probably due to the wide divergence in size and location, trying to establish industry averages of what it costs to operate a real estate brokerage is a hit and miss proposition at best. There were some doctoral studies about real estate brokerage efficiency done several years ago, but they are of little help. The common suggestion is that operating costs consume 30 to 35 per cent of commissions and fees in the split-commission houses, and the 100 per cent commission houses should net about 10 per cent. Without pinning down any numbers, these same studies indicate that on a per cent of revenue basis, larger brokerages are not more profitable than smaller ones, and that franchised brokerages are for the most part more profitable than the independents, even after paying the franchise fees.
A major expense and wasted dollars item for many real estate offices is stationary and supplies. Here is where you must be a policeman because a sheet of paper wasted, the loss of a few pens or pencils, or a presentation binder mucked up, are individually not big ticket items. Still, they soon add up. When buying, shop around. Ensure you are getting the best deal. Are you providing school supplies for your agents’ families? Are you sure?
For non-confidential matters, print on both sides of the paper. As the price of computer printer ink has sky rocketed and the stuff you buy in mall kiosks or on-line will ruin your printer (I know from experience), check out black and white laser copiers. They are far cheaper to operate. Are you certain that you really need that many copies of everything? How much propaganda do you copy and send out blindly? Paper has a bad habit of building up and up.
Take a look at leasing rather than buying and owning your office furniture, fixtures and equipment. You may find that leasing is cheaper in the long run. Money is not made by owning equipment but by using it, so whether to buy or lease is strictly a best use of capital decision.
Have a hard look at your lease and office space requirements. You don’t need me to tell you that with the advancements in laptop computers and portable phones, the requirement for fancy uptown digs is getting less and less. Many brokers are paying for a lot of high-priced office space they don’t really need, providing cubicles and branch offices for agents to read obsolete MLS catalogues and rattle their papers. Selling real estate is a home-to-home or office-to-office business – the clients’, not yours. If you have excess space, can you sub let it? Can you negotiate with your lessor for a better rate? Can you relocate to less expensive premises without doing your business any damage? Determining your actual needs involves undertaking an assessment of how important your location is to your clientele and how much business you actually do in your office.
Although it may not work in a larger brokerage, you might consider the virtual office concept. As a package deal you can lease your space in an office park or multi-tenant centre of some type that includes furniture and equipment, telephone, computer, photocopier, Internet services and frequently clerical staff. You only pay for what you actually use. For some this is a cost saving and it frequently provides added convenience.
There are several new composite computer software programs on the market that are designed specifically for real estate brokerages. Their intent is to combine all intra-office procedures into one package, rather than having several different programs on one computer or on several that are networked. This eliminates the necessity of having one system for accounting, one for transaction management, a data base for agents and clients, a sales management system and others, which are often not compatible with each other or user friendly. Users of this new software report substantially improved administration and data control. However, some of this software is quite pricey and you should weigh its initial cost against the longer term benefits.
There are many other cost saving measures that you can undertake. We have only hit on a couple. A whole article could be done on how staff wastes time and money. If you look for expense cutting measures, you will find them.
The bottom line is calculating how much it costs per agent to run the office and determine if what you are doing is the most efficient method. Make it a team effort where all participate. Meticulously itemize office costs. Set up benchmarks and work towards them, cutting corners where necessary. For greater profit, increasing revenue is only half the battle. Reducing expenses is the other half.
