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Archive for December, 2008

Dec
30

What Brokerage Should I Join as A New Real Estate Agent?

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I’m on the warpath again.  Yesterday marked my first post-Christmas interview with a real estate agency.

 

This time, it was Keller Williams in Bothell, who I was fairly impressed by.

 

So far, I have interviewed with or applied to the following real estate brokerage houses:

 

  1. Prudential Northwest Realty – They pay for a lot of your mailings and have a great online corporate presence and relocation business.  However, there’s a lot of expense in supporting the franchise.

  2. Edmonds Realty – This was a Mom & Pop I interviewed with last year.  They say they have great training, but they have a high (50%) commission split when you get started.
  3. Marcus & Millichap – Read about how that started and ended.  They have a great platform to provide value to sellers (namely, lots of inventory throughout the nationwide office, and a nationwide internal MLS to help clients access that inventory.  They also have a lot of 1031 buyers).  The downside is that you’re at a 50/50 split.  Also, Marcus & Millichap focuses just on investment property sales, and they don’t do any leasing.
  4. Fursse & Hall (local Mom & Pop commercial firm).  Generous split (30/70 til you reach your cap, which is also low), but they aren’t a big name and don’t have too many agents or any training.
  5. CBRE – I heard rumors that this public company was courting the big BK?  This is the 200-lb gorilla in our marketplace.  They have a lot of corporate clients and don’t focus much on working with individual Mom and Pop investors.
  6. GVA Kidder Matthews – This commercial real estate firm is big around here (Seattle) and won over a lot of converts from Marcus & Millichap.  Their big advantage?  90% commission split.  They do leasing and sales, and have a lot of signs up in my neighborhood, but they weren’t hiring when I interviewed there, so I don’t have many specifics.
  7. Zip Realty – This is a great firm if you want to be a buyer’s agent and drive people around in your car all day.  There is no out-of-pocket lead generation.  Their agents average 1 closing per month.  Only 10% of their business is on listings, they are working on getting more listings, but they are all about buyers.  Between the discounted commission and fees to the house, you would only make about $3,000 commission on the sale of a $300,000 house, though.  In my market, if I were an average agent there, I would make about $36,000 per year working full time with lots of nights and weekends, presumably.  The top agents seem to do about 3-4 closings a month, so you could make in the low 6-figures with this firm if you were good.  This is perfect for a buyers agent who wants to be in real estate full time and focus just on fulfillment and follow up, not on marketing.

    They don’t charge any desk fees here, but the commission splits are really weighted toward the house.  You’ll keep about 30% of your 3% gross buyer’s agent commission.

  8. Connect Realty – This is the MLM of real estate companies.  This one is pretty intriguing and I would probably pursue them if I just wanted to focus on being a real estate investor and have a place to hang my license for the occasional deal.  They charge $200/year as a desk fee and you are locked in at an 80% commission split (if you’re a new agent your first 5 deals are at 70% because you’ll pay a mentor 10% to work with you and help you get going).  The MLM part of it is that 15% of your commission (taken out of the 20% that you don’t get) goes to the people who brought you into the company… your “upline.”  This means that if you recruit a lot of new agents, you can profit from their deals and their commissions as well as your own.

    However, I don’t think this model makes a lot of sense to me as a new agent.  I need training and support, which Connect doesn’t seem to have available yet.  Perhaps if you had a supportive sponsor to bring you into the business and help you get started you could do well, but I don’t know anyone who is in this firm.

    Since agents essentially get paid to bring you into the company, it’s harder to find a lot of balanced feedback online – everyone is trying to recruit you.

  9. Keller WilliamsKeller WIlliams Realty – This is the firm I interviewed with today.  I really liked them.  You have an $18,000 yearly commission split cap and after that you’re at 100% commission.  The desk fee is only $32/month, so it’s very affordable.  They pride themselves on having extensive training.  50% of the office’s profit is split with the agents (the other 50% goes to the franchisee).

    Even though they’re not a big brand in Seattle, yet, I like what I see here.  They pride themselves on a great training program, which I think is critical.  They also encourage team building so you can work your way into a leveraged business model (e.g. hiring personal assistants, buyers agents, listing specialists, etc.).  They also have a residual income model similar to connect realty, but it seems to be much less of a focus (more the icing on the cake, than half the cake, itself).

  10. Windermere Realty – This is the big “prestigious” local player in the area.  I haven’t interviewed with them yet.  They seem to lead with the company attitude of “you need us more than we need you” when it comes to their agents, and don’t give agents much freedom to agents to market themselves prominently.
  11. Redfin – This is an online broker who pays you “by the job” – you go show a property, they give you $120.  You go let the property inspector in, they give you $50.  This is a great “part time job” or “independent contractor” model.  You can earn a little extra money with your license without needing to build a business or have marketing expenses.  This would be ideal for the person who wanted to be a freelance real estate agent.  Unfortunately, after they initially responded to my resume, I’ve called and emailed about 7 times and haven’t been able to hear back from them.

 

My conclusions as a new agent looking to choose a real estate broker:

Based on my research of the residential real estate brokerage model, I don’t see that any individual firm is able to offer sellers a distinct advantage.  (Am I wrong here, experienced agents?)  What one firm can offer you is pretty much as good as another.  When a consumer chooses to buy or sell a house, he is most often making the decision to work with an individual AGENT rather than choosing a firm.  The exception to this may be the one or two “name brand” firms that dominate a given marketplace.

What that means to me – as an agent – is that I should set up my business to be able to market MYSELF, through blogging, websites, postcards, signs, etc., rather than marketing my COMPANY first and foremost.  I should also align myself with a company that lets me keep as much revenue available as possible (low commission splits and caps) so I can reinvest in marketing myself.

 

Although most sellers choose to work with the first agent they meet, some (about 30% as I understand it) interview multiple agents.  When they choose an agent, what are they going to make the decision based on?

 

What sellers are looking for in their real estate agent:

  1. Is my house priced correctly so it will sell in the desired time frame?
  2. Is my house marketed correctly?  What investment in marketing is my agent willing to make?
  3. Communication – how often does my realtor get in touch with me?  Is she/he pleasant to deal with, return my calls, etc.
  4. Negotiations – How good is the realtor at negotiating on my behalf?
  5. Closing details – How much hassle will I have in getting the closing together?
  6. Price – Will the agent discount his/her commission?

 

What Does the Brokerage Offer That The Individual Agent Doesn’t?

When push comes to shove, most agents don’t sell their own listings any more.  The buyer and the buyer’s agent usually come through different venues – not through the listing agent.  That reduces the listing agent’s job to primarily just exposing the property, making sure it is priced correctly, and then coordinating communication to get the deal done.  As agents, we offer these services and our expertise in performing them.  Assuming we offer excellent service, the only other place for us to compete is price.  The question of whether or not to cut commissions is one that could develop into a completely separate blog post.  I don’t know the inside perspective from the realtor’s view point yet, but as a consumer, I can say the following…

 

I continue to maintain (sacrilege, I know…) that the reason so many realtors flood the marketplace is that it is such a profitable high-margin business.  Especially when realtors market themselves on the basis of availability and relationship (I’m friendly and smiley) rather than expertise, it seems that there is very little to differentiate one agent from another.  We’re ALL nice when we want your business, right?

Brokerages that serve their agents well, will ultimately build a reputation for serving their clients well, too.

Plus, what do agents do with all the profits that they earn in business, they plow it back into marketing… and not marketing to SERVE clients, but marketing to FIND clients.  This giant inefficiency is my primary gripe with the real estate brokerage industry.  It would go away if it was less profitable, and it would be less profitable if consumers insisted on using discount-priced agents.  While some clients use these, many believe that you get what you pay for in life, and are more comfortable going with a full-price agent.  So be it.

 

So, what it comes down to – if the well-informed consumer were really able to make an educated choice is finding an agent who is good at doing their job, and getting the best possible price for the agents services.

Hint to Clients – ask the agent if they’ll negotiate on commissions. 

Hint to Agents:  Don’t offer to negotiate on commissions – show your value and then stand firm on your price, Americans hate to negotiate, so if they’re not sold on working with you, it’s rarely because of price… find out what their other objections are. 

 

In my opinion, finding an agent “who is good” comes down to training and hard work.  As a new agent, I want a real estate broker who offers me in-depth training when I get started, and ongoing training to help me get better and better.  I don’t just want to be trained in how to get leads (this is good for ME) but how to implement systems and serve my clients better.  (This is good for THEM.)

 

In the long run, I think the best agents will choose the brokerage that allows them to serve their clients best, and make the most money.  Brokerages that serve their agents well, will ultimately build a reputation for serving their clients well, too.

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Dec
18

In Commercial Real Estate, Cap Rates Are Up – Is It Any Real Surprise?

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You’re hearing about it when you talk to your real estate agent, you’re painfully aware of it if you’ve thought of selling a property, and maybe you’re excited about it if you’re out hunting for a deal.  The big news is (drum roll…) cap rates are up!

(Don’t know what a cap rate is? Check out my diatribe about cap rates and how to use them and when to ignore them!)

Does This Mean My Real Estate Agent Won’t Laugh At Me Anymore?

If you’ve been following commercial real estate for any length of time, you’ve probably been discouraged by the one-two punch of (1) gurus telling you to get out there and look for high cap rate properties that will cash flow, and (2) your real estate agent chuckling about whether you’ve been to a seminar lately and thinking, “Yeah… sure!  If that type of property comes along, I’ll just buy it myself.”

I will digress again to say that real estate agents are actually NOT usually your big competition in finding good deals.  In my experience most of them do not invest themselves, don’t have the cash on hand to buy big deals when they see them, are more interested in the “quick hit” of getting their commission, and (best!) didn’t know the seller would take that low offer you just made!

Real Estate Agents don’t have the cash on hand to buy big deals when they see them, are more interested in the “quick hit” of getting their commission, and (best!) didn’t know the seller would take that low offer you just made!

The fact is,  you can always snatch up great, below-market real estate deals if you’re willing to be persistent and take the time to look for really good properties.

Does This Mean I Can Find Great Commercial Properties To Buy Now?

So what’s happening now… suddenly you don’t have to be persistent to find the good deals?  Good properties that meet your “guru’s” buying guidelines are starting to pop up all over the place, aren’t they?  High cap rate properties abound!  What’s going on?

Even in the Seattle commercial real estate market, one of the strongest in the country, we are seeing cap rates go up.  Agents are telling investors who are considering selling any time within the next few years – “Sell now, this is as good as it’s going to get, it’s going down from here (or running flat, at best).”

People Are Paying Less For Property Because There is Greater Risk In the Marketplace

The higher cap rates are simply a reflection of the declining expectations for property values.  No one wants to buy a property that’s going to be WORTH LESS in a few years time, that’s why seller’s are having to discount their prices TODAY to entice buyers to come on board.

Pay Less Attention to Cap Rates, and Greater Attention to Market Cycles!

One broker told me he thought there was a 25% disparity between what sellers thought their properties were worth and what buyers thought the properties were worth.

Novice investors beware – there are lots of great-looking properties flooding the market right now, if you only look at cap rates.  This is an important time not to be blinded by the short term or historical performance of the property.  Look at how the property is situated to ride out the still-declining market cycle.

If you’re in it for the long haul and plan to be buying through-out the dip, then yes, by all means, go for the good deals (negotiate hard though, buyers with cash or financing in place are especially in demand right now).

If the deal is right, it’s always a good time to buy.  If the market is right, it’s easier to find a good deal.

But if you can only buy one property in the next few years and you want to make sure it’s a winner.  Keep looking for motivated sellers and CREATING (through offers and negotiation) good buying opportunities.  Buyers are king in this marketplace.

Also, when you’re running your figures, throw in a big grain of salt to account for the risk you’re taking.  There’s a reason cap rates are rising!

– When somebody’s down, someone else is up! –

 

Emily

 

P.S. We haven’t hit the bottom yet, in most real estate markets.  To find out where we are in the market cycle for the real estate markets you’re in – check out this service!

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When it comes to college savings, you may feel that you’re fighting an impossible battle, but the more you can save and the earlier you start, the more options your kids will have down the road.

Now that we have a baby in the house, starting to save for college has become a big topic of conversation for my husband and me.

Not only do we have to decide what type of plan to go with – we’re batting around doing BOTH a 529 Plan and a Coverdell Educational Savings Plan – but also how much to set aside.

The fact is, the top private colleges are extremely expensive and yearly tuition hikes show no signs of slowing. 

In fact, I read a interesting article recently saying that some schools were boosting their perceived desirability by charging MORE. Admissions actually went up when some schools raised their tuition because students have begun to equate a high price tag with a high quality education.

Can You Save Enough For Your Child’s College Education?

“In the absence of any objective measure of the value of an education, price becomes the default yardstick. The more expensive a college is, the better the education it presumably provides. (After all, if other families were willing to pay this much to send their kids here, it must be worth it.)” – www.Money.CNN.com

No doubt about it, college is getting expensive.  Assuming you wanted to, could you actually afford to send your kids to a private 4-year college? Here’s what you’d have to save:

  • Tuition, room & board, books, etc. at a private college may be on average around $142,000 for the whole she-bang.  Using $25,000 for tuition, $7,000 for room and board, and an additional $3,500 or so for books, travel, and entertainment each year, or $35,500/year.
  • At a public college with a tuition of closer to $6,500, but the same cost of living expenses, we could expect a yearly bill of $17,000 or $68,000 all together.  I know where I could buy a house for that much money, right now… (Come to think of it, maybe I should just buy that house on a 20-year mortgage and plan to sell it when junior’s ready for college…)

If you think that the cost of education will keep rising, let’s say at an average rate of about 5% a year, you’ll actually need more than this to pay for your child’s costs by the time he’s old enough for college.

Building in this price inflation, you could be looking at:

  • Private College Education Costs in 2028: $377,000
  • Public College Education Costs in 2028: $180,000

Whew!  That’s a real sting, but it pays to be more realistic and foresighted now, than to be caught flat-footed with fewer options on the table down the road.

Does Your Financial Plan For Your Kids College Let You Start Saving (and Investing) Now?

What all this means is if you want your kids to have the option of the very best education money can buy, and you start saving when they’re born, with a 20-year investment window, let’s see how much you have to put aside each month.  (I’m going to assume an 8% rate of return because we’ll need to invest a little more conservatively since we don’t have as many years for the investment to grow.)

  • To save up for the public school education, we’d need to save $3,700/year and we’d end up with $182,825 in 20 years.  That’s setting aside just $308/month per child.
  • To save up for the private school education, you’re looking at socking away more like $7,700/year to accumulate $380,474 in 20 years’ time.  That works out to $641/month per child, which is a much heftier chunk of change, especially when you consider the cost of several children. 
  • Also, if you start later, say when each child is five years old, you’d have to put away for $525/month for public school and $1,083/month/child for private.

 

I know most of us aren’t putting away that much for our own retirements (retirement savings should take priority over college savings in your financial plan, by the way) much less saving it up for the kids’ college.  It’s a big undertaking, especially when you consider all the other costs that come along with a new baby.

At a certain point, if you’re not incredibly wealthy, I think you have to just say, “I will save as much as I can reasonably put toward my kids’ college education, and if they want or need more when the time comes, perhaps they can contribute to the costs through their own job or business, through scholarships, and through debt. 

I was fortunate to get a college scholarship myself.  Even though it wasn’t to a fancy-schmancy private school  (rather, it was to a great public university), I decided to take it because it offered a great value.  There are lots of grants and scholarships available for kids who keep their grades up and excel in extra-curriculars.

Keep Your Head Down and Your Chin Up (If You Can Do Both At The Same Time) And Start Saving

It can be frustrating to feel like you’re fighting a no-win battle to save for a college education for your children.  The key is to not get discouraged, but to just make regular, affordable contributions month-in-and-month-out.

You may not be able to save 100% of what your kids will need for college, but remember that this is a gift to them, and everything that you CAN save will relieve them from debt, work, and compromise down the road.  However, although I’m not a big fan of debt.. hard work and compromise aren’t always so bad.

Keep Pluggin’ Away!

 

Emily

Dec
16

Buyer Beware: Lessons from Ponzi Scheme Billionaire Bernard Madoff

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Aye, Carumba!  Apparently government isn’t the only place there’s graft!  Last Thursday, officials pulled the lid off billionaire money manager Bernard Madoff’s 20-year-old Panzi scheme.

Madoff’s illicit “investment fund” paid an attractive 8-12% return reliably, no matter what the markets did.  That, say investigators, was red flag number one.

My mother and I chatted about this last night and she mentioned a new investment fund opening in our area is probably not enjoying the ripple effect that Madoff’s headlines are having on its investment prospects.  It’s probably tough to be raising money for investments right now.  Not only is the economy in the tank, but investors’ confidence is low in the aftermath of this news.  Fortunately for me, I don’t have any open funding projects at the moment. 😉

In the wake of this giant blow to trusting investors, (a lot of charities invested with Madoff, too), I think it’s worthwhile to take a look at what to do (and not to do) in selecting our own investments.

 

Watch Out For Sales Triggers That Lead To Social Pressure To Invest

One of the brilliant parts about Madoff’s business plan was how he attracted new investors. Marketing was largely handled through word-of-mouth.  Big-wigs at country clubs and golf clubs would be appointed as ambassadors for the fund.  They would go in, brag about their portfolio’s stellar returns, and build buzz to get people talking.  When listeners would express interest in the investment fund, the ambassador would mysteriously say that the fund was open by invitation only, but he would see if he could “get you in.” 

This was a powerful model because prospects assumed these big-wigs knew more than they did and were more savvy investors.  Also, after the ambassador went through the trouble of “getting you into” the fund, it might seem insulting not to invest, or to ask too many questions.

In fact, Madoff was known to turn away investors who asked the hard questions… thereby discouraging that type of behavior and ensuring the majority of his clients toed the line.

 

Ask the Tough Questions

It’s so hard in today’s busy world to really ask the tough questions (or even figure out what they are, so we can ask them!) when we’re confronted with an investment opportunity.  Salesmen are highly skilled at pushing our emotional triggers so we make the decisions they want more quickly (and rashly!) than we might otherwise do!

Here are a few indicators that you are getting sold that I’ve picked up:

  1. Where did you meet this person?  Are you in a “sales funnel” right now?  If you are at a seminar event, if you have responded to an ad, or if someone called you on the phone to talk to you about this opportunity, chances are good that you are being sold.
  2. What happens if you don’t buy now?  Are there any “triggers” being employed to encourage you to make a decision?  Common triggers include Time Pressure (you must act before this deadline passes), Social Proof (Testimonials are a common example of this.  Anything that promotes the idea that “everyone” is doing it…), Bundling/Bonusing (“When you act now, you also get…” or “But wait, there’s more!”), and lookout for Upsells – now that you’ve bought this inexpensive product, how about upgrading to something just a little bit better.
  3. What is this person’s business model?  If they have a HUGE profit margin or spend a lot more time converting prospects than delivering products and services, then chances are good that you’re in a sales funnel.
  4. What type of product are you buying?  If it’s something exciting or emotionally charged along the lines of making money, weight loss secrets, a business opportunity, or how to look younger; take a second look.  These types of products are perennial best sellers and have attracted a lot of sales professionals and a lot of over-hyped products.

Know How To Brush-Off Frequently Used Sales Devices

One of the best books I’ve read on this topic of understanding the psychology of sales is: Influence: The Psychology of Persuasion by Robert B. Cialdini.

Cialdini, a professor of Psychology, wrote the book because he wanted to figure out why he was such a “chump” when it came to biting on salesmen’s offers, even for products that he didn’t want. 

In his detailed research covering donating to charities, joining cults, supporting political causes, and of course, buying things… Cialdini, reveals many sales triggers, and how to combat them when we find ourselves as unintentional prospects for a new sales process.

Ironically, this book has become a sales bible for many copywriters and sales professionals who use it as a “how to” guide when they’re working with prospects.

It’s useful no matter what side of the aisle you’re on….

Trust Your Gut

You’ve heard it before, but when something sounds too good to be true, it probably is.  If you are feeling pressure to buy something, or excitement about the buying process, take a moment to calm down and take a deep breath.  Walk away.  If it’s a legitimate offer for a real product or service, it will still be there tomorrow.  Also, talk about it with a spouse or someone else who hasn’t gone through the sales funnel, and see how things sound to someone “on the outside.”

Ask some tough questions… don’t just accept the “illusion” of the success or value of the salesman’s product.  Ask how many of their clients are successful with the product or service.  Ask about their return/refund  and retention/renewal rates.  Ask if the seller actually uses the product.  Ask to talk to real clients, not just the people quoted in the ads… see if you can talk to both satisfied AND UNSATISFIED clients.  I always do this with contractors.  It really gives you a better sense of how folks are conducting their business.

In these days of tight economic times, everyone is trying to be more prudent with their spending.  Likewise, a lot of people are out pitching “make money schemes” and the like, which really don’t pan out upon closer inspection.

If you are a marketer – Please market with integrity.  If you are a shopper, consume with foresight and understanding.

 

To Prosperity!

Emily

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About Emily Cressey

Emily Cressey is a real estate investor and licensed real estate agent living in Seattle, Washington. After graduating Phi Beta Kappa with an Economics degree from UNC-Chapel Hill (Go Tarheels!) her focus has been on building business for cash flow and investing in real estate for wealth. If you have questions about real estate investing, personal finance, or would like some flat-rate, affordable advice on one of these topics. Please fill in the Contact form.