The Profit Model of a Buyer’s Agent is Broken

With many of our clients, our concern is that the buyer business of many teams is broken. Even if the team closes 25, 50, or 100 buyer deals via buyer’s agents, the profit may be zero or very low. Let me walk you through an analysis.

Here is a sample budget model for a large team with low profits:

  • Brokerage – 10 Percent - Paying $100,000 on $1M in GCI because of overpaying brokers or paying for the splits/caps of the buyer’s agents

  • Marketing - 20 Percent - Overspending on lead generation and wasting leads

  • Assistants and General/Admin - 20 Percent - Let’s assume this is a normal figure

  • Buyer’s Agent Split - 50 Percent

These figures may not be exact, but you can see a buyer business model with low or zero profits. It really does not matter if you get more leads, more buyers’ agents, or close more buyer deals; you are still going to make almost no profit.

For more advanced teams, they may be adding a caller, often called an ISA (Inside Sales Agent), to help with buyer conversion. In many cases, the caller is added simply because the buyer’s agent will not do the jobs they were hired to do, which includes spending two to three hours per day calling the buyer leads. In our view, the calling role should end up being about ten percent of your GCI.

When adding a caller/ISA, the proper way to handle the budget is to subtract the caller cost from the buyer’s agent split. If a deal was via a caller, the buyer’s agent may get 40 percent instead of 50 percent. This does not solve the problem of overpaying the buyer’s agent, but it may lead to more deals closed.

Sometimes the caller cost is split between the business and the buyer’s agent so the 50 percent has another five percent paid by the owner for a total of 55 percent. The worst possible situation is when a caller is added and the cost is not subtracted from the buyer’s agent, so you end up paying 60 percent total.

Caller compensation is often a mixture of a base salary plus a bonus. If the volume is not high enough, even though you budgeted ten percent for caller costs, you may be paying 15 to 20 percent but only charging ten percent to buyer’s agents.

The owner may also be spending management time on the buyer side of the business as well as a handful of buyer’s agents. Let’s assume your time is worth $200/hour and you spend one hour per day on some aspect of the buyer business or buyer’s agents. You would be spending $200/hour times 200 hours, or $40,000 of your time on the buyer side.

Have more questions? Call me, email me, or reply to this blog. I’d love to hear from you.

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Comment balloon 0 commentsSteve Kantor • June 24 2014 07:36PM