Even though commissions may seem large, your real estate brokerage needs to slim down its expenses. Margins are thinner than outsiders realize, and with tough competition, you need all the advantages you can find.
That’s why it’s essential to audit your expenses, looking for places where brokerages tend to waste money. These aren’t the hefty costs that get on your radar more or less automatically. Rather, they’re the little costs that could impact any small or large real estate brokerage firm.
Here are eight money wasters all too common in brokerages across the country. If you can cut or cull even half of them, you’ll set yourself up to take a leading role in your market.
8 Places Most Brokerages Can Save Money
1. Variable Expenses
We’ll start this list with the one common to almost every business on the planet: variable expenses. This is the scourge of companies large and small, but that doesn’t mean you shouldn’t pay close attention to it.
Expenses for a company are split into two broad categories:
– Fixed expenses, which don’t change in real time. These are things like rent, insurance premiums, subscriptions, dues and employee salaries. It’s possible to adjust them, but usually not without waiting until a specific time or making significant operations changes.
– Variable expenses, which you can reduce with small changes. These are things like utilities, hourly payroll, office supply costs, materials costs and cleaning supplies.
Most companies waste money on variable expenses through inattention, letting them bloat until they’re out of control. Common variable expenses for a brokerage include auto expenses, fuel, meals and marketing.
These categories are necessary parts of doing business, but their costs can spiral upward quickly.
What to Do About It
Set goals to reduce each of the four categories above (auto expenses, fuel, meals and marketing) by 10 percent in the coming quarter. You’ll be surprised how much of a difference those small cuts make in your bottom line.
2. Lockboxes
The average cost of a single lockbox isn’t too high—just $50 to $200, depending on the kind you purchase. But when you consider that 106,000 real estate brokerages in the United States listed 5.34 million homes in 2019—that means each brokerage listed an average of 50 homes. The cost of those boxes adds up quickly.
And don’t forget the price of the supra keys used in most lockbox situations. These can add up to thousands of dollars annually.
Unfortunately, lockboxes are a fixture of the industry, a standard practice that’s mandatory for some organizations.
What to Do About It
Be tactical about which homes you use your lockboxes on and how many lockboxes you keep active at any given time. Only use one when open-house-only sales aren’t an option, and never use one when the seller still occupies the home you’re selling. Make appointments instead.
For the lockboxes you do use, don’t fall into the trap of investing in the high-tech versions.
3. Signage Costs
You can’t sell a home without a sign. Well, you technically can in the internet age, but it’s harder. Besides, there’s a ritual to placing a “for sale” sign in a client’s yard that carries emotional weight and makes your job easier. That said, these signs are expensive.
Worse, that yard sign isn’t the only one you have to use. Location signs, open house signs, “sold” and “pending sale” signs, plus flyers all add up faster than any of us would like. And don’t get us started on the fancy, custom designer signs some HOAs require. These all cut into your commission.
What to Do About It
Reduce, reuse and recycle. Create as many signs as you can from scratch with reuse in mind so you don’t have to recreate them for every listing. For signs that do need custom work, create a set of attractive templates with small, customizable elements so you pay for as little design work as possible.
4. Memberships and Dues
It’s not impossible to be a successful brokerage without membership in MLS and NAR, but it’s harder. You also have potential access to other listing groups, like Trulia, Zillow and local databases.
Each one of these memberships offers resources for your brokerage and increases your listings’ reach. That makes it tempting to keep them despite the cost. However, it’s possible one or more of them aren’t making you enough money to justify the expense.
What to Do About It
Make a list of all the memberships and dues you pay each quarter, then run an audit on each for at least the past two years. Those that bring in more money in sales than they cost are worth keeping. Those that don’t, you should consider eliminating from your repertoire.
5. Open Houses
Open houses are a fixture of the real estate industry, but they can result in surprisingly high expenses when totaled up at the end of each month. After all, you pay out of pocket for:
– Advertising
– Fuel and mileage for the agent
– Utilities (in unoccupied listings)
– Cleaning
– Staging
– Candles or other odor management
– Snacks and drinks
Add to this the fact that online home sales walkthroughs make open houses less effective as technology improves. Some sources suggest open houses are better tools for agents than for the homeowners because they give the agents access to a string of potentially unrepresented homebuyers.
What to Do About It
Relegate open houses to only the listings that need the boost. Focus your efforts instead on internet listings and appointments, which provide better leads for less effort. When you need to hold open houses, get strategic about timing and locations to minimize fuel cost, buy refreshments in bulk and minimize other costs.
6. Passive Marketing
Like your expenses, marketing falls into two broad categories:
– Active marketing, where you initiate contact through deliberate, purposeful action. Examples include calling potential buyers, attending events and selective targeted advertising or publicity drives.
– Passive marketing, where you leave marketing materials up on the web or out in public, then wait for a client to call.
A successful brokerage uses both marketing types. Active marketing is the most effective of the two, while passive marketing represents a much smaller proportion of your successful sales.
What to Do About It
Do a robust audit of the cost/income ratio for all of your passive marketing initiatives. Triage them into thirds and drop the bottom-performing third. Keep the top half. For the middle, see what tweaks you can make to improve their performance, then recheck them in six months.
7. More Office Than Necessary
Somewhere in your city, there’s a brokerage with a gorgeous office: spacious, well-decorated, and very official-feeling. It’s a place that simultaneously impresses clients and makes the agents feel like they’re professionals. Maybe it’s your office. Maybe not.
Either way, that office costs a fortune in rent, utilities and upkeep. A more modest space costs less but still costs more than is strictly necessary. Your agents will do most of their work off-site, so how much office space do you need? More agencies are going entirely virtual every year, with agents maintaining a home office and occasionally renting space to do paperwork and hold meetings.
What to Do About It
As your lease comes due for renegotiation, seriously consider how much you can scale down your operations. If every agent has their own office, can you get by with a large bullpen arrangement instead? If you’re using a bullpen, can you use a smaller site? Is it time to just go virtual and ditch the office entirely?
8. Purchased Leads
Every sales operation in the world buys leads from time to time. If they’re high-quality leads and are served by talented salespeople, they’re worth the money spent. If only one of those things is true, you can sometimes get more out of them than they cost. If neither is true, it’s wasted cash.
A brokerage can purchase leads from various sources, both for potential buyers and people putting homes on the market. In most cases, you must do this, but it’s equally essential that you make sure you’re buying only the best.
What to Do About It
Audit your lead purchase sources and find patterns of quality. Some are bad all the time, and some are reliably good. Some seem unpredictable but fall into a pattern—for example, the provider only updates the list periodically, meaning it’s good early in a cycle but degrades over time. Make your future lead purchasing decisions accordingly.
Also, make sure those initial contacts to each lead are from your top-performing salespeople. Brokerages often assign those first calls to their appointment setters and assistants, meaning it’s the less-experienced people making that all-important first impression.
Final Thought
We’re not saying you need to cut every item on this list to the bone. Clients expect some of them, and others might work better for you than for the industry on average. We are saying that if you audited each item on the list—say, one a month for the next eight months—and found ways to cut them each by 10 percent, you’d save enough money to step up your spending in the places that bring in more leads and generate more sales.
Marc Schmitt is a financial journalist who writes for Money Crashers about the real estate market and the financial services industry.
