Applied Economics for Realtors

Applied Economics for Realtors

A short time ago, I was in a Clubhouse real estate room and I was called up to speak. This was a room designed to help people learn to cold call potential clients for lead generation.

After doing my presentation, which mainly consisted of our value proposition, everyone’s head exploded. When I finally got a moment to speak, I made this simple statement:

“Looking at it from simple economics, the less something costs the more you sell, and the more it costs the less you sell.”

How most real estate agents react

One would think this would calm the room and provide a commonsense moment that everyone could rally around, but the effect was the opposite. Everyone’s heads were put back together and immediately re-exploded because what they heard was not what was said. What they heard was: “If I charge a client less money that it savings and that means they make more money.”

You see the entire room is filled with dozens of agents all learning how to pitch that line: “You want to pay me 6% because I’m the best and despite paying me more I will net you more.”

Different way of thinking

I understand this argument and I’m fine if you want to build a business around that line of thinking. But what if you used the other line of thinking?

You see, every agent is a small business owner and I believe every small business owner makes a choice about the pricing of their products and services. However, real estate agents do not.

We are hardwired from birth not to discuss or even consider alternative pricing strategies because to do so is bad for the industry.

But when you stop and think about it, you realize that you can get a real estate license for under 150 dollars today and we have more agents than we do deals by a very wide margin.

What applied economics shows

Applied economics tells me the reason why we have such huge taxes on cigarettes is that we don’t want more people smoking and having a higher price on cigarettes means less of it is sold.

The same applied economics has me believing that we have tax incentives for people that invest their money for their retirement because the government can’t afford to pay 100% of everyone’s bills until they die.

Using the same simple economics, I will tell you the following things are facts and cannot be disputed. We can argue about the outcome of these events, but we cannot argue that they will exist.

value proposition in real estate

The following is true about applied economics in real estate:

  1. If you embrace a lower fee structure and tell the world about it, you are more likely to get new listings.
  2. These listings will come from total strangers who want to save money and past clients that are very loyal due to the value proposition.
  3. Consistent listings will generate more listings.
  4. These listings will generate a lot of buyer leads that you don’t have to purchase.
  5. You will make less money per deal (with my agents about 30% less).
  6. You will do a lot more deals (with my agents 4X the national average).
  7. More time will be spent doing deals and less time will be spent finding them.
  8. Your time, effort, and money spent on client acquisition will drop tremendously.
  9. Ultimately, you will make more money.

The entrepreneurial decision

Armed with these facts, every other entrepreneur in every industry would choose the option that will make them more money more easily. The problem is only a tiny fraction of agents are entrepreneurs. Are you?

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