Understand Your Two Real Estate Businesses

1. Understand Your Two Real Estate Businesses The Buyer Side and The Listing Side Glenn Neely

2. Glenn Neely Marina del Ray, CA KW MAPS Coach Understand Your Two Real Estate Businesses

3. Please complete an evaluation formfound in the back of your program guide. Understand Your Two Real Estate Businesses

4. Who Should Be Here • Any team owner engaging in listing and buyer sales • With at least one buyer or listing agent on your team who earns commissions • Any agent currently or prospectively planning to build a team Understand Your Two Real Estate Businesses

5. What We Are Going to Talk About • More In-depth Way to Review Your P&L • The MREA Budget Model—Profit Margins • The Bottom-Line Effects of Buyer Agent and Listing Agent Compensation Rates • The Bottom-Line Effects of Operating Cost Allocations and Changes • The Bottom-Line Effects of Percentage Changes in Business Mix—List vs. Buy Understand Your Two Real Estate Businesses

6. Why This Is Important to You • Combined results can hide structural profit/margin problems • Outsized commission plans and/or expenses can lead to “hidden” subsidies in your businesses • Understanding the components of your team’s profitability allows you to make better decisions on how to deploy capital-enhanced ROI, net profits, and operating margins Understand Your Two Real Estate Businesses

7. MREA Budget Model • Start with the standard MREA Chart of Accounts format Understand Your Two Real Estate Businesses

8. A Standard MREA Profit & Loss Understand Your Two Real Estate Businesses

9. What Do Your Two Businesses Look Like? What Do They Look Like When You Combine Them? ? Understand Your Two Real Estate Businesses

10. You Really Have Two Businesses • A Listing Agency Business • A Buyer Agency Business Understand Your Two Real Estate Businesses

11. You Really Have Two Businesses • Both have unique costs: both operational costs and commissions paid to team members • Some costs are attributable or shared by both of your businesses Understand Your Two Real Estate Businesses

12. Splitting Them Apart In order to determine the health of EACH of your two businesses … • You must split the income and expenses for each. • Make sure you account for listing commissions and buyer commissions separately. • Make sure you account for listing and buyer side operating costs separately. Understand Your Two Real Estate Businesses

13. Understand Your Two Real Estate Businesses

14. The Standard MREA Metrics Understand Your Two Real Estate Businesses

15. Vital Metrics • Your GCI: • Split out listing business and buyer business • Your commissions (COS) paid: • Split out listing business and buyer business • Your Operating Costs: • Split listing business vs. buy business • Method • Actual • Cost Allocated • By % of revenue - list vs. Buy • By sides closed - list vs. Buy Understand Your Two Real Estate Businesses

16. Cost Allocations • Actual • A team has a transaction coordinator who works only buyer sides. This salary cost would be actual and counted as a direct cost to the buyer business regardless of volume or deal count. • Allocated • A team has a transaction coordinator who works on both listings and buyer sales. This salary cost would be allocated based on one of several methods. Understand Your Two Real Estate Businesses

17. Examples of Shared Costs • Administrative Staff • Rent • Lead Generation: Internet, print mailers, radio, etc. • Management • Telephone • Computers: technology infrastructure Understand Your Two Real Estate Businesses

18. How to Look at Operating Cost Allocations • $35,000 salaried transaction coordinator shared by listing business and buyer business • Allocation of cost to each business • For a team closing 50 listings and 50 buyer sides • $17,500 (50%) expense to the listing business • $17,500 expense to the buyer business • This method may be used to allocate any shared expenses between the two businesses Understand Your Two Real Estate Businesses

19. Thinking of Changing Commissions • Changing commission structures can drastically increase or decrease your pretax operating profits and margins Understand Your Two Real Estate Businesses

20. Watch Your Commission Structure Carefully Understand Your Two Real Estate Businesses

21. Thinking About Increasing Your Buyer Agency Operating Costs • Increasing operating costs for increased lead generation or admin for either of your businesses will result in reduced operating profits and margins • Weigh the impact before increasing Understand Your Two Real Estate Businesses

22. The Slippery Slope of Higher Buyer Costs and Higher Buyer Commissions Understand Your Two Real Estate Businesses

23. Combine Your Two Businesses – What’s the Result? ? Understand Your Two Real Estate Businesses

24. The Hidden Subsidy Trap • Having unbalanced ratios of commissions and expenses can lead to misleading overall profit calculations and margins. • Are you subsidizing one of your businesses with the successes of the other business? • Let’s look at an example Understand Your Two Real Estate Businesses

25. Listing Business Subsidizing The Buyer Business – “The Trap” This IS the right MREA Profit Margin Result. It’s a poor way to get there! Understand Your Two Real Estate Businesses

26. Summing It Up • Have a great way to account for your “Goes Ins” (income) and “Goes Outs” (expenses) and what’s left over (profits), MREA formatted • Treat your business as two businesses • Do they BOTH make a reasonable profit on a stand-alone basis, taking into account direct and allocated expenses? • Before you implement any changes to COS or operating costs, consider the impact on your bottom-line profits and margins. Understand Your Two Real Estate Businesses

27. Thank You! Please complete an evaluation form found in the back of your program guide. To download a free copy of this presentation, GO TO: www.familyreunion.kw.com/downloads

28. There is a MAPS Coach available for questions in the back of the room.