Blog / Prospecting
Chris Mercer, Real Estate by Numbers
A committed numbers man, Chris Mercer is the Managing Director of Live Bookkeeping and has over 20 years experience preparing, reviewing and planning financial accounts and budgets. Specialising in the real estate industry since 2001, Chris has designed a winning business model that has been adopted by hundreds of real estate businesses all over Australia.
What he has learnt is that, “The best sales agent isn’t necessarily the best business owner. A business owner gets productivity and return, and keeps tinkering at it. It’s not easy to start with a sales background and just get it and run hard and get it right the first time. That won’t happen. So don’t be disheartened.”
Chris advises that if you are thinking about starting an agency, thoroughly examine the market, first. “Start with the business market that you’re operating in. Work out what you feel that your heart and soul says you want to chase. In real estate, if you don’t start with an understanding of what the market is, and the opportunity in that market, you are walking into a dark tunnel without a torch.”
Study the numbers in your market
What’s the value of homes in your market and how many are there? Chris explains, “Say you’ve got a market of a suburb that, has 15,000 homes, with an average price of $500K, and the average length of time that a vendor stays is 12 years That means that roughly eight per cent of the homes in that marketplace would be looking to shift for whatever reason. Even in a recession, people list and sell property. So in that market of 15,000 homes, eight per cent of those, need to sell, which means that 1300 homes will sell in that 15,000-home marketplace in one year. There’s the market.”
Chris continues, “At $500,000 an average sale, if you multiply that by 1300, all of a sudden we’re talking hundreds of millions in sales.” The commission that is up for grabs is in the millions. “That is the market that you’re competing for,” says Chris. “Someone is selling those homes today. Someone is enjoying that income.
They are not just bums on seats. They are people that know how to transact and last a winter.
How much of that, when you start, are you going to take? It has to come from someone’s market share. These are the hard facts of a competitive market.”
Who are you competing against?
The next questions, according to Chris are, “Who else is in that marketplace? Are there six agents in that market? Can they all make a living? Are there too many people in that market? Can I, in a small market, set a business up to be a Principal plus four agents?”
Chris explains, “If you want to enter a market that’s got 60 homes, you don’t need to have a sales team, there is a possibility of a more direct style of leadership – where you just sell and dominate the market. If you go into a $200m marketplace and you still want to have the same equivalent market share from 15 per cent to 20 per cent, you’re going to need to have a number of different agents working with you to realistically achieve 20 per cent. If the average person does about $150,000 in commissions, you will need five to six people. That would mean the business owner can’t just sell and absolve themselves of leading their team. So you would have to have a bit of both.”
If you want to jump into a bigger pond, Chris says, “For the bigger markets, you really do need to have a proper, full functioning serviced sales office, to be able to house and maintain and keep on top of the different levels of enquiry that would come.”
If you’re not serious about market share, you’re always going to be third or fourth in the market.
Chris explains, “If a business owner is not clear about what style of business he or she is going to have, and have
What’s the value of homes in your market and how many are there?
the appropriate style of business and infrastructure in their market, he or she could make big mistakes right at the start. And that’s a terribly difficult thing to undo. The best time to make big decisions is before you’ve got a spade in the ground, because right then, anything’s possible and you can look at all your alternatives. Speak to advisers who know about the game and who actually understand real estate. It’s okay to have a trusted adviser who’s got general business theory, but you need to speak to people who understand real estate.”
Be serious about market share
Chris believes that, “If you’re not serious about market share, you’re always going to be third or fourth in the market. That means you’re the third or fourth person anyone thinks to use. Market share is a very powerful part of bullet proofing your business. And if you decide “I’m pretty comfortable, I’ll just stay third or fourth”, to be honest, there’s not many businesses that you really hear about and there’s not many successful companies that really are satisfied with just being third or fourth.”
Clearly, you can’t always be first, but Chris believes, “you should have ambitions of improving at some point. That’s my general advice to people: if you’re not feeling that, you’re at risk of going backwards. I’ve seen that too many times. I always say market share equals quality multiplied by quantity of agents.”
Get the right people in the right chairs
Agents are critical. Chris says, “Based on my experience, and the evidence of hundreds and hundreds, if not thousands, of businesses that I have seen try to grow, the realistic way to grow a team is only through the increased number of agents.” But not just any person will do. You need the big guns.
“You need to manage the super KPI – the rainmaker agents - the productive sales agents,” says Chris. “They are not just bums on seats. They are people that know how to transact and last a winter.” Chris believes that by continually recruiting, and keeping the people that you’ve already got, you can build towards a bigger top line.
To keep the best agents though, Chris is of the view that, “ultimately, you will need to provide a career path which doesn’t break the bank. You can’t pay twice. You can’t give them all the money and all their costs. You can’t simply do that. You must provide an adequate career path percentage and then pass on certain responsibilities, and spending responsibilities, to the agents. Let them know the rules. Ultimately, if you want to work out how to put packages together, that’s what I do for a living.” Chris Mercer is appearing on Real Estate Academy's 12 disc Leadership Audio News. Order today call 1300 367 412.
← Go back
