As the economy struggled in the late 2000s, the real estate industry took a severe hit to its profitability. As a result, real estate companies and brokerages were affected immensely, with 70% of offices in North America rumored to be unprofitable. This was primarily caused by the depreciation of housing values and the stark increase in foreclosures and short sales.
Real estate companies are having difficulty adapting to the on-going structural shift in the real estate market – previous tools, approaches and methods are becoming ineffective and obsolete. Profitability is not an organic process, and companies have to budget and set reasonable goals for themselves and their agents.
“The reality is that a booming market allowed the average broker to ignore the fact that their operations were inefficient in a number of ways,” explained Lorne Wallace, CEO of Lone Wolf Real Estate Technologies. “As long as the increasing house values kept increasing commission income the cracks could be papered over.”
Creating the goals:
Clear projection and identification for both the broker and the agents is needed to have an effective and profitable office. The main focus of any office, right from the start, should be generating profit and constructing a budget with clear goals and limitations.
“A profitable office is what creates the stability that every agent truly craves,” said Wallace.
Creating two sets of budgets for both the company and its agents can project clear goals. If the company budgets to make profit and sets a standard and a goal, then approaching that goal will be a lot easier. These goals will also create incentive for the agents, as they will have motivation and consistent communication with the brokerage.
Monitor and Review:
After creating clear goals for the budgets, a company has to maintain a watchful eye over itself and the agents. This is where SWOT (Strengths Weaknesses Opportunity Threats) analysis comes in. Be wary of large outstanding expenses, troubled areas and cloudy statements.
Continuously reviewing the budget on a quarterly basis will allow the broker to easily avoid any obstacles or issues – to be proactive rather than reactive.
“And not just the budget, where you can compare what has happened financially against your plan, but the information that shows what is going to happen,” continued Wallace. “If you aren’t going to make money in two months, you should already know that today since it takes 60 days for the average transaction to close.”
Knowledge is vital to fully understand what is being spent, therefore, increasing the control over the budgets. This way, a company can follow trends within their budget and identify the struggling points and any areas that may appear alarming.
As well, a company needs to follow where their money goes to and comes from.
Following where the deals come from, who needs to get paid and what the bottom line is, will only increase the efficiency of the office.
Understanding the agents, through the use of individual budgets, will increase communication and their efficiency. Maintaining certain goals and expectations will increase interaction as well, especially if a particular agent is under performing.
Monitoring the success of each agent will help the brokerage project their expenses more efficiently. This will ensure and uphold profitability among each agent so when they do well, so does the company.
Choosing a partner to assist in these steps can further assist companies in setting and achieving their goals. For example, Lone Wolf’s brokerWOLF and WOLFconnect aim to help get your office up to speed and as efficient as possible. The company identifies brokerWOLF as a powerful solution designed to manage all accounting and back office functions of a real estate office. The fully integrated program combines accounting with transactional data to provide unrivalled real time reporting capabilities, according to the company..
Make sure your company is doing all it can to protect itself and set the right budget and goals for future success.
For more information, visit www.lwolf.com.
