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2007-11-19 20:41:00

Part Four: Risk and Real Estate Sales - Risk and Compensation

(Author's Note: In Part Three we learned that living with risk becomes infinitely more tolerable when we devise and follow a plan for managing it.)

Everyone knows that there is a strong positive relationship between risk level and earnings in the stock market and in investment real estate. The same is often true of real estate sales careers. This technique is about earning your regular income, the income you will use to keep the wolf from the door and save for making investments. This is the income you protect as much as you can with prudent actions so there will be a surplus for taking the investment fling or two. It is always possible to divide your income into living money and investing money. If, when living money is separated out from the total, there is little or nothing left for investment it is very important to seek out ways to participate in the investments of others without using lots (or any) money. Sometimes our knowledge or work can be our investment. Only those of us in the highest risk tolerance categories would even consider borrowing funds for an investment that leaves you with nothing or a large debt if it goes bust. 

Taking unnecessary risks usually equates to taking short cuts with documents or laws.  Risk-taking in these categories do not make you sharp, they make you incompetent.  This is the sort of risk that frightens prudent buyers and sellers, and for a very good reason. The only real assurance they have that you will broker transactions in a professional manner for them is observing you doing the same for other buyers and sellers.  This means that if you are showing property to potential buyers and they observe you refusing to present an offer on behalf of the buyer client of a cooperative broker they may think twice about allowing you to broker their offers. 

The same reasoning may apply to buyers and sellers who have observed you taking enormous risks and losing everything; you may also lose their confidence in your ability to make non-loss decisions when brokering their offers/property.

The same applies to “forgetting” disclosures, using your “best friend” as an inspector or appraiser, or steering other buyers to a lender who will “look the other way.” The old high school techniques for binding cliques together with loyalty-to-the-cool-guy simply is not good fit in the world of adult business.  It may seem to be working because you will find a client or two who still respond to the technique, but you will never know how many qualified buyers and sellers are turned off by their observation of the same display. They don’t mention it, they just disappear.  Attempting to substitute a personality cult for professional behavior may be the number one source of unrecognized risk to income in real estate sales.  It is surely one that can be managed by designing a professional business plan and following it at all times.

In fact, all risks can be managed by having a professional business plan that includes risk management techniques and following it at all times. Because we are human there will always be times when we deviate from the plan, but a time or two a year is a vast improvement over having no plan at all.  Anyone who has had the experience of brokering a transaction for a close friend or relative will tell the same story; the licensee is expected to throw away the business plan and make the close friend or relative’s transaction their total focus until it is completed.  When completed, the licensee is expected to take a commission cut (often to zero), and for the rest of their natural lives they will hear stories about what they could have done better.  You might as well stick with the business plan.  At least then you know what to expect at class reunions and family get-togethers and can defend your actions with professionalism.

When all is said and done, licensees that protect their income earned from brokering transactions generally end up with profit.  In other words, financial success often is more related to how much you keep than how much you make. You work hard for each commission dollar.  Do you really want to lose them because you omitted a crucial document or service?  If you develop a system for keeping up with everything involved in a transaction it is less likely that you will forget anything essential.  If you have a system available and simply choose not to tie up all loose ends, perhaps real estate sales is not the best use of your talents.
In Closing:  Are You One In A Million or One Of A Million?

There are approximately a million members of the National Assn. of REALTORS©.  Are you one IN a million or one OF a million?  The answer to that question is very simple; if you set risk limits, make a professional and realistic business plan and implement it whenever humanly possible, you will be one in a million.  If you drift along, making every sale and taking every listing you can, spending your days, weeks and months putting out fires you will be one of a million.

(Carmel Streater is no stranger to risk.  The most recent (and public) example of her risk level can be measured by having served as 2006-2007 president of the Real Estate Educators Association, a much more dangerous endeavor than the organization’s name would indicate.  She listed and sold real estate for over thirty years and has been a real estate instructor for the past twenty years.  Finding herself a simultaneous victim of real estate sales burnout and empty nest syndrome, she completed a PhD in Adult Education with an area of specialization in Training and Human Resource Development.  Streater’s work now is exclusively in teaching, course development and assorted writing projects.  Her hobbies are her six grandchildren and attempting to keep up with changes in the real estate business.)

Relevant Links

Part One: Risk and Real Estate 

Part Two: Risk and Real Estate - Recognizing Risk

Part Three: Risk and Real Estate - Living with Risk

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