Do you consciously ask yourself before you start working with a client, "Is this person a good fit for my business?" If not, creating standards for your business can improve your production while reducing your stress level.
Have you ever had a gut feeling that you shouldn’t work with a particular client and then, against your better judgment, you decided to work with the client and it turned out to be a disaster? Clients who are a poor fit for your business are perhaps the single biggest source of aggravation in our business.
Ira Serkes had an interesting situation facing him several years ago. He once wanted to be the No. 1 agent in Berkeley, Calif. He had always been in the top 10, but never No. 1. One day he came to the realization that he would rather be "The Happiest Agent in Berkeley." For Serkes, that meant referring out leads he and his wife could not handle, rather than building a team.
The question for Serkes was how to determine which leads were the best fit for his business and which ones he would refer to other agents.
His first criterion was based on the motto: "We specialize in helping nice folks sell and buy wonderful homes in Berkeley and nearby communities." If the clients weren’t pleasant or fun to work with, he would refer them to another agent.
After carefully evaluating his business, he decided to focus on clients who were buying or selling a home within 15 minutes of his home. They also had to meet specific price range and down-payment criteria. If the client didn’t meet these criteria, the client was referred to another agent.
After the first year of using this approach, Serkes netted $60,000 in referral fees. If he had established a team, he would have had the supervisory and training headaches, much higher overhead, more liability, and more stress.
Even better, since Serkes made that decision, he and his wife Carol have represented more buyers and sellers in their neighborhood than any other agent. Clearly, the referral model was a good choice for him.
If you’re ready to exercise your "walkaway" power by referring someone who is not a good fit for your business to another agent, here’s how to do it.
1. Listen to your intuition
While you may need the money, if your gut feeling tells you something is off, listen to it.
2. The lawsuit waiting to happen
When I was actively selling in California, our company was a magnet for lawsuits because of its size and market share. The company’s research about where the majority of our lawsuits originated came down to three factors: working with clients who are attorneys, new construction, and hillside properties. If you had all three, the risk for litigation was high.
3. Out of area
I once had a client who wanted me to find her a property in the San Fernando Valley of Los Angeles. Instead of referring her to a valley broker, I tried to work the lead myself. It took a tremendous amount of time to drive to the valley to check out properties. When the client found something on her own, she was angry at me for not telling her about it. It was a tough lesson that cost me a friendship.
4. Outside your area of expertise
Are you an agent who normally lists entry-level homes and you now have a lead for a million-dollar estate? If you’re not familiar with the million-dollar-plus market, you could be doing your client a tremendous disservice. You can easily price the property incorrectly. You may also not be prepared for dealing with the attorneys, personal bankers and business managers who generally negotiate these types of deals on their clients’ behalf.
The same is true for short sales, real estate-owned properties (REOs), U.S. Housing and Urban Development REO properties ("HUD Homes"), and clients who need a VA loan (a loan guaranteed by the U.S. Department of Veterans Affairs).
Furthermore, if your experience is exclusively with residential, you should refer leads for commercial, residential income of five or more units, business opportunities, land and industrial to agents who specialize in these areas. You’re better off receiving a referral fee as opposed to getting nothing at all or providing your clients with poor representation.
5. Friends and family
I remember being pretty upset when my closest friend from college listed her home with another agent. I didn’t let on how much it bothered me, but did ask her what motivated her to choose someone else. Her response: "I value our friendship way too much to put you in the situation where you would have to deal with my husband." It turned out that she did me a huge favor.
The problem with dealing with people you know is that if there is an issue, it can destroy friendships and create feuds within families. Also, many people don’t want friends or family members to know about their personal financial situation. They would rather work with a stranger and keep peace in the family.
While it may be difficult to refer a close friend or family member to someone else, it does prevent you from having to explain why you can’t give them a commission kickback or do the work for no commission at all.
6. What to say when you make a referral
No one ever wants to be "referred out." That expression sounds as if you’re throwing them in the trash. A better approach is to say the following: "Mr. and Mrs. Seller, I would like to introduce you to the agent who I feel is the best qualified real estate professional to represent you on your real estate sale."
If your clients insist on dealing with you, at least take a partner who knows the area and the type of transaction well.
If you haven’t already done so, make a list of the characteristics of your ideal client and the geographical areas where you have expertise. When someone fits your criteria, do business with them. If not, consider exercising your walkaway power.