The real estate market is flooded with new agents. According to a report released by the National Associations of Realtors a few days ago 23.2% of the members have joined within the last two years. This rapid influx of new agents has contributed to declining incomes for Realtors over several years.
As agents most of us have heard comments after a closing about the Big Bucks we earn. From a consumers viewpoint they see the sales price of a home and assume the agent is walking away with a hefty commission check. Many do not understand how quickly that big check gets broken into small pieces.
Here is an explanation to illustrate how that stack of cash is disbursed. Starting with the full 100% commission check it gets chopped in half with a portion going to the buyer's and seller's agency.
Back in the office we submit the check to the broker for processing and within a few days we received our cut. Most agents start at a 50% split and this gradually increases as production goes higher. According to NAR ( National Association of Realtors ) the median earnings for sales agents in 2006 was $47,700.
Not exactly the Big Bucks! Furthermore most are self-employed small business owners. That means plenty of expenses need to be paid before indulging ourselves with food & drink.
Without going into great detail we have about $1500 worth of fixed expenses to maintain our licence, mls access and a few other basics. In addition to that we have variable expenses for advertising, postage, web sites and so on that typically runs between 10-15% of gross earnings.
From past statistics I estimate the majority of agents that survive in this business do about a dozen transactions a year. Since we are self-employed we also have to pay double social security, provide our own medical insurance and save for retirement. Although the Real Estate Business has the potential for huge incomes the reality is most agents are earning a middle class living.
Real Estate is a great business, but it is not easy money. Anyone considering a career should be prepared to spend some cash up front and reinvest most earnings during the early years to grow their buinsess.
They (schools)don't go over it...this is my first year and i will probably do about 10 transactions (im part time).
Dan, your right on...all realtors need to be told in school the reality!
It certainly isn't easy money...But, it does get much easier as you stay in the business longer :)
Scott
I had to laugh really hard at Thesa's comment. At 8 for a dollar, ramen noodles are a struggling realtor's best friend!
Congratulations on your feature. Out the door, no less. Woooo hoooo!
Sarah... The schools don't what to scare off business but they could offer some guidance in the final classes so graduates would have a better understanding of what it takes to succeed.
Dave...Sounds like you are on the path to success, I also had double digit transactions my first year.
Vicky...Fees do seem to be increasing and more and more are being shifted to agents. The average of three transactions may hold true, in Guilford there are 220 licenced agents and 368 closed sales in 2006 according to the MLS..... Equals 3.35 transaction sides per agent.
Thesa... These are lean times... may have to toss more burgers than steaks on the grill.
Scott... True, money tends to grow over time.
Maggie... Glad to year you're ship is coming in. Guess I haven't struggled enough, never been on the ramen noodle diet....
This is very informative information... I guess looking in from the outside you would think of big commission checks for realtor's..
Dan, at 2 cents, that's some wimpy ship! Probably sink-sized, not even big enough for the bathtub. =)
Dan,
Many agents wont survive in this market, unless they produce.
Dan,
What a great post. I wish I read it then. When I started to study for my state test, I had no clue how this whole commission breakdown works, nor did I know that once you join National Association of Realtors, you have to continue on with the membership fees... Can you believe it?! :-)If I knew then what I know now...
And it is true nobody at the "school" tells you what it really takes to make the "BIG BUCKS" in the world of real estate... Far more than just a real estate license...
The notion that there's easy money in real estate is perpetuated by people in the business. Almost every week I see on T.V. or somewhere in print, some agent bragging about how they made X amount of dollars and didn't have to work that hard to do it. It makes me cringe every time.
Never is there an explanation about how the commission check is split up and that the take-home pay to the agent is significantly less after the agent pays business expenses, taxes, health insurance and funds their retirement account. Never is there a discussion about the financial and legal liability the agent assumes when they take on a client.
This is a great business, but it's not easy and it's not easy money!
Dan,
The reality can be harsh to new agents when they realize what it takes to be truly successful in real estate. Or in mortgages, like us. To get established takes a lot of time and effort. There are no easy ways to get anywhere near the top.
Tim... I am well versed in controlling cost and running a business, this was written more as an informational piece because so many new agents seem to be clueless as to what it takes to succeed. As far as newer business models I have not crunched all the numbers but monthly desk fees in addition to all the usual expenses look pretty steep.
Abe... I was gonna say Hot Dog instead of burgers.. but that seemed a little to lean... :-)
J.R... Doesn't the mortgage business work in a similar way? Company gets a hunk of your chunk.
Maggie... Who are you fooling.... those pennies add up! Gives me an idea for a post.
Danny... We also have enough of those never retiring agents around here taking up space.
David & Tonya... You accountant wouldn't miss it, technically its Self Employment Tax of 15.3%
George... Thought your business worked the same way but I never investigated mortgages.
Jacqulyn... The have been churning out the newbies, the crowd should start to thin out.
Allison... That is why I posted this, so many consumers are misinformed.
Suzanne... Just yesterday I realized we lost another one in our office, non-producers are dropping.
Anna... They have the membership monopoly. Our local board dues nearly doubled this year.
Leigh... 18 months seems to be the lifespan, I found an old rostera few months ago while cleaning my office and of the 42 agents listed then only 12 remain the same now.
Michelle... Agreed! This is a great business but not the easy one people perceive.
Esko... Too often I hear new agents saying that got into real estate because then needed the money. Never discourage them but I can tell with that comment that they will probably fail.
Sharon... Think they get hit the hardest the first year. Board dues is higher plus they need all the little things that accumulate over the years.
Hi Dan...Yes, the real estate schools should be explaining that we don't simply drive down the street and have people throw money at us. It's hard work, and too often people get in it for the wrong reasons. My wife is a real estate manager and when she interviews new recruits, she always asks them why they want to consider a career in real estate. When they answer that they really like people and houses she replies, "We'll cure you of that very quickly!".
Regards...Jay
John... Glad you noticed that $100 bill gets reduced down to a Twenty. My subliminal message!
Joan... I didn't catch the 60 Minutes show but have noticed agents disappearing into part-time jobs.
Jay... You must be driving the wrong vehicle. Try a Pick-Up so they can toss the cash in back.. LOL
Peggy... That extra 40% off the top is tough but it business you may not have had.
Ethan... I wanted to open eyes not frighten people with mountains of expenses.
Wayne & Lynda... Glad you enjoyed it.
Cynthia... You are most likely right, I have never tracked my hours but have been curious about the real hourly wage.
Christy... The schools are in business to make money so they cannot scare off the student before they join.
Diane... Same as above, but they should offer a little information towards the end of the class.
Chris... Been waiting for more of a drop off myself. Need to weed out at least 30%
Ryan... Good Ole' Uncle Sam... Regardless of how we do he always has plenty of cash to waste.
Dan~
As a runner you know all about pacing. Between the lines in your post, I read about how important it is for the real estate practitioner to do just that. ...Like Leigh who wrote, " One of the first things we discuss with new agents is precisely how expensive this business is..." I introduce my new brokers to the concept of putting tax dollars aside before even paying themselves.
janeAnne... I have a conservative pace... Did your new buddy Flat Matt arrive?
David... I have always run with music. I have the little clip on Ipod so a cell phone is strapped to my arm.