It’s not that hard to get a real estate license. Pay an online school about $500 for the course, study the material, and take the test at the Department of Real Estate (Fresno is the closest office). But there are a lot of things that aren’t covered in the classes. You won’t learn about how the real estate industry works, how to negotiate, how to price a home, how to market a home, and how you’re going to find Buyers and Sellers. So for those of you that are considering getting your real estate license, here’s some info that I want to share.
When you get your license, you need to “hang” it with a Brokerage (unless you get your Brokers license and start your own Brokerage). You will be an independent contractor with the Brokerage you choose to hang your license, not an employee. You’ll have plenty of Brokerages to choose from since most will take anyone that has a pulse and a valid DRE license. The Brokerage hopes that even as a new agent you’ll have some sales to your “sphere of influence”. These would be friends, family, work, church, etc. that will pick you because they feel obligated to use you as their agent.
Picking a Brokerage these days is not too hard as most offer the same thing (which isn’t much). In the pre-Internet days, Buyers and Sellers would walk into a real estate office or call the office number. Agents looking for business will do “floor time” which is usually 4 hour shifts in the office waiting for a walk-in or the phone to ring (aka. up-call). But the Internet has created a smarter Buyer and Seller who knows if they walk into a Brokerage, the agent “on floor” may be a new agent looking for their first sale so the amount of walk-ins and up-calls have really dropped off for all Brokerages. This means you need to find your business yourself and not depend on the Brokerage to give you sales.
Since the chances are high that a new agent will make mistakes in their first 5 deals as they learn the process, it’s probably best if your first deals are with family or good friends who will forgive your newbie mistakes. But what you do want from a Brokerage is a smart Broker that will also spend time to help you when you need it and to keep you and your clients out of court. In addition to a responsive knowledgeable Broker, a Brokerage will give you a desk to work at (it may be a shared desk) and an Internet connection (but you need to supply the computer). You also get access to a fax machine and a printer, but most Brokerages will charge you for each page you print. The broker of record at the Brokerage is the one that is really responsible for the real estate transaction. So if there is a complaint, the Broker is liable. So, for the office space/connection and the Broker liability, the Brokerage takes a piece of the commission being offered on a home for sale. This is commonly referred to as the Brokerage Split. New agents will usually start out at a 50-60% split. Meaning the Brokerage will take 40-50%. Most commission plans are structured so when you reach a certain sales volume during the year, you get a bigger split. And then at the end of the year, the plan “resets” and you start back at the bottom commission again.
They’re are two types of Brokerages; franchise and independent. Franchise are the ones with the nationwide name. But if you choose to go to a Franchise Brokerage, you’ll need to pay to use the name. Typically it’s 8% of the gross commission (6% franchise royalty + 2% nationwide advertising fee). What a lot of people don’t know is that one parent company back on the East Coast owns over 5 of the brand names so what’s the worth in these names anymore? Last year, millions of dollars that local agents earned ended up leaving our local economy and went to these corporate franchisors. Independent Brokerages are ones that aren’t using someone else’s brand name so the agent’s don’t have to pay a franchise fee. New agents usually go to a Franchise Brokerage after they get their license as a lot of the franchise brokerages have new agent training. This will help in getting to know how to fill out a purchase contract correctly. Independent Brokerages are usually where an experienced agent will go to, so most don’t deal with new agent training to well.
Next, you need to know about the 80/20 rule. That’s the one that says 80% of the business is done by 20% of agents.
Here’s a realty check.
For the First Six Months of 2011:
– 52% of Agents that are members of the local MLS on the Central Coast haven’t sold ANYTHING. This means 52% of Agents have had to pay their $500 annual Realtor dues and $110/quarterly MLS fees but have not made a dime through June.
– 15% of Agents have sold between $1-$500K
– 12% of Agents have sold between $500K-$1M
– 8% have sold between $1M-$1.5M
– 4% have sold between $1.5M-$2M
– 2% have sold between $2M-$2.5M
– 2% have sold between $2.5M-$3M
If you add all those percentages up, you’ll know that leaves 5% above $3M.
Now let’s look at what an agent would make if they had $1 Million in Sales.
$1 Million x 2.5% commission = 25,000 (gross commission) (the commission % varies, could be 2%, 3% or something else)
60/40 Brokerage split = 10,000 (to Brokerage)
8% franchise fee = 2,000
Net commission to agent = $13,000 (doesn’t include Realtor dues, marketing expenses, errors and omissions insurance, gas and car use, and other expenses)
Divide that by 6 months, and that comes out to $2167/month. So the REALITY CHECK is that 79% of agents on the Central Coast have made less than $2167/month so far in 2011, with 52% making $0.0.
You need to think hard how you can be successful in real estate before you get your license. Sitting in a large real estate office on floor time waiting for the phone to ring won’t pay your bills. Everyone has a dream of making a killing as a real estate agent but it’s a very very small percentage that make a decent living at it.
