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Are You Considering Getting Your Real Estate License?

Home prices aren’t the only thing declining in this market, Realtor membership is down too. For the California Assoication of Realtors, they expect a 26% drop in membership since the high water mark set in 2006.

In SLO County, there are 1861 MLS agents as of a second ago. There are also 445 Santa Maria MLS agents that can sell property in SLO County too.

There is a misconception of what money you can make in real estate. It doesn’t take that much to get a real estate license. Most take an online course to prepare for the state license exam. I think most people think they can get their real estate license and sell at least one property a month. They do the math using 6% commissions but what the real estate classes don’t cover is how the real estate industry works.

So, here’s an overview for those thinking of getting their license and counting on real estate to support you (and your family).

When you get your license, you need to “hang it” with a Brokerage. As a brand new agent, you probably want your first Brokerage to have good training and hand-holding so you can learn the contracts and get you through your first transactions without messing up someone’s transaction.

When you hang your license with a Broker, you also get a commission split. That’s how much your Broker will take of the commission. A new agent going to a large franchised Brokerage will start typically start off at a 50/50 or 55/45 Agent/Broker split. Most commission plans will raise the agent’s cut as they bring in more sales. Some plans also reset themselves every year, so if you have a good year you get a bigger split towards the end of the year but then go back to the lowest split when you start a new year.

There are also other fees that get taken out of the agent’s commission. If you go with a franchised Brokerage (one using a nationwide name), you’ll pay 6-8% to the parent corporation. There is also errors and omissions (e&o) insurance that some Brokerages don’t include in their split and charge the agent. An agent also needs to sign-up with the MLS and pay quarterly fees. If an agent decides to join the National Association of Realtors, that’s a yearly fee too.

Then there is the business expenses. Car expense (gas, usage) and advertising are the minimum expenses.

So let’s look at an example of what an agent makes with a sale. Using the SLO County 2009 median home price of $400,000 and a 2.5% commission (half of a 5% total commission), and a 55/45 Agent/Brokerage split:

$400,000 x 2.5% = $10,000 gross commission
8% franchise fee = $800
E&O insurance = $125
Broker Net = $4,084
Agent Net = $4,991

If an agent sold 3 transactions, they’d make $14,974 and that is without the Realtor/MLS fees that need to be paid out of this plus their other expenses. If an agent only had this many transactions last year, they’d be below the U.S. 2009 poverty levels of $14,570 for 2 persons. If an agent had 6 transactions in 2009, they’d be making a bigger commission split on the later transactions so say the agent made $30,000. You’ll probably have $4000 in realtor dues/advertising so the net is $26,000. If you were working full time, that would average out to be $13/hour. And remember…you’ll probably be working most weekends, especially when you’re new or don’t have much business because you’ll be sitting at many Open Houses hoping that a Buyer will walk through the door that ready to buy and not already working with another Realtor.

Now a reality check….

The following table shows the number of transactions Realtors had in 2009 for homes and condo sold in SLO County. First you’ll see that if you get one sale a month, you are in the elite. VERY FEW agents averaged one sale a month. The majority of agents had ZERO transactions last year.

This has forced a lot of Realtors that haven’t dropped out of real estate completely to take non-real estate jobs, hoping that the market will turn and they will get more sales. But, the industry has changed and an agent is going to have to invest in their business to be successful. This includes all agents, no matter if they are new or have had their license for 15+ years. Also, if you’re a part-time agent you’re not going to be keeping up with the home inventory and contract changes which lowers your ability to provide a good service.

If you are looking to get your real estate license, make sure you have a PLAN and set realistic expectations of how much money you “might” make.

2009 San Luis Obispo Home and Condo Sales. Buyer is Buyer-side transactions and Listings are Seller-side transactions. Percentage is out of 2300 total agents.

Written by Keith Byrd - Go to Keith's Website/Profile