Would I? Could I? Should I?
Conventional wisdom has it that you don’t talk about politics, religion or money in polite company. But with tax day having come and gone exactly one month ago, I have to admit I have spent a lot of time over the past four weeks pondering the financial realities of trying to run a legitimate business in a cutthroat industry.
In a hot real estate market, bleacher bums think that making money must be easy. “Everyone’s buying homes”, they say. “Even my unemployed cousin just got his license!”
There are some hard, cold realities in real estate. I know this because I have lived it, but in my 19 years as a broker, I have also spent many years in senior management, studying the numbers, training new agents, and watching most of them vanish from sight over time as the novelty of working nights, weekends and 100% on commission wears off and the bills come due.
Truth is, fifty percent of agents who take out a license will quit in the first year. Three out of four first-time licensees will never renew their license after their first license cycle is up.
I apply the Pareto Principle (commonly known as the “80/20 rule”) to most things in life… but in real estate, it’s even more extreme. According to NAR, 93% of all sales are closed by 10% of licensed agents.
Yes, I am firmly in that 10%, and yes, it took a long time to get there.
The sad reality is that most people derive their opinions about real estate based on their interactions with the 90% of agents who suck. The odds are pretty high for consumers that, if they don’t know what they are doing, they are going to end up hitched to a substandard agent. And it might happen a few times in a row.
If you don’t know the difference between cost and value, you might spend your entire life eating Big Macs and shopping at Walmart. And while an occasional Big Mac or trip to Walmart might not kill you (at least, immediately), when it comes to the biggest financial decisions of your life, you owe it to yourself to raise your own standards.
If I earn a $10,000 commission for selling a home, do you think I’m on easy street? Do you think I’ve got it made?
What if I told you that federal payroll taxes last year (income, FICA, medicare) ate up 31 cents on every dollar I earned? That insurance took up another 8.4%? REMAX brokerage fees took 8.1%? State taxes took 4.8%? Marketing took up 4.3%? Add it all up – taxes, insurance, brokerage fees, marketing costs, MLS dues, car expenses, cell phone bills… and the bottom line is that only about 32 cents of every dollar earned actually passed through to my bank account.
Those are a lot of hands planted deeply in my pockets.
Again, you’re never going to win talking about money. It’s divisive, I get it.
But it takes an extremely skilled and hard-working individual to succeed in real estate when the overhead looks like that. That’s why so many people get into trouble with the IRS, or put people in their cars without insurance. Or tell white lies to try and get a sale closed. Or work with clients they can't stand. It’s hard to play by the rules and win.
The next time you think about buying or selling a house, I encourage you to do your homework before you enter into an agreement with anyone. Are they in the top 10% of the industry? Can they document a proven track record of superior results? Are they ethical at all times? Do they care about you?
It’s not that hard to find out. Go to Zillow and pull up an agent’s profile. Read their reviews. Ask your friends who have recently bought or sold homes. Search license history through the state real estate registry.
Although it sometimes rubs people the wrong way, I believe most people get about what they deserve in life. If you had a lousy experience with a real estate agent, maybe it’s because your own standards simply weren’t high enough.
The good news is there’s time to change that, starting now.