Why Some Real Estate Agents Do Not Make It?

The public perceives that real estate agents make a lot of money. They evaluate the fancy cars, clothes, and electronic devices (such as Supra Keys, PDA’s and Laptops) and equate this with high incomes. Of course much of this is necessary for image reasons to show that we are successful agents, as well as to effectively conduct our business. However statistics from the National Association of Realtors and the state associations show that the median income levels of agents are about $30,000. Not a very high paying job compared to other professions.

If they are doing it part time to supplement a spouses income this may be fine, however if they are the primary bread winner, it could be a monetary problem which drives them out of the profession.

First there are considerable expenses to get started in this field. Before you get a license you need to take educational courses, which can be $300 to $500. Then you need to pay for the state exam and if you pass it the state license fees. Add to that the training fees the Broker charges, the open house and for sale sign costs, mortgage and/or financial calculators, and initial marketing materials and you could be well into a $1000 to $2000 investment just to start.

Then there are the charges to belong to the National Association of Realtors, the state and local associations, and the regional MLS. These are over $600 a year in California.

Although some real estate agents work out of their Brokers office, most work from home offices for convenience. This necessitates the purchase of a desktop computer, a laptop for the field, usually a color laser printer, a fax machine, office furniture, and file cabinets. Even if they work in the Broker’s office they are usually only provided a desk and have to buy the office machines they need.

Next depending on the Broker are desk fees, franchise fees, E&O insurance, legal fees, and computer assistance fees. E&O insurance can be from $1000 to $2000 a year and fees can range up to over a $1000 a month. A good digital camera is also a must if you expect to do listings.

All in all, an investment of about $10,000 is required just to get started right. On top of this is an automobile lease in order to have an automobile that shows the right image for the agent and is comfortable for clients to ride in. This is a long-term commitment to about $500 a month.

Considering commission splits between agent and Broker, which vary, it may take a new agent at least two sales to break even. Where do these sales come from? Different brokers have different ways to generate leads for their agents, whether print advertising, Internet capture, or other means. Usually agents invest a lot of time on Internet follow-ups, up-desk calls and cold calling (restricted now by the do not call list). These yield very few active buyers. Some agents actually pay for buyer leads from Internet directory sites.

To get listings an agent must farm a certain territory. This involves offering perks such as magnetic calendars and mailers, which cost a handsome price from the printer and the United States Postal Service. Listings also entail expenses such as lock boxes (which cost over $100 apiece), signs, printing expenses for flyers, advertising, and some other miscellaneous items. Open houses are time consuming and take away the agent’s time for prospecting for new clients and personal family activities. Then there is no assurance that the house will sell within the listing period. If it expires, the total investment is lost.

There are some Brokers that reduce an agents initial expense, but the commission split is low to the agent and requires you to do a volume business to make a good income.

It all comes down to leads. Sales is a numbers game. Established agents who have been in the business for many years have an established base of past clients who may again be in the market or can pass on referrals. Once a business is established it can feed on itself. However these agents usually account for a small fraction of the agent pool.

New agents and those with less than ten years in the business need to find leads and convert as many as possible into sales to make a living. In a booming market this may be less of a problem as those prospects in the market are ready and willing to buy. They will usually make a decision fast so as not to loose out on a good opportunity.

However in normal and slow markets buyers can afford to wait and explore more numerous opportunities. This obviously means that the agent will spend a considerable amount of time with the buyer before a sale occurs.

For an agent to make a satisfactory living they must sell at least one property a month. To make a good living they must sell two or more homes a month. This is not easy when leads need to be developed from scratch.

Another source of leads are referrals from networking and real estate associations. Many agents become members of the Women’s Council of Realtors, the Council of Residential Specialists, and or obtain designations such as ABR or e-PRO so that they may obtain referrals from out of the area agents listed in the association’s referral directory. Membership has its expense as dues in each association are usually about $150 a year and monthly meetings can cost about $25. The larger expense of designations is the educational requirements such as four to five courses for a CRS designation at $300 each. Thus an outlay of $1500 or more for a designation is not uncommon. Of course this additional training usually makes the agent more qualified to better serve the customer. There is also another time commitment as each course is usually two full days.

So what usually happens, is that the agent does not achieve the desired number of sales and/or invests the time and money in listings only to see them cancelled or expired. Thus the income flow does not materialize. Many take on other part time or even full time jobs to supplement their income. Frustration usually sets in and obviously the other job takes away time to practice real estate properly.

Desperation also sets in, causing some agents to offer very low commissions on their side to get listings and financial incentives to obtain buyers. This reduces income from each sale so that the agent hardly makes any money after expenses. This is also an injustice to the clients as the agent usually tries to cut expenses such as advertising and also does not have the time to properly work for the sellers and buyers because of other part-time work responsibilities.

To further make matters worse, an agent in these circumstances will seek other cost reductions such as dropping memberships in associations such as the Women’s Council of Realtors. Many also will not pay their annual dues to belong to the National Association of Realtors, their local and state associations, and the regional MLS. Without the MLS they further handicap themselves by not being able to fully service their clients in a professional manner, since they do not have access to the non-public information on the MLS, cannot input listings in their own name, and do not have valid key access to lockboxes.
After experiencing a few years of 2 to 3 sales and experiencing a couple of expired listings, many will essentially fade away from real estate and concentrate on their other job in order to support themselves and their family. They essentially give up on the considerable time and monetary investment they made to be in this profession.