Friday, June 10

Real estate agent economics

When I applied for my new job at JKL Sales Corporation through I must have clicked on something which allowed for other potential employers to see my resume.  Within 48 hours I got several calls or e-mails from businesses looking for sales representatives.  A couple of them were insurance companies, thanks but no thanks.  Another contact was more than a bit dubious.  The company, which sells financial services to small businesses, sent me a link to a short video explaining their activities.  Out of curiosity I began watching the video, which was supposed to run for 10 or 15 minutes.  Within a few minutes the narrator confidently told would-be recruits that businesses would be happy to see you because the services you offer are such a good deal.  That was my cue to stop watching.  I don’t care what you’re selling, what a fantastic deal it might be, businesses will most assuredly not welcome you with open arms.  The fact that so many businesses post “no soliciting” signs might be a clue, not to mention the fact that they often employ receptionists and other gatekeepers to get rid of salesmen.  I am very thankful that my work at JKL Sales Corporation will not involve calling on business customers.

Another one of the e-mails I got was from the local franchised office of a very well-known nationwide real estate company.  You’ve seen this company’s “for sale” signs many times.  At various times during my working career I’ve thought about selling real estate.  In fact, years ago when I lived in Connecticut I took the agent-licensing course, though due to an intervening job offer I never took the licensing test let alone became licensed.  In any event, when I got this e-mail I decided to contact the office manager to see what it was all about.  While I don’t have much interest any longer in real estate as a career, and needless to say these are not boom times for the industry, perhaps it would be something I could do as a sideline.  I met with the office manager late this afternoon, and we talked for about an hour.  A pretty interesting conversation, I’d say.  He told me that all the talk about the real estate slump overlooks the fact that the market is no worse today that it was in 2004 or 2005.  The huge spike in the 2006-2009 period and the subsequent slump have gotten things back to their starting point.

Despite learning that economic conditions in the real estate business were not as dire as I had thought, I also came to the resounding conclusion that selling real estate as a sideline gig just isn’t a practical idea.  I’d have to pay anywhere from $400 to $500 for the licensing course (I’ve long since forgotten what I learned many years ago, and in any event that training course focused on Connecticut law and procedure) and about $50 for the license itself.  Next would come $350 for annual Multiple Listing Service dues.  Once I signed a contract with the agency, I’d have to shell out another $300 for membership in a mandatory legal defense program.  We’re talking over $1,000 in start-up costs before I could even begin selling.

Things got especially interesting when the manager talked about the type of money a real estate agent is likely to earn.  The standard 6% commission sounds nice, but in most cases it’s only 3% because the buyer’s and seller’s agents split the amount.  I would therefore bring in 3%, and then would have to split it 50-50 with the agency.  Some highly successful agents get to keep a bigger percentage, but that’s unusual.  What’s more, even though the agency would get half of my commission, it also would require me to pay a fee to cover use of office space, computers, telephones and so on.  It’s nice that they do not charge this up-front, only from commissions actually earned, but it still would come out of my earnings.

When all is said and done, my earnings on a typical sale would be somewhere south of 1% of the sales price.  The manager said that the average sales price for a house in Suffolk County is $300,000, though I suspect this is a mean rather than a median and is skewed upward by the extremely expensive houses found in a few communities.  This would translate into an income of about $2,500 per sale.  Now, that doesn’t sound too bad, except for the fact that most agents who work full-time in this office average about one sale a month.  $2,500 a month is definitely no way to get rich.  Now, I don’t know for sure if other real estate companies compute agent commissions in a similar manner, but I would imagine that’s the case.

I also asked the manager how new agents go about finding listings.  What I had thought was that the company would assign listings on a “next up” basis.  For instance, if John and Mary Customer call the office and say they want to list their house for sale, it gets assigned to the next agent whose name appears on the roster.  Now, you’d think after being in the insurance industry I’d know better, right?  When the manager seemed a bit vague, I knew right away that the company doesn’t go out and assign listings to agents.  It turns out that agents are expected to get listings primarily through “relationship marketing” and “networking,” two phrases which I utterly detest hearing.  Another resource is to comb through the MLS site and contact people who formerly had listed their houses for sale (with any MLS-member agency) but have since taken them off the market.  That sounds way too similar to the practice of going after lapsed customers at ABC Insurance.  I also had the suspicion that anyone who takes his or her house off the market is going to get bombarded by calls and visits from real estate agents hungry for listings.  While the manager did not come right out and say that was the case, his noncommittal responses to my inquiry made it pretty clear that yes, this form of “bombardment” really does happen.  I can just imagine the response I would get if I were the 20th or 30th agent of the day to contact a potential customer.  So all in all, even if it weren’t for all the upfront costs, selling real estate just doesn’t seem to make sense.

Gym: yes, I made it back.  First time in close to a month.  Because it’s been so long, I didn’t do all that much, preferring to ease myself back into a routine.  I did 30 minutes on the stationary cycle, at a decent resistance level but at a speed so low I’m ashamed to reveal it. Still, it felt great to be back.

Published in: on June 13, 2011 at 1:56 am  Leave a Comment  

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