Hi Leander: First, please call me as soon as possible. We need to discuss a change in something we talked about earlier.
I've been kind of kicking the idea around of becoming a real estate agent. I love real estate but I've never worked in sales before and I have no idea of what to expect as far as pay goes in the real estate broker/agent world.
Lets talk about this. It is very difficult to get started, more so than what most Brokers let on to new agents. The up-front capital is about $12,000 if you do it right. There is lots of experienced competition to face. Along with that, buyers, sellers, and deals can become very disappointing. I will exaplin more when we talk.
One advantage I do have is that I know the city (Chicago) and the surrounding suburbs fairly well and I have no problems with going from the best neighborhood to the worst to show a property. I have a few questions that maybe someone could answer for me:
There are some legal limits, both Federal and State statutes, in discussing the best or worst neighborhoods, such that you can lose your license real fast if you are not careful.
Do real estate agents work strictly on commission or do they have salaries as well?
Most of the time, strictly commissions is case. Although there are some companies that are working on salary. I have never known a company to start an agent off with any salary then move to commission ... be prepared for only a commission based income.
How much of a percentage (if any) do agents make from the sale of a property?
By law, ther is no standard limit ... these were abolished more than 20 years ago under the Sherman Anti-Trust act when several States heard cases of competing real estate companies suing to charge a rate different than the so-called 'Standard.' The 'Standard' rate is considered "price fixing." So, the rate is often set by EACH individual agent and how well they can market and negotiate their services to the property owner. Although, most states allow the Broker-Owner of an office to set his office rate and require agents to abide by this policy. It is not uncommon to see commissions range between 5% and 7%, depending on the local market and "type" and price of property being sold. (More on that later.)
If, for example a commission is 6%, then commonly when all is said and done and agent could end up with 1.5% to 2% in his pocket - before taxes and business expenses. After deducting all costs, including taxes and ordinary business expenses ... a typical check from the Broker could end up looking like this in the end:
$200,000 house sells. Commission is 6% = $12,000
Split 50% with cooperating brokerage who brings the buyer to the sale leaves $6,000 to your brokerage.
Your split might be 60% = $3,600 Gross to you as a self employed person.
Your Business expenses, advertizing, signage, MLS fees, etc, etc, etc. = about 30%. This leaves you = $2,500 before taxes.
Social Security / Medicare for self employed is 15.2% = $385
Federal Income tax is at least 15% = $380
State Income Tax is about 10% = $250
$2,500 - ($385 +$380 + $250) leaves you $995 all to yourself.
So, to have an annual net take home, after tax and business expense of, say $30,000, you need to sell about 30 homes per year or $6,000,000 gross annual sales production. This equates selling an average of 2.5 homes with an average value of $200,000. The average agent is happy if they can sell $2,000,000 to $3,000,000 and have $10,000 to $15,000 a year to live on - after tax.
Do agents have any restrictions on buying properties that they are personally interested in?
It depends on each State. If you are a Realtor, a member of the National Association of Realtors, you are bound by a code of Ethics. This means you do not compete against your own clients. Some States have laws about doing this. Your local Board of Realtors will educate you. However, in ALL 50 States, you must disclose your status as a Realtor to ALL parties in any transaction you are involved in to avoid the appearance of impropriety ... failure to disclose can cost you your license. You must also disclose to ALL parties any relationship you have with any party in a transaction, wherther you are representing a relative, or friend or business associate.
Whats the process for becoming a licensed agent?
It depends on the State. Oregon for example requires 90 hours of certified/accredited education and a passing score of 80% on three categories of Law, Finance, and Practices. Illinois requires 30 hours, and an average of 75% passing across the board. Ohio requires 240 hours for the same license classification. I have held licenses in more than one state at a time, and Illinois is among the easiest. In most states you can challange the course material without taking the classes. I did this in Oregon with a 97% in Law, 100% in Finance, and 79% in Practices ... so I had to take only 30 hours of Practices (Instead of 90 full hours) and then pass all three courses in a final exam, which I did with flying colors.
Then one you have learned what you need to pass your license, you then need training to understand how to engage in sales and marketing, and dealing with the buying and selling public. This is an ongoing effort to learn how to help people, using good honest sales tactics, and not turn into a crooked con-artist.
What advice would you give someone who's looking to get into that field?
Let's talk off board in detail. However, I would advise a prospective agent to talk with many many Realtors to get a good feel of hard reality. Brokers are biased in that they want streams of new agents so that eventually out of 100 new agents, maybe 10 or 20 stick around and become successful.
Find out from agents all the upfront costs ... like I said, I spent about $12,000 the first years that I was never told about that would be needed. That is not a lot, but it grows each year from there as part of your business expense. although some new agents are idiots and spend way too much money. I know one agent who spent over $80,000 in her first year ... she bought everything under the sun and attended every course ... but her husband was well off and she had the extra money ...
You need to be aware of what it takes to get to a closed transaction. For example, if you have at least 100 face to face discussions in a month, you will end up with 2 to 4 deals. To get 100 face to face discussions, you need initial contacts of about 1,000 people per month in the form of cold-calling on the phone, and/or mailings, and use every opportunity to WITNESS to every one you meet about your career in real estate ... you need to use every Jehovah's Witness skill and sales tactic to a Tee without becoming a con-artist ... you must live, drink, eat, and breath real estate. THEN, you can have enough lead generation to have a good busines ...
In 3 to 5 years, if you have built your rapore with past clients, you will get enough repeat and referral business that you can pretty much slow your pace in marketing and lead generation.
ALSO invest in income property and eventually you can get out of the game altogether. Please call me as soon as possible.
Edited by - Amazing on 25 June 2002 15:28:32
