You have seen the real estate agents drive around in the big cars. You have seen the TV shows portraying real estate agents as wealthy power brokers who drive around collecting fat checks while doing very little work. So why am I writing an article called 5 Reasons Not to Become a Real Estate Agent?
Many people on the outside think this is the perfect business to get into to strike it rich. This is true to some extent. We can’t take away the fact that some successful real estate agents have made a fortune over their careers. Besides, who would pass up an opportunity to choose their own schedule, have unlimited income potential, and help people achieve their investment goals?
However, this also comes with many stumbling blocks to overcome. The staggering number of real estate agents who fail and quit the business within five years is barely highlighted. Sources state that only 1 out of 10 real estate agents succeed.
So, why do so many real estate agents quit the business? In this blog, we talk about five true reasons that nobody tells you why becoming a real estate agent might actually be a bad idea.
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The Money
Most real estate agents actually don’t make as much money as you might think. While some real estate checks can be large, others going up to $10,000, it can be quite frustrating when reality hits you that some significant portions are deducted from that amount.
This includes the broker’s split, MLS fees, and E&O insurance. Once all these deductions have taken place, the check you thought was big ends up a much smaller check. Various sources state that the average real estate agent makes $45,000 a year.
This is a tough way to make a living, especially when you consider that the fees will spread out the majority of the commission checks. Besides, your monthly income is not consistent.
Before you even start earning such amounts, you have to invest in yourself and your skill. You have to pay for the course, state exam to get licensed, admission to the local and federal boards, and insurance fees. This doesn’t include fees to access real estate listings and marketing tools. All these are necessary investments you have to make for your career.
So, how do real estate agents make their money? First, you need to understand the difference between an agent and a broker. An agent is a licensed individual salesperson who’s not allowed to work independently. They have to work under a broker. In contrast, a broker works independently and can hire agents under their umbrella.
As you may already have an idea, an agent’s pay is mainly commission-based. A commission is either a percentage of the property’s selling price or an agreed flat fee. If it’s percentage-based, it primarily ranges from 5% to 6%. However, it’s subject to go lower or higher depending on the location.
As an agent working under a broker, the commission is paid directly to the broker. The broker splits this sum according to the number of agents involved in the transaction. Generally, the following people are involved in the transactions:
- Listing agent
- Listing broker
- Buyer’s agent
- Buyer’s broker
For example, say an agent receives a listing going for $250,000 at a 5% commission rate, the commission is $12,500. If the house is sold for the asking price, the listing and buying brokers each get $6,250. The brokers then spit these amounts to their agents, depending on their agreement. If they split on a 60/40 basis, the agent gets $3,750, and the broker remains with $2,500.
Going by this example, the agent will have to close 12 deals in a year, an average of one deal per month, to earn a real estate agent’s average annual salary. Even then, this is not assured. You can sell only a handful in the first few years, depending on the market and your clients.
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Unpredictable Income
The life of a real estate agent is filled with uncertainty and unpredictability. One month you’re living large like a rockstar and barely getting by in the next trying to pay your bills. Imagine following and trying to put together a deal for months on end, only for it to fall apart in a matter of seconds. How excruciating?
Downturns are part and parcel of the real estate business. If you really want to succeed in this realm, you’ll have to cultivate a special set of budgeting and accounting skills. This will ensure that you have enough money in your bank account to survive even during rough patches.
Here are some tips to ensure that budgeting works for you:
- Write it down- You know how noting down is vital in a real estate agent’s life. From deal details to appointments, writing helps you remember things and build your discipline. The same applies to budgeting. If you want to build discipline in your financial life, you need to have your budget on a worksheet. This lets you know where your money is going. Besides, it’s easier to track and adjust your spending when the commission is low.
- Know your bottom line- If you have been an agent for a while, you can project your income based on your past income. For example, if you know you won’t be working much in a year, you can lower your projection based on last year’s income. The same applies to when you want to work more. Also, staying up to date with real estate market trends can help you develop an accurate baseline.
- Have separate accounts- It’s always prudent to separate your daily spending money from your savings. Your spending cash should be kept in a current account. This is for the money you use to sort regular family expenses. In the months when your commission is high, make sure you put money into your savings account. This can really come in handy during emergencies. You can also go the extra mile and have a tax account for your tax fees.
- Separate business and personal expenses- One big mistake real estate agents tend to make is to have these two expenses intertwined. To start with, you need to have two separate accounts for both. Your personal expenses should include food, transportation, and mortgage. On the other hand, business expenses are the fees associated with running and growing your business, such as office space, marketing bills, and car maintenance.
These money management tips will help you improve your discipline and avoid living hand to mouth when things get hard. You’ll also avoid business failure.
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Lack of Control
The life of a real estate agent can be super-frustrating. Whether or not a deal closes is entirely dependent on your clients. You may spend all your resources and time trying to convince them to invest in the property. Even while you find them the best deal, the decision ultimately lies in their hands. Sometimes, the other party’s agents may be so difficult to work with and fail to guide their clients well even when you’re giving the best advice. If they make poor decisions, you don’t get paid. Your income and your paycheck ride on the clients’ decisions.
To be a successful real estate agent, you have to learn how to read people’s minds well. You might also want to avoid wasting your time on prospects and clients who are not serious about purchasing a property. Don’t be afraid to fire and let go of these clients to focus on people who’re serious, motivated, and want to accomplish the goal of homeownership.
The best remedy for this is to focus on what’s in your control. For example, you can choose to channel your energy and resources to lead generation. Allocate about 3 hours every day for nothing else but lead generation. Do this daily for about 200 days, and you’ll notice you’ve significantly been increasing your chances of closing deals.
Also, focus on your growth. If you’re still where you were three or five years ago when starting, then you’re doing it wrong. Frequently take up challenges that compel you to move out of your comfort zone and expose you to new opportunities. For example, if you’re not on social media, you might be missing out on remarkable opportunities. You can join a few platforms to grow your network and also run ads. If you’re busy, you can hire a virtual assistant to help you with your social media activities.
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It Can’t Be Sold
If you’re looking for a business that you can build, have an extra strategy, and sell, real estate might unfortunately not be the business for that. Let me explain.
Real estate is a tough business because it thrives on cash flow. This business won’t run in your absence. You’ll need to be out there each day, looking for deals and making things happen. If you’re really good at what you do, you’ll be making hoards of cash. However, if you don’t go to work, say for a single day or a month while on vacation, the wheels on the bus simply stop turning. Your income is completely shut off.
For this reason, a real estate business can’t be sold or acquired. In simpler terms, there’s no business here because you are the business. While you work and hustle hard, know that the business you’re building is yourself, which will take a lot of time. Many standard jobs involve 40-hour workweeks, but you’ll have to work significantly longer as a real estate agent.
This job may give you breaks during workday mornings or afternoons, but don’t be surprised if you have to go to the office on Saturdays, Sundays, and even public holidays. You also have to let your family know you might miss out on a few dinners because some clients may request to see the property in the evening.
Also, are you comfortable with being uncomfortable? Are you willing to cold call the next prospect after facing rejection from the last? You may not be the most outgoing person, but you have to understand that building yourself as a business will need you to go all out. Understand that clients say no to what you’re selling, not to you as a business. This can be a huge downfall unless you decide to build a large real estate company with many agents under you. As a single agent, you build something that can’t be sold.
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Career Mobility
Real estate business provides limited, if any, mobility. What do we mean when we refer to career mobility? Say you start as a real estate agent in New York and build your business for about five years. It might be tough for you to wake up one day and choose to move to California unless you want to start from scratch all over again.
Why is this? 50% of real estate business and deals come from referrals and past clients. If you get really big, a significant portion of your deals will be attributed to past deals and referrals. If you leave these relationships behind, you’ll have to build new ones again from the ground up.
On the flip side, you’ll still have the skills you’ve accumulated over the years of hard work and resilience. Remember they say experience is the best teacher. This can’t be replaced by anything else. You’ll eventually be fine if you’ve polished the skill of prospecting and closing deals. This is why you’re encouraged to become the best version of yourself and possess high-income skills that are irreplaceable.
Real estate exposes you to many opportunities inside and outside the industry when you focus on building your brand. You can climb the career ladder and reach your maximum potential. For example, you can transition from a real estate agent and start a career as a real estate investor, portfolio manager, residential appraiser, or leasing consultant. Once you hit the career ceiling, you can manage a group of real estate agents for an established firm.
Bottom Line
A career as a real estate agent may not be as fancy as you are made to believe. There are many positives and the indisputable potential to become a millionaire. On the other hand though, it comes with various challenges that require you to remain steadfast. You’ll have to be patient and stay committed to the hustle. Becoming a successful real estate agent is possible!
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