What They Don’t Teach You In Real Estate School
A career in steady estate can be very rewarding indeed. Some of the reported benefits are hard to near by in any other profession. The flexibility of your schedule, more control of your income, and freedom from being “managed” by someone else constantly…these are things that most of us dream about.
However, are these truly realistic or unprejudiced merely altruisms we’re led to believe? For any job, career or profession there is a long list of pros and cons. The real estate profession has for decades been one of those jobs that many judge about, but few enter until they either lose their regular job or perhaps they need something with “mother’s hours”.
A Little History
Real Estate brokers are frequently looked upon as a group of people who “used to be” something else. For the most allotment, people opinion real estate as a contrivance to make a lot of money with little anguish. After all, how much effort does it assume to drive someone around for a few hours to look at new homes, enjoy out some paperwork, and collect a commission check? The real answer to this is that these same people don’t find out the truth until it’s too late. Answers that should have been easy to find long before signing up for real estate school or – worse – starting in the field.
About one of out eight new licensees stays in the business for two years or more. Many don’t last that long. The overall success rate is very low. Real estate is like boot camp: only the strong survive.
The current economy at any given point in time is also a major influence on your success potential. In the late 80’s if you had a car and a real estate license, you had sales falling into your lap. This was a housing boom where buyers were fighting in driveways making offers for a house. You didn’t even need experience. People actually quit their jobs to get into real estate and get a piece of the action.
However, this boom didn’t last long and the sales and easy commissions came to a painful demolish. They learned the hard way that real estate is a market-driven entity and your experience plays only a small part in your success.
Economics 101
There were new brokers who started in the midst of these past housing booms who defied the odds and made tons of money. And there are very intelligent brokers with top notch selling skills who started in a bad economy, and they failed miserably.
A poor economy will spur a buyers’ market. There is usually too worthy inventory for sale and the buyers have their choice, at below market prices. Many experienced brokers leave the business to find valid employment and income out of sheer necessity.
A strong economy will turn into a seller’s market. Inventory can fluctuate, but it moves very quickly. Homes typically sell for more than they are worth and potential buyers can cause a bidding war.
Sales Experience
When a buyer chooses a house, they know exactly what they want. It is not sold to them. I don’t care what type of sales experience you have, but the first thing you need to remember is that selling real estate is a totally unique sector of the market. If a buyer doesn’t the like the kitchen, or if the street is too busy, believe me, there is nothing you are going to say to change his mind.
Tax Advantages
Remember – being a broker means you are working for yourself. You are not an employee. You are an independent contractor. Self employed. On your own. However you choose to refer to yourself, you are not an employee.
There are some wonderful tax advantages available to anyone who is self employed, and many people like to keep their licenses active and work at least a few hours a week simply to have these tax deductions at year end.
Below is a list some of some year end deductions. Just remember to keep your receipts, make notes on each one if you take someone to dinner for business purposes, and very important – save money from each commission check to pay your self employment taxes when you file at year end.
•
All your car expenses
•
Marketing and advertising
•
Your own web site (hosting fees, etc.)
•
Your internet connection
•
Phone
•
Fax
•
Home office (the actual space you use in your home to do your job – the IRS really prefers that this be a separate room, but check with your accountant)
•
Meals (with clients, buyers, etc.)
•
Necessary travel
•
Training – classes, seminars, books, videos, etc.
Accurate ESTATE SCHOOLS
Real estate schools are part of private industry. They are 100% for profit entities. They don’t care whether you graduate or pass your state exam. They care whether or not your tuition check clears. Period.
Once you pay your tuition, which can range anywhere from $125 to about $500, their only other obligation is to provide you with a space common curriculum that covers what your particular state mandates that you know at a very minimum in order to sell real estate.
States vary, but it will cost you about another $150 to lift the site exam.
Types of Schools
You can study real estate in a variety of environments, including some home glimpse programs. Some colleges and high schools offer this as an evening adult education program.
Some states require a high school diploma or GED; others don’t.
Each state regulates how many hours of training you need to complete and the schools usually break down these hours into two different formats. One is a longer course of study of a few nights a week for a month or so.
Another is the weekend break course. Two jam-packed days of mind boggling information where the overall tone of the course is “let’s just get this over with so you can go home and notice on your own”. You are responsible for shining and understanding the material with very little or no opportunity for discussions or questions and answers. Frankly, unless you have dire reasons for choosing this venue, don’t. After Sunday night you’d be lucky to get your instructor on the phone for a question.
Curriculum
The first thing to keep in mind is that what you learn in real estate school is only 10% of what you need to do your job. They don’t inform you how to sell. The average class doesn’t even teach you how to fill out a sales contract!
You learn about tax stamps, riparian rights, the total square footage in an acre, how to amortize a mortgage, and the different types of titles you can buy property in. You will exhaust hours learning math formulas you will probably never need to use again. You will memorize information that will never approach into play in your daily transactions as a broker. You will study, cram for and hopefully pass your exam. Then you can go home and forget it all.
Forget it?? Yes! After you pass your test, most brokers can no longer explain Riparian Rights simply because as a accurate estate broker it is not your job to know how great land the owner really owns and how it should appear on the deed. This is the job of an assessor.
What about tax stamps? This figure is provided by the lender. But you’d better know all this in class and on the exam!
Title? Sorry again, but not the broker’s job. The deed is drawn up by the real estate attorney or title agent. Even having a discussion on this topic with your customers in many states could effect your license in jeopardy since this is considered providing legal advice.
So why all the fuss? Real estate school teaches you just that: about real estate. It doesn’t teach you how to sell real estate. The basic curriculum hasn’t changed in over fifty years. However, the bottom line is this: you don’t learn what you need to know in order to make money in the field of real estate sales.
The Exam
There are many versions of the test itself. Yes, you could get a very simple version and your friend in back of you could get the hardest, most math oriented version they ever wrote. It’s a matter of the draw.
Now That You Passed…
As soon as you arrive home with your temporary license expect your mail box to be full of “offer” letters from just about every real estate company in the area. They offer their congratulations and hope that you will consider them for your upcoming real estate career. A phone number and a business card is provided and you are asked to call to arrange a personal interview.
Good agencies are always looking for bright, hard hitting go-getters to make them more money. Notice I said “make them some more money”. A good salesperson is an asset. If you’re good, everyone benefits. They will hire almost anyone as long as they exhibit initiative, promise to work hard, and are willing to learn the business – no matter what their age group or past work or educational experience.
Getting Your First Job – The Interviews
Upfront Costs
Many people are shocked to learn they need to spend money to win into the business because this is rarely or never discussed in real estate school.
It is not uncommon to be handed a piece of paper at the conclusion of an interview which details a list of start up costs totaling about $1500!
Usual originate up fees include a type of malpractice insurance, the rental of your MLS key (which is what gets you into the homes you want to sell), accurate estate board dues, employ of the MLS computer system, a portion of the general office expenses, etc. And these costs are just the beginning! What happens to the people who simply can’t afford these types of expenses?
The schools don’t talk about it because their job is only to teach you about loyal estate. They don’t want to discuss anything that might dissuade you from finishing your classes because they might have to refund some of your money. Acquire me – many people would end immediately if they heard it could cost over $1,000 to get a job in real estate!
Even once you are at your interview, agencies don’t want to bring this up until the last minute, once they know you’re hooked on the view of making money and not having a boss. At this point you have probably been shown your new desk, the sales board, pictures of their new listings, and you’ve heard how wonderful you are. They assume that if you want this bad enough, you’ll find a way to get the money even if you have to borrow from a credit card, which many must do.
Commission Checks
Since commissions are usually another topic which is ignored in real estate school, this could be another real shocker for many. As you go through various interviews, one of the most important questions you need answered is “what is the typical commission split here and what other fees will be deducted from my check? “
For a new broker the typical split is 50/50. Let’s focus on a selling effect of $300,000 for this example.
When a house is build on the market, the seller signs a listing agreement with the agency. The fee or commission is usually 6%. That means when the house sells, the seller must pay the listing agency a whopping $18,000 at closing.
Please note: The listing agency is the company. Not you.
Let’s say Mary Jones of Century 21 is putting the house on the market and the owners signed the listing contract specifying a 6% commission. She is now known as the “listing agent” for this transaction.
Jack Smith from ERA actually sells the house. He is now known as the “selling agent” for this transaction.
So who gets what? At closing an $18,000 check is made out to Century 21, the listing agency. Century 21 now has the responsibility to pay commissions to the selling agency and quickly issues a check to ERA for $9,000.00.
For a typical sale the sales contract outlines that the listing and selling agencies split the 6% 50/50, meaning each company gets 3%.
So far the breakdown for the $18,000 commission would be:
Century 21
$9,000.00
ERA
$9,000.00
It is now up to each agency to pay their agents. For the purpose of this example we will rob that each agent is on a 50/50 split with their companies.
Expected commission checks – at the most – for Mary and Jack will be half of the agency commission, or $4,500.00. Not bad at all, BUT a far cry from the $18,000 that many hold is all theirs in the beginning.
Now don’t go planning on all that either! Most agencies charge an administrative fee of about 5% for each sale. And a savvy broker will immediately put about 25% into an interest bearing account in order to pay income taxes at the end of the year. Remember: You are self employed and no one is taking taxes out of your checks, even though you are still required to pay them. (Note: Your agency is legally required to provide you and the IRS with a 1099 MISC at year slay outlining your commissions.)
Marketing/Advertising Expenses
Also ask what type of marketing and advertising costs they cover – or don’t. Since you technically work for yourself most companies only provide a minimal amount of media coverage for you. Do they put pictures of your listings in the Sunday paper with your name? If not, this advertising can be very costly.
Benefits
Forget the health insurance and paid vacations. Frequently you have the opportunity to sign up for a fairly priced group policy offered by an organization, but you must pay the entire premium. Also forget about paid sick days, paid vacations, and the like. You don’t work, you don’t have the chance to earn money.
Training
Ask what type of training classes they have available. Reliable training is vital to your success. There is no way you will learn the business without this.
All good companies have training programs and seminars that are mandatory. Some companies, however, request payment for some of these classes in your initial start up fee. If you complete six months with that agency, this money might be refunded. Many companies do not expect payment for this training.
Successful Brokers
Don’t be afraid to ask about their top performers in the office. Ask how long they have been in the business and in that particular office. You will most likely hear that the top performers did not become top producers until about three years into the business.
These top producers also demand a higher commission split. Most bag to maintain about 60 – 75% of their commissions, as opposed to the beginners at 50%.
Office Manager
This is the business manager for that office, not a secretary. This is the boss, and most likely the person who interviewed you and brought you on board. Ask him/her how long he has been in sales. Obviously, if someone has not done the job of her subordinates, she can’t possibly be of any help to you.
Also ask if this is a “non competing” office, meaning does the manager list and sell as well OR is she only responsible for managing the sales team. If she is allowed to sell as well, watch out. There is simply no way someone who wants to acquire business away from you (which is exactly what every other person in that office wants to do) is going to be able to show you how to make money or be willing to teach you the ropes.
Experience
Always ask the interviewer / office manager what her opinion is of what would make a good real estate salesperson. No reply is correct or contaminated but as you sit through a few interviews you will begin to see a pattern and analyze these thoughts. You will most likely learn that you do not need sales experience or advanced education to be a good broker. What you do need is a thorough understanding of the sales process in order fully understand what you’ll be committing to.
Office Projects
Ask how many new developments the office has been given to handle. If an agency has new construction developments all over, the agency is doing well and so are the listing brokers for these projects. No developer is going to keep his money, faith and trust in any real estate firm that does not have a proven track record for new construction sales. If an agency you are talking to has none of or very few of these projects, believe going elsewhere if high commissions are valuable to you. (Ultimately your goal would be to do open houses at these developments.)
Summarizing the Interview Process
While you are talking to these managers be honest with yourself in analyzing your feelings, their feedback, and your impressions. Most importantly, be honest about your personal finances. No matter how much you want to try the business, you’d hate to find out you need to stay after only a few months because you can no longer afford even the tiniest business expenses before the money starts coming in.
Financial Planning
The truth? You won’t make money without spending money. It doesn’t matter what business you’re in. Even the Avon lady needs to hold samples and brochures and probably even has her own cloned website.
If you want to work for yourself, this is the intention it is. Restaurants, doctors, limo companies – whatever -need to spend some to make some.
You need to spend money to collect your name in front of people. Your agency won’t be doing this for you. If you don’t spend money to advertise yourself, all your possible customers will go to someone else: a competitor who spent money to develop determined they got their name in front of these same buyers.
If you don’t have sufficient financial resources to keep you afloat for a few months, you won’t acquire it.
These are minimum “must have’s” you will need in order to be successful.
•
A nice car (Your 10 year old sedan isn’t going to cut it. People want to SEE your success. It doesn’t matter that you just started.)
•
If you can’t afford a Blackberry, at least get a phone that can receive email and surf the web.
•
The lawful clothes!
•
A laptop
Talk to the most successful broker in your new office and ask for advice. Emulate him. The top producers are usually happy to talk about themselves, especially since they don’t see you as a threat…yet.
Image
Whether you want to believe it or not, you do need to project success. You need to look successful. You also need to be able to afford to look successful. There are some great clothes out there for reasonable prices. Whatever you do, don’t sabotage your career by looking like you make minimum wage.
And don’t forget your hair! If you have tough hair to deal with then settle for a neat ponytail or a clip.
Once you have some decent clothes then you need to concentrate on a car. If the best you can do is a ten year used Toyota, find a way to at least borrow a nice new car to show your customers you have made money in this business, whether you have nor not.
The worst thing you can do is meet a customer at the office, show up in a spaghetti strapped top, low cut jeans, and expect them to accumulate into a rickety mature car to spend a day house hunting. Don’t demolish your time. Your appearance screams “Loser”. Sorry.
Your New Job
Most of your time in the beginning will probably be spent doing nothing. This is a different world! You don’t have a boss micromanaging you. She probably won’t even volunteer much of her time unless you create it a point to ask questions. If she is too busy, ask some of the others if you could note along with them doing some showings, going to listing appointments, or even searching through the MLS database (Multiple Listing Service where everything for sale by a broker is listed.)
You are making a significant personal and financial investment so it’s up to you to manage your training and success. Ask questions. Find a mentor.
Proper estate is a very intense game. Competition and rivalry heat up as the month gets ready to close. Your recent office will most likely not be swarming with kind hearted brokers trying to encourage you get settled in.
On the Job Training
You will find quickly that all good salespeople are high energy and Type A personalities. Once they procure even a hint that you could be real competition they will pull abet and stop offering assistance. Some can be downright base if they gain you are asking too many questions and taking up too great of their time.
There are some, thank goodness, who are more than happy to mentor the newcomers. Take advantage of all current information you can get, by any means at your disposal.
Lean on the manager, too. He may spend most of his time helping to close deals with the others and he may seem to even forget you exist.
However, in this business you are totally responsible for your progress so you need to ask for face time. Ask him to help you set some realistic goals and follow up with him. He probably isn’t going to track you down to study how you’re doing.
Typical “Newbie” Issues
How do I get customers? You are responsible for getting all your own customers. You don’t walk into the office to earn a Hot Leads list on your desk. Your leads will have to come from referrals, “up time” (when you sit at the desk and answer phones for the office), or your own advertising.
•
You can have lots of prospects, but they may never be customers.
•
A prospect can and will buy from someone else.
•
Others will decide not to buy at all.
•
You need to exercise your own money on advertising and, yes, it can be quite expensive.
•
In the beginning you are not going to make lots of money selling higher priced homes. Agencies that deal with this type of residential property will not hire brokers without a successful track record of working with high end clients.
•
You will be out all day in despicable weather, driving all ove3r, spending a fortune in gas, and forsaking other customers, only to find out your customer tells you at the end of the day that she really isn’t in a hurry and she’ll call you soon. This will be the same person who called at the crack of dawn begging you to take her out today because she saw her dream home in the paper.
•
You’ll give up notable plans with your family to meet a customer, who never shows up.
•
You will be treated like a chauffeur (if you allow it to happen).
•
You will probably experience long periods when you make no money.
Real estate is a two edged sword. It will cost you to stay in the business even if you have nothing coming in.
If You Haven’t Given Up Yet
Then you could well be on your way to a successful career. One of the most common factors leading to failure in this business is that people give up too easily. It’s easy to feel defeated. It takes a very special mentality to make it through day after day after day when you feel like the entire world is against you and you have convinced yourself you’ll never make a penny selling houses. It’s very difficult getting yourself out of these emotional ruts, yet that’s exactly what successful sales people have to do on a regular basis.
If you are convinced you can make a go of this, go for it! Just make positive you know in your heart that his is what you want, and for the right reasons.
I will leave you with one final thought: as a famous alien once said, “Go forth and prosper!”
Pleasurable luck!
There are no posts related to What They Don't Teach You In Real Estate School.
Related Posts
Filed under Family Health Insurance Self Employed by on Jan 16th, 2012. 