HOW THE REAL ESTATE WORLD REALLY WORKS

 I hate to tell you but getting your license is the easy part. To better prepare yourself you should have a better understanding of the world you are about to enter and how things really work.

I saw a new ad put out by NAR (National Association of Real Estate Agents) that proclaimed we are a million strong. Over 1 million licensed agents. The positive spin implies that real estate is growing and we are strong. A real estate army helping sellers get their top dollar and buyers find that perfect home. But a real estate career is really an army of one.  Does it really matter how many agents are in your company, how many listings your brokerage has or how many agents are in the country? What matters is you and how you perform.

The flip side of the coin of 1 million agents means you now to have to compete against more and more agents, which can drive down agent commissions. Even with the growth in real estate the average commission nationwide has decreased because of competition.

Real estate is really a numbers game. How many prospects do you have? How many can you get to close? How many listings do you have? How many agents does your broker need to recruit? It occurs at the agent level and up to the broker's level.  Since brokers have to focus on the numbers let's look at how that plays out in the real world and most importantly how it impacts you.

 1.      The need to recruit lots of agents.

 Brokers need to recruit a lot of agents because real estate has a high failure rate. Over 70% of new agents aren't active after their first 2 years in real estate. With that many agents going out the back door they need to keep a large number coming in the front door. This approach will inevitably lead to certain behaviors by the dominate brokers in your market:

 -         Mass hiring of agents. When you walk into a typical real estate office today you may see 50 to 100 agent photos on the wall. Agents are often awed by this and think all those agents mean success which will somehow magically transfer its way down to them. Remember, you have to compete with all of them. They may be your office mates but they are also your competition.

-         The broker must be careful about investing money in all of these new agents if that many aren?t going to make it. You will be the one risking the start up money not the broker.   

-         The broker's investment is in sustaining the high volume. It's not a direct investment in you as an agent. Consequently you will see a professional trainer with a class room setting and other tools for self learning, like web based training or computer disks. It's no more costly for the trainer to have 20 agents then 10 in their new agent class. They will also invest in flashy and appealing tools for you to use, like agent web sites, mailers, ads to use, etc. Some are very useful in building your business but some tools are really more effective at helping to recruit agents. Agents are attracted to and more inclined to work at companies that have these tools at your disposal.

 Brokers want you to think that success breeds success. There size, dominance and ability to invest large sums of money to promote the brand don't mean that you will be successful. After all, if dominate brokerages are hiring the most people they are also loosing the most.

Where does the brokers profit come from? It's not the top producing agents but the large number of agents in the middle and the ones just starting.  The top ones have the leverage to keep a majority of their commissions. With middle producing agents and new agents the broker is likely keeping 40% to 50% of their gross commission.

 The broker's have a need to keep sustaining this profit base. They know there is a high failure rate, which is why they keep hiring lots of new people. But it has become a vicious cycle and a self fulfilling prophecy. I believe that hiring lots of people is one factor that leads to such a high failure rate.

                                               Training as a recruiting tool.

 If large volumes of new agents are needed then the logical outcome is to structure training program as a recruiting tool. New agents are looking for training and factor that in their decision about where to work. Certainly brokers want you to succeed and they work hard to have training programs that intend to make that happen. But if they need to keep that front door wide open then using training as a way to draw new people in can begin to occur.

 Training a lot of people at once means a class environment or self study, which is a good way to teach you about real estate. But since it's not individualized it isn't success based.  I can train a class room of people how a new agency disclosure form works, how to put together a good listing presentation and how to do lots of things. But how do I judge if they are learning how to implement their skills?

 Success based training is more time intensive and expensive. Most importantly it is results oriented. If you are in a training class or on line how can your progress be judged? This takes more one on one interaction, but that approach doesn't work for brokers who are hiring lots of new agents. It's easier to have a professional trainer stand in front of a room full of new agents. It's harder to have someone connect with each agent on a continuing basis.