What it is like to be an "Average" Real Estate Agent…

- The average full-time agent works 46 hours a week. 1 in 5 agents work 60 or more hours per week.

Part of the perception problem- even with agents within the industry- is that all an agent does is show homes. (A mine-numbingly simple task that can be argued is obsolete thanks to the internet.) Yes there are a lot of internet search tools available to today’s buyers, but if you don’t have a strong understanding of the real estate industry or the local market, it doesn’t mean you know how to interpret the data. A good, knowledgeable agent (and let me add that I fully understand many agents don’t fall into that category) will spend time on every transaction crunching statistics trying to interpret the data to make sure their buyer doesn’t get burned (this is a whole blog article on its own). Suffice it to say, this is hours of office work that a lot of new agents don’t realize exists.

Then there are the inspections- a good agent attends them with (or on behalf) of their clients. Plus there is the negation process after you receive the inspection report, working with the lender, inspector, appraiser, other agent and title company, as well as all the paperwork required by the state, broker or lender to get the deal to close. On the selling side, a good agent spends time helping a client stage their home, offering advice to make it show better, holding open houses, soliciting other agents for feedback (which is a fulltime job itself), providing feedback to the client and of course marketing.

I should also note that each transaction is its own beast. For every “easy” deal there is another client that has three contracts die before things work out, a difficult or emotional client that defies logic and consumes an agent’s time, or another agent whose lack of knowledge, arrogance, or apathy for their own client quadruples the amount of time it takes to make a contract close. All said I would estimate for every hour an agent spends with a client there is 4-5 hours of administrative work to manage the client/contract and another 4-5 hours of marketing to bring in the client.

More important, in residential real estate weekend and evening work is quite common since you have to work around the schedule of the buyers- so the fact that the agent may be at home at 2pm on a Wednesday doesn’t mean the agent isn’t working their fair share of hours.

- The average full-time agent has 9 years of experience but has been at their current brokerage for 2 years.

Getting paid 100% commission unfortunately means some months you feast and others you starve. At the same time federal regulations that define independent contractor status prohibit a broker from using a lot of the traditional perks an employer might use to retain a traditional employee- such as health insurance, benefits- even logical things like helping to market or grow the agent’s business. No matter how much you may like your broker, office, or coworkers, ultimately as an agent you are forced to take an “every man for themselves approach” in order to survive. This means the successful agent is resigned to “shop” brokers for better compensation deals- because a little more from each commission check can mean the difference between making it in real estate and failing.

- Hotjobs.com says the average agent earns approximately $31,000 per year. I’ve seen other sources that peg it at $33,000-35,000 per year.

Compared to the average hourly waged employee running a cash register at Wal-Mart or waiting on tables at Applebee’s, this is probably a pretty good income. However, compared to most people’s perception of what real estate agents make it’s significantly lower. A lot of this has to do with the fact that most people see the total commission being paid on a real estate transaction, but they don’t understand just how many people get a part of it beyond the initial agent- or the expense the agent might actually have to generate that commission. For example, one of the top listing agents in our office retains two full-time salaried employees to process administrative paperwork at a total cost of $100,000 per year- and that’s an expense she has to pay every month even if nothing sells. Combine this with the stats below.

- 10% of agents earn less than $17,600 per year.

How is this possible? I have seen statistics from various local associations of Realtors that show the average agent in their geography processes a low of 1.9 transactions per year (I believe that was Massachusetts) to a high of 12 transactions. Depending on where you live, that’s an average of one sale every six months to once a month. I can no longer find the Missouri statistics but I believe it was somewhere around 6-7 transactions per year (basically one sale- or paycheck- every 60 days).

- An Inman News study shows that 61% of all real estate commissions are earned by the top 25% of agents. The bottom 25% of agents only earn 3% of the total real estate commissions.

In other words, forget about the 6-7 transactions per year average. A few agents are doing 6-7 a month and the rest are going months between transactions- and paychecks.

One theory on why the industry works this way is that success breed’s more success. However my theory is that being a real estate agent is no different than any other business- to be successful you need a solid business and marketing plan for how you are going to attract new customers and a critical mass of start-up capital to pay for the initial marketing and expenses required to be successful- and most new agents have neither.

I have seen statistics that show the average first year income for a new agent is somewhere between $12,000-14,000 (on the low end) to $22,000 (on the high end). Realty Times did a survey of people in licensing school and found that more than half of the people got into real estate expecting to make over $40,000 in their first year. 23% assumed they would make over $60,000 in their first year. (See this article.) Clearly reality and perception is out of line.

Here are a few other first year agent statistics:

- Inman News did a study and found 10% of new agents quit in the first year and another 16% quit in the second year.

- The California Association of Realtors did a survey that showed 57% of new agents quit real estate within the first five years.

So the failure and burnout rate is high for real estate agents. Perhaps the unrealistic income expectation combined with the work hours has a lot to do with it. One statistic that has eluded me is the divorce rate for established agents- which I expect is also higher than the national average due to the excessive non-traditional work hours and inconsistent pay.

Although these statistics can be pretty gloomy, don’t look at them as a reason to stay out of real estate as a career so much as a need to plan and prepare prior to entering. Ask yourself questions like, “how will I survive if there is no income for six months or there is a zero month?” If you don’t know a lot about real estate as a business, put together a plan for training yourself on things like financing, construction and understanding client’s needs.

In our own case, Kimberly entered real estate sales in a back end fashion- with 10 years of industry experience in other roles (mortgage broker, rehabber, builder, property manager) that allowed her to be both a newbie and an expert at the same time. More important, she had a second income to support her during her first year at Prudential Alliance.

My interest and formal classroom training in real estate started over five years prior to getting licensed. More important, I moonlighted on my corporate sales job for over a year helping Kimberly market and grow her business prior to joining her- even traveling with two laptop computers so my employer’s IT department wouldn’t spot my work on their laptop. When I finally quit my job to join Kimberly, I had saved up several months pay to cover our expense- which we quickly burned through to pay our bills.

Overall, we both work over 60 hours a week. However because we enjoy what we are doing, the hours (on most days) doesn’t seen oppressive. For example, today was our first Sunday off together in months- and we spent the day driving around an area of town we don’t know very well looking at real estate trying to get to know the area better (go figure).

To keep this simple, let’s look at a typical full-time residential real estate sales agent. When an agent meets with a seller to list a home for sale, the selling agent and the seller will determine a commission structure in advance to the home being listed. Legally, this is always negotiable but it can be a flat-fee or a percentage of the home’s sale. There can also be agent bonuses or other incentives for a quick sale. Generally, the broker (see Part 1) sets guidelines as to how their agents should structure commission as a part of their overall business plan- however if the broker is a member of a multiple listing system (MLS) then there may be additional requirements as to how the commission has to be structured.

The MLS

A multiple listing system (MLS) is where a selling broker agrees to payout a percentage (or split) of the sales commission to any other member of the system who brings in a buyer for the property. Even though the exact split is unique to every listing (and determined by the seller), the system allows agents who represent buyers to avoid having to negotiate commission with the selling agent on every single deal (or require their buyer’s to pay a commission). Generally, most markets have one major MLS which is usually managed by the local Association of REALTORS (some larger markets may have multiple system’s). The MLS will also have basic regulations as to how member agents can market their listings as well as how buyer’s agents can show them (to create standards and keep everything fair for all parties).

Why all of this is important is because if your broker is a member of the Association/MLS (and most larger brokers are), a seller’s agent will have to submit all of their listings to the MLS, specify the commission split up-front, and post the listing in the MLS database for all other agents to see and sell (there are exceptions to this but they are unique to each MLS so I won’t be discussing them here). A typical commission split is usually somewhere around 50/50 or 60/40. So, if your seller agrees to a commission of 6%, you will probably agree to pay the buyer’s agent’s broker 2.5% to 3% with the selling agent’s broker keeping the rest.

Although a significant percentage of agents and brokers are members of the MLS, not everyone joins. If you join a broker who is not a member, you might be expected to not only list homes but bring in a buyer for the listing as well (or negotiate a commission split up front with a buyer’s agent before they can show the home). Although there are legitimate reasons to not join your local Association/MLS, a significant percentage of home sellers like the benefit of having exposure to all of the potential buyer’s agents (so unless you have a specialization that is unique, you might find it difficult to get clients without the MLS membership).

Non-Traditional Brokerages

This brings us to discount or flat fee brokerages. Despite the marketing hype, discount and flat fee brokerages have been around for a very long time. However the rise of the internet has reduced the start-up costs and created quite a few “internet” based brokerage (although state licensing laws still apply). As the purpose of this article is to discuss how an agent gets paid, I would like to avoid the debate over which business model is better and stick to compensation. But understand, in most commission-based residential real estate transactions the seller generally pays commission only when a property sells (which means an agent or broker might incur marketing expenses they will never recoup if the property doesn’t sell or they get fired by the seller). That may not be the case in a flat-fee scenario.

Flat-fee brokerages may take payment up front or credit card payments at the time a seller places a listing (or they may take it upon sale). If the brokerage is a member of the MLS, they may also require the seller to pay a commission percentage to a buyer’s broker on top of the flat fee (once it sells). A $2,000 flat fee paid up front with another 2.7% paid to the buyer’s broker would be a fairly average transaction from what I’ve seen. Over the past year, the state of Missouri has passed regulation to specify the minimum effort a brokerage must provide a seller (receiving offers and submitting counter offers). This is due to internet brokerages that were basically taking their fees up front and then doing nothing for the client (not even putting them into an MLS).

Many of the really low cost flat-fee brokerages (those that charge under $1000) are often one person shops (because there really isn’t a place for agents in their business model). Of the larger flat-fee brokerages that do have agents, an agent might get a percentage of the fee, or might get paid for “add-on” sales- such as selling the buyer a real estate lawn sign for their yard, or selling the buyer add space in the broker’s newspaper ad. In these cases, the brokerage will establish a “menu” of marketing solutions for an agent to sell to a seller.

Although discount brokerages get lumped into the same category as flat-fee brokerages by most agents, the truth is it’s a different business model. If you join a discount broker, you are basically getting paid the same way as the traditional “full-service” agent would get paid (commission after the sale)- only you are agreeing to provide your service for less commission (and will generally provide less marketing to compensate). In many cases, a discount broker’s only marketing might be to put the listing into the MLS for buyer’s agents to see. As an agent at a discount brokerage, you are generally expected to make your money one of three ways- make up your discount by selling in volume, live off of a lesser commission, or use the listings as a tool to make contacts with buyers (and make your money off of the buyers).

Understanding Commissions…

Now let’s go back to the traditional residential agent working with traditional full-service listings that are a part of the MLS. In St. Louis, the average commission rate is right around 6% of the home’s sale price (again, every listing is unique) and the average home sale price is somewhere around $200,000. For our example, we will use these numbers and assume the split between the buyer’s broker and seller’s broker is 50/50. For the record, when one agent represents both the buyer and the seller, you have what is called “dual agency” and the one broker gets the full commission. Many agents will discount dual agency as a marketing tool to get buyers- although in St. Louis the average number of homes that sell under dual agency is less than 5%. For our example, we will assume there isn’t dual agency.

Upon closing of the sale, the seller pays the selling BROKER the commission who then pays the buyer’s BROKER the commission split. For our $200,000 home, that’s $12,000 total commission which the selling broker then gives $6,000 of to the buyer’s side. Please note that the commission is paid to the BROKER, not the AGENT. Every broker will have their own unique plan for paying agents.

When it comes to paying agents, most brokers will give a percentage of the commission to the agent and keep the rest. It is not uncommon for a new agent to start out at 40-50% or less. Since successful agents are constantly being courted by competing brokerages, the split the agent gets generally goes up the more successful the agent gets. How much commission the broker keeps (i.e. where the broker’s split starts and stops) generally has to do with how many services the broker is providing the agent “for free.” It is not uncommon for top agents to keep 90% or more of their commission.

There are also brokerages (many RE/Max franchises for example) that allow the agent to keep 100% of the commission but then charge the agent a monthly flat-fee (even if nothing sells) as well as fees for any services provided (faxing, copying, desk space, phone usage, newspaper ads, etc). Since real estate sales can often be an up and down business, it is up to the agent to decide which business model is best for them.

There are also other parties that may get a percentage of that commission as well (besides the broker and the agent). Franchises generally take a percentage of the commission (Prudential, for example, keeps 3% of all sales). Referral fees can also occur if the agent found the client through a referral from another agent. These normally are 20-30% of the commission. Examples of this would include: relocation buyers referred to an agent by a relocation company, a seller referred to an agent by another agent across town who doesn’t want the listing or an internet leads referred to an agent from their own broker’s corporate headquarters. In most states it is illegal to pay a referral fee to anyone who isn’t a licensed agent (although agents in other states are acceptable). Only the broker, however, can pay the fees.

So, back to our example: Let’s say the agent is fairly successful and has a 70/30 split with the broker (with the agent keeping 70%). That leaves $4200 of the $6000. If the franchise takes another 5%, you now have $3990 (which we’ll round up to $4000).

Where Does that Money Go?

Most people believe that agents "get rich" selling real estate- on even the smallest of properties- because they never calculate the commission past this point. But realize, there is a lot more to understanding total compensation than we have just covered.

First, you need to pay your marketing expenses (advertising, promotions, etc). This can be simple things like business cards and personalized real estate signs with your name on them, or more complex things like websites, 800 numbers, billboards, postcards or newspaper ads. A general rule of thumb for a successful agent is to spend 30% of commissions on marketing to find the next customer (or advertise a listing).

If you are a new agent, you might find yourself spending 70% or more on marketing, whereas an established successful agent might spend very little (because they are living off of repeat or referral business). Although I have met new agents who have successfully established themselves without marketing (using plain old hard work and a lot of raw sales talent), the truth is those people are few and far between. For the most part, new agents who don’t spend something on marketing usually fail.

The National Association of Realtors estimates the average agent spends at least $8,000 per year. For our example, let’s figure you will spend 30% on marketing (and for the record, I wish I only spent 30%). That leaves you with $2,800 left in commissions in our example.

Meet Your New Business Partner...

To keep things simple, the next thing the agent should plan on is to pay income taxes (we’ll estimate 15%). Since the agent is an independent contractor, they also need to pay FICA and Social Security- things a traditional employer might take out on your behalf. There is also additional tax- sometimes called the self-employment tax- that is basically the tax your employer pays on you that you never see- so figure in another 15%. That leaves you with $1,960 in commission for our running example. (By the way, if you are going to be an agent, by all means find a good accountant to tell you how to pay taxes, what is tax deductible and what isn’t, etc.).

So, on a $200,000 home sale, a fairly good agent could expect to keep just under $2,000 in commission after broker/franchise splits, reoccurring marketing expenses and taxes.

The Real Estate Catch-22

The interesting thing to note is how an established agent can earn significantly more money off of the same sale than a new agent. If a veteran (successful) agent is getting a 90% commission split and has virtually no marketing cost (because they rely on repeat clients and referrals), then they can easily take home $3,500 from that sale. Compare that to a rookie who is only getting a 40% commission split- they are left with just under $1,200 on the same sale (and that’s assuming they don’t have to spend more than 30% on marketing). As you may have guessed, this is the problem with being a new real estate agent. Not only do new agents have fewer prospects for clients, but they have to work harder and spend more money on marketing to get them. Yet at the same time, newer agents can easily get 50% less commission on the same sale so they have less to spend on the marketing they need more of!

But Wait Ron Popeil, There’s More!

Before you rush out to spend that $2,000 in commission, I should note that I’ve only mentioned MARKETING expenses. There are other reoccurring and fixed expenses to know about as well that go above and beyond marketing.

Many states (Missouri included) require agents to carry “Errors and Omissions Insurance” to protect you in a lawsuit from an unhappy client. This is a per agent fee even if you are on a team and the contracts are all run under one agent (or you don’t actually sell anything). I can’t find the exact cost, but I believe I pay $300-500 a year for this.

Many brokerages also have various fees they charge their agents (I personally refer to them as “bullsh**” fees). My broker charges their agents a “technology fee” of $25 per month per agent to pay for the technology in our office (which is far less than most so I’m not complaining too loudly).

You also have membership fees into any professional organization you join- the most common of which would be your local Association of Realtors which you will probably want to join (if for no other reason so you can get access to the MLS). These fees can add up to several thousand dollars a year. As a new agent, plan on having $1000 ready to give your local Association/MLS as soon as you get your license. You will also be required to take continuing education every two years (pricing can vary, but expect to spend $500 or so every other year).

After that, you will probably have to buy your own computer (and software), cell phone (and service), digital camera (to take photos of homes with), office supplies, and (of course) a car to haul around clients. I would also recommend talking to your auto insurance agent to make sure you have enough liability coverage should a client be injured in your car.

If you work from home (even part-time), you will probably want to buy for your home office a fax machine (everything in real estate is faxed), color laser printer (for printing flyers), office furniture, high-speed internet and a business phone line.

As your business grows you might want to consider a toll-free (800) number for relocation clients to call, professional binding equipment for quality looking proposals, staff assistants (which can be paid in commission (if they are an agent) or as a salaried/hourly employee, sales management software, etc. If you get an assistant, you might need to buy him or her a computer, software, etc.

Want to start your own brokerage? Visit realtor.org for the things you will need to do that. General rule of thumb is to have $50,000 ready to invest (more if you want a franchise).

The final thing to consider would be personal expenses that might be covered by your traditional employer that an agent doesn’t get because they are an independent contractor. The largest of these would be health insurance. We pay approximately $400 per person per month for our plan (and the coverage isn’t that good). We do not have dental or vision.

(Editor’s Note: Much of this stuff is tax deductible, so consult your accountant first.)

Summary

The most important thing to realize in understanding real estate compensation is to understand that you truly are working for the client (buyer or seller) and not the broker or brokerage. Other careers might emphasis the importance of a happy customer and might fire you should there be too many customer complaints, but when the day is over your salary, hourly wage, or even commission is being determined by the employer- not the customer. That is usually not the case in a real estate career; without clients there isn’t a paycheck- and the product you have to sell is yourself, not some gadget or other tangible product.

As a self-employed person, you need to realize there is a fine line between being self-employed and being unemployed. I know of an agent who has spent 40 hours a week, every week, for the past 4-5 years working in real estate as an agent- answering the phones at the office trying to get leads, sending out postcards, calendars, magnets, etc. This agent even has a website, a sign on the car, a name tag on the suit jacket, everything “the book” tells an agent to do to get business. Despite all of this, the agent suffered through a drought of more than 24 months without a commission check. That’s more than two years of full-time work- and marketing expenses- without a single penny in pay.

The purpose of this example isn’t to cast doubt on a real estate career or end the article on a sour note, but to make the most important point there is. If you want to know how you get paid in real estate, the answer is to know the industry, select your specialty, train yourself to be an expert, sharpen your sales skills, work hard, make your clients love you and market better than the other agents around you. After that, the commission checks will take care of themselves.

(Note: I found some very interesting statistics on the real estate industry while I was writing this piece that I will publish later in the week.)

There are over 50,000 licensed real estate agents in the state of Missouri alone, and nationally there are over 200,000 new licenses issued each year. Suffice it to say, it would be a pretty tough industry to work in if we were all doing the exact same thing. That’s why the next part of this discussion is to look at some of the various options, or specializations, real estate agents have available to them.

Residential Real Estate

The vast majority of licensed real estate agents (just under 75%) work in residential real estate- which means they are selling residential homes or condos that people live in. Although the majority of agents I’ve met I would classify as generalists- meaning they work with anyone to sell anything- there is a growing trend to specialize on a specific kind of client, property or geography. By specializing, this allows the agent to standout from the crowd of other agents as an expert in their field.

The most common specializations include people who focus on just buyers or just sellers. These are broad specialization. Within them you will find agents who take a much more targeted focus of working with just first-time buyers, condo buyers, loft buyers, retiring buyers, relocation buyers, buyers of luxury or vacation homes, buyers of farmland, etc. You may also find selling agents who just work with a similar subset- selling condos or lofts, farmland, luxury homes, vacation homes, etc.

Obviously where the agent lives and works has a lot to do with these specializations. If an agent lives in a typical suburban environment (like Chesterfield, MO) they probably aren’t going to be successful selling only vacation homes or farmland because the suburbs just don’t offer a lot of either (a better location for that specialization would be in a small town like New Melle, MO or near a vacation home community like Lake Innsbrook). With this in mind, another common subset is to focus on the specific geography an agent lives or works in- like an agent who only sells lofts in a downtown loft district (like Downtown St. Louis’ Washington Street) or within a small neighborhood or community (like St Louis’ South City or a standalone town like Eureka, MO).

Another specialization is working for a new home builder selling just the builder’s new homes. These jobs are often great for beginners since some states won’t require an “agent” to be licensed (since they fall under a “for sale by owner” clause). They also often carry a salary (as an employee) or a draw against future commission (as a contractor) so you aren’t unable to pay your bills while you wait for that first home sale to close. More important it’s a great way to learn a lot about housing construction and real estate.

Other agents focus on the buying or selling of foreclosed or R.E.O. homes (Real Estate Owned by a bank). Along these lines there are agents who work with real estate investors in the buying or selling of fixer-upper or rehabbed homes or rental properties (My own sales team has created a division to specialize in just this).

The other form of specialization is to work on a sales team or at the corporate headquarters of a brokerage and only handle part of the real estate process. For example, on our sales team we have an agent who handles all of the paperwork that occurs from the time a contract is written to the time it closes. That allows our other agents to not get bogged down with paperwork and focus on clients. These people are called Processors or Transaction Coordinators and may or may not be an agent and may get paid a part of the commission, a salary or a combo of both.

Some real estate teams will also have inside sales reps (people who talk to clients on the phone and work leads) that partner with an outside sales rep (basically the person who leaves the office and works with clients directly). You may also have agents who specialize in marketing and lead development, sales management, or other areas of management and coordination (such as a relocation coordinator who manages the relationships with large corporate companies in order to get relocation leads for their buyer’s agents).

Commercial Real Estate

Commercial Real Estate is the selling of office space, retail space, manufacturing or warehouse space (basically everything other than a standalone home or condo someone lives in). In real estate, this is generally considered the other side of the coin from residential sales- meaning you either do one or the other. Why the two are usually separate is because they attract different kinds of buyers with different agendas (corporations and businesses looking to make money instead of home owners looking for a place to live). More important, the contracts, state and local laws, even the requirements of the sellers are different than that of a home buyer.

Within Commercial Real Estate you will find people who specialize in office space, warehousing, retail, manufacturing or residential investment (apartment buildings). Within all of these specializations, you will also see people who specialize in larger properties and people who specialize in smaller properties (because the business who seeks 20,000 sq feet of warehousing is vastly different to work with than the business who is seeking 2,000,000 sq feet of space).

As an agent trying to decide between residential and commercial real estate, realize that the large commercial real estate agents can get huge commission checks when a multi-million dollar deal closes but might have to wait (and work) for years to earn that check. As I don’t work in commercial real estate, I would encourage anyone looking into it to talk to commercial agents about the up and downs of their business.

Although few agents do both residential and commercial (at least successfully), there are generally no legal requirements that separate the two. As a result, there is often times overlap. For example, a four unit apartment building could fall into the light (i.e. small) commercial space or could be sold by a residential agent. In small (rural) towns you may find that commercial retail property (like a small store front) and residential property still fall on the same agent’s desk because there isn’t enough commercial property for sale to warrant a specialist. The decision of how a property is sold (and by whom) is really up to the seller. As an agent, it is really up to you to decide what you can handle and what is over your head.

Other Real Estate Options

What most people don’t realize is that there are a lot of other things to do with real estate experience (or a license) besides sell a home. Being a property manager managing other people’s investment properties, for example, will usually require a real estate license. Many appraisers, lenders, lawyers and developers will also get licensed.

There are also real estate people working for most large corporations buying and managing their holdings. On top of that there are real estate people at railroads, utility companies, local and state government agencies, cell phone companies, etc that buy or lease land for the roads, railroad tracks, power line and highway easements, as well as buildings, cell phone towers, governmental zoning and assessment, etc. Depending on what state you are in, these people may or may not need a real estate license (and might be salaried employees rather than a commissioned agent).

There are also a lot of jobs for an experienced real estate person in the supporting industries that touch real estate- title companies, insurance companies, lending, appraising and inspecting just to name a few. Also, with 200,000 individuals getting licensed each year (and every licensed person needing continuing education) the real estate education industry has become a sizable industry in its own right.

Limits! What Limits?

The real estate industry also gives you freedoms that other industries just don’t have. Even though many agents focus on a specific geography to sell in, there are no requirements to do so other than to be licensed or registered with the appropriate governmental agencies. As such, I have met several agents who sell homes in the St Louis area during the week and at the Lake of the Ozarks on the weekend (Lake of the Ozarks is a vacation community roughly 2-3 hours outside of St. Louis). Because both towns are in Missouri, and a lot of the lake buyers are out of St. Louis, it works for all parties.

I have also met “snow-bird” agents who sell homes in Missouri during the summer and Arizona or Florida in the winter (they are licensed in both states). In this case, their specialty in the winter is to work with Midwesterners looking to buy that winter home (and they had a partner back in Missouri to work with clients over those winter months while they were gone).

There was even one agent I ran into who had listings in both Kansas City, MO and St Louis, MO- towns which are 250+ miles apart. Don’t ask me how they accomplished it or why they were doing it, because it’s still a head-scratcher for me. But all that matters is that it works for you and more importantly your clients.

Full vs Part-Time Agents

This brings us to the other major aspect of agent compensation that makes every individual unique- many agents perform other tasks besides selling properties. Thanks to that independent contractor status we discussed yesterday, it is quite common for agents to have a full-time or part-time job outside of the real estate industry and only sell homes on the side. For example, I know an agent who is a full-time medical sales representative who looks at real estate as a few extra dollars a year on the side. New agents may also maintain a job on the side in order to stabilize their income until their real estate career takes off.

Real estate is also often a “secondary” family income for a spouse or partner that would otherwise be a stay at home parent or spouse. Even though these agents don’t have another income producing job, they may still work less than full-time at real estate. (Usually agents who work “less than full-time” will have a specialty that focuses on family and friends as clients because they don’t have a large advertising budget or the time to handle an extensive marketing plan).

Even full-time real estate people may split their time between real estate sales and other tasks- often to provide a turn-key solution to their clients. In both the commercial and residential space, for example, agents or the companies they work for may provide things like property management services (leasing, renting or maintaining a building after the sale).

Agents may also serve dual hats by being a real estate investor, builder, general contractor, rehabber or owner/worker of some other related business- such as a construction company, appraisal company, a mortgage company, or property management company. In many cases the agent’s sales leads might come from the other side of the business (or vice-versa). The only requirement is that the agent discloses their roles in all of their businesses and follows all state laws regulating both industries.

All of this effects compensation because the “agent” in question isn’t spending all of their time focused on selling properties. On my own sales team, for example, Brad Padratzik- manager of The St Louis Agent Team’s Investment Division- also runs a small contracting company that paints and lays flooring. Although it might seem to be a distraction from selling, the truth is most investment clients appreciate the fact that Brad can offer a more “turn-key” solution- and that leads to repeat business. (By the way, this is why real estate is a perfect career for someone with attention deficit disorder…)

Tomorrow’s Installment

Tomorrow we will wrap up this discussion with how commissions are paid out and how much money an agent can expect to make.

To understand this better, let’s start by explaining the relationship a real estate agent has with their employer.

Understanding Who You “Work” for…

The first piece to understanding real estate compensation is to understand the structure of the real estate industry- which varies slightly from state to state because of variations of state laws. In most states (including Missouri) you have two major parties involved in real estate- Brokers and Agents. What’s the difference? Legally, only a broker can "technically" sell real estate; the agent works under the broker’s umbrella and license. As a result, to be a licensed agent you must have a broker who “holds” your license for you. Without a broker affiliation, an agent selling real estate is doing so illegally (even one with a state license).

Confused? This is literally 2-3 chapters of the real estate certification class and I don’t want to take the time to discuss it all here, so think of it this way- a broker owns and runs the real estate company (brokerage) and the agent is the one who does the daily work with buyers and sellers. With that said, a broker may have thousands of agents in multiple states working under him or her or the broker can be a one person shop (where one person serves as both the broker and the agent).

For the record, becoming a broker really isn’t much more difficult than becoming an agent. In Missouri you first become an agent by taking the agent class and test, then after two years you are eligible to take the broker’s class and test. (The two year wait is new as of 2006). I always joke that the difference between an agent and a broker is about $400! (i.e. the cost of the second class and test...)

But seriously, the real difference between being a broker over an agent is just having more career options. Outside of running your own brokerage, the state requires every real estate branch office to have an office manager who also has to have a broker’s license. So if you aspire to management, the extra step to a broker's license is the first step to get there. Many agents (myself included) will also get a broker’s license just to show they have a higher level of training than the average part-time agent (this is called being a broker-agents). Even if you are a broker, office manager (called a broker-manager), or a broker-agent you are free to sell real estate like an agent.

The final point here is that you should not confuse a broker or brokerage with a franchise. A franchise is simply a national or regional marketing organization that a brokerage may belong to (these are names like Prudential, RE/Max, Coldwell-Banker, Century 21, ERA, Exit Realty, Keller-Williams, Assist-2-Sell, etc). Owning a real estate franchise is no different than owning a McDonald’s or Subway restaurant franchise- although you own and manage your own shop, marketing is regulated at a national level to give the appearance of continuity from town to town.

In larger markets you may also find multiple franchises of the same company. In St Louis, for example, there are over half a dozen RE/Max franchise, and the second and third largest brokerages in town are both Prudential- Prudential Alliance (the broker my team is at) and Prudential Select. Although they both have that Prudential name, they are owned an ran by different people.

Understanding How Agents get Paid…

Since the average first year real estate agent is someone who enters the industry from another career (generally outside of sales), the next piece to understanding compensation is to realize that it will probably be unlike any other job you have ever had. First off, the vast majority of real estate brokerages “hire” agents as independent contractors. (I’ve seen statistics from the National Association of Realtors that shows that number as high as 90%.) Being an independent contractor means you technically aren’t an employee of the brokerage- you are a self-employed person who “contracts” for work with the brokerage.

The distinction between being an independent contractor over being a traditional employee is that your broker doesn’t pay you an hourly wage or salary- you are only paid based on output (i.e. commission on sales). They also do not hold or file federal or state withholding taxes (FICA, Social Security, etc) for you (you need to save up money and send it in each quarter yourself). Your employer is also limited by law from providing you benefits (health insurance, 401K retirement benefits, etc). In return, you have some amazing freedoms. Broker’s have minimal input in how you run your day to day business- you can not be told to work set hours, attend mandatory meetings or trainings, what to wear or even where or what types of clients you can work with (within limits).

So what does this really mean? With this freedom comes the need for amazing self-control. There won’t be anyone standing over you forcing you to go to work every morning, so it is all too easy to put off work and allow yourself to fail (or burn yourself out by working 7 days a week). Even though your broker can’t tell you when to work, they can fire you for not producing sales.

The act of getting licensed also doesn’t train you how to be a sales person or teach you anything substantial about real estate. Since brokers can only encourage you to attend trainings, whether or not you learn anything about real estate is up to you (and is often at your own expense). More important, very few brokers will supply new agents with qualified leads or clients. As a result, you are responsible for finding your own clients and marketing yourself. By and large, you are the sales force, marketing department, bookkeeper and accountant of a one person company who doesn’t get paid a dime unless something sells.

Tomorrow’s Installment

Tomorrow we will explore the various kinds of real estate work that exists for an agent to do, and then follow it up on Wednesday with a discussion on how commissions are paid out and how much money an agent can expect to make.

Another isolated incident? Hardly.
On August 23 (as in two weeks ago) a New Castle, PA man showed up at a vacant home for sale, saw the door was open, called the agent and then walked in. He was robbed at knife point. The attackers were neighbors who had broken into the home to smoke crack in an upstairs bedroom.

On August 6th (as in 30 days ago) it was a Kansas City agent who was kidnapped and robbed at gun point. The agent went off to meet a man who had contacted her about buying a home. After showing the man several homes, he pulled a gun on her and forced her to drive to several banks to withdraw money. The robber even called the agent a few days later demanding more money.

On June 23 (2 ½ months ago), a Napa, CA agent received a call from someone wanting to see a new construction (vacant) listing. When the agent arrived she walked through the home turning on the lights. As soon as she entered the kitchen, a man in a ski mask entered the front door and assaulted her.

Four days earlier (June 19) in Hattiesburg, MS, a gunman posing as a homebuyer shot a 70 year old Prudential agent four times then killed the homeowner and her nephew. It was believed he was using the agent to gain access to the home so he could kill the owner (whom he had had a run in with).

Within 11 days in May, three female real estate agents in the Atlanta area were tied up, robbed and had their cars stolen. All were blindly responding to phone calls to see homes.

In March there were two separate and unrelated incidents in Florida- one was an agent who was hit in the back of the head with a hammer by a man posing as a buyer and the other was an agent held up at gun point.

These are just the stories I’ve found from the past six months!

The list I found on crimes against real estate agents goes on and on. The North Carolina Association of REALTORS produced a pamphlet that gives additional stories of agents killed on listing calls or raped after their attackers picked their photo out of a real estate magazine. It also produced these sobering statistics:

- Twenty-one real estate professionals were murdered while on the job in the United States in 2000.
- Between 1982 and 2000, 206 agents died as a result of violent assaults.
- There were many more reports of agents being raped, beaten or robbed.

Now, I’m not writing this article to panic anyone or recommend that we never leave the office. The point here is that none of us take enough time to think about security when doing an open house (or showing houses for that matter) because we’re too busy trying to be sales people. Unfortunately, male agent or female agent, good neighborhood or bad, we have all advertised in the newspaper, on the internet and on signs outside the home what time we will be alone in a strange home that may or may not have working telephone service, with the front door standing wide open. Real estate agents are also guilty of advertising EVERYWHERE how damn successful we are- which only fuels the illusion to the bad people in this world that we are all rich.

Also, to think that safety has something to do with the neighborhoods you are in is a bad assumption. Most of the stories I quoted above talk about how the criminal picked the agent or picked a random empty house to commit their crimes- the neighborhoods the crimes actually happened in were irrelevant. Nice expensive homes on large lots in the suburbs may offer the seclusion a criminal might want over the working class row homes in the city where neighbors might be milling around in the street. Finally, many of the stories I’ve just mentioned talk about how the agent found nothing unusual about the criminal prior to the attack- including one where the assailant posed as a nicely dressed DEA Agent- and even followed the real estate agent back to her office to discuss financing before going out to look at an empty house for a second time to, “take room measurements prior to writing a contract.” That’s when she was robbed.

So just for a moment, let’s all think about how we can take proactive measures to better protect ourselves when showing homes or holding open houses. Building or adopting a safety strategy should be as important as building a marketing strategy. Simple things like having mace in our pockets instead of in the car or back at the office could make all the difference. Keeping your cell phone on you at all times is a good idea as well (instead of charging in the car). Having someone know where you are at when showing a house or checking in periodically can be a big deal as well. These things should probably be as important as having our Supra key or carrying a stack of business cards. If you are an agent in the St Louis area, SLAR (the local Association of Realtors) sells mace in their store. This might be a good starting point.

Links to stories I referenced are below.
READ- Real Estate Safety Tips and Attack Statistics (from NC Assoc. of REALTORS):
http://realestate.realsafe.net/images/Safetyguide.pdf#search='real%20estate%20agent%20robbed'

Dallas Agent Murdered:
http://cbs11tv.com/topstories/local_story_249224653.html
PA Man Attacked:
http://www.ncnewsonline.com/local/local_story_235083616.html
KC Agent Attacked:
http://www.thekansascitychannel.com/news/9725465/detail.html
CA Agent Attacked:
http://www.napavalleyregister.com/articles/2006/06/23/news/local/iq_3488352.txt
MS Agent Shot in Triple Shooting
http://www.toprealtynews.com/realestatenews/id_22771/

List of other news reports on attacks against Real Estate Agents:
http://www.realguard.com/news.htm

“I am brand new to this industry. I am going to be rehabbing homes and doing a little bit of property management. I am really confused about whether or not to become a licensed broker. I have passed my real estate sales person state test, but I will be owning my own property when I go to sell it. Any advice - pro-broker license or against broker license?”

Here are some excerpts from my answer in case you are pondering the same question. Please note that items relating to licensing laws are specific to Missouri and may be different in your state.

REASONS FOR GETTING A BROKER LICENSE:
1) SAVE MONEY. Most people will list saving commission as the number one reason to get a license although this can be accomplished as an unlicensed For Sale By Owner as well. I would estimate this to save you 2-3% of the sales price of the property (less any marketing and business expenses that you occur which an agent/broker would otherwise have paid for). This can be higher or lower, which probably needs explaining.

Here is an oversimplified explanation of how commission works: When a seller and a broker set the commission structure on a home (which in this case would both be you), they generally set aside a percentage of the commission to be paid to any other broker that brings you a buyer. If you join the local realtor association (which I will discuss below) they require this to be specified in writing at the time the house is listed so there will be no disputes. This percentage can be what ever you want it to be, but a general rule of thumb is 2.5% to 3% (or 40-50% of the total commission).

At the same time, a good rule of thumb would be to estimate marketing costs at 1% although the needs of every property are different, however. So as a simple example, let’s say you would normally pay out 6% commission. As your own broker you could expect to pay out 3% to the buyer’s broker and then spend 1% on marketing (that's a 2% savings). On a $200,000 home, that is $4,000.

The wildcard here, however, would be business expenses associated with being a broker that you would not otherwise have occurred, I will discuss them in the AGAINST category below (See Expenses #1). This also assumes that you are getting the same contract price and/or selling your home in the same time frame as a different broker (which may or may not be the case).

2) THE MLS. The other popular answer for getting licensed would be to get your own properties in the MLS (Multiple Listings Association). The MLS is the database most agents search to find their buyer’s homes to look at. It also drives popular websites like www.realtor.com and most home searches on agent’s websites. As a result, it is usually perceived as being a very valuable place to have your home listed. To be in the MLS, you not only need to be licensed by the state, but you need to join the St Louis Association of Realtors and follow their additional rules and guidelines to listing and selling properties. There are also fees associated with being a member and having this access.

3) MAKE MONEY. A good reason to be your own broker would be if you wanted to sell or manage someone else’s property. If you want to be paid by others (for either sales or property management) you must have a state license (although you could do it as an agent working under a broker).

The questions to ask yourself are:
- What is your business plan, personal/professional goals, or objectives?
- Do you want to build an empire with dozens of people working for you or do you want to be left alone?
- Forgetting about financials for a second, if you could only do one or the other, which would you really love to do- rehab or sell/manage? Which would motivate you the most to get out of bed at 5am and/or work all night?

If you love the rehab work (i.e. getting dirty) but hate dealing with people, you probably won’t like managing or selling real estate. If you hate getting dirty and are only rehabbing because you think there is money in it, you might prefer to focus on sales/management and ultimately become a full time broker/property manager and get out of rehabbing (or keep it on the side). So, if you really want to build a business in sales/management beyond your own rehabs, get licensed.

4) CONTROL. As your own broker you can control your own destiny on how the property is marketing for sale (within legal guidelines of course). Although this often costs more than using an established company, as your own broker you determine where and when a property gets advertised.

5) CRAPPY SERVICE. Working with agents can sometimes just flat out suck. I’ll make no apologies for my industry. My wife became an agent not because she wanted to, but because her brother’s construction company had so many awful experiences with agents that they decided it was less painful to be their own brokerage (she then went out on her own in 2004). I’ve met more than one builder/rehabber who has felt the same way.

REASONS AGAINST HOLDING A BROKERS LICENSE:
1) EXPENSE. Go back to #1 on Reasons For. Being your own broker has expenses associated with it (above and beyond just being an agent or being unlicensed). Let’s start with the expenses the state (of Missouri) requires by law.

First, before you can be your own broker, you must have established a regular place of doing business with conspicuous signage noting that it is your place of business and what your established office hours are (and you must have regular established office hours even if it’s just noon to two on a Saturday). Although it doesn’t completely rule out having an office out of your home, the requirements are specific enough that it makes it difficult. A lot of towns and subdivisions WILL prohibit you from having a home business with signage and established business hours- so know your zoning laws and consult a good attorney first. If this is the case, this means paying rent (or investing in a building as an office). If you only plan to sell your own properties, will you save enough money on commission to cover this expense?

Also, how will you hold regularly established office hours? If it is just you setting in the office every week for a couple of hours, does this keep you from other work (i.e. the rehabbing)? If you decide to take on an employee to manage the office hours, what expenses are associated with that? If you want the employee to answer the phone and talk about real estate for you, realize they MUST be licensed to talk about real estate (because they work for a licensed broker).

(For the record, these expenses ONLY exist if you decide to be a licensed broker. If you want to be a sales agent working for an established broker, most of these are the broker’s problems not yours. If you decide to sell your own properties without a license (i.e. For Sale By Owner) you can bypass these laws- including licensing an employee. However it does mean getting rid of the sales person license you already have).

The state also requires you to have errors and omission insurance.

Another expense to think about is start up costs. This should include consulting with a good small business tax accountant, talking to a lender and talking to one or multiple attorneys (one about starting up a small business- specifically real estate related because you will need help working with the state to file paperwork and/or incorporating- and one about dealing with real estate law should you have problems with a transaction. These may be different people). HOWEVER I HIGHLY ENCOURAGE YOU TO SEEK OUT COMPETITENT LEGAL ADVICE PRIOR TO STARTING YOU OWN BROKERAGE. Heck, that should be your first step.

As you may guess, this advice doesn’t come for free. A quick Google search produced start up costs estimating $10,000-$250,000 (Obviously if it’s just you selling your own properties it should be on the lower end…). The National Association of REALTORS (NAR) has a nice webpage I just found that discusses opening up a brokerage. Another resource to look at is www.realtytimes.com.

The next expense is if you want to be a member of any professional association (say, The Local Assoc. of REALTORS which gives you access to the MLS). If so, there are membership dues, classes, MLS fees, etc. Believe me, they add up but in return you also get standardized forms to use as contracts and a lot of other resources you would otherwise have to pay for. If you want to sell real estate for others, you might also want a franchise (which is another expense I won't even touch here).

The next expense would be marketing and advertising. These expense have less to do with licensing and more to do with selling your own properties vs hiring it out. How do you find renters for your rental properties? How are you going to advertise your properties for sale? Small ads in major newspapers can cost hundreds of dollars. The free homes for sale magazines you find in the grocery stores generally cost $400-500/mo. Pre-built websites can cost $50/mo and custom websites can cost thousands, and if you want featured homes on large websites (realtor.com, homes.com, etc) you will pay to get it.

At the same time, brochures and flyers cost money to print. Even if you make them yourself, that cheap little ink jet printer can cost $.50-1.50 PER PAGE if you are printing color pictures (and, I usually print 50 flyers at a time for brochure boxes). Then don’t forget the most basic form of advertising- lawn signs. They can cost $25-100 each and routinely get vandalized and stolen. I personally had two brochure boxes (at $15 each) stolen in the past couple of weeks. If you want large signs (like a 4 foot by 8 foot builder’s sign or a banner) they can cost over $200 each (and are still prone to vandalism, weather damage, etc).

Then there is a long list of other things you will probably need to start up a brokerage. Office equipment- furniture for your new office, a phone line(s), a fax to receive contracts on (because contracts need to be date/time stamped they are generally sent via fax), lockboxes for keys (the electronic kind agents use cost $150/each I believe), yada, yada, yada…

With all this in mind, if your only goal is to sell/manage your own properties ask yourself (and your accountant, lender, and legal team) what you think your needs will really be for the first few years and if they justify the expenses of being your own brokerage. Knowing your lender's limits is important here because most lenders will cap the amount of money they want to lend a new rehabber (which handcuffs you on how many properties you can actually do in a year). I would also expect lenders to tighten up on rehabbers as the market slows down (so don't expect to get today what another rehabber got three years ago- its a different market today).

The start up expenses might be worth it if you are rehabbing and selling 50 properties a year, but is it worth it if you only sell 10? If not, look for options that allow you to do this as an agent under another broker or as an unlicensed person. There are a lot of little (non-franchised) companies out there that will allow you to do your own thing for a small fee. Then again, it might be something you want to forget about entirely for the first couple of years until you've built up your inventory of rental properties and grown the rehab business into a real business.

Soooo, do you still need more reasons than just the expenses???

2) FOCUS. Go back to #3 on the Reasons For. If (by chance) you have a full time job and are starting out rehabbing on the side, this is just one more process to know and manage. Unfortunately, because we’re talking about state regulated businesses, mistakes aren’t as forgivable as a bad grout job. Even if you have the luxury of being a full-time rehabber, it can still be a distraction that keeps your rehab projects from reaching their full potential. Truthfully there is a lot more to selling a home besides showing it (managing advertising resources, writing and managing contracts and all the things that have to be done in order to close, dealing with problem agents, dealing with problem buyers, keeping everything legal, dealing with the state, etc). There’s also a lot more to managing a property than collecting rent (background checks, legally handling security deposits, dealing with 24 hour emergencies, keeping government agencies happy, etc).

For example, if a rental property’s furnace dies on a frosty 10 degree below zero Tuesday in January, are you able to drop everything else and get a new furnace installed that very day? If not, realize that the government agencies that regulate housing don’t care that you are a one person show with a full-time job and no free time until Saturday. If a tenant complains to the appropriate government agency that there’s been no heat for four days, you will have problems (in some municipalities, think arrest warrants). So, if all you really want to do is go get your hands dirty rehabbing houses, focus on what you enjoy doing and find a professional(s) you trust to do the rest regardless of what those things are.

(On this subject, there's an old saying in real estate, "If you spend your time doing the $5/hr tasks, all you will make is $5/hr." When my wife was a rehabber, she also ran a property management company because they had rental units as well. In particular, she had a 12 unit building in the city that she could never keep/get fully rented. One of the biggest problems she had as a property manager was that the building wasn't located anywhere near her office, other rental properties, or the homes they were rehabbing- so any visit to the building killed an hour of her day (or more) driving to and from the building. As you can imagine, showing the property 5-6 times a week to renters was a real drag on her schedule. Eventually, she broke down and hired another property management company to deal with getting renters and collecting rent while she continued to deal with maintenance and upkeep issues. The property was filled within a couple of months and finally became profitable.)

3) LEGALITY. Being a licensed agent/broker means following a whole lot of rules and regulations that are not required should you decide to sell/manage your properties on your own (as an unlicensed person) or by hiring someone else. Although I encourage you to conduct business in an honest and ethical way regardless of how you decide to do business, I can tell you from experience that an open house doesn’t go by where someone doesn’t ask me a question I can’t legally answer as an agent. I know a whole lot of rehabbers and builders who are unlicensed for this very reason (including some who have previously had licenses). Along this topic, remember as a licensed broker you are responsible for reporting and dealing with the State Real Estate Commission and the Local Assoc of REALTORS (should you decide to join) which both have the right to audit your business should complaints be registered with them. The same holds true with any franchise you might decide to do business with as well. Discuss what being a brokerage really means from a legal standpoint with a good attorney to know more.

4) MAINTAINING DISTANCE. When you are selling or managing your own property (regardless of how you decide to do it), the clients (renters, buyers or buyer’s agents) all have access to you and expect you to make decisions immediately. The buck stops with you and they know it. One of the real advantages of outsourcing these services is that the client’s point of contact becomes someone else who’s, “just doing their job”- allowing you to maintain your distance from an emotional buyer, or a disgruntled tenant (basically a good cop/bad cop routine).

I know of two different situations within the past year where rehabbers were working directly with the buyers of preconstruction rehabs (in other words, a contract was written before the houses were completed). In both cases, the buyers started off innocently asking if simple (and cheap) things to be changed as the properties were being completed. Both rehabbers gladly obliged because they wanted happy customers. However, once the precedence was set that they “could get anything they wanted” the buyers became nightmares- demanding thousands of dollars in upgrades that weren’t apart of the contracts- and even hiring lawyers to determine if they could sue to get them. When this happens, buy a bottle of Tums and kiss your profits goodbye. A *good* agent (emphasis on good) manages this process from you to keep you insulated. If you are 100% new to real estate, it would probably amaze you on how rational, sane, and very likable people can become completely emotional and dangerously raving lunatics when everything in a real estate contract isn’t going there way.

The same is true with property management. Tenants are prone to reacting differently when a property manager “who’s just doing his/her job” is collecting rent or tells them they can’t have something over when it’s the owner. Think about it. Who does the tenant think, “is getting rich off of their rent?” The owner.

5) FLEXIBILITY. As a licensed agent/broker, every property you sell that you own must be designated as an Agent/Broker Owned (even if you hire a different broker to sell it for you). There are a lot of rules and regulations on how you may market the property (i.e. you can’t just stick a FSBO sign in the yard because the state would view that as “hiding” the fact you are a brokerage and you must make full disclosure). But as an unlicensed person if you think you can still sell the properties on your own, you are free to try your properties as a For Sale By Owner. And that gives you flexibility. If you want to experiment to see how good you would be at sales, try it on one of your properties. If you want to experiment with management, find one rental unit to manage for six months as a test that is close to home. If it doesn’t work out or you really screw things up, then hire an agent/manager for future deals (and an attorney to fix the screw up). Odds are in favor if something goes wrong, you will have a much better idea of what you want in an agent/property manager in the future! Yes, screw ups cost money, but unfortunately the best learning experiences are usually the bad ones…

Now, if you determine using someone else for sale/management is the way to go, here is some advice...

If you think all you need is to get your property in the MLS and it will sell itself (see #2 in Reasons For) or want into the MLS but want to manage your own marketing (see #4 in Reasons For), you should know that there are discount brokers who will give you MLS access for $500-1000 per transaction (and let me add, I’m not one of them so don’t ask). They can be found all over the internet or in phonebooks. It’s honestly a cheaper way to find out how valuable (or unvaluable) the MLS really is prior to starting your own brokerage to do the very same thing. Sign a 30-60 day agreement, and if it doesn’t work you can change your direction (sell it yourself or use a full-service agent).

If you determine you really want a full service solution that gives you marketing, contract management, etc, then just build the commission expense into your construction budget and go interview agents until you find one you are comfortable with. Ask them questions like, “exactly where and how do you advertise your properties (and not just themselves),” or “how do you handle contracts (is there one agent doing everything, or is there a team of specialists),” and, “what kind of feedback or contact from you should I expect to get while the property is being listed? (i.e. do they have a process for giving you updates on showings, etc).”

Remember, you get what you pay for, so the person who’s the cheapest (or only trying to sell themself with a lower commission) is probably that way for a reason. If you’re getting nothing but being stuck in the MLS, why pay anything more than what the cheapest discount brokerage can provide? In other words, if you decide you need full service marketing and are willing to pay for full service marketing, don’t settle for anyone that is expecting to give you anything less. The same is true for property management.

More important, if an agent does a crappy job, DON’T USE THEM AGAIN. It amazes me the number of rehabbers/builders who stick with agents who screw them over or give them lousy service. You are a repeat customer you deserve to get better service.

The final note on flexibility is that as an unlicensed person you can treat every property differently- selling some yourself and using agents (and even different agents) for others (although the best agents probably won’t want to work with you long term if you are only giving them the dogs). The same is true for property managers. Who says one company should have all your business unless they have proven themselves? Also, don’t sign long term agreements that aren’t industry norms and make sure there are no cancellation penalties should you fall out of love with your agent/broker/property manager. If you have questions regarding a contract that isn’t being fully explained to you, seek legal consultation from an attorney prior to signing anything.

6) ASSISTANCE AND ADVICE. The very purpose of using an agent is to get someone who knows a whole lot more about the subject in question than you do in order to help you achieve your goals quicker and easier (and realize goals CAN be different- be it selling a house quickly vs. selling a house for the maximum you can get regardless of how long it takes or keeping a property 100% occupied vs. taking the time to get quality renters who pay rent on time, etc).

In case you haven't realized it yet, two weeks of real estate class doesn't make you or anyone else an expert in real estate. Think about it, did you actually even see or discuss how to fill out a real estate contract in that class? Probably not, because they are too busy teaching you the terminology.

It amazes me the number of people who hire an agent/broker that they know has no knowledge about real estate (or the kind of real estate they are buying/selling) for reasons that aren’t business related (it’s a cousin or some lady from church). There are also a surprising number of people that hire an agent to represent them but then treat them as an adversary (heaven forbid the agent trying to help you set rent should know what your monthly expenses are).

In your case, assuming you are new to rehabbing, new to landlording, AND new to real estate sales/property management, don’t you think it would be a good thing to seek out someone who can give you advice to help you keep from making costly mistakes??? It’s no different than hiring the accountant, attorney, and banker I suggested prior to starting a business. Learning how to become a broker by processing your very first sale without any one to assist you is dangerous. Learning how to do it when it's your first sale AND your own investment property that you've probably refinanced your personal house to rehab and are working nights on to fix the screw ups you made because you're still learning to rehab is just crazy. Even if your long term goal is to be your own brokerage, you might find value in going through the process (as a seller and/or an agent working under an established broker who can assist you in the process) a few times prior to becoming your own broker.

7) LIABILITY. Almost forgot this one. Here's an interesting (and potentially scary) statistic. Over 50% of all lawsuits filed in the U.S. are real estate related. As I eluded to above, very nice people can become very irrational when it comes to their homes. As a broker/owner of a brokerage you are responsible for your own actions and anyone that is working under you. Take that for what it is worth.

Hope this helps someone!

Now I know what you’re thinking- “This is the second post on this blog; how can a guy whose written two blog posts give “expert” advice on blogging!?!” Well, for the record, this isn’t my first blog. My first blog posting came a few days after Christmas in 2004.

2004 was the year of the blog. Heck, days before my first blog posting Time Magazine published and article saying so (which must make it true). Even if you were a Luddite who didn’t own a computer, it would have been hard not to have heard about blogging in 2004. Time went as far as to compare it to Radio in the 1930’s and Television in the 1950’s. Sure naysayer’s compared blogging to CB Radios in the 1970’s (i.e. a fad that would eventually die), but in 2004 blogs were making and breaking presidential campaigns, getting people fired, and making a handful of average people very rich and a lot of newspaper people very nervous- so it was a hot topic for a reason.

But since real estate agents are my target readers, let’s back up for a moment and assume you never really understood what all the fuss was about and give you a brief history lesson.

If you are reading this online, somewhere in the 1990’s you probably discovered the internet. Heck, it may have been the reason you bought your first computer. If you were a proactive technology oriented business person you probably rushed out to build a website (or paid some geeky person to do it for you). If you did it yourself, you probably came to realize how big of a pain in the rear it was to make changes and keep the website up to date- there was a computer programming language called “HTML” that you had to learn, once a new page was created every existing page had to be changed, then all changes had to be uploaded to the website. It was all very time consuming and extremely easy to make mistakes.

Blogging software, which is short for Web-Log (drop the We and you have b-log) was created as a way to make it easier to post content on websites. Basically, blogging software gives you a nice word processing screen to type on and with the click of a “send” button the computer creates the web pages for you and updates all of the other web pages to connect them together. Because blogging software keeps things in a chronological (log) order, blogs are often compared to online diaries or journals.

From a technology standpoint, that’s all there is to blogs- a simple piece of software that makes it easier to publish content to the internet in a journal fashion. So why all the fuss you ask? Well, for most people the difficulty of understanding how to “program” a webpage and upload it to the internet is what kept them from even trying. Because blogging software made the process easy, the average person didn’t need to know anything past simple word processing skills to publish on the internet. Basically, the barrier to entry in internet publishing had been removed. Students, housewives, and other ordinary average people were suddenly able to be internet journalists and authors.

The perfect example of how this changed the internet in 2004 could be seen in politics. In years past, politicians had static websites that would have been created by someone on their campaign staff. The websites would discuss the candidate’s political views and beliefs. However, much of the content would be created, published and go unchanged throughout the course of the campaign. If a voter wanted to know more about a candidate, odds are they visited the site once, read it and moved on.

In 2004, blogging software allowed politicians to publish their own website without the use of a campaign staffer. For example, a candidate who had just finished a speech might hop onto a bus and write a quick journal entry about the crowds’ response or someone whom they met that had a touching story while driving to the next campaign stop. As a potential voter wanting to know more about the candidates, not only could you read comments written directly by the candidate, but the website might get updated dozens of times a day (giving you a reason to come back and follow the candidate closely). This helped candidates make a personal connection with their voters and raise money from people who otherwise wouldn’t have made donations.

At the same time, there were average citizens who promoted themselves to journalists to discuss news stories that failed to get a lot of national attention by the mainstream media. Whereas the cost of television time and newspaper publishing would generally force a fringe political story to die in the mainstream media, bloggers with good writing skills and a desire to push their own political agenda could keep the stories alive with readers on the internet for months. Amazingly, once enough bloggers wrote enough blog articles, we saw many of these stories began to creep back into mainstream media- for and against candidates of both parties.

Suddenly the world was a journalist. The cost of “publishing” was reduced to owning a computer with internet access and having the desire to say something.

Of course making internet publishing this easy had ramification. Obviously, having a desire to say something and the ability to say it doesn’t mean you should post it for the whole world to read. That article in Time Magazine referenced a Delta Airline attendant who decided to post provocative photos of herself in uniform on a plane. Apparently she desired to be viewed as a sex symbol; instead she got fired. In 2005, it seemed every month brought a different news story about some idiot who developed foot in mouth disease- publishing their gripes about their workplace to the internet for the whole world to read and then acting surprised when their bosses read it and fired them as a result. My favorite was the rookie St. Louis Post-Dispatch newspaper reporter who suddenly found his personal blog ripping on the paper’s management reprinted in a rival newspaper!

Now despite this and the fact that others said blogging was a “fad,” it has continued. In St. Louis, where I live, there is a repository for local blogs called stlbloggers.com. It lists hundreds of area blogs. Some blogs have themes- talking about local sporting teams, politics, personal hobbies, clubs or social ills. Others are just a collection of ramblings by someone with a desire to write. Some are written well enough to get bloggers published as columnists in the local newspaper, others leave you scratching your head. Then there is the commercial application for blogs…

In early 2005, I was interviewed for a St. Louis Post-Dispatch article on blogging in the workplace. The reporter joked that she had been given the story assignment because blogs were in the news, but I was the only example of a commercial blog she could find in the St. Louis area. Yet in 2004, there were a lot of news stories being printed about how blogging would change the way businesses connected with their customers. So was St Louis just behind the rest of the country? Well, a quick Google search today produced hundreds of web pages discussing the benefits of commercial blogging, the reasons why commercial blogs don’t work, and a dozen people trying to sell consulting to businesses who want to start blogs. What I couldn’t find were a lot of ACTUAL commercial blogs- i.e. businesses blogging for business purposes- with a couple of exception, namely (surprise!) the real estate industry. On one national repository of blogs, it discussed the commercial value of blogging and encouraged business to register their blog with them unless it was for the pornography, gambling, or real estate industries (those categories were full).

As an agent wanting to know more about the commercial benefits of blogging, this should raise a lot of questions. Why are there so many real estate blogs? Why don’t other industries find this to be a valuable business tool? Is our industry on the cutting edge, or were we duped into believing there’s value in something that has none?

To understand this, I first suggest looking at the few non-real estate related commercial blogs that are out there to understand why they are being used.

Moveable Type, a software blogging tool (and the one used to create this blog), lists a few case studies here. As you read what makes these case studies successful, you see individuals within the companies who are really just looking for a way to connect with their customers on a different level as a way of building more customer loyalty. This isn’t marketing and it isn’t sales- its grass roots public relations.

- GM’s Fastlane blog isn’t trying to tell you why you need to buy a new Chevy in every posting. Instead it’s talking about the GM racing division, future changes to their lineup, and discussing the need to create better fuel efficient vehicles. Basically it’s car talk for people who love cars written with a GM slant by GM executives (and not the marketing department). What does GM get in return? Excitement about their racing division, feedback on unreleased vehicles from the average person off the street, and a connection with car enthusiasts who might otherwise believe the automaker doesn’t really care about them.

- A recent post on Stonyfield Farm’s Baby Babble talks about getting the Chicken Pox Vaccine. Now keep in mind Stonyfield Farm’s is a dairy that sells milk and milk products. But their blog isn’t designed to sell or even talk about milk- it’s designed to discuss health issues and dispense advice for some of their most important customers- babies. What Stonyfield Farms blog has become is a go-to resource for new mothers looking for advice. What they get in return is a happy, loyal customer base who feels that Stonyfield Farm’s cares about them and is looking out for their best interest.

- Whole Foods, a national grocery chain of organic foods, has a blog done by their CEO, John Mackey. The purpose is to keep customers informed with “open and timely communications” on the direction and focus of the company. In a recent posting, Mackey addresses negative comments about his company that were written in a book on organic foods- giving his view points and beliefs on the book.

So why haven’t more companies duplicated these blogs? Again, based on the “successful” commercial blogs that I’ve seen, the reason blogs probably haven’t been implemented by more companies is that they don’t help with short term sales. As someone with a college degree in public relations but years of experience in corporate sales, let me say that a LOT of corporations are run by people that came out of the sales department- and corporate sales managers are trained to look for the quick fix (not long term customer satisfaction). While employed at Hewlett-Packard, I worked for a company that reorganized its sales force every 90 days in an attempt to better connect with their customers- yet it was the constant reorganizing that customer complained was causing the disconnect in the first place!

With this in mind, the fact that other industries haven’t embraced blogging shouldn’t be of concern. That brings us to the next question, why is it real estate agents have jumped on the blogging bandwagon? My belief is that the answer is tied to the unique nature of the real estate industry. First off, no other industry gets the product they have to sell like real estate. Can you imagine a car dealership whose inventory was setting in driveways all across town and owned by dozens of individual owners instead of on a car lot owned by the car dealership? Second, we are an industry of “one person” companies forced to market ourselves against thousands of other one person companies. Even if an agent is with a large brokerage who is affiliated with a national franchise, they are still generally left on their own to sink or swim and have to perform their own marketing above and beyond the brokerage and franchise. This is because agents are generally hired as I-9 contractors verse W-2 employees- so even if a broker would like to bring structure and unified marketing to his/her sales team the laws governing I-9 contracting don’t permit it. As a result, agents are often responsible for setting themselves apart in the minds of the customer even from other agents in their very own office.

As an industry of individuals, we have thousands of tiny little marketing budgets. As a result, agents often have a strong need for creative (and cheap) marketing. And that is what has driven hundreds of agents into publishing low cost (if not entirely free) blogs.

Earlier I said that just because there’s a desire to blog doesn’t mean you should. Well in real estate blogging, just because there’s a need for cheap marketing doesn’t mean a free blog is your answer. Take a look at the real estate blogs that are out there and you will see that many of them are nothing but self-serving sales pitches- “Why buy a house from me,” “How I can sell your home faster,” “I’m a top agent,” etc. These blogs really don’t say anything- and that makes them very different from the successful corporate examples I mentioned above.

When I started blogging in 2004 there weren’t a lot of local commercial blogs (actually, I couldn’t find any- including other local real estate blogs). That was a problem because I really wasn’t sure exactly what my blog should look like or say. As such, I reached out to several other real estate agents who were blogging- including a gentleman named Hanan Levin, the co-owner of 'The Champion' Real Estate Company in Riverside, California and author of the Grow-a-Brain blog. Levin strongly felt that blogging had value to real estate agents, but he believed most agents were too short sighted to make them work. According to Levin the average real estate blog lasted just 90 days before the author abandoned it. So despite the fact that agents need creative, cheap marketing, they also appear to need creative, cheap and IMMEDIATE marketing. Unfortunately, from my experiences, that’s not blogging.

For the first few months I blogged, it was a real challenge because I questioned every minute I spent writing the blog since website traffic was confirming that no one was reading it. The first time a prospective client called and told my wife that they decided to call us because they were reading the blog I almost fell over. And this brings me to the actual advice I wanted to give regarding real estate blogging.

1) Know why you’re blogging. Sure, you want more customers, but that’s vague and often leads you to write self-serving advertising that no one really wants to read- and if no one reads it, you aren’t going to get more customers. The biggest problem I personally see with the real estate industry is that we have too many agents with virtually no knowledge of real estate. If you agree, then you probably want to set yourself apart from the “know-nothing” crowd. Is there a better (or cheaper) way to do this by dispensing advice and knowledge on the internet for all to read? Probably not.
2) Know who you’re blogging to. Who do you want to read your blog? What reaction do you want them to have to it? Simply saying you want everyone to read it will probably make it so vague that no one will. If your specialization in real estate in relocation, then write a blog offering advice to people relocating to your market. Isolate problems people have when relocating and talk about them. If you live in a small town, blog about the benefits and enjoyments of living in that town. Why would someone want to live there? Who are the major employers? What is going on at the high school, the library, and the local churches? If you want to work with more sellers, offer staging advice, talk about the steps to getting a home ready to show, etc. Be an expert and people will come to you for advice; be just another idiot agent and people will avoid you.
3) Define yourself and your blog. One of the biggest problems I see when I read blogs (including my original blog) is that they often are all over the place talking about a wide variety of topics. That’s fine if it’s a personal blog, but as a commercial blog whose ultimate goal is to help you connect with customers you aren’t going to be taken seriously if you are talking about your car breaking down, your dry cleaner ruining your suit or trying to start a grass roots boycott of Wal-Mart because you had a rude clerk. Hanan Levin, of Grow-a-Brain fame, said that early on he realized blogging was a creative release for him which he needed outside of selling real estate. As such, he broke the blog away from his website and evolved it into a personal blog separate from his real estate business.
4) Don’t be afraid to write multiple blogs. If you really want a creative outlet, like Levin, or have a hobby you love, then create a personal blog as well as a business blog. After six months of blogging, I realized that my blog really needed to split up into multiple blogs to make it easier to follow- and there is blogging software that will let you do this now. At the same time, most blog software now lets you assign categories to your postings (which my original blog software did not). That allows the reader to find articles written about relocation or selling a home, or what ever topic they are interested in. Again, it all comes back to the targeted reader, and the easier it is for them to read your blog posts the more they are apt to want to work with you.
5) Don’t expect immediate results. Once you write a blog post, there is no expiration date unless the post was time sensitive (like an event that happened last Tuesday). My wife Kimberly was contacted two weeks ago from a blog post over a year ago. As long as the post remains out there on the internet, people will continue to find it (and even though it’s old to you, it’s new to them!)
6) Don’t worry about posting every day. Moveable Type wrote an article about this subject. When you first start blogging it’s easy to get caught up in the belief that if you aren’t saying something every day people won’t take you seriously. When that happens, you will find yourself writing second rate posts just to have content. Not only will the blog suffer because the content is, well, worthless but it’s a real drag to write something you have no desire to write about. My advice, post when you really have something to say and have the time to say it right. After all, you’re a real estate agent with clients and other obligations, not a newspaper reporter whose obligations ARE the newspaper. (For the record, I’ve been working on this post now off and on for several days in a word processor; it will get posted once it’s done).
7) Remember, it’s not about the blog, it’s about the content in the blog. Why do people look for things on the internet? Because they seek knowledge. If your ultimate goal is to get people to find you on the internet, or decide to work with you because of your knowledge, then the most important thing to know about blogging is that quality content which demonstrates your knowledge is the only thing that will pay off for you. All too often real estate agents take short cuts with pre-constructed websites and canned marketing materials that 1000 other agents are using. When it comes to blogging, agents often cut and paste news from other sites. Unfortunately if your website or blog says the same thing as 20 other agents in town (or 1000 other websites), then the savvy internet surfer will just bypass you to the next site. There are no shortcuts.

So that’s my advice on blogging. Of course I’ve referenced that I quit blogging several times, so you’re probably asking why, if it’s so valuable, did I personally quit? Well, truth is, I didn’t.

When I started the original St Louis Real Estate Blog in 2004 it went hand in hand with the creation of a new website for Kimberly (what is now stlagent.com). Naturally, I was over budget at the time, so I found a free blogging software package called Greymatter which was one of the original blogging programs (Created in 2000). Unfortunately, the guy who wrote Greymatter stopped writing updates because he wasn’t getting paid to do so. That’s not to say I regret using it, Greymatter gave me exactly what I needed- it was very simple to use and the price was right. However by June of 2005, there were new blogging features that were changing the way users found and read blogs (a feature called RSS feeds) and Greymatter just didn’t support it.

So I suspended blogging until I could figure out a way to migrate the blog to different software. Unfortunately, something went wrong with my installation of that new software (a product called Moveable Type) and it didn’t work. This naturally happened during the summer when I was busy with listings. So, blogging took the backburner until September when I finally got the new software up and running.

By then, however, I became disenchanted with the fact that my blog was “separate and removed” from the website I was working so hard to build. This is a problem I see over and over again. Look at the time, work, and expense agents spend on their websites. Usually, they are logically divided into categories to make it easy for a user to navigate and it includes all sorts of user tools- mortgage calculators, IDX home search features, featured homes, etc. Yet the best original content the agent has posted in on a blog that is difficult for a user to navigate because it changes subjects every day and may actually be located in a different place (often on a different website like blogger.com or typepad.com). The blogging software obviously made posting content easier, but it seemed to me it was competing with the website it was designed to support. My answer was to initially duplicate things in both locations, which didn’t make my life easier. So, for example, should a lengthy article on buying investment properties be posted to the blog or should it be a part of my investment section on the website?

My answer to that was to purchase a “Content Management” software package and redesign the website (which was started but not finished). But that’s a whole different topic for a whole different day. Suffice it to say, the blog I proclaimed dead earlier in the post, really isn’t dead it’s just waiting for a website redesign so I can start posting again. The good news is I’ve thought up a 1000 different things to blog about over the past few months I haven’t been blogging, so content won’t be a problem when I get that far…

It was at that moment that I realized several things. First and foremost, Walter spits a lot when he’s drunk. (Seriously, if you’re in my office and go drinking with Walter, watch out!) Second, there were a number of agents who had taken notice of my sales team’s rapid growth but didn’t quite comprehend just what it was we were doing to get it.

And that’s when I came up with the idea for this blog...

Before I go any further, however, let me stop and explain a few things. First, my wife Kimberly and I are often viewed as relatively new to real estate by “veteran agents”. Second, most of the “veteran agents” I know hold fast to the belief that it takes 5-10 years to build up a successful real estate practice. Yet over the past year our business has exploded. We now have three other agents on our team and in April we were named as one of the Top 10 agent/teams in a company of 600+ agents, as well as the number one agent/team in our office. As a result, there are a lot of agents with 10-20 years of experience under their belt asking the question, “How are they doing it?” (For more on who we are, I’ll post a short bio on us later.)

Just One Word… Plastics.

As we get other agents wanting to “pick our brain,” I often find myself wanting to parody that classic scene from “The Graduate,” where a young college student is being given sage career advice: “One word… Internet. Think about it, enough said.” Although in all actuality there are a variety of things that I think has led to the success we are having, it has been our use of technology and our ability to harvest successful leads off of the internet that has really been at the core of our growth.

And that’s where this blog comes in…

My background prior to entering real estate was in marketing and technology. Because I’m on a team, I have the luxury of specializing on just real estate marketing and technology. Since most of the agents I know are effectively one person businesses trying to do everything, I’ve met very few agents who give as much thought to their marketing and technology solutions as I do. (Not to beat my own drum, because I’m completely incompetent when it comes to everyday real estate tasks such as filling out a contract or managing inspections because there are other people on my team that handle those things).

But with that said, other agents routinely come to me for advice on using and implementing technology in real estate, yet I’ve found virtually no one I can turn to for higher level advice with my questions. Coming from the world of technology sales, I’m used to being able to turn to dozens of industry newspapers, magazines, and websites that rate, review, praise and skewer products, companies, and the people who promote them. Thinking about opening up a computer store? Computer Reseller News and Value Added Reseller News (and their websites, crn.com and var.com) will give you the skinny on which company’s products to sell and which to avoid; where you can make the most money selling technology and where you will get the biggest customer headaches. As a sales person in that industry, you could be guaranteed poor products would disappear from the market- or suddenly improve- once the negative reviews started to come in.

Yet surf the web for products sold to support real estate agents and you will find a multi-million dollar industry has developed to sell mostly shoddy and in some cases near-fraudulent technology and internet services to unsuspecting real estate agents- and virtually no firm resources to help agents weed the good from the bad. Our industry trade associations, franchises, magazines and websites spend very little time rating, reviewing, or covering the value (or lack of value) these products have- in many cases because they are the very companies bringing them to market. Seem like a conflict of interest? Not in the real estate industry. Rarely will you find a real estate magazine article written by someone who isn’t trying to sell the reader their latest book or audio tape on how to be successful in real estate. It’s truly maddening.

So, this tiny little corner of my customer website is now dedicated to talking to other agents about the things I’ve done that have been successful and the products I used to get me there as well as my opinions on the products I’ve seen or used which were, shall we say, lacking. It is written to be read by other real estate agents- not because I have something to sell you (at least not yet) but because I hope that ultimately I will be able to strike up dialog with a few forward-thinking, technology-using agents who in turn might share with me their successes and failures to make me a better real estate agent. If you are the type of agent who’s afraid the guy in the next cube over will somehow gain your trade secrets, then this blog isn’t for you. If you believe there is value in networking and you have something constructive to share, then please post it below in the comments section.

So that’s how a conversation about a dead blog created an idea for this one.

And with that said, for my first topic I would like to tackle the very subject which I’m currently taking part in- blogging. Hundreds of you now do it. From a business standpoint, there are probably more real estate blogs than any other segment of business (besides the porn and gambling industries of course). Yet thousands of you have started real estate blogs and then given up. More of you grapple with the very concept of what a blog even is, and I’ve even talked to agents that were convinced blogging could harm their business. So what’s my opinion on the value of Blogging? I’ll post that in my next article.