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 How Agents Get Paid: Understanding Your Options
By: Darin "Sid" Cameron, CRS
Wed, Oct 18th, 2006 10:07 pm

Over the last two days I wrote two posts on how real estate agents get paid.  I started by discussing the relationship the agent has with their employer and how most brokerages classify their agents.

Today I would like to continue that discussion by explaining all of the various options that exist within the real estate industry because my experience is that most new agents are unaware of all the options they have available to them.

If you haven’t read the first installment of this article, I suggest you start by going back and reading the last two posts.

Kinds of Agents:

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 of the Ozarks).

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 office space is vastly different to work with than the business who is seeking 2,000,000 sq feet of warehouse 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 with a small retail store front on the ground level could fall into the light (i.e. small) commercial space or could be sold by a residential agent.

In small towns and rural areas you may find that commercial retail property (like a store front) and residential property still fall on the same agent’s desk simply because there isn’t enough commercial property for sale to warrant a specialist.

Ultimately 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 and cell phone companies 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 assessments. 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.

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