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THE SIREN SONG OF REAL ESTATE, PART 1 By yank Elliott, MBA & IAHBE Staff Writer
As the Sirens of old seduced unwary sailors to disaster, so does the idea of being a realtor beckon many gullible entrepreneurs.Real estate is seen as a glamorous high-paying career where anyone willing to learn and put in the necessary apprenticeship can succeed and even attain great wealth. Real estate looks like a classic opportunity for the home-based entrepreneur. A real estate business can be operated easily from home, for example. You can work it part time while you learn the business, then work as much or as little as you want. AND you get paid a large sum every time you close a sale. The reality for most aspiring real estate entrepreneurs, however, is that the chance of succeeding is on par with the chance of being the major league baseball player able to hit 700 home runs during their career. Currently, only Babe Ruth and Henry Aaron have done it, though Barry Bonds may become the third...if somebody will pitch to him instead of giving an intentional walk. The point is that out of the thousands of talented baseball players who have played the game, only two have been able to hit a lot of home runs. So it is in real estate: of the thousands upon thousands of licensed agents, only a very few are making the glamorous incomes associated with the myth of real estate. That said, real estate can be a very attractive and solid home-based business idea that works for some...and could work for you. This series of articles is only intended to cause you to think before jumping in. Some of the negative aspects discussed here are the very same obstacles you will face if you choose real estate as your business and aremeant to encourage a thorough investigation of personal real estate selling as your main business. The Reality Of Realty Every business has good and bad issues. Real estate, because of its legal nature—not to mention the fact that a home is very personal decision and the largest investment most people ever make—carries more obstacles for the business owner than those found in many other kinds of businesses. For these reasons, perhaps, no more than one quarter of one percent (0.025%) of real estate agents are able to support themselves in a reasonable manner. However, many of those 0.025% will earn elegant incomes. Perhaps you will be one of these. Still, it's a good idea to be sure you keep other earning options open and available while pursuing your real estate business. Jumping in wholeheartedly with no steady income coming in could result in your losing your own home—NOT a situation you want to find yourself in! In addition, before launching your real estate business, you'll want to take a good, long look at a couple of popular myths: 1. Selling real estate is a glamorous career. Maybe...IF you already have plenty of money and are just playing at real estate as a hobby or sideline. However, depending on real estate for needed income is not glamourous at all. The U.S. Department of Labor states these ideas at the top of their page describing a real estate career: 1.Real estate brokers and sales agents often work evenings and weekends and usually are on call to suit the needs of clients. 2.A license is required in every U.S. state and the District of Columbia. 3.Although
gaining a job as a real estate agent or broker may be relatively easy,
beginning agents and brokers may face competition from well-established,
more experienced agents and brokers in obtaining listings and in closing
a sufficient number of sales. When you are an agent you are essentially working for yourself, even when part of a real estate firm. Rather than looking forward to holidays, agents can end up dreading them because they may miss some sales opportunities. Most agents provide a number of ways to contact them so they are always available. One of my previous customers (who eventually purchased a house) had a sleeping problem. She called every night about 1 a.m. to ask about some detail she just thought about. She even called while shopping at Wal-Mart in the middle of the night. Believe it or not, she and her husband are friends of mine now, years after the sale. Does this sound glamorous to you? One benefit associated with a home-based business is extra time you can use as you please. Real estate does not typically offer this. 2. Real estate is a high-paying career. In my state, North Carolina, the Real Estate Commission says there are 80,000 people holding real estate licenses. With 100 counties, that works out to 800 agents per county on average. There are a few more than 8 million people living here, so that's about one licensee for every 100 people. How many pieces of real estate will 100 people have, and how often will they buy or sell? You go figure. Most of these licensees do not actively participate in real estate as a business; many are like I was for many years. They keep their license up-to-date thinking they may eventually use it or fall back on it in an emergency if they lose their job. However, that can be an unwise strategy because not only is it expensive but also your income will be very slow to come. Even if you are extremely lucky and sell a house your first day, it is likely to take 45 to 60 days to close. You're not going to be paid for maybe two months at best. More likely is that you will not make a sale for many months (the Labor Department says about six months). Then add another two months for closing and you're looking at eight months with no pay...And don't forget the ongoing business expenses you will have during this time! The fact is, only about 10% of licensees are actually in the business at any one time. The county where I worked did have about 80 members in the local Multiple Listing Service (MLS). Our area is popular with retirees and there is quite a bit of vacation property because there is a lot of waterfront available. You would think all the realtors are doing quite well. The truth is there are no more than four (only two I know for sure) agents who make a good, livable income selling real estate. The others will work until they can no longer cover their expenses, then quit, making room for a new crop of hopefuls. In addition, a successful sales agent has an amazing schedule. One of the successes I know is a single mom with two grown children; she's been in real estate over 30 years. Every day begins with getting to her office by 5:30 a.m. She deals with paperwork and customers until dark when she returns to her office to clear up the day's reports. Finally arriving at home around 10:00 p.m. she returns calls on her answering machine. She may be able to sleep around midnight. This is her schedule six days a week. She takes half of Sunday off and starts over Monday morning. Vacations are two, three-day trips a year. She EARNS every penny! Some agents have spouses with good jobs. The money these people make is just extra family income that would never be enough to support the family on its own. A number of retirees and men or women who get tired of staying at home enter this market, as do a few people just looking for a side income. Most active licensees work for firms with two or more other agents in the same location. The people who own the firm make a percentage of the sales of all associates. The owner is required by the Real Estate Commission to supervise those who work with them. There are different expense arrangements with associated realtors. The typical company provides office space, communications, office equipment and supplies, advertising, and whatever else may be required to sell real property. Some companies require associates to pay a portion of these overhead expenses. The owner of the real estate firm will make money if they are careful to acquire and train capable associates. These associates we're talking about are actually self-employed and there is no employee relationship. The owner must have fairly deep pockets to pay the large overhead of an active real estate office. Every individual agent has their own expense schedule. Items include telephone outside the office, all automobile expenses, licensing fees and professional fees, costs for training, convention expenses, entertaining customers, and others. In my case, with a very small business, my expenses were about $15,000 base plus 50% of income thereafter.
However, a couple of points need to be made. First, the million may come from 25, $40,000 homes or it might result from just one commercial sale. The large sale will net a lot more for the agent than the many small sales. The second point is the most important. If the gross commission is 6%, if the split with the business is 50%, and if all sales were listed and sold by the same agent, then that agent would get 3%. That's $30,000 for the agent. Great. But the agent had at least $15,000 in basic cost plus 50% of the next $15,000 ($7,500) for a total of $22,500 in expenses to make $30,000. From the million dollars the net profit is $7,500! Is this glamorous wealth? Realty Viewpoint Many people, fair or not, view realtors as crooks. A lawyer "friend" repeatedly me this knowing I was a realtor. It's funny that he ultimately picked a realtor to sell his house. Still, there are at least a couple of valid reasons for this idea. First, many situations arise where a realtor could be involved in practicing law without a license. This practice is an extension of the tendency to tell the buyer whatever it is they want to hear. It is a serious offense and has the consequence of jeopardizing future legal remedies of buyers or sellers. The other problem is a successful realtor will always have trouble divulging the whole truth voluntarily to a customer. Most states have regulations in place to ensure all the facts are given to a buyer, but there are always ways to avoid this requirement. Zoning regulations, structural problems, and environmental concerns are areas where agents try to avoid the truth; you won't sell anything if you tell everything. Detrimental information is detrimental to your income. The Sunny Side Of The Street? In spite of many discouraging aspects of the real estate business it does have a few good points: 1. You work for yourself (though few other advantages associated with having your own business - more time with family, good income - does not apply). 2. You get to know more about your area than any of your neighbors or friends. 3. You will meet a lot of people. 4. You have a chance at making a really big sale at any time. Everything we read about how to succeed as an entrepreneur is to persist in the face of all obstacles. I wholly believe this is true. In my case, though, persistence eventually showed me a better way. RESOURCES: Census
NC stats NC
Demographics Many
real estate sites Yahoo
real estate US
Dept. of Labor Information
about Buyer's Agency Yank is a home-based entrepreneur and freelance business writer living in Hurricane Alley, North Carolina, USA. His Website is http://www.furriwhalesworld.com/. Contact Yank at globalbiz@furriwhalesworld.com.
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