Pros and Cons of becoming a Real Estate Agent

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Aged Maduro
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Pros and Cons of becoming a Real Estate Agent

Post by Aged Maduro »

Recently, i replied to a BH Forum post entitled "What is the worst financial decision that you ever made?". I replied that the worst financial decision i ever made was to become a real estate agent after college. Some suggested that i do a separate post outlining the pros and cons of a career in real estate sales based on my experiences, which led me to post the following. During that phase of my career, i did both commercial and residential sales and leasing. While being different property types, the business models are essentially the same. I will start with the cons because they are so numerous:

CONS

-Realtors are independennt contractors who pay high self employment taxes while also paying endless fees and dues to their broker and the real estate association. They also pay up to 50% of every commission to said broker. (The agent is put in a position where they have all of the responsibilities of being a business owner without the benefits of business equity. The dirtly little secret of real estate brokerages is that most brokers make more money off of agent fees than agent commissions because most would be agents wash out before making a single sale).

-Realtors typically recieve no benefits whatsoever and have to fund their own retirement plan and health insurance.

-Realtors need to put up the appearance of success and have to pay for club memberships, expensive suits, lunches and luxury car leases.

-There is a common misperception that being an agent means "being your own boss". It is true that nobody is going to fire if you don't show up but you will have to work at least 60 hours a week, and nights and weekends if you want to make any money at all in the beginning. You will live on your phone. This goes for both commercial and residential. Most clients will run you ragged and will not respect your time.

-On the job training does not exist at most brokerages. It is a true "trial by fire" situation. Experienced agents typically want nothing to do with young agents expcept to use them to work on deals that are not lucrative.

-The few experienced agents with high sales volume are usually promoted to be sales managers as a reward, even though the best salesmen are often the worst managers. Disorganization and mismagement is the norm at many real estate offices as a result.

-The 100% commission based model is fraught with peril as it often leads to divorce, cut throat office politics and unethical business practices. Alcoholism is rampant as a coping mechanicsm.

-According to the National Association of Realtors (which typically sugarcoats and overinflates information) the average Realtor in the U.S. makes around $40,000 a year. Keep in mind that these are the people who MADE it and have a lasting career in the industry. The top 10% of agents, according to multiple online sources, typically make around $100,000 a year. When you factor in all of the business expenses mentioned above, this means that even the top agents are making the net equivalent of a $50,000 a year job with benefits...if they're lucky. When you adjust for the amount of hours they put in it is probably less.

-A constant oversaturation of agents due to the low barrier to entry. A person can become a licensed agent in a few weeks. This practice has been encouraged by NAR, whose main goal is to have more dues paying members than high industry standards. Consumer protection is an afterthought.
Because of this most agents have no idea what they are doing and it shows. As a result, many do not respect the real estate industry, and quite frankly, they shouldn't.

-The "fake it till you make it" psychology of real estate boosterism leads to self delusion that is sad and depressing. Real estate brokerages are full of bs-ers and liars.

PROS

-There's THE POTENTIAL for having a very profitable sales career. (It does happen, but in any given market there are only a handful of people who have cornered a niche market and can consistently over time make six figures. Again, when you factor in all of the associated expenses i would say that "good money" equates to at least $200,000 in commissions a year. More often than not, these high earning agents have a dad who also happens to own a real estate company. Even for them, due to constant changes in technology, market changes and oversaturation it is very difficult to sustain over time. Most agents, in my experience, are flat broke. You may also have the potential to be a walk on for the NY Giants or a Hollywood actor, but the probability is equally low.)

- The ability to learn how to be a real estate investor/developer (While beneficial this a "school of hard knocks" route to get there. You do not need to become an agent to learn how to do this).

My experience is that while real estate investing and development can be very lucrative, being a sales agent is a fools errand that is fraught with both personal and economic liabilities. It is not much better for the owners of these brokerages either. Fortunately, i was able to parlay my real estate experience into a real estate related governement career that is much more stable while also investing and managing my own properties. So it was not all for naught, but most aren't so lucky. If you have worked in the industry and can share your experiences please do. If there are more PROS to being an agent i am not aware of them. Personally, i would never recommend a career in real estate sales to anyone.
Last edited by Aged Maduro on Mon Dec 21, 2020 3:17 pm, edited 2 times in total.
wordsmith11
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Re: Pros and Cons of becoming a Real Estate Agent

Post by wordsmith11 »

Super informative. Thank you! I wonder if car sales is similar...
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F150HD
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Re: Pros and Cons of becoming a Real Estate Agent

Post by F150HD »

Aged Maduro wrote: Sun Dec 20, 2020 2:28 pm ...A constant oversaturation of agents due to the low barrier to entry. A person can become a licensed agent in a few weeks.
interesting...that was mirrored in this thread a few weeks back
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ClevrChico
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Re: Pros and Cons of becoming a Real Estate Agent

Post by ClevrChico »

Very interesting, thanks! Do commissions scale down when selling multi-million dollar homes? I always wondered if sellers would have negotiating power on realtor fees for expensive homes.
Topic Author
Aged Maduro
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Aged Maduro »

ClevrChico wrote: Sun Dec 20, 2020 5:41 pm Very interesting, thanks! Do commissions scale down when selling multi-million dollar homes? I always wondered if sellers would have negotiating power on realtor fees for expensive homes.
Commissions are always negotiable and there is no set fee for a given market. So, yes, sometimes commissions scale down when selling multi-million dollar homes. The typical commission that a listing agent will apply to an averaged priced home is around 6%, and split 50/50 with the buyer's agent. If the listing agent sells it himself he and his brokerage company get the whole fee. Sometimes, very high priced homes will be listed for closer to 4% simply because the home owner knows that the listing agent will do it for that much and can negotiate the commission down. Something to note, however, is that some agents will not even bother showing homes if they have a lower than usual commission. Agents typically control what MLS listings are sent to their client and they can pre-screen and only send them the houses that have a competitive commission.

The same thing applies to commercial real estate. An average sized commercial building will typically have a listing commission of 6% or 7%. However, very expensive buildings like high rise office buildings will sometimes have as low as a 2% commission. When it comes to leasing commissions, big brokerage firms like CBRE have very steep commission schedules and demand to get paid up front because they bring Class A Office and Retail Tenants and have the ability to walk away and do business with other landlords if they don't get what they want. Way back in the day, commercial realtors could charge 10% or more but those days are long gone. Back then the brokerage business was based almost solely on insider connections and the free flow of information vis a vis the internet did not exist.
SurlyDuff
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Re: Pros and Cons of becoming a Real Estate Agent

Post by SurlyDuff »

I worked with a rebating agent/broker when I bought/sold last year. He worked for 1% to list my house - full service, took great photos. He rebated me anything above 1% on the house I purchased. He was a one man operation. If he had someone helping with admin stuff, I never saw evidence of them. He did a great job in a competitive high cost of living market, and based on his Zillow profile, does a good amount of business in a year. I'm sure he is living comfortably off those 1% commissions. In my market, I saved enough to buy a decent car using him versus a traditional agent.

After that, I can't imagine why I would go pay someone 2.5-3% to do the same thing. I see in real estate discussions how agents try to explain how many others take a piece of their commission to justify the "price" and show they aren't getting rich. I won't argue that the whole structure sucks for the bottom of the pyramid, but that is something the industry needs to deal with, not the consumer. Why should I want to pay for their broker's Mercedes, office space, and advertising fees to Long and Foster, Century 21, or whatever corporate entity they work under?
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Cobra Commander
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Cobra Commander »

Why don't more agents hang out a shingle as a broker? I don't see why they give up half their commissions for what appear to be minimal benefits from the broker.

Not sure I agree re: agents control over listing the clients see. In this day and age I would expect most clients to use the internet to access listing and then say hey I want to see that one. You could discourage it and say the house looks bad but ultimately I don't see how you can tell a buyer you won't show them a house.
arsenalfan
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Re: Pros and Cons of becoming a Real Estate Agent

Post by arsenalfan »

Thanks for posting!

Been contemplating becoming agent since I buy 2-3 properties a year for around $400-500k each. I find all the deals myself off market or Redfin, and basically have been wondering why I use a realtor at all since I have a closing attorney lined up. Done a few without realtors, but most sellers want to use a realtor.

Think it’s worth it to become a realtor and get a part of the 2.5-3% commission?

And What do you recommend when it comes time, 30 years from now, to sell ~15 properties each worth about $500k? And the primary home of $2mm?
PowderDay9
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Re: Pros and Cons of becoming a Real Estate Agent

Post by PowderDay9 »

I agree the cons far outweigh the pros. One pro you didn't mention is a flexible work schedule. It's easier to make your kids events during standard business hours. This can also be a con if you don't like working nights and weekends.

I understand the low barrier to entry floods the market with a lot of low performing agents. However, the ones who sell 20+ properties a year can make good money, especially in higher cost of living places where median sales are $500k+.

I've never understood why agents get paid 3% regardless of sales price. Do they really do double the work on a $500k home vs a $250k home?

I'm also surprised that technology (zillow, redfin, etc) hasn't driven down the price to buy and sell properties. I guess the real estate industry is like a monopoly and it's hard to change that 3% commission.
checkyourmath
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Re: Pros and Cons of becoming a Real Estate Agent

Post by checkyourmath »

Home prices are super cheap right now so there is a lot of potential to push up that 40k per year income. Realtor fees should be higher just like the rest of the world. I think Warren Buffett might get into owning a service company if we continue to see home prices rise.
Random Poster
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Random Poster »

checkyourmath wrote: Sun Dec 20, 2020 11:01 pm Home prices are super cheap right now so there is a lot of potential to push up that 40k per year income. Realtor fees should be higher just like the rest of the world. I think Warren Buffett might get into owning a service company if we continue to see home prices rise.
Doesn’t he already through Berkshire Hathaway Home Services?
checkyourmath
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Re: Pros and Cons of becoming a Real Estate Agent

Post by checkyourmath »

Random Poster wrote: Sun Dec 20, 2020 11:16 pm
checkyourmath wrote: Sun Dec 20, 2020 11:01 pm Home prices are super cheap right now so there is a lot of potential to push up that 40k per year income. Realtor fees should be higher just like the rest of the world. I think Warren Buffett might get into owning a service company if we continue to see home prices rise.
Doesn’t he already through Berkshire Hathaway Home Services?
Oh yeah I think he is one of the largest brokers in the country.
jaqenhghar
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Re: Pros and Cons of becoming a Real Estate Agent

Post by jaqenhghar »

I saw your comment on the other thread. Thank you for taking the time to write this up!
averagedude
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Re: Pros and Cons of becoming a Real Estate Agent

Post by averagedude »

In my opinion, Real Estate agents that have been in this industry for 30 plus years, have done well. How could you not if you are highly motivated, hard working, and have done a good job of building a huge network after 3 decades of working in this industry. It can be tough for new salespeople and many don't last, but the longer you are in this industry, the easier it becomes. I do question the future of this industry, as I believe that emerging companies using newer technology will disrupt the 6% commission business model. This may be a controversial statement, but this is way past overdue. If I was young and looking at careers today, I would probably look to other fields of study.
rascott
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Re: Pros and Cons of becoming a Real Estate Agent

Post by rascott »

arsenalfan wrote: Sun Dec 20, 2020 8:01 pm Thanks for posting!

Been contemplating becoming agent since I buy 2-3 properties a year for around $400-500k each. I find all the deals myself off market or Redfin, and basically have been wondering why I use a realtor at all since I have a closing attorney lined up. Done a few without realtors, but most sellers want to use a realtor.

Think it’s worth it to become a realtor and get a part of the 2.5-3% commission?

And What do you recommend when it comes time, 30 years from now, to sell ~15 properties each worth about $500k? And the primary home of $2mm?

I did this years ago for the same reasons as you. Only doing a handful of deals ever will cover your costs in the business for years. Even one super cheapo deal per year basically covers my annual expenses. Comes in quite handy when moving personal residences, as well. Basically can move for basically zero net transactional costs.
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F150HD
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Re: Pros and Cons of becoming a Real Estate Agent

Post by F150HD »

checkyourmath wrote: Sun Dec 20, 2020 11:01 pm Home prices are super cheap right now so there is a lot of potential to push up that 40k per year income. Realtor fees should be higher just like the rest of the world. I think Warren Buffett might get into owning a service company if we continue to see home prices rise.
? maybe you live in rural Iowa? nothing 'cheap' where I am. Things sell in 24 hours.
PowderDay9 wrote: Sun Dec 20, 2020 10:17 pm I've never understood why agents get paid 3% regardless of sales price. Do they really do double the work on a $500k home vs a $250k home?
+1. to me, homes kinda sell themselves they don't require a big marketing plan (in my area). This assumes the home is in good condition etc. Where I am, no realtor has to give a 'sales pitch' to sell a home justifying an increase in their commission. Once its online with fairly decent photos it will sell itself.
hdcd
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Re: Pros and Cons of becoming a Real Estate Agent

Post by hdcd »

checkyourmath wrote: Sun Dec 20, 2020 11:01 pm Home prices are super cheap right now so there is a lot of potential to push up that 40k per year income. Realtor fees should be higher just like the rest of the world. I think Warren Buffett might get into owning a service company if we continue to see home prices rise.
Home prices are cheap now? Where are you living?
PowderDay9
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Re: Pros and Cons of becoming a Real Estate Agent

Post by PowderDay9 »

F150HD wrote: Mon Dec 21, 2020 12:19 am +1. to me, homes kinda sell themselves they don't require a big marketing plan (in my area). This assumes the home is in good condition etc. Where I am, no realtor has to give a 'sales pitch' to sell a home justifying an increase in their commission. Once its online with fairly decent photos it will sell itself.
Agreed. Homes sell within 1 day in my neighborhood and have multiple offers. I don't even know if you really need to even take more than a few pictures of the house!

The last few times I went out with our realtor was because I kept an eye on Zillow for our preferred areas and when I saw something we were interested in, I asked her to show it to us. So she doesn't even have to search for us.

Prices are high and have gone up about 50% in the last 5-7 years. That means commissions have gone up as well.
Cigarman
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Cigarman »

I sold my house in September in one day using an agent in Raleigh, NC. All three companies I interviewed said the same thing...that most buyers are using Zillow to find their houses. In my case I did not have the time or energy required to do the leg work for posting the house. In addition, I had a conflict between what the county listed my home's size at (2700 square feet) versus the appraisal when I first bought the house (3000 square feet). At the listing price of $158 per square foot that is a $47,400 difference. I concentrated on decluttering the house and having some minor issues on the exterior repaired prior to the listing going live, which was 2 weeks between signing the contract. The photographer came in and did the measuring and we settled at just under 3000 square feet.

The commission ended up being 5% which was well worth it given my situation. At a selling price of $500k my realtor grossed $12,500 and probably netted about half that before her internal fee's. She sells on average about 1 house per week so the income can be very good. However, getting to that point was probably not easy for her. Homelight lists nearly 7500 agents in Raleigh alone. I could not find a statistic for how many homes were sold in the area in 2019 but currently there are less than 6000 homes on the market. So, for new agents, breaking into the market has to be very trying.
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Aged Maduro
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Aged Maduro »

Cobra Commander wrote: Sun Dec 20, 2020 7:28 pm Why don't more agents hang out a shingle as a broker? I don't see why they give up half their commissions for what appear to be minimal benefits from the broker.

Not sure I agree re: agents control over listing the clients see. In this day and age I would expect most clients to use the internet to access listing and then say hey I want to see that one. You could discourage it and say the house looks bad but ultimately I don't see how you can tell a buyer you won't show them a house.
Going out on your own as a broker means either investing a lot more money into marketing or buying into an established franchise (ie ReMax, Prudential, etc.) It requires more capital outlay. Many agents still send their clients lists of homes that meet their criteria through the Multi List System and they are able to filter out the ones with low commissions so their client do not recieve those listings via email.
mrmass
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Re: Pros and Cons of becoming a Real Estate Agent

Post by mrmass »

Aged Maduro wrote: Mon Dec 21, 2020 8:04 am
Cobra Commander wrote: Sun Dec 20, 2020 7:28 pm Why don't more agents hang out a shingle as a broker? I don't see why they give up half their commissions for what appear to be minimal benefits from the broker.

Not sure I agree re: agents control over listing the clients see. In this day and age I would expect most clients to use the internet to access listing and then say hey I want to see that one. You could discourage it and say the house looks bad but ultimately I don't see how you can tell a buyer you won't show them a house.
Going out on your own as a broker means either investing a lot more money into marketing or buying into an established franchise (ie ReMax, Prudential, etc.) It requires more capital outlay. Many agents still send their clients lists of homes that meet their criteria through the Multi List System and they are able to filter out the ones with low commissions so their client do not recieve those listings via email.

In MA there are other requirements that you need to meet before you can be a broker. Other states might have the same.
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Aged Maduro
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Aged Maduro »

arsenalfan wrote: Sun Dec 20, 2020 8:01 pm Thanks for posting!

Been contemplating becoming agent since I buy 2-3 properties a year for around $400-500k each. I find all the deals myself off market or Redfin, and basically have been wondering why I use a realtor at all since I have a closing attorney lined up. Done a few without realtors, but most sellers want to use a realtor.

Think it’s worth it to become a realtor and get a part of the 2.5-3% commission?

And What do you recommend when it comes time, 30 years from now, to sell ~15 properties each worth about $500k? And the primary home of $2mm?
Yes, with the amount of deals that you are doing it would probably pay to be able to get buyer agent commissions on those purchases. You will also get access to the Multi List which is advantageous. When it comes time to sell, however, i would consider listing with an experienced listing agent. If they are houses sell them individually with an experienced residential realtor. If they are apartments or commerical buildinsg then you may want to sell them together as a package portfolio and use a commercial realtor. Listing your own rental properties can increase the chance of lawsuits because you are making representations and warranties on your own buildings. Personally, i prefer to use a broker for all of my rental property acquisitions and sales because i don't want to have to deal with it. In my experience, having a third party intermediary is beneficial both from a negotiating and liability standpoint.
Last edited by Aged Maduro on Mon Dec 21, 2020 3:22 pm, edited 1 time in total.
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Aged Maduro
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Aged Maduro »

PowderDay9 wrote: Sun Dec 20, 2020 10:17 pm I agree the cons far outweigh the pros. One pro you didn't mention is a flexible work schedule. It's easier to make your kids events during standard business hours. This can also be a con if you don't like working nights and weekends.

I understand the low barrier to entry floods the market with a lot of low performing agents. However, the ones who sell 20+ properties a year can make good money, especially in higher cost of living places where median sales are $500k+.

I've never understood why agents get paid 3% regardless of sales price. Do they really do double the work on a $500k home vs a $250k home?

I'm also surprised that technology (zillow, redfin, etc) hasn't driven down the price to buy and sell properties. I guess the real estate industry is like a monopoly and it's hard to change that 3% commission.
Last edited by Aged Maduro on Mon Dec 21, 2020 8:30 am, edited 2 times in total.
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Aged Maduro
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Aged Maduro »

jaqenhghar wrote: Sun Dec 20, 2020 11:29 pm I saw your comment on the other thread. Thank you for taking the time to write this up!
You're welcome!
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Aged Maduro
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Aged Maduro »

Aged Maduro wrote: Mon Dec 21, 2020 8:24 am
PowderDay9 wrote: Sun Dec 20, 2020 10:17 pm I agree the cons far outweigh the pros. One pro you didn't mention is a flexible work schedule. It's easier to make your kids events during standard business hours. This can also be a con if you don't like working nights and weekends.

I understand the low barrier to entry floods the market with a lot of low performing agents. However, the ones who sell 20+ properties a year can make good money, especially in higher cost of living places where median sales are $500k+.

I've never understood why agents get paid 3% regardless of sales price. Do they really do double the work on a $500k home vs a $250k home?

I'm also surprised that technology (zillow, redfin, etc) hasn't driven down the price to buy and sell properties. I guess the real estate industry is like a monopoly and it's hard to change that 3% commission.
There is no such thing as a flexible work schedule if you want to make real money selling real estate. Bigger deals are usually easier for both residential and commercial properties. Agents who work with poor folks earn their money because they have to guide them through every step of the process, especially financing. When you are working with rich clients they already have private banking, accountants and lawyers who take care of everything. I have worked on multi-million dollar office deals where i didn't even have to write up the contract. The client's attorney did it and took the whole deal through settlement. Bigger deals almost always mean more money and less work. However, there are only a handful of guys who are operating at that level on a regular basis and they are mostly with the big firms like CBRE, Cushman and Wakefield, JLL, etc.

Regarding new technology, it is NAR that has managed to keep a monopoly on the industry through the Multi-List system. NAR is extremely powerful in Washington and has managed thus far to fend off the encroachment of the online listing competitors. It won't hold forever, though. I think within the next 10 years they will finally be forced to buckle and when that happens the information flow will be completely free to consumers and the traditional agent commission structure will be upended for good.
Last edited by Aged Maduro on Mon Dec 21, 2020 3:24 pm, edited 1 time in total.
checkyourmath
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Re: Pros and Cons of becoming a Real Estate Agent

Post by checkyourmath »

hdcd wrote: Mon Dec 21, 2020 12:52 am
checkyourmath wrote: Sun Dec 20, 2020 11:01 pm Home prices are super cheap right now so there is a lot of potential to push up that 40k per year income. Realtor fees should be higher just like the rest of the world. I think Warren Buffett might get into owning a service company if we continue to see home prices rise.
Home prices are cheap now? Where are you living?
https://www.denverpost.com/2020/12/18/c ... expensive/

Homes are only getting more expensive. Household income in Menver is 60k with the median home price around 600k. I don't see income going up as much as housing so maybe 70k for million dollar home in 2030.
William104
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Re: Pros and Cons of becoming a Real Estate Agent

Post by William104 »

I consider myself very lucky to be an agent in a high end vacation home destination. I often wonder if I could handle being an agent in a metro area with significantly lower sales prices forcing you to do a large number of transactions every year to make good money.

It also seems like commissions are more secure here than they are in metro areas due to buyers and sellers often not living here and simply pay the standard rate for the area (6%) without many questions or shopping around. We’ve seen some ultra luxury go to 5% but not all. Even in those scenarios it’s the listing agent taking 2% and not both splitting the 5%. Metro areas are dealing with many sellers and buyers bypassing agents altogether and not opting for higher end services to sell the homes like in our luxury market.

I do agree, the non standard work hours can get to be a bit much, particularly around holidays where we work lots of weekends and are never truly off work. This part can be tough on the family but the flexibility in other months and large income are worth it.

I do think this will slowly start to change and the “six figure sales checks” could go away in the somewhat near future. I plan on trying to maximize the opportunity over the next 5 years or so to become financially independent so when things change I’ll be in a good position. The high end deals are usually twice as easy as low end deals and almost always cash. For those that have been able to break into the niche high end sales, it’s incredibly lucrative.
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jfn111
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Re: Pros and Cons of becoming a Real Estate Agent

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Aged Maduro wrote: Mon Dec 21, 2020 8:04 am
Cobra Commander wrote: Sun Dec 20, 2020 7:28 pm Why don't more agents hang out a shingle as a broker? I don't see why they give up half their commissions for what appear to be minimal benefits from the broker.

Not sure I agree re: agents control over listing the clients see. In this day and age I would expect most clients to use the internet to access listing and then say hey I want to see that one. You could discourage it and say the house looks bad but ultimately I don't see how you can tell a buyer you won't show them a house.
Going out on your own as a broker means either investing a lot more money into marketing or buying into an established franchise (ie ReMax, Prudential, etc.) It requires more capital outlay. Many agents still send their clients lists of homes that meet their criteria through the Multi List System and they are able to filter out the ones with low commissions so their client do not recieve those listings via email.
You will have to tell me where that "filter" is? I can't find it in the property lists I send out. :shock:
pshonore
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Re: Pros and Cons of becoming a Real Estate Agent

Post by pshonore »

mrmass wrote: Mon Dec 21, 2020 8:08 am
Aged Maduro wrote: Mon Dec 21, 2020 8:04 am
Cobra Commander wrote: Sun Dec 20, 2020 7:28 pm Why don't more agents hang out a shingle as a broker? I don't see why they give up half their commissions for what appear to be minimal benefits from the broker.

Not sure I agree re: agents control over listing the clients see. In this day and age I would expect most clients to use the internet to access listing and then say hey I want to see that one. You could discourage it and say the house looks bad but ultimately I don't see how you can tell a buyer you won't show them a house.
Going out on your own as a broker means either investing a lot more money into marketing or buying into an established franchise (ie ReMax, Prudential, etc.) It requires more capital outlay. Many agents still send their clients lists of homes that meet their criteria through the Multi List System and they are able to filter out the ones with low commissions so their client do not recieve those listings via email.

In MA there are other requirements that you need to meet before you can be a broker. Other states might have the same.
That's true but its usually a couple extra "courses" and an experience requirement (working under a broker for 2 years). The main deterrent is probably that you'll need a physical office in most cases with all the expense of rent, phone, computer access, clerical support, advertising, insurance, etc. And that office usually is manned 7 days a week . And all those expenses still have to be paid when the market goes south.
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Aged Maduro
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Aged Maduro »

jfn111 wrote: Mon Dec 21, 2020 9:57 am
Aged Maduro wrote: Mon Dec 21, 2020 8:04 am
Cobra Commander wrote: Sun Dec 20, 2020 7:28 pm Why don't more agents hang out a shingle as a broker? I don't see why they give up half their commissions for what appear to be minimal benefits from the broker.

Not sure I agree re: agents control over listing the clients see. In this day and age I would expect most clients to use the internet to access listing and then say hey I want to see that one. You could discourage it and say the house looks bad but ultimately I don't see how you can tell a buyer you won't show them a house.
Going out on your own as a broker means either investing a lot more money into marketing or buying into an established franchise (ie ReMax, Prudential, etc.) It requires more capital outlay. Many agents still send their clients lists of homes that meet their criteria through the Multi List System and they are able to filter out the ones with low commissions so their client do not recieve those listings via email.
You will have to tell me where that "filter" is? I can't find it in the property lists I send out. :shock:
The last time i used the MLS to send out listings was about 9 years ago. For our Multi-List search there was a way to hand pick the ones that you wanted to send to clients and the commission amounts were always posted within the system. Maybe it has changed since them. When i worked it was a common practice for agents to ignore houses that had low or non-existent commissions.
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arcticpineapplecorp.
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Re: Pros and Cons of becoming a Real Estate Agent

Post by arcticpineapplecorp. »

thank you for writing this up. helpful for those thinking of entering the field.

regarding the poster who asked if there's a similar thread about car salesman, that would be helpful as well. In the meantime I found this story from This American Life about car salesman very illustrative:

https://www.thisamericanlife.org/513/129-cars
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Colorado13
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Colorado13 »

This is a small sample size, but I've sold three homes, one without a realtor and two with a realtor. All three sold on the first day they were listed on MLS. I am skeptical of the value realtors add when selling. They earned thousands for a couple hours of work.

Due to the currently hot market, I would likely need to hire one if I were a buyer in my city.
newguy123
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Re: Pros and Cons of becoming a Real Estate Agent

Post by newguy123 »

I went down that route and failed as a real estate agent after getting the license. Sold a total of 0 homes. I think certain personalities succeed in real estate, mine does not do well with real estate
Would I rather relax and make money or make money and relax ?
averagelonghorn
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Re: Pros and Cons of becoming a Real Estate Agent

Post by averagelonghorn »

I'm a real estate agent. I do very low volume, partially by choice.
Most of your points are pretty much spot on, but of course everything varies a bit depending on many factors.

I heard a saying that actually continues to ring true to me that the way to make money in Real Estate is to sell stuff to Realtors. The spam to useful content (I'll say off the cuff 90% spam) in my email inbox would suggest that's true.

Until pretty recently, I worked for a broker who does take a relatively large chunk of commissions, (Varied between my leads and ones they provided, and repeat vs 1st time clients) but did NOT nickle and dime on ongoing fees.... in fact I had no "out of pocket" fees to that company,(They provided signs, lockboxes, and some back end support) but I did have fees to the local board of Realtors as my main fixed expenses......
I have for sure heard that some of the large companies charge agents lots of fees.

There are exceptions, but for the most part, a broker's business model is to take on as many sales agents as they can sign up, let them sink or swim, and make money off those that do well. (Frequently part B is charge those that DO wash out at least enough to not lose money having them on the books and probably make a few bucks off of them as well.)

It is much easier these days to get better commission splits than were typical even 5 years ago. But again that business model for those brokers is to sign up as many agents as possible, charge a pretty small fee annually or monthly to the agents, then a pretty small fee per transaction. When my old broker decided to institute a monthly fee, it forced me to evaluate, and I decided to go with one of these brokers; we'll see how it works out.

A much shorter version: I can agree that I probably wouldn't advise anyone to go into a career as a Real Estate agent right now; I'm going to continue, but only can because my spouse has a pretty good income that supports us; so we can deal with lumpy income. We're also much closer to retirement (as in less than 10 years) than someone early in their working life, and on track with retirement savings. If all that weren't true, I would have bailed on being a real estate agent long ago.
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TomatoTomahto
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Re: Pros and Cons of becoming a Real Estate Agent

Post by TomatoTomahto »

@AgedMaduro, thanks for writing this up. My kids sometimes recommend that I become a realtor, because ... kids.

I will show them this thread the next time they bring it up. :beer
I get the FI part but not the RE part of FIRE.
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jfn111
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Re: Pros and Cons of becoming a Real Estate Agent

Post by jfn111 »

I enjoy being a RE Agent but I've never had to do it for a living. I got my license after I retired from Mega Corp and started slowly with a small brokerage. I had a few sales my first 2 years and was starting to think that this is an expensive hobby with all the fees and little income coming in. Then I met the "machine".
My now business partner is a listing machine. She had a strong background in insurance sales and non profit work when she became an agent. She started strong and as always maintained a mid 6 figure income. I had happened to represent buyers for 2 of her listings and mentioned to her that if she was looking for an old fat buyer's rep., I'm her guy.
We are in our 4th year together and I am still having fun. I'm averaging about 24 sales a year and enjoying making some extra cash that I can spend helping the kids and grandkids without a second thought.
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Aged Maduro
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Aged Maduro »

TomatoTomahto wrote: Mon Dec 21, 2020 1:42 pm @AgedMaduro, thanks for writing this up. My kids sometimes recommend that I become a realtor, because ... kids.

I will show them this thread the next time they bring it up. :beer
You're very wecome. I have actually been thinking about writing a book on the horrors of the real estate industry. The supportive comments on this forum are nudging me in that direction.
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Aged Maduro
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Aged Maduro »

jfn111 wrote: Mon Dec 21, 2020 2:40 pm I enjoy being a RE Agent but I've never had to do it for a living. I got my license after I retired from Mega Corp and started slowly with a small brokerage. I had a few sales my first 2 years and was starting to think that this is an expensive hobby with all the fees and little income coming in. Then I met the "machine".
My now business partner is a listing machine. She had a strong background in insurance sales and non profit work when she became an agent. She started strong and as always maintained a mid 6 figure income. I had happened to represent buyers for 2 of her listings and mentioned to her that if she was looking for an old fat buyer's rep., I'm her guy.
We are in our 4th year together and I am still having fun. I'm averaging about 24 sales a year and enjoying making some extra cash that I can spend helping the kids and grandkids without a second thought.
I am glad that you found a situation that is working for you.
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TomatoTomahto
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Re: Pros and Cons of becoming a Real Estate Agent

Post by TomatoTomahto »

Aged Maduro wrote: Mon Dec 21, 2020 3:08 pm
TomatoTomahto wrote: Mon Dec 21, 2020 1:42 pm @AgedMaduro, thanks for writing this up. My kids sometimes recommend that I become a realtor, because ... kids.

I will show them this thread the next time they bring it up. :beer
You're very wecome. I have actually been thinking about writing a book on the horrors of the real estate industry. The supportive comments on this forum are nudging me in that direction.
Please do it. You write well and clearly. Amazon makes it easy to self-publish and they’re not greedy in taking their cut.
I get the FI part but not the RE part of FIRE.
Ernest74
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Ernest74 »

newguy123 wrote: Mon Dec 21, 2020 12:15 pm I went down that route and failed as a real estate agent after getting the license. Sold a total of 0 homes. I think certain personalities succeed in real estate, mine does not do well with real estate
I would say that is true with sales in general.
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Cobra Commander
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Cobra Commander »

Aged Maduro wrote: Mon Dec 21, 2020 8:04 am
Cobra Commander wrote: Sun Dec 20, 2020 7:28 pm Why don't more agents hang out a shingle as a broker? I don't see why they give up half their commissions for what appear to be minimal benefits from the broker.

Not sure I agree re: agents control over listing the clients see. In this day and age I would expect most clients to use the internet to access listing and then say hey I want to see that one. You could discourage it and say the house looks bad but ultimately I don't see how you can tell a buyer you won't show them a house.
Going out on your own as a broker means either investing a lot more money into marketing or buying into an established franchise (ie ReMax, Prudential, etc.) It requires more capital outlay. Many agents still send their clients lists of homes that meet their criteria through the Multi List System and they are able to filter out the ones with low commissions so their client do not recieve those listings via email.
Do you think a substantial majority of clients still use this as their primary source of information rather than browsing listings themselves now that they are readily accessible on the internet? I think you'd be hard-pressed to tell a client no on seeing a house due to the commission unless, perhaps, your representation agreement had a clause that required the buyer to pay the difference between 3% and whatever was offered as the buyer commission on MLS.

I will acknowledge a possible blind spot here as a Boglehead I may be more hands on looking at listings than the average buyer.
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jfn111
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Re: Pros and Cons of becoming a Real Estate Agent

Post by jfn111 »

Cobra Commander wrote: Mon Dec 21, 2020 3:29 pm
Aged Maduro wrote: Mon Dec 21, 2020 8:04 am
Cobra Commander wrote: Sun Dec 20, 2020 7:28 pm Why don't more agents hang out a shingle as a broker? I don't see why they give up half their commissions for what appear to be minimal benefits from the broker.

Not sure I agree re: agents control over listing the clients see. In this day and age I would expect most clients to use the internet to access listing and then say hey I want to see that one. You could discourage it and say the house looks bad but ultimately I don't see how you can tell a buyer you won't show them a house.
Going out on your own as a broker means either investing a lot more money into marketing or buying into an established franchise (ie ReMax, Prudential, etc.) It requires more capital outlay. Many agents still send their clients lists of homes that meet their criteria through the Multi List System and they are able to filter out the ones with low commissions so their client do not recieve those listings via email.
Do you think a substantial majority of clients still use this as their primary source of information rather than browsing listings themselves now that they are readily accessible on the internet? I think you'd be hard-pressed to tell a client no on seeing a house due to the commission unless, perhaps, your representation agreement had a clause that required the buyer to pay the difference between 3% and whatever was offered as the buyer commission on MLS.

I will acknowledge a possible blind spot here as a Boglehead I may be more hands on looking at listings than the average buyer.
I setup searches for my buyers but they inevitable also use Zillow and other property searches. Even if there was a way to block out low commission listings the clients would find them on their own.
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Aged Maduro
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Aged Maduro »

Cobra Commander wrote: Mon Dec 21, 2020 3:29 pm
Aged Maduro wrote: Mon Dec 21, 2020 8:04 am
Cobra Commander wrote: Sun Dec 20, 2020 7:28 pm Why don't more agents hang out a shingle as a broker? I don't see why they give up half their commissions for what appear to be minimal benefits from the broker.

Not sure I agree re: agents control over listing the clients see. In this day and age I would expect most clients to use the internet to access listing and then say hey I want to see that one. You could discourage it and say the house looks bad but ultimately I don't see how you can tell a buyer you won't show them a house.
Going out on your own as a broker means either investing a lot more money into marketing or buying into an established franchise (ie ReMax, Prudential, etc.) It requires more capital outlay. Many agents still send their clients lists of homes that meet their criteria through the Multi List System and they are able to filter out the ones with low commissions so their client do not recieve those listings via email.
Do you think a substantial majority of clients still use this as their primary source of information rather than browsing listings themselves now that they are readily accessible on the internet? I think you'd be hard-pressed to tell a client no on seeing a house due to the commission unless, perhaps, your representation agreement had a clause that required the buyer to pay the difference between 3% and whatever was offered as the buyer commission on MLS.

I will acknowledge a possible blind spot here as a Boglehead I may be more hands on looking at listings than the average buyer.
When an agent enters into a buyer's rep agreement with the client, they sign them up to recieve the listings that meet their criteria via email through the Multi-List where they can screen out certain features. As you point out, these days many homebuyers will also go on Zillow or Realtor.com to look at listings themselves. Realtors usually do not like this because it adds to the hassle and confusion of the process but will still show them those homes as long as they have a rep agreement with a minimum fee set. Realtors like showing homes that are listed because they know they are going to get paid and won't have to jump through all the hoops of working with a For Sale by Owner. As pointed out, it is getting harder and harder for Realtors to hide info from their clients.
pizzy
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Re: Pros and Cons of becoming a Real Estate Agent

Post by pizzy »

Has it ever crossed your mind that maybe you just weren't good at it?
confusedinvestor
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Re: Pros and Cons of becoming a Real Estate Agent

Post by confusedinvestor »

Hi OP,
How much is the avg yearly expense to keep my RE license and be established with a broker/agency, if I make zero sales ?

I wanted to become a RE agent as a hobby after I retire at 55 from my current job as IT/Cloud engineer, as I "think" I'm good in sales and always like the people aspect of RE.

This post concerns me as I maybe day-dreaming of a RE post-retire hobby (I wouldn't obviously need any income from my commissions....)

ps: I'm in CA
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Aged Maduro
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Aged Maduro »

confusedinvestor wrote: Wed Dec 23, 2020 3:19 am Hi OP,
How much is the avg yearly expense to keep my RE license and be established with a broker/agency, if I make zero sales ?

I wanted to become a RE agent as a hobby after I retire at 55 from my current job as IT/Cloud engineer, as I "think" I'm good in sales and always like the people aspect of RE.

This post concerns me as I maybe day-dreaming of a RE post-retire hobby (I wouldn't obviously need any income from my commissions....)

ps: I'm in CA
You're probably looking at a minimum of $2,500 a year in dues and fees just to keep your license active at a brokerage. This includes NAR dues, state association dues, MLS dues, lock boxes and keys, continuing ed, E & O Insurance and agency fees. They will also try to get you take expensive sales courses on your own dime from which the agency typically gets a kickback. You will also have to add in gas and wear and tear on your vehicle once you start driving around clients. Incidental marketing fees for copies, post cards, signs and internet subcriptions also accumulate once you start taking on clients. So, more like a minimum baseline overhead of $10,000 a year if you are going to do it full time. If you don't need the money then selling real estate can be a fun and rewarding career. Many doctor's wives and retirees take this approach.
averagelonghorn
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Re: Pros and Cons of becoming a Real Estate Agent

Post by averagelonghorn »

confusedinvestor wrote: Wed Dec 23, 2020 3:19 am Hi OP,
How much is the avg yearly expense to keep my RE license and be established with a broker/agency, if I make zero sales ?

I wanted to become a RE agent as a hobby after I retire at 55 from my current job as IT/Cloud engineer, as I "think" I'm good in sales and always like the people aspect of RE.

This post concerns me as I maybe day-dreaming of a RE post-retire hobby (I wouldn't obviously need any income from my commissions....)

ps: I'm in CA
My baseline costs are about $1900 before I make a single commission.
Most of that ($1416 in 2020) is in membership dues to my local board of Realtors and MLS fees. Then $300 annually to my broker, then every other year a couple hundred in Continuing Ed classes and license fees to the state (TX in my case.)

Of course after that, there's plenty of opportunity to spend more on lead generation, marketing efforts, etc.... most of that money is not necessarily well spent.

Getting set up initially will also cost for the initial classes, initial licensing, etc. Plan on something like 1k for that, but there probably is some competition in the classes so might be able to better than that.

So yea, doing it as a hobby - post retirement job is doable, but if you really do 0 transactions, it will cost you a bit, probably cheaper than fishing or golf :happy .
nick evets
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Re: Pros and Cons of becoming a Real Estate Agent

Post by nick evets »

wordsmith11 wrote: Sun Dec 20, 2020 2:44 pm Super informative. Thank you! I wonder if car sales is similar...
I doubt the industry has changed much since I sold cars (many, many years ago) so I'd say it's similar but worse. :)

1) There are no requirements nor licensing - basically a dealership gives you something to sell, and a place to do it.
2) If you don't pay for yourself (and the dealership/owner has to pay minimum wage for hours worked not covered by your commissions...you'll only last a month or two).
3) The stigma is horrible.
4) The hours are horrible.

That said, a couple salesmen were professionals, and didn't hang around in the pack waiting for 'ups,' but worked diligently, networked, followed-up, and made a decent living; especially those that were promoted to either F&I or sales manager, albeit with even more hours and pressure.

<edit - apologies for side post>
Tavistock1
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Tavistock1 »

Full time Realtor here for a number of years. I read most of this thread and would caution those seeking part time work to tread very carefully. Laws, regulations, practices change frequently. Agents need to be informed and involved (difficult for part time). Realtors, at least in my state, are fiduciaires. Understanding that you’ll be dealing with, in many cases, what may be a clients most expensive purchase or sale ( as in ever), without a thorough knowledge of the market, which goes beyond simple statistics you cite , the property in question ( condition, relative location to both the neighborhood and surrounding area and how these factors might affect both livability and, just as importantly, what I call « future equity «  (= regardless of market swings, will this property fare better or worse than like properties over time) , you could potentially undermine the future of your clients - and as dire as that sounds, it’s true, and I see it frequently. On the flip side, if you’re willing to dig in and go for it, by all means, jump in the pool. Aside from the occasional vacation and a kids activity I worked an average of 6.5 days/week for the last 20 years, and have for the most part found it quite gratifying . Finally, are there part time realtors operating who get paid on occasion. Sure- but if one of my kids is either selling or buying a home ( they live far from us) , I’d strongly urge them ( and I mean strongly) to find another realtor.
Wanderingwheelz
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Re: Pros and Cons of becoming a Real Estate Agent

Post by Wanderingwheelz »

averagedude wrote: Sun Dec 20, 2020 11:39 pm In my opinion, Real Estate agents that have been in this industry for 30 plus years, have done well. How could you not if you are highly motivated, hard working, and have done a good job of building a huge network after 3 decades of working in this industry. It can be tough for new salespeople and many don't last, but the longer you are in this industry, the easier it becomes. I do question the future of this industry, as I believe that emerging companies using newer technology will disrupt the 6% commission business model. This may be a controversial statement, but this is way past overdue. If I was young and looking at careers today, I would probably look to other fields of study.
Technology is removing the money humans can earn from just about every endeavor.

Car sales were mentioned earlier in this thread, and that’s a good example. Without the law protecting them, traditional new car dealerships would be completely gone by now.
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