The Real Estate Dilemma: Feast or Famine

Feast or famine is the name of the game for anyone involved with the real estate business. Whether or not you are a loan officer, real estate agent, investor, appraiser, title officer, well, you get the picture. Here are some things I’ve learned over my 5 years in the real estate business.

During the droughts you have to believe you will have another transaction. Or you won’t.

During the good times you have to believe you will have a drought. Or you will be unprepared.

Save your money!!! Save your money but reward yourself. This business can be extremely draining both physically and emotionally. It can’t be all nose to the grindstone.

Never mail your bills till the check is in hand. Just trust me on this. For you loan guys, it can be until 3 days after the check is in hand.

Don’t forget the family. Or you won’t have one when you remember. Same goes with friends.

Remember why you chose this business. Yes, it has great income. But I’m not sure it’s worth it based solely on the money.

And isn’t it a funny thing? The market is supposedly down nationwide. Yet here in Olathe, Kansas our Keller Williams office has had a fantastic summer. For me? My business is up. Not astronomically. But up. Now if you think I’m bragging you need to know that when others are saying their business is great and yours isn’t, well, that’s just about the worst feeling on earth. I’ve been there, too.

Your thoughts on this are more than welcome.

Becoming a Real Estate Agent

You can become a real estate agent in most any state if you are not a wanted felon and if you can sit through a week or two's worth of classes. But I have a question for you;

Are you capable of putting the interest of your client ahead of your best interests?

Seriously. I've heard agents say things like "I need the commission check" or "I have to make this go through no matter what" or even worse "If I don't' know about it...it's okay." The last is usually a precursor to allowing mortgage fraud to happen.

This is a humbling business. There are times when I'm on top of the world. Earn $23,400 in one month and you'll think you have things going. Earn $0 in the next two months and you'll come crashing right back down to earth.

But here is the deal. It really isn't important how much you make. At least to the client. They have hired you to make sure they get the best deal possible whether buying or selling. They depend on you to advise them. And sometimes the best advice I can give is to not sell. To not buy. To not move forward. To cancel the contract. To walk away.

You can be sure it hurts to do it. The thoughts of my own well-being race through my head, too. But, and here is where personal ethics and will-power come in, the right thing to do is the right thing to do.

I always ask myself "How would I want to handle it if it were me?" The answer always becomes clear that way.

Real Life Story!

I've written here before that you need to be careful how you spend you money as a real estate agent. Want an example?

I had 4 sides scheduled to close by March 30. (A side is a transaction. For instance, if I represent the buyer, that's one side. Both the buyer and seller, that's two sides.) Now I only have 1 side!

Two sides fell out because of extensive, and I mean extensive termite damage. Worst I've ever seen. The buyer went running and frankly he should have. The seller still hasn't adjusted to the situation even though I have been adamant as to what he should do. (Clients don't always listen or hear only what they want to hear.)

Another side fell out because the chimney needs rebuilding! Rebuilding! How often does that happen? (It may still be saved. But with each passing hour I'm sure the seller is thinking of just renting the property.)

So, now you see why you must be liquid and flexible in your funds as a real estate agent. We have the potential to make a lot of money. But we work very hard, work with many different personalities and are on the phone even when we don't want to be. It's all part of the profession.

And you can never forget when working with your clients that you are working for their benefit...not yours.

How Much Will I Make?

MYTH: All real estate agents make $150,000 a year, drive luxury SUVs and vacation three times per year.

Let's get a few things figured out here since you are considering a career in real estate sales. First, there are too many REALTORs as it is. Second it takes hard work, odd hours at times and you have to learn how to work with three year olds in 40 year old bodies. (Calm down, I'm not saying everyone acts like a three year old...but it does come up!)

Still undaunted? Good. You CAN make it. Here is how traditional real estate companies divide up your earnings;

Let's say your first couple of transactions are with buyers and you co-op on your first two transactions with another firm, which is really quite common. The sales incentive offered by the listing agent/seller is 3.0% of the sales price on a $175,000 house. Your commission received at closing is $5,250 to take back to your broker. (It'll probably be mailed/couriered if in KC area.) The traditional broker offers a 50% split to the agent so the agent receives $2,625 for the work he/she has done.

But wait, that is your full compensation for your time, expertise and expenses such as a mobile phone, gas, car washes, sign riders, E&O insurance, eating out and the like. With a traditional broker you will probably not incur the following expenses because they will take care of them for you...data entry, business cards, sign, and office space.

Now let us say you work for a more real estate agent friendly brokerage firm that offers little different compensation package. Same scenario as above, but now your split is 64% after the brokerage split and franchise fees. You walk away with $3,360. That's a difference of $735! Now you need to also take into account that in this scenario YOU will be responsible for your business cards, signs, data entry, web site management and office space in addition to the other expenses you are already responsible for. For the beginning agent these will probably add up to an additional $1,500 in the first year. (Email me if you would like a breakdown.)

So you see that in the second brokerage you would need to do at least two transactions a year to break even with the first brokerage. But how much money do you need to make. (You can probably expect to not make much the first 3-4 months! while you get started.) Well, let's figure it out!

Let's say you want to replace your job income and you make $50,000 a year. Your company currently pays your health insurance (about a $300/mo value at your self-employed cost) and pays you for a two week vacation. Let's value the vacation time at $1,925 for perc pay. Now as a self employed person you will be responsible for the full value of your social security taxes (were you aware your employer was paying half?) but that should be more than offset by all the tax deductions you will now be able to take advantage of! (See your tax professional.)

Add it up. $50,000 (salary) + $3,600 (health insurance) + $1,925 (vacation) = $55,525 will be needed to "replace" your current situation. How many transactions is that? Again, do some math. If your average house sale is $175,000 (not too hard around the metro Kansas City area) and your average commission paid is 3.0% (can be more or less, no set amount) and your split is 64% you will be paid (as in our example above) $3,360. $55,525 / $3,360 = 16.5 transactions. Let's get crazy and say you should average 1.5 transactions per month to replace your income.

By plugging into your brokerage's training programs, being willing to work and unafraid to talk to people you should be able to meet that goal. But there it is. Examine it and let me know what you think!

Don't Mail Those Bills!

Here is something you are going to want to consider before taking the plunge into a real estate career. Do you have enough money to last until after your first close? That could be 30, 60, 90, 120, 150 or even 180 days away! Now it doesn't have to be. I received my first commission check after only 50 days in the business. True, I worked my but off, created a little luck and gave thanks to the man above! I had kids to feed and bills to pay....

Shortly after turning in my first contract my broker, the wise Randy Lindemuth, looked at me seriously and said "Don't mail your bills until I have given you your check."

Don't mail my bills? What did he mean?

If you have never been self-employed you'll quickly find out. Closings slip. They get delayed a day, or two. Heck, I had one that floundered around in an "undead" state for thirty-two days past the contractual closing date before we got that sucker put to rest. Most closings go off without a hitch. But even with proper planning, good communication and due diligence a closing can slip back or fall apart altogether without any fault of your own.

One time I had a closing at 11:00 am that same day. A call came in from the buyer's agent at 9:30 that day saying the closing was off. "Why?" was my only response. It seems the buyer had gone into work that morning and his employer had transferred him to Florida. "But I have a home closing later today" the man responded. And his employer said that they would refund his soon to be lost deposit and he could move to Florida and have a job or he could stay here and be unemployed.

So you see, don't mail those bills until your broker hands you your check!

Why/How I Became A Real Estate Agent

Sitting in an office has never appealed to me. I tried it once for about 6 months before I quit (or was fired...depending upon who you are talking to). The job was an administrative one. I was fresh out of the University of Kansas and I had just gotten married and moved to Washington, DC. I started this career with Shannon & Luchs, a major player in the residential real estate field at the time since gobbled up by Weichert. Every day I had to come in, sit in my cubicle and look at the tens of thousands, and yes, hundreds of thousands the agents were making. Keep in mind this was 1987. I was there to make sure the agents stayed happy.

But, alas, I cannot sit still so I quickly left to take a position as a private investigator. This kind of life suited me. Different problems, different jobs, different locations...and that was all before noon! It was a great life for about nine years. But after my first son was born staying out late, or not even coming home all night, kinda lost it's appeal to me.

Having learned how to take photos of people doing things they shouldn't be doing helped to lead me into my next career. I had been doing freelance photography work for a while and it just seemed natural to do it full time. I was good. I was published in the Washington Post, Turf magazine and had literally thousands of my photos used by real estate agents all over the DC area. I had two specialties, really. My favorite was sports work with the Maryland Soccerplex and the Washington Freedom. (The Soccerplex still uses my photos to this day.) The other was upper end real estate photography. Not the photos most agents take. But photos to highlight the positives.

I did professional photography for about six years. Then Marie (my wife) and I decided to move back to our roots closer to Kansas City. Why we chose Tulsa, OK I may never know. But Tulsa it was. Tulsa is full of good people but they don't have the population or disposable income for the kind of photography I was used to doing. (And for charging to do.) So I spoke to my real estate agent's broker about becoming a REALTOR.

I interviewed him, and he me, for about two hours. I left his office full of confidence I could do it. After all, I had always been somewhat if not all the way self-employed. At the very least I was used to making decisions. I had some experience in negotiating my fees because of my self-employment. Being an investigator and photographer had conditioned me and my family to working hours that didn't fit inside the 9-5 box. Customer service was a big thing for me. Flexibility not an issue. And I was willing to learn and do whatever work was necessary to make sure I had enough money to support my family.

Home I went. I downloaded the entire Oklahoma pre-license real estate course off the Internet. Read it I did that day on through to the next evening. Three days later I was in the OREC taking my test. A week later I was in an open house.

From there, I've never looked back.

I had excellent mentorship in my early days. Randy Lindemuth of Scott Douglas Realty in Tulsa will always be a mentor to me. He helped me get started and showed me the ropes. He was available by phone at 9:00 pm when I had a question. He supported some of my hair-brained ideas on how to make it big. I'll be forever grateful to him.

TIP: New or old, find a someone in the business whom you respect and follow in their footsteps. If you'll listen, they'll show you the way.

Three years in Tulsa and much success in the real estate business was not enough to stop my return home to Kansas City. Oh, there were a lot of reasons. My mom was going through a second bout of breast cancer and my best friend still lived in Leawood. Eighteen years away and I had never stopped calling Kansas City home.

When I came up to pick out a brokerage I had experience and I knew what I was looking for. When word got out that I was moving I was recruited by three different, major companies in the Olathe,Kansas area. I interviewed and chose the Olathe office of Keller Williams Realty, Diamond Partners, Inc.

I had become familiar with Keller Williams in Tulsa. I had worked a couple of deals with their agents there and they seemed to be professional, forthright and competent. Now that may sound funny to you. But after you do your first couple of deals you'll know what a big deal that is!

There is no doubt that I am doing this blog to help recruit you to Keller Williams Realty. Especially the office in Olathe. Afterall, KW has a profit sharing plan that will help benefit me enormously (and you too if you take time to learn it) if I can help to get you started. However, even if you choose not to come to our office or any Keller Williams office it is my hope that you will find this blog to be helpful and a good resource for you in choosing this profession. And the brokerage for which you will work.

Comments are always appreciated. I look forward to speaking/texting with you over the coming years.