Behind the scenes: realtors and their business model
Sales people aren’t usually liked; many people avoid them (us) like the plague. At the same time, it’s not easy to do your job as a sales person – when members of the public are holding such a stand-offish view of us.
It's unfortunate that sales people have a rather negative reputation. This will slowly improve as the level of professionalism improves over time.
At the same time, the “commission only” world of sales people is quite harsh. As most people know, we only get paid if and when the sale goes through. Other than that, all our efforts are “freebies” in the hopes of making a sale (later).
Even if we make sale, it’s only when a sale actually closes that we get paid. This occurs when everybody else has been paid: the seller, lawyers, banks, taxes, strata fees and whatever other costs and expenses may have been sticking to the property. Sometimes a sale falls before closing. You guessed it: that would mean we don’t get paid a penny.
What makes a good sales person? One that listens carefully and knows when to ask the right questions, perhaps? The old "gift of the gab" may be less important these days.
LESS SALES PEOPLE NOW
Only two years ago, there were about 160 real estate sales people on the Lower Sunshine Coast. These days, the number hovers around 130, trending down. Why this decline?
Why is it that a lot of real estate agents have been getting out of the business? Could it simply be because there were (are) too many in the first place?
Business attire on the Sunshine Coast doesn't usually include a dark suit'n tie and posh black dress shoes. Things are so relaxed on the Sunshine Coast!
AN EASY BUSINESS TO GET IN TO
Although it takes many years of study to become a lawyer or accountant and even more to become a doctor, to get into real estate you just take a course and exam. Not even high school graduation is a prerequisite.
Real estate is easy to get in to – that must be why there are a whopping 10,000 real estate sales people in our board (Vancouver area). It’s also quite easy to get out of – and that’s why there are so many people who “used to be in real estate”.
Even in the easiest (smoothest) real estate transactions, things can somethings go off the rails. It takes experience to put matters back together again.
A BUSINESS THAT’S NOT SO EASY TO BE IN
Real Estate is also a field in which one may easily misjudge one’s future. Each year many individuals expend time, effort and money to enter the real estate vocation only to discover that they are unsuited to the work.
Generally speaking, an outgoing and “happy” personality will be more fitting to the business than a reserved and too-scholarly type. To have many friends and acquaintances helps tremendously since many clients will want to do business with somebody they know and trust. As they say, it’s not what you know, it’s WHO you know.
If you've been convicted of fraud, counterfeiting, money laundering, theft or embezzlement, you should probably not be welcome in the profession of real estate.
TO BE OF GOOD REPUTATION
The Real Estate Services Act requires that applicants for a licence shall be of good reputation. Following application for a licence to the Real Estate Council, the applicant is investigated. (The Real Estate Council is the licensing and regulatory agency established by the provincial government to administer the Real Estate Services Act.) General business and personal reputation are reviewed along with criminal convictions and charges, which must be disclosed, including any where conditional or absolute discharges were granted. Current policy is that these are not necessarily a bar to registration, depending on circumstances.
The assumption remains (with most people) that real estate agents make buckets of money with great ease. This image in incongruent with reality.
GET RICH QUICK IN REAL ESTATE?
Many people believe that working “in real estate” will lead to a huge and easily-achieved income. Typically, your compensation structure is commission based, it means that that you will have (little or) no guarantee of income level. Still, you need Thousands just to get licensed, possibly tens of Thousands to get established. Making a commitment to a career in real estate also includes a number of financial considerations. Licensing course fees, annual licensing fees and a number of business related expenses (cell phone, vehicle, office, computer, etc.) are just a few of the expenses that need to be considered. In Canada, the average annual income of real estate sales people is well below $20,000 and has been like that for decades.
What's the difference between a realtor, a real estate broker, a real estate agent and a real estate sales person? Many pros will even find this a tough question.
WHAT IS A REAL ESTATE BROKERAGE?
In order to obtain a real estate licence in BC, you take the course, pass the exam and arrange to be “engaged” by a real estate brokerage. You cannot hang out your own shingle and just be on your own.
Generally speaking, brokerages work with “splits”. A percentage of the gross income generated goes to that individual agent. Usually, the greater that percentage, the smaller the free services provided by the brokerage. Some brokerages even charge for envelopes and photo copies! Others have desk fees or monthly fees.
Generally speaking, the numbers of real estate agents in business goes up and down with the activity in the local real estate market.
DECLINING NUMBERS OF REAL ESTATE AGENTS
“When the going gets tough, the tough get going” is not a saying that will apply to all real estate sales professionals. Instead, many will choose a gracious way out of the business – which might actually also be the smart way since there is only so much business.
How much business is there then? According to the MLS information, we achieve about 50 property sales each month on the Sunshine Coast. Obviously, if that number is split amongst a larger sales force, everybody will do less business. In that sense, the industry regulates its own membership. When more people come in, the general income level will go down. This will lead to people leaving the industry and the average income level will go up again.
Real estate has always been and will always be a numbers game. The more spaghetti you throw against the wall, the greater the chance that some will stick.
It's great fun to read more about real estate and the real estate business. Below are some links to further blog articles that may interest you.
MORE READING about what goes on in the real estate business is available here. It can be interesting stuff, even if you’re not planning to become a real estate sales professional!
How to deal with “bidding wars”: http://www.mennorealty.ca/Blog.php/biddingwar
The intricacies of the mortgage market: http://www.mennorealty.ca/Blog.php/upsoon
Population growth on the Sunshine Coast: http://www.mennorealty.ca/Blog.php/toofast
Planning issues: http://www.mennorealty.ca/Blog.php/planning