The broker. If you’re a real estate agent, you’re probably reading this with seriously mixed feelings. Here you are, working like a madman to make a living or earn an extra buck, and as soon as some hard earned cash comes your way, you have to part with it (or at least a piece of it). A big chunk of your cake is what I’m saying. But that broker does offer some advantages, right?
Well, hopefully. Read on.
See, while brokers seem to offer plenty of advantages to young real estate agents, more often than not, they’re the ones getting all the advantages from their agents. In the end, the agents are lured in by a good brand presence, and many other traps they didn’t think existed catch up with them later. It soon becomes a downward spiral and a top reason why so many do not continue their work as real estate agents. But do real estate brokers really give nothing and take advantage, or is there a bigger picture that agents need to look at while choosing the brokerage house to work for? Let’s weigh the pros and cons.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
There are many stories out there of how real estate agents were duped out of their earnings because they associated with the wrong brokerage firms. Today, there are many brokerage firms that take in young, ambitious agents and make them do all the hard work under the umbrella of their often very well known brand name.
While they may offer good exposure, the agents often ends up doing the hard work for very low pay while never even coming close to receiving the exposure that was promised. This can bring down the morale of the agent who just started out in the market.
There also isn’t much money to make when young agents associate themselves with well known brokerage firms. As you know, an agent’s pay comes from the commission they receive when a property is sold. So, while they receive a commission after a property goes into settlement, association with a brokerage firm changes the figures drastically. They now have to split the commission that would have been theirs entirely had they been able to make the deal on their own.
These splits are usually unfair to the agents, who have very little say when it comes to commission splits at brokerage houses. This is especially true when the agent isn’t getting much value from broker. That’s a bitter pill to swallow.
Not Many Leads
Despite a high commission split, leads at big real estate brokerage firms are hard to come by, especially the good ones. That’s because a large team of agents is already in place and they all have their eyes on the next big deal. Also competing with the new real estate agents is a team of experienced and mature agents who will get a big piece of the big deals.
So keep in mind that despite being associated with a top brokerage firm, you could still be getting the low end deals. And you know what? The whole two hour allotted timeframe to answer the phone with the hopes of picking up a seller lead is complete BS in my opinion.
Besides the commission split, which is often pathetically low, agents are often also subject to high fees from brokerage houses. The inexperienced agents are hit with a range of other fees, such as office space fees, internet charges, paper fees, advertising fees, transaction fees, course fees, training fees, toiler paper fees (that’s a joke), and many others.
Some even end up as administrative assistants or doing nothing else than bringing in leads. A large number of brokerage firms even work with a flat fee that is “supposed” to cover fees for all services offered.
While the commission structure for real estate agents is unfair, associating with big real estate brokers — or rather brokerage firms — is not entirely a bad idea. Working with a big brokerage firm has a good side to it as well, and that’s the reason why many young agents would love to work with some brokerage firms.
Brokerage houses have usually been around for years. They often come from agents with a lot of experience in the field who were able to really make a name for themselves. Their strong presence has been established over all that time, and their brand often enjoys a decent reputation and great brand recall among the people who live in the area. This is a great plus for inexperienced and beginning agents who can form their network with less effort.
As these firms have been in the market for a long time and are comprised of teams of people, they have often created huge networks within their value chain. So while the brand name gets them more business, the network helps them identify, buy, and sell homes easily and with less effort. Deals that would have been otherwise impossible for new agents to pull off are suddenly attainable with a network like this.
While the real world out there is the best training ground, brokerage houses are places where you can easily find experienced mentors. The learning curve is a lot flatter with these people around you. They often bring some invaluable insights to the table. What you learn at a brokerage firm with good reputation can shape your career up ahead. All you have to do is listen and keep an open mind.
So What Should a Real Estate Agent Do?
Given the pros and cons of associating yourself with brokerage houses, one can conclude that despite the low commissions and high fee structures of brokerage houses, there are some very clear advantages. Their experience and brand name can really be a stepping stone for the career of young real estate agents. So while it is a great idea to associate with a brokerage firm, you need to choose the one you work for with care. But I do have some suggestions for those starting out in real estate.
Know what you want.
Real estate agents need to decide on what they want from the brokerage firm. Do they want the network or would they rather keep a higher commission split? Would they like to be trained there? Usually, the more a real estate agent expects from a brokerage house, the lower his/her commission will be. So decide on what you want, and then set your expectations. Also, choose the brokerage house selling the highest number of properties in your area of interest because that’s where the highest number of deals will be.
Look at your deal.
Keeping in mind what you expect from the deal can go a long way in helping you make the right choice. So, a brokerage firm that provides training to young realtors may actually charge you more. This is because they are also charging you fees for the training they offer. Alternatively, the lower the amount of training a firm provides, the larger would be your commission as well. Additional services provided by the brokerage firm would also cut into your commissions. So decide on what you require in the deal.
Expect the split of the commission to feel unfair.
The standing of the brokerage firm and their network is what got the deal in the first place. And because you have to depend on these factors, the split is going to be uneven. However, having said that, don’t agree to commissions that are too low. You’ll lose your motivation, and after all, you’re supposed to have fun doing this as well.
Opt for transparency.
Opt for a brokerage house that plays open cards regarding their fee structures and commission splits. Look for information on what to expect when you really associate with them. Work with a firm that spells out the percentage of commission that you as a real estate agent will get, regardless of who makes the purchase. Make sure that there are no hidden costs involved. It needs to be clean and easy to understand. And only when you’re sure about the deal, go for it.
Know there are alternatives.
If you’re an independent worker and have the grit to make things happen, there are brokerage firms that follow a monthly fee structure instead. That means you won’t be paying a percentage of your sales. Instead, you’re keeping all of it. That’s right, 100% of the commissions would be yours to keep. It’s not for everyone, though. If you’re that kind of person who really needs a framework to function well, you’re probably better with a different structure. Just keep in mind that it comes at a cost.
Real estate brokers can be extremely valuable resources, and though it isn’t always easy to find a good brokerage firm, young agents should spend time and check with their network to identify a good firm to join. Good brokerage firms are well versed with the neighborhood, know about listings more than locals, and are familiar with what it takes to get a good deal. They have a good network along the value chain as well, know how to identify the genuine buyers and sellers from the list, and also know what to pick from the internet and what to ignore.
It also goes without saying that young real estate agents will learn faster when associated with experienced real estate brokers. However, well versed as they may be, they can also be an agent’s nightmare by giving them low commissions and charging ridiculous fees while making them do the all the work. The solution lies in choosing a brokerage firm that provides what an agent is looking for.
Real estate agents: What’s your experience in working at a brokerage? Would you add anything to this list?
Let me know with a comment!