It is with some trepidation that I share some insider information with you about how to become a Realtor and factors you should consider before taking the plunge! There is a lot of secrecy in the real estate world. Maybe not as much as in the world of magic, but enough that it is hard to know what you are getting into before you get into it! I’ve broken this up into the good and the bad because there is certainly an opportunity for both!
The Good!
1. The cost to enter the profession is much less than most professions. It only takes a 40-hour class that costs roughly $300 and a passing score on a somewhat challenging test that costs roughly $76. to become a Realtor. You can take the class in-person or online. Like any class, in-person is probably better than online. Check out the State of Michigan’s real estate licensing website for additional information.
2. Brokers (Five Star Real Estate, Real Estate One, etc.) want you! The only time I’ve ever been really recruited for a job was to become a Realtor. That felt nice. Keep in mind, they make money off of you rather than you making money from them so that is why they want you! You will have plenty of options to consider if you reach out to brokers to let them know you are interested. It is a good idea to talk to several brokers to see how they operate to decide if you are a good fit. But most importantly, compare fees. For the most part, you are doing all the work and who you work for doesn’t matter as much as it does in most industries. That is especially true after your first year or so once you learn the ropes.
3. Checks can be big. You might not get paid on a regular schedule, but when you do get paid the checks are probably bigger than you are used to. Most Realtor fees for one of the two sides (selling is a “side” and buying is a “side) of the transaction are 2 to 3.5%. Typically, the higher the price of the listing the lower the fee. Though some Realtors charge a set fee. All rates are negotiable as it is against the law for Realtors to work together to set standard fees.
4. Real estate is interesting! You learn a lot about houses and the real estate market and you might be able to use that for other means (to flip a house, help a friend with some advice, etc.).
5. You can work from home. I average stopping into the office about once every month or two. Most brokers have common space you can use for free. If you want your own office you will pay for that and it isn’t very cheap. Some brokers might require “floor time” meaning you have to hang out in the office for a certain amount of time each week or month. You’ll want to ask about that when you meet brokers.
The Bad!
1. Fees, Fees, Fees! When you sell a property 30-50% (depending on your agreement) will go to broker fees until you top out at paying them. This is known as hitting your “cap.” Caps vary, but somewhere in the $7-10,000 range is likely. Also, expect to pay about $2,500 in Realtor fees every year even if you don’t sell a single property. You will be charged about $150-200 per month for fees by your broker (membership fee/technology and a monthly MLS fee passed onto you) plus a yearly MLS fee of around $700 to be a “member” of the local Realtor association so that you can access the Multiple Listing Service (MLS). The MLS has the same information that you can find on Realtor.com and Zillow, but also additional information like selling disclosures (often required by law), Realtor notes, and commission amounts. Having access to the MLS and legal coverage are probably the most valuable benefits a Realtor receives from all their fees.
2. This is a 100% commission business. There is no base pay or benefits. Brokers are likely to give you a few freebies to start out, but almost all expenses are out of pocket (signs, marketing, gas, etc.) You can write stuff off thankfully, so that will lower the tax amount that you will owe on income. Yea, don’t forget about taxes! If you start selling a lot, be sure to get help on how to lower your tax liability. I learned this one the hard way!
3. People want to cut out Realtors whenever they can! One summer I was cut out of 3 listings after I had met with the sellers and they had chosen me as their Realtor, but had not signed, only to find out that another party had offered to buy their house before they signed an agreement.
4. Some people expect you to be available and sometimes right away. If you are away for the weekend and they want to see a house you will need to pay out of pocket for a fellow Realtor to show it or you might lose a client or lose out on a house for a client.
5. Even if you find a house that exceeds your buyer’s expectations, they might not buy it. I’ve had this happen a few times now. When it comes to actually putting down the money, some people just can’t pull the trigger or will find some trivial reasons not to buy it. You will spend a lot of time with buyers who will not buy anything for one reason or another and you won’t make any money, but you will have spent money to help them. That is why most people say getting listings is the key to making it in real estate. The phrase is “you gotta list to last.”
6. Deals fall through! Buyers pull out of deals (usually after inspections which is usually allowed), and sellers sometimes get cold feet and pull out of deals as well.
7. Things move slowly. Unless it is a cash deal that can close in about two weeks, deals take 4-8 weeks to close. After a deal is signed, typically there is an inspection period (often 7-10 days), then an appraisal by the bank (2-4 weeks), and then all the banking finalization before you are “clear to close” and schedule a closing with a title company. Once you close, it usually takes another couple days before you get paid. In most cases, it takes 4-6 weeks to get paid once a deal gets signed.
8. You’re working with the public. You need to have thick skin because some people are just plain rude. Also, even people you might be close with, whom you have helped or given your business to, may not pick you as their Realtor. When large sums of money are on the line, people’s behavior is even harder than normal to predict. You have to be able to shrug off disappointment to not let the job effect your happiness or negatively impact your existing relationships.
9. There are no benefits. You are self-employed.
Because of all this, statistics show the majority of Realtors don’t make it very long. I’ve seen different numbers but around 85% don’t make it five years. It is said that 10% of the Realtors do 90% of the work. That might be a little high, but we get to see other Realtor’s commissions if we are on the same MLS. I’ve noticed only a small number are doing exceptionally well.
Something else to ponder.
Here are a few things I’ve noticed for successful agents. They are really good at one or more of these.
- Working their network: People who have a big network of friends and family that they can tap into can be successful. Most of the deals you do will be with people you know, or referred by a person you know. Sometimes it takes time even for people you know to trust you know what you are doing.
- Longevity: If they have been in the game for a while people will more likely recognize their name and they also have an opportunity for repeat business.
- Particular Skill- Ability to use your own skills to use technology or gain some other advantage that levels the playing field a bit for those who are better at #1 or #2. For instance, understanding how to do digital marketing.