The Real Poop
You own nothing. You are just the lubricant, the WD-40 at war with friction in buying. Nervous buyers; frustrated sellers. Banks loathe lending money. In the end, you hold a lot of hands—and get handsomely paid for the pleasure.
"Let me show you the dining room. You're going to love the space. Imagine Thanksgiving dinners here. Luxury. Ahhh, the ambiance,” Mort Gage says to his clients as he ushers them through the inlaid panels from Brazil. Many rare trees died for this dining room.
"I'm a little concerned about the house not having a roof," Mr. Klient says to his wife.
"Easy fix. A few carpenters, some hammers, and nails and you're all buttoned up."
A big commish was on the line—Mort knew how to sell.
And real estate brokers can sell ice to an Eskimo. Well, good ones can. And in this cut-throat business, only the good survive. The rest get eaten.
Real Estate brokers are savvy, personable, and professional people who own a lot of suits and drive nice (tax deductible) cars. Real estate brokers differ from agents. While brokers perform many of the duties of agents (help clients buy, sell, or rent properties), they have a broker's license that allows them to operate their own real estate business. Real estate businesses help agents with their branding, advertising, and transactions. Likewise, brokers can appraise properties and manage real estate agents. So what are the benefits to being a broker?
Conversely, an agent just sells for a commission—that is, the brokerage employs the agent and in most of the world, realtors wear both hats.
Once a real estate agent, always a real estate agent. If you become a broker, you get to manage your own company and make more money, because you have sales agents selling property. Brokers make their money by taking a commission from whatever property was sold, bought, or rented, or earning a percentage of an agent's commission. Commissions vary based on the price of the property. Most commissions these days are 5% to 6% percent. And going down—the Internet has made house shopping dramatically easier from what it was in 1990.
That commission is then split between buyer's agent and seller's agent. The "average" real estate broker makes around $55k dollars a year. But obviously the good ones make vastly more dough than that, and there are many who, in lean times, go a full year or more with NO sales => no commissions => no money. Hence the average being low. In boom times, real estate agents make serious bank—they just have to know how to put nuts away for long winters that inevitably come when the market is tight and nothing is selling.
How does the process work?
First, a seller decides they want sell their home. Then they contract a "listing broker." The broker writes a contract or listing agreement that states the agreed upon set fee (commission rate) for the sale. In exchange, the broker markets and sells the property (on their own nickel—that is, they buy their own media, etc.). The broker uploads the listing data to the MLS (Multiple Listings Service) and contacts other brokerage companies or "buyer brokers" working with buyers.
Usually, there’s a pre-open open house just for realtors where really awesome lox and bagels are served.
If a "buyer broker" finds someone who wants to buy the property, the "listing broker" splits the commission with the "buyer broker." Generally, both brokers get a 3% commission, more or less.
A broker's take home money depends to some extent on whether houses are selling like hot cakes. The process is, however, laden with friction. That is, when the market is hot, people get their real estate license and the field is flooded with agents, which limits how many properties a broker or agent can sell. Additionally, inventory dries up and there simply aren’t homes available to meet demand. Conversely, when the market is cold, there are fewer people to compete with so a broker can sell more houses even if it’s more difficult. Realtors like a balanced market in one form or another.
So how difficult is it to sell a house?
Generally speaking, it’s really difficult your first year in the real estate biz. Actually, it takes about a year for real estate agents to get clients from referrals from former clients. To be a broker, you need to earn a broker's license. Licensing requirements differ from state to state. Typically, you need to be at least 18, complete a certain number of hours of real estate courses, have one to three years of experience as a real estate agent and pass an exam. If you get a license in California, it will not transfer to Pennsylvania. Those who move must contact their state's real estate licensing commission to find out if their broker's license is valid in the state.
And in most states, if you're a licensed lawyer, you are automatically qualified to sell a home as long as you are attached to a licensed brokerage. That is, the law degree "exempted" you from your real estate agent's exam.
The job outlook for real estate brokers is decent. The field should continue to grow in volume—but commissions should shrink. And think about it: If you're selling a home for $400,000, do you really need to pay 5% or $20,000 to a broker who will likely spend 50 quality hours selling it? Is their time really worth $400 an hour? With the Internet, price pressures on their once-usurious commissions should bring the spreads down.
If you like working for yourself, love the roller coaster ride of the real estate market, enjoy working with people, and own a lot of suits, the life of a real estate broker may be for you.