SonnyPage on Real Estate
He is on my board on the FOOL
Many of you know that my wife and I are realtors living and working in the north Atlanta suburbs of Roswell and Alpharetta. We work from the large mega-office of our national affiliate in Alpharetta, which now has close to 120 agents. That truly amazes me. Three years ago it was less than half that number. At any rate, my wife and I have taken the additional training over the years to obtain our brokers' licenses, which is a step up from the basic agents' license. Because of this, our managing broker has asked us to conduct a series of ongoing training classes for newer agents. Yesterday morning we held a class in our boardroom with fifteen "rookies", all brought on board this year. As we started, my wife asked each to stand up in turn, introduce themselves, and give us all a little of their background. Three of the fifteen came to us with IT backgrounds, someone else from pharmacutical sales, another the personnel manager from a large stockbroker, a couple of women trying to get jobs after their kids had gotten a little older. Really, a little of everything, both sexes and all shapes and sizes so to speak!
They are being asked to provide our managing broker with a preliminary 2005 business plan by the end of September. Part of that involves completing a net income goal worksheet; how much do they plan to make, and how do they intend to get there? I walked up to the markerboard to go through an example with them. "How much do you want to make next year?", was my question. A middle aged man up front called out, "$100,000"! Several others murmered approval, so $100,000 it would be. That is certainly still a good income, even today. You can certainly support a family on that.
The exercise runs the numbers backwards. If you want to make $100,000, what must you do to get there? First, to net $100,000, you must first pay your business expenses. Someone said make that $25,000, which is a fair estimate, so we did. Now, our agent must be paid $125,000 to keep $100,000 net. So, how much commission must he earn to be allowed to keep $125,000? Rookies at our firm keep fifthy cents on the dollar, so, divide $125,000 by .50 to get a broker gross commission of $250,000.
What dollar volume of sales are needed to gross $250,000 in commissions. Commissions vary across the country and even within markets. A commission of 6% is fairly typical, with each side, buyer's agent and listing agent, keeping 3%. So, now divide that $250,000 by .03 to get $8,333,333 in property sold. A $350,000 buyer here, a listing sold for $450,000 there, but, at year's end, $8,333,333. The final question then, how many properties must be sold to get there? I suggested an average sales price of $400,000, which is fair enough. So, $8,333,333 divided by $400,000 gives us 20.83 transactions, round up and call it 21 transactions. My wife quickly pointed out that we must allow for "fallout", and she is right. Some contracts will fail before closing. In Georgia, immediately after going under contract, a buyer is entitled to have an inspector do an inspection. We then present an amendment to the seller asking that any safety or structural issues be addressed. If the buyer and seller can't agree on what will or will not be done, the contract fails. Also, occasionally a buyer's financing will not be approved, or perhaps the property will fail to appraise. Anyway, after discussion, we came up with three as a likely guess for failed contracts. So, our rookies will need to write 24 contracts to close 21.
As my wife made the closing comments to end our morning training session, I looked out over that group of fifteen rookies. How many will indeed sell 21 homes or better next year? My best guess is none. The learning curve is steep, the competition unbelievable. Our manager has a hard and fast rule; five deals in your first full year or you are gone. Several of that fifteen will do their five deals, but still decide it's still not worth it. We have so many new agents in our office now, and so many more begging to be given a chance, that now you must close two deals to even be given a desk in the rookie bullpen. Until then, you are more or less a floater, free to use the facilities, but no place to hang your hat, so to speak. How many of that fifteen will still be with us a year from now? My guess, one, perhaps two at the most. It's a tough business to break into.
On top of that, and I mentioned this in a previous post, agents are not "employees", we are all "independent contractors", and what that means, of course, is no company benefits, no medical/dental, no disability or life insurance or retirement plan. Unless these new hires have a spouse with a "regular" job providing all of the above, they will starve long before that first year is over. These new hires won't show up on the BLS employment survey, but no doubt will on the "household" survey. They are working, but are they making a living? I think not. So why are they here, and more begging all the time for a chance? The answer is pretty obvious, at least to me. They can't find anything better. If they could, they would take it.I also mentioned this in a previous post. Back in the late 90's, our manager would beg people to come in to interview for a position. But her competition was the "regular" jobs, many of them IT jobs, out on Northpoint Parkway and Windward Parkway. Job creation? I will believe it when I see our managing broker, on hands and knees out in the street in front of our office, begging people to come in and interview. We are not there.
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