Do you know someone who wants to get a real estate license, or recently passed the licensing exam and can't wait to start making the BIG money?
I was sitting in a Brokerage Management class last week and it struck me how we could help new agents get over their unrealistic expectations about how much (easy) money they are going to make.
The instructor was pointing out that every new agent interview should include an income and expense forecast... BEFORE they hang their license with ANY office.
The following scenario is simplified, but you'll get the idea. During the hiring interview...
* First they have to determine what their minimum monthly personal income requirement will be.
* Then they have to determine what the expenses of doing business will be. Most newbies don't have a clue how expensive it is to do business. They think they can just hang their license and the money will start flowing in.
* Then, when (and if) they do make a sale, they must understand what the NET proceeds to them will be!
So, let's do an example:
$2500 minimum required monthly income to pay mortgage or rent, other bills, buy food, etc.
$1000 estimated monthly expenses (this is actually very low but would include MLS dues, cell phone, internet connection, advertising, fuel and other auto related expenses, etc
$3500 Required minimum monthly income
Now take into consideration, it takes 3 - 6 months for money to start coming in as a new licensee. So, before you ever have the first closing you are at a $21,000 deficit. But, that's o.k... the BIG money will start coming in and that will be wiped out in no time. Right? Well, maybe not.
Further consideration needs to be given to the national statistics that say the average number of sales per agent is 6 per year and the average commission is $6500 (about 30% less in Wenatchee). So, the average agent is making $39,000 per year? NOT. Remember, that $6500 is gross commission, not NET to the sales person. Let's break down where the commission goes.
$6500 Starting gross commission
$2600 To the brokerage office (this is on a 40% split which is very rare. Most newbies start at 50% split)
$3,900 Net commission? NOT What about taxes? That's another 20%-30%
$ 975 Federal taxes (if you have state income tax that is additional deduction
$2,925 NET Commission ($17,550 per year is the annual income)
There are also some other expenses that I didn't even deduct (like B&O taxes and any applicable transaction fees)
$17,550 Annual income (at $2925 x 6)
$35,100 Annual income IF you sell TWO times more than the nationwide average
$ 42,000 Annual expenses ($3500 x 12)
As I said, this is oversimplified, but can you see where this is headed? After the first year the newbie would be running between $6900 and $24,450 negative income.
So, you say, they can just cut back on the monthly expenses AND sell more? Well, good luck with that!!!
If you know someone interested in going into the real estate business, recommend they sit down and honestly analyze the income and expense requirements before quitting their "real" job.
Yours for success & prosperity,
For an agent that sells a lot MORE than the nationwide average and offers customized service contact the TOP Team:
Carol Williams TopTeamCarol@gmail.com
Shelley Granger TopTeamShelley@gmail.com
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