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Realtors: Working More and Making Less

The newly released National Association of Realtors Member Profile report (covering 2010) indicates that things in the real estate sector are improving (at least over 2009 numbers). According to the profile, the average agent had eight transactions (covering residential and commercial properties) during 2010.

by Glenn Freezman

 

While it’s doubtful anybody is feeling celebratory over moving less than one property per month on average, what makes this number even harder to get excited about is that the average agent also claims to have put in full 40 hour weeks during 2010 as well (and I suspect the real number is closer to 60 hours per week for many agents).

This means, that if we factor in the 2080 hours worked by the average agent against the eight properties they helped to buy or sell then we’re looking at an average time of 260 hours put into each property.

Chances are you’re starting to see the problem here.

For an agent who is able to walk away with $10,000 from a home sale, let’s say, (after paying their broker the expected percentage) then this means that an agent worked for approximately $38.50 per hour. While nothing to sneeze at, it’s hardly the kind of salary that makes people millionaires. But I suspect that $10,000 is a high number.

But that’s not a number the average agent ever sees. In fact, currently in the United States the average home selling price is $180,000. And let’s say that the commission percentage being offered was 6% with 3% going to the seller’s agent and brokerage and 3% going to the buyer’s agent and brokerage.

This means that each side of the transaction would receive $5,400 at closing. It also means that if an agent and the brokerage were split them out in the agent walks away with $2,700. If we factor in the 260 hours worked per transaction into this figure means the agent made a little over $10 per hour of their time. This is a tragedy.

Apart from the fact that agents make an inconsistent income, this whole compensation model starts to raise some major questions about the viability of the real estate market and how we do business in it as a whole. For starters, the $180,000 average home is an average. In some parts of the country home prices trend much lower. To calculate the math on the payout those agents receive would be very painful.

But at the core of this challenge is that agents are professionals who bring value and expertise to our industry, and more often than not they’re making less money than an unskilled laborer working in retail does.

As anybody who has read my previous postings on this site knows, I firmly believe that forcing home buyers (or sellers) a single way to do business is a huge mistake not only for them but for the agents who represent them.

Agents who can offer alternative compensation real estate agreements to their clients can be put in the position where they can get paid for the time they actually spend doing work on behalf of their clients. This means that if an agent can work out an agreement with a home buyer to be paid $125 an hour to help them find and buy a home and that task takes you 40 hours, then you are in the black for $5000 (or $2500 depending in the agreement with the brokerage).

This isn’t an agreement that is contingent upon anything else. This is a work for hire agreement between the agent and the home buyer (or seller) just like other professionals like attorneys, plumbers, electricians, and consultants.

In fact, being a real estate consultant means that you can name your own price, offer specialized services to your clients, work only when you’re getting paid for it (like most people) and make even more money. In exchange for most of these agreements, the agent (in most cases the buyer’s agent) agrees to give up any commission deal on the property in exchange for being paid directly.

At the end of the day, making from $60 to $150 an hour time goes a long way toward creating a consistent and livable salary. It also means that agents can control when they work, for how long, and on what.

It’s also worth noting that being a real estate consultant doesn’t mean you can’t also work straight commission deals if that’s what your clients are looking for. Being able to offer different types of agreements gives agents flexibility and the power to really start to control their own financial destiny.

Interested in learning more about how you can get started in real estate consulting? Feel free to contact me and I’ll be happy to introduce you to some people who can help you out.

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