There is a debate in the world about the usefulness, and alleged obscene amounts of money earned by some professions.
We are aware of the fact that real estate agents are not the most trusted professions in Australia.
The Australian Reader’s Digest produces an annual list of most trusted professions.
Here is where Real Estate Agents ranked in 2011:
39. Sex workers
41. Taxi drivers
42. Real estate agents
43. Car salesmen
I can see why the public has ranked us this way and I’m going to make it my mission in this article to expose the truth and show how rich we really are!
Are real estate agent overpaid?
The truth is that the average real estate agent only makes a modest income of $47,457 p.a. See independent resource Pay Scale below;
There is difference between a real estate agent and a real estate agency which fuels the myth of individual Real Estate Agents earning big money for selling a home.
The individual agent would only earn a portion of the commission for each sale with the balance going to his / her agency.
It would be common for an individual agent to earn 1/3 of the commission for the sale and the balance going to the agency he/she is working under.
How many hours real estate agents actually put in?
Just like any self-employed person you will need a passion for what you do, a crazy work ethic and have some of the same insecurities as us real estate agents (no work — no pay).
On a regular basis many of us work 12 hour days including Sundays.
We sometimes work with clients for 2 years or more before making any money out of the relationship and some we may still be helping 3 years down the track without having done any business.
Risk VS Reward
How many trades people would do all the prep work and put everything in place to complete the job, having paid for everything needed to get the job to the starting line, only to have to wait perhaps weeks, months or years to realise any form of payment, if at all?
And what if, after all that work and outlay, the whole thing goes pear-shaped and falls over due to something that the real estate agent can’t control?
If a real estate agent clocked in and out each time they worked on a particular property, kept a detailed list of associated expenses and then did the math from the final commission paid over the time taken to earn it, the rate would work out to be close to the minimum $/hour as defined by the powers that be, in the majority of cases.
I want you to ask yourself this: how many people would work with no retainer, no car allowance, and every weekend, some nights, supply your own stationery, business cards etc and you only get paid if you get the results.
Now that’s not to say that some sales don’t calculate differently
Those homes that are listed and sold quickly after only a short relationship are obviously, far more profitable from that viewpoint, however, they are the exception, rather than the rule.
Most people take around 6 — 18 months to sell their home from the moment they get the idea and start checking into it until the day the house settles.
So if you work it out, here is the mega commission you think a real estate agent earns for a sale.
The commission cut up
Let’s say an even $10K for the purpose of this exercise and we’ll use all the lowest common variables: $10K commission for 6 months work (180 days),
Let’s say at 3 hours per day,
3 days per week (just for arguments sake) = 216 hours = $46.30 / hour (approx).
From that, you need to take the Franchise Fee (if applicable) @ 10% = $41.67 / hour and then take out the cut that the agency you work for gets — for an average agent, that’s 50% = $20.84 / hour maybe a referral fee.
At this stage we haven’t even taken the taxes, fuel, car, phone, training and other overheads out yet.
I don’t see many of us retiring to Hawaii anytime soon on those numbers.
The reason agents are paid so much is the risk, how many people would go to work 10–12 hours a day 6–7 days and possibly not get paid?
Seriously think about who would go to work do their job, be on call, get dragged away from their family and then at end possibly not get paid.
The average agent earns $60-$80k per year working hours that most would have their unions shut down a workplace if they would forced to do, let alone at the risk of not getting paid.
Some agents not worth the money
A real estate agent will earn in direct proportion to the amount of work they put into their job.
Yes, there are a large number of agents who aren’t worth putting out if they were on fire; that’s why you need to interview a few before you decide who to work with.
Just like anyone that is good at their job they are in high demand.
- They have methods, know online/offline marketing, systems, and a track record of success.
- You will see their marketing and sign boards everywhere on a regular basis.
Yes, a lot of agents go for price reductions as their only option to sell property — but not good agents, they know how to do the job properly and they can;
a) Price the home correctly in the first place with a clear proven strategy in mind and
b) Will find the real reason why the property isn’t selling (put all B.S. to the side); it’s not always because of the price.
I will agree, some agents have egos larger than the known universe; they need some inherent belief in their own abilities to be able to get up each day and be told to ‘rack off’ by the next 40 people they speak to and keep coming back for more.
It’s the old 80/20 rule. 20% of the agents make 80% of the money.
A good real estate agent will continue to learn and hone their skills over their career: others will plod along, lasting maybe a year in a job they were never suited to but were drawn to by the promise of unlimited earning capacity, total work/life freedom and other shiny concepts that can’t be delivered without massive effort and constant hard work.
This is why we have a massive influx of Gen Y’s entering the industry but they are lucky if they make it past the 12 month mark.
We also have one of the highest churn rates of new staff and broken dreams as an industry (there is always fresh meet for the grinder in the real estate industry).
- These agents don’t have a clear plan, methods, they have no idea about online/offline marketing, limited systems, and struggle to show a track record of success.
- You will not see their marketing and sign boards on a regular basis.
When you interview these agents they fold easily when you quiz them about their negotiation abilities.
They will resort quickly to commission cutting to get your property listing.
There is an old saying “Price Is Only An Issue In The Absence Of Value”
Good agents spend a lot of time and money learning negotiation so if an agent cannot negotiate his/her fee what will they do with the price of you home? HHHmmm… I wonder…..
These agents are best characterised by;
- No clear method of negotiation and resort to commission cutting to sign you up.
- Lazy and want to belt the price to below the land value.
- Don’t bother with decent signage, then forget to advertise the open house and wonder why no one turns up but use the excuse to say “your price is too high”.
- Use of particularly bad photography thus targeted by buyer agents on the hunt for easy/cheap deals.
Real estate agents are worth it for most sellers.
A good agent earns his/her fee.
As for the top earners?
Yes there are a few who earn $500,000 a year, just as there are salespeople in other fields that earn that sort of money.
But for every $500K earner, I will show you another 500 salespeople who earn less than $60,000, particularly after deducting their vehicle and phone costs.
Successful people earn good money, unsuccessful people do not.
That is how the free enterprise system works, people!
As for people selling their own homes, remember that the skill of a good Real estate agent is to get the buyer up in price, negotiate the deal.
The average person does not have this skill and gets less for their home.
What some people must understand is that most people do not sell and buy a terrific amount of houses in their lifetime.
For the majority they may sell 1 or 2.
For the most part sellers are very emotional when selling and at times temporarily insane.
Therefore you need an objective party handling the negotiations.
The personal sacrifices
The thing is… real estate agents can be as wealthy or as poor as anyone, but what people forget is the amount of sacrifice of personal time and energy that goes into successful agents.
To those of you who say they don’t deserve what they earn, I challenge you — agents make the choice to either work their guts out to make the most they can, or they can cruise by and
do the bare minimum…therefore earning the minimum wage.
In today’s world where even the smallest commodities come with huge price tags, most people have to earn as much as they can to support their families and lifestyles, but oh boy does it come at a price.
Leaving before 8am and getting home at 9pm, kids school events missed, weekends full of open homes and negotiation, and that bloody phone that can never be turned off!
Real estate agent “working like a dog”.
You say they’re always out at lunch?
Most likely it’s a meeting with a client, or a negotiation.
Swan into work whenever they want?
Well sure, they’re mostly out of the office on the road closing deals, doing inspections or visiting homes for appraisals.
Real estate agents live and die by the work they do and absolutely deserve what they earn.
They give up a lot to achieve success, going from absolutely nothing to a thriving career based on their own hard work and tenacity.
Looking rich is all part of good real estate agent marketing
Would you trust your most valuable asset with an unsuccessful looking real estate agent?
At this stage you may be asking yourself how come real estate agents own expensive cars, watches, and offices? As you probably have already realised agents are all about personal promotion.
Blake Garvey, action real estate agent good looking and on The Bachelor.
To even get an interview as an agent you have to already look the part (especially for me as Gen Y with no experience at the time).
For me that meant I had to get a car loan and buy a late model car, nice suit, watch and cufflinks (all on credit card).
I know many real estate agents that don’t really care about what car they drive, such as Leon Gietzmann a Seven Hills real estate agent but unfortunately we live in a materialistic society.
He drove an old ford for many years but he realised he had to eventually buy a car that looked good.
Sellers make judgments whether we like it on not on such things, either it be subconsciously or consciously.
Because we look successful, people have preconceived notions that we are living it up but in reality it’s all good marketing.
I often ask the agents around the office “How was your weekend?”
The usual reply is “Aaaarrrr I was in the office for most of it”.
End of conversation.
Why do I need an agent to sell my home when technology helps me do it so easily?
You may still be thinking if someone WANTS to buy a house THEY WILL, and the Real Estate Agent him/herself will have absolutely nothing to do with that decision!
This is true to some extent but at what price?
If you think real estate agents are a dying breed and you think you can sell you own property for top dollar, I think you should, but just make sure;
- you don’t hold back on the marketing,
- have a system of negotiation to get the best offer,
- flexible work hours for buyer meetings
- and do your best not to get emotional.
Although there are many owners who have the ability to sell their own homes, there are millions of others who are petrified at the very thought.
Here is one example that I have seen a few times:
The “Sale by Owner” vendor has had what he considers to be an excellent inspection with Mr and Mrs Jones.
They are making good buying noises, or so he thinks.
They say “We will get back to you”.
Two days go by and not a word!
What does the private seller do?
Does he phone them?
The thought crosses his mind that if he does that, he might risk appearing as an anxious seller!
Does he even have their contact details? Does he start to doubt his assumed ability to be able to spot a definite buying signal?
Hmmm! Maybe this is not as easy as I thought!
A good agent doesn’t have to worry about these things.
He is not embarrassed to phone Mr and Mrs Jones. That is his job!
A good agent is also a damn sight better in spotting buying signals than the average home owner.
If Mr and Mrs Jones had been making genuine buying signals the good agent would have had them back to his office negotiating and filling out an offer! That is the difference.
Sellers that get emotional during the selling and the negotiation process usually make irreversible bad decisions (unknowingly), that cost them more than an agent would have.
I have seen it almost on a daily basis and I will admit I have made many of the bad decisions when I first started.
This is why good agents spend thousands of dollars on coaching and training of selling systems.
This human element of selling a property is why real estate agents will always be needed.
Editors Note: This article has been republished for the benefit of our many new readers
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.