What are the Risks of Being a Real Estate Agent?

Many people see real estate as a viable career. There are plenty of examples of successful real estate agents on shows featuring high priced listings. But in order to get a balanced view of the profession, we need to take a look at the risks underlying the hype. We’ll also look at the benefit of getting licensed strictly for personal use.

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What Are the Risks of Being a Real Estate Agent?

In this article, we focus on the most common real estate profession, that of the residential real estate agent. For these agents, risk abounds in various forms from physical danger, to financial risks, to legal risks and industry disruption.

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How Can Being a REALTOR® Be Dangerous?

Anytime a real estate professional meets a prospective client, the risk comes from a private meeting in a home versus a public place. Private showings and open houses can be and have been dangerous for real estate professionals. Even a listing appointment has the potential for danger.

Some real estate professionals always have a first meeting at the real estate office which helps address some safety concerns. Others may restrict themselves from other people’s homes when it gets dark. Local, state and the National Associations of REALTORS® are a good resource for safety alerts, awareness and training.

Dangers may come from unsafe neighborhoods, pets, people or even the structure itself. This is especially true with vacant homes or distressed properties in short sale or bank-owned status. Real estate professionals that specialize in property management have the additional risks associated with managing properties in various states of repair.

Real World Examples

Here are some things that happened during my time as a real estate professional. While I had some experiences in proximity to danger, I was fortunate enough to never be in any real imminent danger. This is a small set of possibilities that does not include all of the threats many women real estate professionals experience.

• Unexpected and severe winter temperatures in Southern CA caused the pipes to burst while the owners were on winter vacation. Unlike home owners in cold states, many warm area home owners are not familiar with winterizing their homes upon departure or concerned about setting minimum temperatures at 60 degrees when leaving in the winter.
• A neighbor is relieved to see me at a vacant home and tells me about a group of criminals who got busted at the house for posing as real estate agents after breaking in, staging it as a rental, and taking many rental deposits from eager tenants during rental shortage. I Googled the address and sure enough, there were the stories. 
• At the same time, a local news station exposed a scam where an actual real estate practitioner posed as a landlord, sign rental agreements and took deposits on a home he did not own.
• Our real estate office put out a notice to beware of criminals smashing lockboxes to break into vacant homes. They gut the homes stealing appliances, copper pipes and anything of value.
• My sellers go on vacation and the husband calls t ask me to go by the house and check the garage. His wife worked with large and small exotic animals in the film industry in Los Angeles. The husband directs me to a corner of the garage to check for a plastic box. I finally found it and told him the lid was not seated on the container and there was nothing in it. With clenched breath, he muffle-screamed “I knew it!” After he settled down, he told me he had told his wife if it was a bad idea to leave the African Hissing Cockroaches in the garage. I can’t make this stuff up.

Run-Ins with Cannabis
One day while working at home, I answered the doorbell and there stood a sheriff. He was calm and said he was checking with neighbors to see if anyone knew the guy across the street and down one house. I said the guy was new this past year and by himself and I never spoke to him. I peaked out and noticed a couple of squad cars and I asked what was going on. The sheriff told me the house was being raided since as a grow house.

The crazy thing is this was a subdivision with families and good schools. I asked the sheriff how they discovered this was a grow house. He said they received reports from neighbors walking by that could smell it. He said there are tiny cameras around the house and there is a big generator in the back. The sheriff said the guy chose to hide in pain sight, but it was a dumb ideas since this is the type of neighborhood where plenty of cops live. I asked him if he had seen this before in subdivisions and he said no, this was the only one in town.

Fast forward a couple months and I’m visiting a vacant property for the first time, a bank-owned property in a nice subdivision full of McMansions. The front door is locked but the side door to the garage was left open so I peak in and my eyes opened wide. There was a huge plastic drum that seemed eight feet tall and eight feet in diameter with a hose sticking out the top and running into the wall between the garage and the house.

I’m moving very quietly and cautiously to the door leading into the house from the garage. There is no electricity so it got dark as soon as I entered and let the door go behind me. Once my eyes adjusted, I could see some light near the back of the house. The downstairs seems to be vacant and in decent condition. Then I walk by the stairway leading upstairs and it was dark at the top. I used my cell phone for some light (this was before cell phone flash lights were a feature) and started up the stairs. Half way up, I could see a big sheet of plywood blocking off the upstairs.

I’m not sure why I kept going. I always thought I’d be the guy in the horror film that got the hell out when it was clear there were zombies in the next room. I got to the top and carefully pushed back one side of the plywood enough to squeeze through into the darkness. For some reason, the stillness gave me security. Perhaps it was the kind of false security that leads victims to their peril.

Obviously I made it out just fine. I hastily snapped photos of a creepy room lined with tables and about 20 bundles of dangling cables and wires. They were unconnected electrical cable and wires spread out evenly across the ceiling hanging down a few feet. Sensing my luck was going to run out, I went back down stairs, snapped shots of the huge drum in the garage and left the scene. Back at may car, I texted the photos to my contractor, a salty veteran of life’s wacky trails. Sure enough, he had the answer.

“Hydroponics, baby. Marijuana!”

Jerry B., licensed contractor

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What are the Financial Risks of The Real Estate Profession?

New real estate agents are entrepreneurs working without a paycheck and hoping to close some business before their startup money runs dry. Seed money is needed for education, licensing, joining a team or office, marketing and promotion, operational costs and paying the bills during a “learning and not earning” period which can be extensive. 

While it can take many months to close the first transaction, many new real estate agents are likely to have several transactions closed within their first twelve months. Nonetheless, going months or even weeks without income can be stressful, especially if you have committed full time and don’t have a second household income.

Another financial risk for new real estate agents is learning to manage finances in a new way. This includes budgeting, marketing wisely, not overspending on a vehicle, investing back into the business, and saving money to pay taxes quarterly and at the end of the year.

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What are the Legal Risks for a Real Estate Professional?

There are a whole host of legal topics that new real estate professionals must be aware of to operate successfully. These topics include fair housing, agency law, confidentiality, ethics, duty of care, responsible marketing, handling trust funds, conducting personal transactions as a licensee, record-keeping and property disclosure laws. Fortunately, state licensing focuses on a lot of these issues plus a code of ethics, as do many well-run real estate offices.

Drama with Petifoggers
As an agent listing foreclosed homes, I was threatened with legal action on two occasions. These people definitely got my attention! Luckily, I was part of a large office with legal counsel even though it never went to the legal team. Our office manager was very experienced and able to assure me I was simply dealing with less-than-stellar citizens and their legal quack connections.

In the first incident, I was asked to check a property to see if it was occupied in order for the bak to take the next course of action. The property was in a nice subdivision and seemed to have personal items inside. Over the course of a couple days, I went by and knocked a few times. On my third or fourth visit, everything seemed the same as the prior visits, but this time a lady (I use this term loosely) answered the door. She gave me an earful of expletives and let me know that because I had inquired with a neighbor about the occupancy of her house, I created a hostile living situation for her and her young daughter. She told me I would be hearing from her boyfriend, an attorney. 

The house was never hers. She was a deadbeat tenant and quite possibly caused the owner to get foreclosed on. Sure enough, I received a call from the esquire boyfriend later that day. He tells me I need to stop coming around. With advice from my office manager, I continue a dialogue with the attorney. He seems less aggressive than most attorneys, and eventually becomes harder to reach over the next days and weeks. He eventually answers my call and tells me he broke up with the occupant.

In another incident, the foreclosed home was out in the country on a dirt road. It was vacant so I began the process of surveying the home and the large lot, as well as getting my contractor to assess and secure the property. There was a completed pool but the landscape around it was unfinished and there was a large pile of construction debris at the edge of the property. The contractor told me the pool was unsafe as it was built on the side of a hill without proper support. He boarded up the pool and taped off the surrounding area.

Later that day I received a call from a neighbor who said she saw me near the property line. She proceeds to tell me that the former occupants were in the illegal drug trade and they dumped the construction debris onto her side of the property line. She said she was glad that the bank owned the property so now they could remove the debris. Unfortunately for this lady, and despite aggressive letters from her attorney, her complaint was with the prior owner and not the bank that now owned the property.

Insurance

Professional Liability Insurance (also know as Errors and Omissions Insurance), General Liability Insurance, and Worker’s Compensation Insurance need to be considered to protect against various risks.  Professional liability protects businesses that provide professional services or advice against claims of errors or omissions. General liability covers physical injury or damage. While virtual real estate agents may feel general liability insurance is unnecessary since they operate without a physical location, general liability also covers advertising injury. Franchise headquarters or brokers may require certain types of insurance for their broker-owners or agents. Worker’s compensation is required by state law for any broker or agent who employs others. Many states do not consider real estate agents employees, but some states like California do. Consult an insurance professional and your broker.

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What Are the Personal and Career Risks With Entering Real Estate?

Pro Bono Trap

While many new real estate agents get started with their sphere of influence, there are some potential pitfalls to be aware of. You may be the go to expert in your family or within a close circle of friends. These people in your inner sphere may lean on you for free advice or expect you to sell their home for a lower commission.

I had a policy to charge a flat fee for family and close friends. That way I could feel good about helping those close to me, and a small fee helped them understand that I had to consider opportunity costs and operational costs such as licensing and board fees, transaction fees and brokerage fees. I’ve had real estate colleagues who enjoyed helping family and friends for free or at discounted commissions, and I’ve had others tell me they absolutely do not work with family!

One time, I listed a home for the widowed mother of my wife’s good friend. She had never worked and had a fixed sum for her retirement. After one open house, her down-and-out son came to me all flustered and told me his motorcycle had been stolen during the open house. Naturally he had no insurance. It wasn’t an expensive bike, so I volunteered to reimburse him after the sale closed. I charged this family friend a very small fee and didn’t make any money after expenses including the dirt bike. To top it off, I was inserted into some challenging family dynamics and without much support. The transaction wasn’t an easy one, so I definitely earned my angel wings on that listing.

I Thought We Were Tight?!

On the flip side, be prepared when someone in your family or circle of friends decides to work with another REALTOR®. This is especially painful when you are starting out and need your sphere of influence. These people might never communicate with you about real estate and try to avoid the subject of selling their home. 

Your friends and family could be more comfortable with their local neighborhood expert, cautious about your lack of experience, or just not interested in mixing business with personal relationships. Don’t take it personally if this happens  – it may be for the best.  When you are starting out, work your sphere of influence in a professional manner and exude confidence, but keep your expectations in check. 

You Have to Relocate

At one point in my real estate career, my wife got a job offer she couldn’t refuse, so we moved our family from Southern CA to Northern CA. Real estate is not a great profession if you frequently move out of town. Many people do it once or maybe twice. That’s all fine, but each time there is a tremendous amount of momentum that is instantly shut down.

You can try to travel back and forth to handle deals but eventually you’ll have to refer clients to other agents and build momentum in your new town. This can be challenging as it takes a long time to become a neighborhood expert, build a team of trusted business partners, and learn what is customary and unique to an area with respect to real estate transactions.

As someone who has moved and restarted a couple times, I don’t recommend it. Real estate is one of those professions that becomes easier and more gratifying as the referral base builds. Each time you move, you discard a huge amount of time and money invested in local knowledge and referring and repeat clients.

A Resume Detour
Many people flow into and out of the real estate profession. If you’re leaving corporate America to pursue a career in real estate, just consider the scrutiny you may receive if you try to re-enter corporate America. Recruiters may question your commitment to a corporate career or  discount your experience as a real estate practitioner.

When I moved back to Silicon Valley and tried to get a job with a real estate tech company, my prior years as a real estate broker did not help. I theorize that my background as a broker may have hurt my chances for several reasons. 

• They assume I know real estate, not tech (even though my resume showed I came from tech)
• They receive a high number of resumes from agents
• They assume agents transitioning to tech weren’t very good agents
• They question commitment from agents who can leave to become agents again when market conditions improved

Control Your Own Schedule

As an entrepreneur and owner of your real estate business, you control your schedule and activities. But flexibility is a blessing and a curse. The key is control.

If you don’t control your schedule, it will control you.

Time gets sucked away from you, especially evenings and weekends as a residential REALTOR®. Some people prefer to take weekends on Tuesdays and Wednesdays when stores, restaurants, the DMV, campsites, hotels, freeways and airplanes are less crowded. But can you effectively carve out those days and not take calls or appointments?

When you are in charge of your time, no one tells you to leave the office. This can be a trap for workaholics, or those anxious about results and making in the profession. This is where advanced planning is needed to minimize expenses, set financial goals, and set deadlines for success. I have met highly ambitious top performers who had to set standing appointments for lunch with their spouses in order to prevent going the week without any quality time. 

Could a flexible schedule end up worse for your health and relationships than the 9-5 where you had scheduled time off in the evenings and weekends to spend with other people on the same schedule? Here are some tips.

Intentional Schedule

• Make sales and revenue goals contingent on work-life balance
• Map out your work week including evenings and weekends
• Designate off days and blocks of time off
• Connect with colleagues or other professionals with similar schedules
• It’s okay to set aside a few small blocks where you are off, but willing to take important calls or appointments
• Set expectations with friends and family on your availability
• Train your business partners and clients on your schedule
• Frugally budget coffee, lunch and non-client meetings with colleagues and business partners
• Treat seminars, education, conventions and certifications as awards you need to earn, not substitutes for closing business
• Respectfully decline, and refer to another agent, clients who are only available when you’re not
• Be willing to fire clients who do not respect your time (and therefore your money!)

As a commission-based entrepreneur, the phrase “time is money” applies to you 100%. Read How are time and Money Related?

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What Are the Toughest Things About a Real Estate Agent’s Job?

In general, most real estate professionals are proud of their profession, dedicated to learning their craft, and grateful to be able to serve their clients and perhaps even their friends and family. Most of them work for reputable real estate brokerages that focus on education, community, and support for agents.

The real estate profession has broad appeal because of the content of the work and the freedom it provides over other careers. It is one of the entrepreneurial pursuits with the lowest barriers to entry. Given its high appeal and low barriers to entry, it attracts scores of talented and motivated professionals who for the most part, eventually do a very good job understanding contracts and representing clients well.

The toughest part of being a real estate agent is not developing expertise or excelling at service. Those things are required and handled well by most real estate professionals. The toughest part of a career in residential real estate is competing with all of the other motivated and capable local real estate agents. Sometimes new agents have an edge with their sphere of influence, but breaking out beyond one’s personal network to win listings is a major challenge that many new agents cannot master. In a hypercompetitive market saturated with REALTORS®, it becomes difficult to differentiate.

Extending past one’s network requires a combination of savvy marketing and doing difficult tasks that most people will not do consistently for a long period of time, including cold calling or door-knocking. Despite do-not-call laws and no solicitation barriers, these age old tactics still work for motivated new agents. 

Most of your competition is willing to attend educational meetings at the office or even pay for expensive coaching events and they will certainly learn the craft. But the hard tasks are always hard even after incorporating tips to make those tasks easier like getting an accountability partner. Most agents simply don’t last doing these tasks.

In summary, the major challenges for real estate professionals are not learning the contracts, developing expertise in the local market, or excelling in customer service. These are the things many agents mistakenly emphasize in their marketing, making them blend in with the noise. The toughest parts of being a real estate professional are the high competition, ability to truly differentiate, and willingness to do difficult tasks to consistently win listings.

Once a real estate agent starts to experience success within their personal networks and beyond, the next set of challenges are financial. REALTORS®are in business for themselves and need to manage their money. There is no one to take taxes out of their paychecks, contribute to their retirement fund, or pay for training or expenses. As any other entrepreneur must, the real estate professional is responsible for these tasks. As you can imagine, it is difficult for many entrepreneurs to shift back and forth from driving revenue to handling finances. REALTORS® need to master planning and goal setting, risk management, reinvesting in their business, effective marketing, disciplined spending on meals and fancy cars, vetting software and technology vendors, saving for taxes, and building an emergency fund to buffer real estate cycles.

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How Do You Become a Successful Real Estate Agent?

Typically in an entrepreneurial setting with no IP (intellectual property) like real estate, meaning a field that has low knowledge or education barriers, early success depends on the sum of your money and your time. If you don’t have money, you have to put in a lot of time. If you have a little bit of money, you can put in a little less time, and if you have a lot of money, you can advertise or outsource and shift your time to higher level activities.

Pro tip: Don’t try to do it all.

You risk running out of money, time or both. Find one or two activities to commit to and master.

Step 1: Get the revenue train rolling

• Be a sponge and learn
• Tap your personal network and sphere of influence. This is the foundation upon which to build your business. If you have no network or sphere of influence, you have to go to step 2 and quickly build one.

Step 2: Breaking past your personal network

• Find your differentiation. You have to go beyond the basics. The “dependable, responsive neighborhood expert” approach is just noise to the consumer
• Do one thing others will not or cannot do (only if you are willing to do it long enough)

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What Are Some Differentiating Strategies To Succeed as A Real Estate Agent?

Channel Mastery

Mailings can be expensive for agents starting out. Successful agents have the resources and many of them send fancy mailers that include neighborhood data, market statistics, and even unique articles that differentiate themselves. Most new agents who try this give up, even with some early success. They may receive some calls and even secure some listing appointments, but their listing conversion is low due to inexperience. By the time they land a listing from their mailers, the budget may be wiped out. The income just can’t come in fast enough to catch up. 

In my market area, there was a new agent that started achieving success. The number of signs she had on lawns grew steadily in a certain neighborhood, and eventually in adjacent neighborhoods. I found out her family owned a printing business. With this low cost advantage, she gained traction with consistent and professional flyers that she was able to sustain. She differentiated herself based on consistency of mailings over time.

Open House Domination

A new agent in our office came out of nowhere and started consistently producing more and more until he quickly rose to the top 10% in a 300-person office. His secret was to focus on open houses and take it to the next level.

As a young agent with no real war chest to fund his start in real estate, Jason dedicated his time. Jason chose open houses, but he knew that many other agents were doing open houses with varying levels of success. Even though he was putting himself out there, he was concerned that it was too passive. He had to wait to meet visitors, and some days the traffic was painfully slow.

Jason studied open houses and adapted his approach. He went all in on open houses. He decided to double and triple the amount of signs directing traffic to his open houses. He would hold open houses both days of the weekend and one weekday when no-one was holding an open house. He would market his open house service to established listing agents in order to be chosen to hold open houses for them on their listings if they were too busy. He made sure to market the open house online everywhere at minimal cost. He developed a pitch, materials and a visitor experience for each person that came to the open house. Most importantly, he set a goal to be the best open house agent in town.

Sellers began to take notice. His signs were everywhere. That was his differentiation. Sellers saw his hard work and felt nobody would work as hard as Jason to sell their house.

Open House Risks

Issues that can happen at open houses range from theft, to breakage, to physical harm. Besides cash, jewelry and electronics, thieves might be interested in personal identification documents, heirlooms, pharmaceuticals and even vehicles.

Open houses pose dangers both when they are slow and when they are busy. Slow open houses can occur in down markets or during slow periods of the day. During slow times, agents might be targeted by predators, particularly female agents. Thieves are more likely to strike during busy open houses when the real estate agent is outnumbered by visitors.

All Out Networking 

Carolyn was an outgoing personality with a large network. She came into real estate from a long career as an administrator in local government. She was active in the community and she had a young family that enabled to meet many people around town at her kids’ activities. Carolyn relied on her large network and sphere of influence to establish herself in real estate. As she found success, she leveraged her stories of success to expand her reach further and further to the outer circles of her network. People with networks this large often never run dry with a networking strategy like many others do. The power of large networks is they can be self-sustaining. Some coaches tap into this phenomenon by teaching students to  fan the network flame into a sphere of influence that sustains itself.

Grind with Delight

Agent Phil bet his career on door-knocking. He met many welcoming neighbors and fed off their energy to combat the occasional hostile homeowner. He realized that people are less brutal to door knockers who are friendly, to  the point, and having a good time. He actually looked forward to the grumpy neighbor because he became good at turning their day around. 

Door-knocking may seem too difficult to many agents. They may rationalize that it takes a certain personality to pull this off.  Phil would argue the opposite. Eventually, he packaged and sold door-knocking systems to other REALTORS®, many who succeeded with this system.

So who was right? Can this stuff be  taught or does it take a certain personality type? I think the answer is both. If you think you can, you can, especially with a system. If you think you can’t, no system will help.

I purchased one of these systems and did this twice in my career. The first time I had great success. I was new in my career and was excited to meet homeowners. That energy came through and I secured several memorable listing. One led to an instant referral and another listing. One was a client who I eventually helped with four transactions, a client I consider the best client of my career. L

The second time I tried door knocking I was not successful. We moved and I jumped into door-knocking looking for quick success. I had done it before so I knew it could work. My goal was to be as efficient as possible. I moved quickly through multiple neighborhoods and got in great shape. Unfortunately at that pace, I never made connections like I did during my first stint as a new agent. This taught me a valuable lesson. Successful veterans don’t skip the fundamentals.

One day the doorbell rang and I greeted a man who was sweating in the hot sun. He was a new REALTOR® door-knocking at my house. It was a hot day and he wore a long sleeve dress shirt, pants and uncomfortable shoes. He delivered his lines okay, but I could feel his heart wasn’t in it. He was diligently putting in the work doing what he thought he needed to do. 

Just before I was about to let him know that I was a fellow REALTOR®, he wrapped up his script, thanked me, and let me know he had to keep moving. This was a wake-up call for me. It’s not enough to grind away at the things most others won’t do. You have to do it well and be a happy grinder like I was the first time, and like my mentor Phil.

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How Do I Build a Real Estate Referral Business?

Building a referral business requires being intentional about referrals in conjunction with executing a differentiating strategy. A referral business that grows through word-of-mouth with no advertising is the holy grail for business owners. It’s when you cash in on your financial and sweat equity investments. It’s when revenue comes at less expense, which is to say when you become most profitable. At the same time, it’s when work becomes easier, more enjoyable, and less stressful. You enter a flow state when business comes to you and you can choose your clients.

There are countless programs and books that treached referral systems. The common threads are providing great value, asking for referrals, and systems and habits that create differentiation and value that drive and invite referrals.

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Should I Get A Real Estate License Just For My Personal Transactions?

The best way to answer this is to run through examples. If you never become an active real estate agent who serves others, you won’t subject yourself to all of the risks of being a real estate agent. Yet you could reap some significant financial benefits from being licensed if you personally buy and sell real estate.

Time Investment: Getting licensed generally a few hours per day of studying for several weeks to a month or more. Some of the things that will affect how much time you need to invest are your educational background, life experience, personal real estate experience, test-taking ability.

Financial Investment: Some of the factors that will affect your costs are the amount you invest in test prep courses, whether you go beyond licensing to joining local associations, boards, Multiple Listing Services and/or real estate firms. Your investment will be several hundred to $1000 dollars or ore.

Hanging Your License

Every real estate agent must be employed by a real estate broker. If you pursue a license strictly to save money for yourself, you can either pursue an agent’s license and then work for a broker, or you can pursue a broker’s license. If you get an agent’s license and work with a broker, you will have fees to pay and your broker will probably expect you to close deals on behalf of others.

Example 1: You want to buy a $1M house that offers a 3% commission to the buyer’s agent. As a licensed real estate agent, you can represent yourself and get paid $30,000. Likewise, when you sell your house, you can save 3% on the listing agent by listing it yourself. Now think about how many times in your life you will be buying and selling real estate, and consider the investment in getting your license. This may explain why there is a large number of real estate professionals per capita in expensive real estate markets like California. NOTE: you will have to pay taxes on that income as well as any fees to join local boards and MLS’s.

Example 2: Following the scenario above, what if you are in the $300,000 range? This is a $9,000 paycheck if you buy a house or a pre-tax savings of $9000 if you sell your house. It still may be worth it depending on your personal situation.

SIDENOTE

Using the examples above, you could also hire a flat fee broker to get yourself access to the MLS without having to study for a license, join the board, join the MLS, and take continuing education to keep your license active. I have even done this myself as a real estate broker in one state selling a property I had in another state where I was not licensed, and I was quite happy with the service. Flat fee brokers charge various amounts, but in my case, the flat fee broker’s fees were not much more than what I would have had to spend to enable my license in a new area.

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Will REALTORS® be disrupted By New Business Models?

The real estate industry is so huge it attracts many entrepreneurs and opportunists looking for ways to disrupt the way real estate is transacted. Disruption has been knocking on the doors of the real estate industry for decades. The real estate profession has been called out in various publications including the popular book Freakonomics. And yet, the profession is alive and well.

Real Estate Brokerage Models

Real estate clients range from do-it-yourselfers to penny pinchers to full service clients. They need a range of offerings from discount to full service brokers. Agents also have different needs. They have options to work on commission or salary. That’s why the growth in residential real estate business models has not spelled a death knell for traditional models. Today, traditional brokerages are alive and well, co-existing with discount brokerages and companies like Redfin that pay agents salaries and bonuses instead of commissions.

However, the tension continues to exist between consumer advocates and the real estate establishment with regard to commissions in the US and Canada. While there are more choices these days, “full” commissions of 5-6% have been around for a long time and are commonplace today.

Meanwhile, commissions in other countries around the world are closer to 1, 2 or 3%. Whether or not the US or Canada will fall in line remains to be seen. Alternative models persist, but have come about slowly in large part due to the efforts of the real estate establishment. Could there be significant disruption ahead, or will the slow evolution continue?

Many are drawn to the profession by the earning potential. However, because commissions are so high and attract so many practitioners, competition is extremely fierce. Some version of the Pareto Principle applies (20% of the results are achieved by 80% of the participants). If a disruptor causes widespread and steep commission declines, interest in the profession will decline. The effect on earning potential is uncertain since there would be significantly less competition amongst real estate professionals.

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How Has Technology Changed the Real Estate Industry?

Technology disruptions have enhanced the experience for both consumers and real estate professionals, and the professionals continue to prove they are needed.  Some disruptors like Zillow have broken down the doors and become part of the industry. 

For an established industry facing disruption, a surprising number of traditional tried and true tactics still work. Why is that? First of all, disruption is not new. The industry has been subject to tech and business model disruptions for decades. There is a historical record of how these disruptions have affected the industry from big impact to partial impact to small impact. Here are some examples:

• Big Impact: Since the Internet and online research became accessible to the masses at the turn of the century, there was a tipping point when most home buyers would search for homes online before ever visiting a home for sale.
• Partial Impact: Discounted commission models have been around for decades and continue to grow every year. However, the full commission model is still alive and healthy. With increased competition and new models, the consumer has benefitted from a wider range of choices when listing their home for sale to include full or low commission models, flat fees, limited service, and MLS-access only.
• Small Impact: While Virtual Home Tours have definitely added to the information a buyer receives on a home, it has very little impact on eliminating showings or open houses.

Real estate tech giants like Zillow and Redfin capture Buyers online well before they contact a REALTOR®. In fact these sites are often the gateway to a REALTOR®. They have pulled a lot of REALTOR® advertising dollars from traditional sources like local publications, bus benches and billboards.

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What is Real Estate i-Buying?

OpenDoor and tech giants like Zillow and Redfin have even become buyers of significant quantities of homes, a phenomenon known as i-Buying. For several reasons, I never saw the logic in these real estate tech firms gobbling up residences. For one, it seemed to be bad business PR – big tech squeezing out mom-and-pop landlords, first time home buyers and real estate professionals. Secondly, did they really think that simply because they handle large amounts of real estate data, they could see the future? Clearly that has not happened as I-Buyers have suffered disastrous results and have pulled back.

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Why Do People Choose The Real Estate Profession?

Many people choose real estate for the flexibility and the allure of large commissions. In our discussion of the risks, we see that both of these features may be a mirage. There are plenty of other professions that have some of the same risks – physical danger, financial risks, legal risks, and industry disruption – but few professions encompass all of these risks the way real estate does. And yet, real estate is a popular profession because barriers to entry are low, homes and houses are familiar and accessible,  and the ability to take control are tough to beat. See this article for a comparison of the real estate profession to business brokering.

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Is Being a Real Estate Agent Worth It?

Being a real estate agent can be worthwhile if you value control of your schedule, controlling your income, choosing the team you work with and providing a service you feel good about. You also need to be comfortable with the risks of the profession that are described in this article. Getting a real estate license can be quite valuable even if it is just for personal transactions for you and your family. If you want real estate investments to be part of your portfolio or even if you just tend to move a lot and buy and sell homes along the way, your savings from handling your personal transactions could easily pay for your investment in a real estate license.

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