The Real Estate Agent's Field Guide: Essential Insider Advice for Surviving in a Competitive Market

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"Facing challenges such as widespread industry consolidation, the Internet, and increased competition, real estate professionals are being forced to creatively devise smart new ways to compete. The Real Estate Agent’s Field Guide provides vital information for both new and experienced real estate agents to survive industry changes and thrive in the current marketplace.

The book covers all the challenges facing real estate agents and gives readers in-depth strategies they can use...

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Overview

"Facing challenges such as widespread industry consolidation, the Internet, and increased competition, real estate professionals are being forced to creatively devise smart new ways to compete. The Real Estate Agent’s Field Guide provides vital information for both new and experienced real estate agents to survive industry changes and thrive in the current marketplace.

The book covers all the challenges facing real estate agents and gives readers in-depth strategies they can use to successfully overcome them. Readers will learn effective techniques to:

• Compete with cut-rate brokers

• Work with customers who want more for less

• Use technology to become more efficient

Instantly accessible for quick and easy reference, The Real Estate Agent’s Field Guide provides answers and advice for this challenging profession."

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Product Details

  • ISBN-13: 9780814408094
  • Publisher: AMACOM
  • Publication date: 5/24/2004
  • Edition number: 1
  • Pages: 304
  • Product dimensions: 6.00 (w) x 9.00 (h) x 0.90 (d)

Meet the Author

Bridget McCrea (Dunedin, FL) is a former Century 21 real estate agent who now covers real estate as a journalist for a variety of publications, including Realtor Magazine, The Wall Street Journal’s RealEstateJournal.com, Illinois Realtor, and Florida Realtor. She won the Florida Magazine Association’s 2002 Best Feature Award.

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Table of Contents

Foreword (by John Foltz of Realty Executives)

Part I:  Driving Forces

Ch. 1  Forces of Change

Ch. 2  Demanding Customers

Ch. 3 Technology

Part II:  Pricing Pressures

Ch. 4  Commission Compression:

Ch. 5  Cut Rate Brokers

Ch. 6  Menu options

Part III:  Job Hazards

Ch. 7  Risk Management

Ch. 8  Higher Power (license laws, regulations, RESPA, ARELLO, etc.) Ch. 9  Outside Forces (banks in RE, industry trends, consolidation, etc.)

Part IV:  Bracing for Success

Ch. 10  Survival of the Fittest

Appendix

Index

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First Chapter

The Real Estate Agent's Field Guide


By Bridget McCrea

AMACOM Books

Copyright © 2004 Bridget McCrea
All right reserved.

ISBN: 0-8144-0809-5


Chapter One

Facing the Forces of Change

TURBULENT WATER AHEAD

Fifteen years ago, a freshly minted residential real estate license hung on the right broker's wall virtually ensured success in a field known for its low barriers to entry and high financial rewards. With the closely guarded multiple listing service (MLS) books-delivered weekly only to members of the Realtors' association-tucked under their arms, agents held the keys to the entire home-selling industry. They were the keepers of information, and pretty much everyone knew it.

With the advent of the Internet came a dramatic shift. Quite literally overnight, a new breed of brokers came on the scene. They tapped the Internet as both a marketing tool and a vehicle for gaining access to those guarded MLS books, which quickly went the way of the eight-track. A more knowledgeable and tech-savvy set of consumers quickly followed, bringing with them a determination to challenge every traditional agent's way of doing business.

But the Internet isn't the only driving force behind the monumental changes in the residential real estate industry. Demanding consumers, commission compression, the rise of alternative brokerage methods, industry consolidation, and increased legal risks are all causing agents to rethink the way they do business. Combined, these forces of change are altering the real estate landscape as we know it and forcing agents and their brokers to operate in a Wild-Wild-West-like environment.

TWO DECADES AND COUNTING

Since the 1980s, the residential real estate industry has demanded higher commission rates, which in turn meant higher agent incomes. Driving those increases were agent-only access to the MLS, which contained valuable data about every home that had been listed with an agent in a particular region or city. Commissions stayed steady, since agents held all the cards, so to speak, and top producers were fairly easy to come by.

In the late 1990s the MLS information that agents had been holding close to the vest slowly became available to a much wider audience via the Internet. MLS systems began showing their listings to home buyers, who at the time were just beginning to turn to their computers for home data. As it turned out, those consumers enjoyed the access and demanded more. Most recently, the National Association of Realtors" (NAR) approved rules that make listings even more accessible to consumers, who now come to agents more informed. (See Chapter 3.)

Throughout the 1990s, MLS data were online, but in a format that still was accessible only to real estate agents. Agents would boot up their computers every morning, log into a password-protected system, and get an eyeful of the most updated listing information. That went on for several years until the late 1990s, when the rest of the world caught its first glimpse of the highly coveted information that agents and brokers had been hiding for so many years.

In June 2003 NAR announced that by the following year, buyers would be able to access as much information online as local agents allow (a word that shows just how protective agents still are of the information). To access the information, consumers must register for a password and relinquish some personal tidbits, essentially making that consumer a customer, with whom an agent would probably share that information anyway.

So what does this mean for the real estate agent who's trying to make a good buck by helping buyers into homes and sellers out of them? Well, it's a double-edged sword. Being able to collect consumer data before the buyers even tap into the MLS means that agents will be well positioned to help these consumers once they get to the hard part of the transaction: home showings, negotiations, mortgages, and property disclosures.

Since 80 percent of home buyers use real estate agents, and because agents use the MLS to search for homes, it only makes sense to close the loop and give consumers access to the MLS directly. On the other hand, it's also another chink in the armor of traditional real estate agents, who-in much the way that auto dealers were once the only keepers of the Kelly Blue Book (which is now online for anyone to access)-have had to reposition themselves to operate in a marketplace where the value they bring to the table goes far beyond showing homes.

"They really let the cat out of the bag on this one," one long-time agent wrote on a RealTalk chat board in 2002, apparently wistful for the days when only MLS members could access MLS data. Too late. Technological innovation has increased the availability of information in nearly all industries, and real estate is no exception.

Gone too, or soon to be, are the days when you loaded a family into your Mercedes Benz for a Sunday afternoon of driving around looking at a list of homes. Today, a consumer can access basic listing information on a local MLS through processes known as broker reciprocity, IDX, and virtual office Web sites (VOWS) (we'll get into what these are later); view an entire home online via a virtual tour; and check out the selling price, neighborhood, schools, and other pertinent information-all before they ever set foot in a real estate office.

This is a fundamental, but again not insurmountable, change that some feel has actually strengthened the position of the agent in the marketplace. After all, someone has to help home buyers and sellers decipher all of the new laws and regulations that surround the purchase of a home, and someone has to help them wade through the paperwork, figure out what the market will really pay for their homes, and prepare their homes for sale.

LOW BARRIERS TO ENTRY

Real estate is a pretty easy business to get into, but a pretty difficult one to survive in. Newly licensed agents quickly find themselves operating in an industry where titles like "million-dollar producer" are thrown around on Web sites and in newspaper ads, yet are rarely applicable to the average agent, who earns about $41,000 a year, according to the National Association of Realtors' latest statistics. The Bureau of Labor Statistics (BLS) pegs the number even lower, stating that the median annual earnings of the real estate agent was $27,640 in 2000, the latest year for which statistics are available (see Figure 1-1).

According to the BLS, the middle 50 percent of real estate agents earn between $19,530 and $45,740 a year. Assuming that $1 million in sales nets about $15,000 in commissions, that means that agents would have to sell about seven median-priced homes at $135,000 each to become million-dollar producers (assuming that an agent earns the typical 3 percent commission for her or his side of the transaction, then splits it with the broker) and make that $15,000 in gross commissions. That means that in order to survive and thrive, agents need to either do volume or find a broker who doesn't take such a big cut of the commissions.

Daryl Jesperson, CEO of RE/MAX International, Inc., advises agents to look beyond the numbers to find their true earning potential. The average salesperson at RE/MAX, for example, makes $121,000 a year but pays for personal expenses and a share of office overhead. Also factor in that those averages are less likely to include most of the industry's heavy hitters than they are those who are barely scraping by, and it's clear why Jesperson warns agents to take such surveys with a grain of salt.

"The groups will send out tens of thousands of these and get a small number of them back," he says. "The people who answer them, however, are the ones who are managing offices or that have time on their hands. The agents earning the most money along with designations and other credentials most likely can't afford the time to answer them."

Still, one can't ignore the facts. The BLS says that the business of real estate sales has a significant turnover rate, and it describes the industry as a highly competitive field in which "many beginners become discouraged by their inability to get listings and to close a sufficient number of sales." The common assumption is that only two out of every five agents will make it-a dismal ratio for the new agent, but comparatively good news for the existing agent who would rather not see the industry fill up with more top producers.

BOOM TIMES

Regardless of earnings potential-or lack thereof-people are flocking to the real estate industry like never before. Those low barriers to entry are certainly one good reason, but another driver is the economic downturn that started in 2000 and that hadn't let up as of early 2004. Pushed out of cushy executive jobs in industries like high-tech, many experienced sales-people and executives, as well as new college graduates, have turned to real estate as their first or second career (see Figure 1-2).

Why the influx? Simple. Real estate is a booming market in an era when almost every other industry is down in the dumps, or struggling to emerge from them. Real estate has been one of the primary drivers of the U.S. economy through the most recent downturn. People see properties continuing to change hands, they see that the barriers to entry for agents are fairly low, and they want in. Sniffing out opportunity, they decide to enroll in a course and sit for the real estate exam.

And it's no wonder, really. In 2002, more than 5.57 million existing homes and 974,000 new homes were sold in the United States, up from 5.3 million existing homes and 908,000 new homes in 2001. Low mortgage rates were undoubtedly the key drivers nationwide, with rates dropping below 5 percent as of June 2003. Also fueling the boom are the myriad immigrants and multicultural buyers who have discovered the value of American homeownership, and the fact that owning a home became less expensive than renting.

According to NAR, more than 5.76 million existing homes and 1.03 million new homes will exchange hands in 2003, making it the best year since 1968, when NAR began tracking housing data. The housing sector set another record in 2003, according to NAR, based on stronger-than-expected homes sale through midyear and a continued drop in mortgage interest rates. In fact, David Lereah, NAR's chief economist, said the forecast was steadily upgraded all year.

"The performance of the current housing market is nothing short of astounding," says Lereah. "Record low mortgage interest rates, a growing number of households, rising consumer confidence, and an improving economy mean we probably will set a third consecutive record for both existing- and new-home sales this year."

If the volume of homes sold is high, so too are the prices that such properties are fetching, thus creating another draw for folks seeking a career in real estate. Higher home prices mean fatter commission checks, more room to negotiate commission rates without cutting one's own throat, and extra cash to dole out to the new breed of "referral" companies that have their hands out at the closing table (read more about these forces of change in Chapter 4). The national median existing-home price was projected to rise 6.6 percent in 2003 (over 2002) to $168,600, according to NAR, while the median new-home price was to grow by 3.0 percent in 2003 to $193,200. "Although existing-home price gains this year will be less than the 7.0 percent overall rise in 2002," says Lereah, "they'll still rise above historic norms."

HIGHER DEMANDS

If the opportunities for new agents are great, so too are the outside forces that can quickly force them to retreat back to the corporate world. First and foremost, there's the consumer, who no longer has to sit and wait for the phone to ring with property information from the real estate agent. A quick flip of a computer switch and the right keywords can put an area's entire MLS (multiple listing service) in front of the consumer within a few seconds. The trend is positive in that it alleviates much of the early research (i.e., driving around on weekends looking at homes) that agents had to do, yet it is challenging in that agents are forced to deal with a more demanding, knowledgeable consumer.

Perhaps that's why the old axiom that "20 percent of the agents do 80 percent of the business" isn't valid anymore. RE/MAX cofounder Dave Liniger remembers a time thirty years ago when a top-performing agent really stood out from the rest of the industry. Back then, he says quality agents snagged the majority of the business-or, as the axiom goes, a full 80 percent of it-simply because they looked better and their competition was lacking in quality and customer service.

"Today the competitive influences that have come about have made everybody be much better or they can't compete at all," says Liniger. Today, the scales have tipped, and he estimates that the top 50 percent of agents are now doing 80 percent of the business. So while opportunities to succeed have increased, so has the amount of competition that even the best agents have to deal with.

And those top producers are pulling in more transactions than ever, according to Liniger, who started RE/MAX in 1973 after realizing that really good agents didn't want to split their commissions 50/50 with their brokers. His idea: Pay them 100 percent of their commissions, then have them pay their own overhead, from telephone service to desk space to paperclips.

The idea worked, and it spawned a change in the industry. Traditional brokers now offer commission splits that are fairer to agents, like 80/20 or 60/40. When RE/MAX got going, Liniger says his agents averaged ten transaction sides (either the listing or the selling side of the deal) apiece each year, while the industry average was five. Today, RE/MAX agents complete twenty-four sides a year on average in an industry that averages seven a year-including RE/MAX production.

STILL, THEY FLOCK

Despite the kind of challenges that are never mentioned in the typical real estate license educational course, new agents are flocking to the real estate industry in droves. In doing so, they're creating competition within their respective geographies that is all the more fierce, although most established agents would dismiss that notion. Still, the fact that new agents are swarming into the business makes one wonder if they're really doing their homework on their new career, particularly on the income side.

Evidently they're either ignoring it or hoping it isn't accurate, since membership in the National Association of Realtors rose 10 percent during the first quarter of 2003-twice the rate of the same period in the previous year. Nationally, NAR reports that 78,000 new members were added to real estate agents' ranks between 2001 and 2003, representing a significant increase to 948,000 members. Individual states are experiencing their own boom in people interested in real estate careers.

Continues...


Excerpted from The Real Estate Agent's Field Guide by Bridget McCrea Copyright © 2004 by Bridget McCrea. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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