Can Selling Real Estate Make You Rich?

While breaking into real estate may be easy, getting established is tough

Article originally posted on World Street Journal

When Roman Serra, a 29-year-old with a master’s degree in art, decided to switch careers, he enrolled in a two-week real-estate course. He took a personality test online and went through a short interview at Chicago real-estate firm Baird & Warner, where he took the class. If he passes his broker’s license examination in January, he is guaranteed a spot as an independent contractor and a desk at one of the company’s 22 offices. He says studying wasn’t difficult compared with his days in college. “I wouldn’t personally consider it intense,” he says.

Amid a recovery in luxury real estate, aspiring agents like Mr. Serra are rushing to take prep courses and licensing exams. Many will find that while breaking into real estate may be easy, getting established is tough. Landing those million-dollar listings means succeeding against all odds.

Only 2% of Realtors, a trademarked term used by the National Association of Realtors to which the majority of real-estate agents belong, earn more than $250,000 a year. The median annual income nationwide was $43,500 in 2012, up from $34,900 in 2011. The average commission rate for 2013 is projected to be 5.2% of total sale price, according to Real Trends, a Castle Pines, Colo.-based research firm.

“To really make serious money you have to know the business really well,” says Norman Block, a broker and adjunct professor of real estate at the business school of University of North Carolina at Chapel Hill. “People think, I’m going to drive around in a big fancy car showing houses and it’s going to be a lot of fun.”

Most successful agents readily admit that isn’t the case—even for top sellers whose headshots are featured on local billboards. Mike McCann, a Philadelphia broker associated with Berkshire Hathaway  HomeServices, has a team of 15 agents and assistants that mostly work on the buyer’s end of real estate transactions, where sales can be tough to close. That leaves Mr. McCann time to deal solely with sellers, which is typically more lucrative. “It’s very important to make people feel special and that they’re your only clients,” says Mr. McCann, who adds that has closed more than $1.3 billion in sales over the past 13 years.

As luxury-home sales continue to rebound, more people are getting serious about real-estate careers. In November, the NAR trade group had about 40,000 more members than in 2012, a total of 1,046,278, the largest increase since 2006.

Potential home buyers who use real-estate websites assume that they have as much information at their fingertips as agents, says Prof. Block, but that isn’t usually true.

The most successful buyer’s agents tell their clients about properties for sale before the listings go on sites like Zillow or Redfin, which pull from the Multiple Listings Service, the industry’s main database that also includes information available only to real-estate professionals. Networking with other agents to help connect buyers and sellers is key.

“Putting a sign in the yard and lockbox on the door—that doesn’t cut it anymore,” says Prof. Block.

Marketing budgets can be high, says Mr. McCann. He spends about $335,000 a year on photos, brochures, online promotions and open houses. This outlay is typically paid up front, before any commissions.

Mr. McCann recently sent out 6,000 hand-signed Thanksgiving cards to former clients. He also mails out July Fourth cards to past clients, buys closing gifts after a sale and sends holiday gifts to builders and clients. He spends $20,000 each year on gifts and mailings, he says.

Three months ago, Baird & Warner started hosting public sessions about the realities of a real-estate career, says Laura Ellis, the firm’s senior vice president. She says hundreds of aspiring agents have shown up for its free seminars and many attendees are 20-somethings drawn to the vocation’s flexibility and potential for payout. But they often don’t realize it can take a year or more to get established, Ms. Ellis says.

“We do not see the part-time housewives stereotype anymore,” she says, adding that the company has doubled the number of new agents to 300 in 2013 from 2012. About one-third earn between $80,000 and $120,000 a year, she says. The company hires about 30% of the students who take their prelicense courses.

Most hopeful agents need to save up before they begin. Studying for the broker’s license exam, which covers both national and state laws and regulation, can take weeks, says Bopa Touch, administrator at the Rockwell Institute, a real-estate training school in Bellevue, Wash. In 2013, the company almost doubled the number of students taking its three-week, $489 broker’s license course, compared with 2012, says Ms. Touch. Between registration fees and desk fees—an amount paid to the brokerage firm to cover operating expenses—most new agents spend $2,000 or more to get started, which doesn’t include months of living expenses necessary before commission checks start coming in. “They don’t realize how much money they need to start,” Ms. Touch says.

The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.

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