Starting out in real estate - Is it a good idea?
If you’re considering starting a career in real estate, congratulations! Real estate is one of the most exciting and interesting fields out there. As much as I love real estate, I’ll share some cold, hard truths with you, so you know what you’re in for. I’ll give you an honest and complete picture of what’s coming so you can decide if real estate is right for you.
In some ways, it’s easier to become an associate than ever before. You can sign up for an online class, and for a couple hundred bucks and several weeks’ time, you can sit for your exam. You’ll need to study, but the whole process doesn’t take too long or cost too much. And, you can do almost everything from the comfort of your home or the local coffee shop.
That’s where the easy part ends.
Once you score your license, you’ll want to be an apprentice. These days, securing a good apprenticeship is tougher than ever. Here’s the problem: most of the boring, repetitive, or annoying tasks that the experienced mentors would assign to an apprentice are now either automated or outsourced. Chatbots, real estate automation tools, and virtual assistants are doing those jobs. Therefore, an experienced agent has less incentive to take you under her wing. She just doesn’t need you as much.
Full-service real estate companies are also more reluctant to train you. As a new associate, you cost a lot to develop. If you drop out or never succeed, companies have wasted their time and money. If you do succeed, they fear that you’ll switch over to a virtual brokerage like eXp and take all your valuable training with you! Brokerage firms are in a bind, and new trainees like you are the ones who suffer.
As a salesperson, you’ll be locked into a constant struggle to add value. Every day and with every client, you’ll need to prove your worth against fierce human and machine competition. Computerized real estate systems improve each day as their artificial intelligence learns and grows. If you’re just starting out on what could be a 20+ year career, you’ll face a lot of new technology. We can only imagine how powerful computer systems will be in 5-10 years, and some of them will be your adversaries. You will need to prove that your uniquely human qualities justify your high cost.
We already have too many real estate agents. Most associates quit the field after 5 years, and technology will continue to drive down the number of required agents for two reasons.
First, some agents will simply be replaced by tech companies like Opendoor. Those agents will simply vanish. Second, each of the remaining agents will be more efficient because of technology. They’ll show properties with virtual reality, and enhanced AI will make shopping for homes easier. A typical salesperson might only need to show a buyer 2-3 physical homes rather than 10-12 today. As a result, the amount of time per transaction will decrease - reducing the number of agent hours needed in each city.
Extra competition and streamlined sales processes will drive down commissions. Don’t expect to pull down 5-6 percent from your transactions. It ain’t gonna happen.
Competition against your human rivals will be even more fierce. The transparent and ubiquitous MLS means that every home seller can hop online and review all the sold homes in their neighborhood. They’ll see for themselves who had the killer sales and read who has the best reviews. As a newbie, you’ll have to convince these sellers to go with you instead of their town’s top agents. Not an easy task!
From the moment you start out, you’ll be battling it out against the top dogs. That’s a tough match to win. That’s why I suggest you find a niche or specialization - so you don’t have to confront the elite agents head-on. Your best play is to find, develop, and own a specific market segment. With the power of technology, market segmentation is easier than ever.
Another option is to start working for a company like Redfin or another internet-based brokerage. They are sometimes willing to hire new associates. They’ll train you, and you may ultimately choose to spend your whole career with them. When you’re with a firm like Redfin, the clients come to you through the company, so you don’t need to worry about your limited track record. You’ll still get business!
I asked top investor and real estate expert Ken Potashner (click here to read the entire interview) what advice he’d offer to someone considering starting out in real estate. He said, “I would steer people away from getting a real estate license if they're going to work with a traditional entity. If you get a real estate license, go with a company that's heavily leveraging technology to facilitate transactions.”
Not everyone is concerned about the future of real estate agents. Nick Bailey, former President and CEO of Century 21® said in an interview, “Real estate agents who continue to provide value to the home buying and selling client will always be necessary. While there is a lot of information online today, the agent possesses the knowledge of the market, the ‘ins and outs’ of the transaction, and they have the negotiating skills to get the client from start to finish; something the Internet simply cannot do. The irony is that the digital revolution has helped scale the importance of human knowledge and shared experiences, and consumers across generations are ‘pushing forward’ the value of working with a person. In fact, according to a CENTURY 21-commissioned study by Wakefield Research, Millennials—despite being incredibly tech-savvy—overwhelming (92 percent) believe it is important for a real estate sales professional to get to know them personally before choosing to work with them. An agent who is equipped with the tools and technologies that help them facilitate human-to-human connection, augment their abilities and serve to enhance the human involvement consumers demand and deserve from their real estate company will be a step ahead of the market, the industry and the competition.”
You might want to consider joining or creating a startup. Tech startups are hot right now! If you love real estate and technology, the startup life might be for you. You can even work in real estate for a year or two to develop an understanding of the market and then jump over to tech. Adam Gothelf took that path. He was a real estate agent who transitioned to technology and co-founded Disclosures.io. Here’s a link to the Gothelf interview.
While it may be tougher than ever to be a traditional real estate agent, there are more opportunities for a creative entrepreneur than ever before. Go out there and experiment. Innovate, and you may be surprised by the result.
Interview with Tom Ferry, Top real estate coach, speaker, and CEO of Tom Ferry International
Gregory Charlop: Tom, you have a very impressive background. Tell us a bit about yourself and how you developed your interest in real estate?
Tom Ferry: I've been involved in the industry since I was 18. Most people were raised on milk and cookies. I was raised on real estate—real estate sales, real estate sales training, and real estate management. My father was a real estate agent. My grandfather, who helped raise me, was a real estate agent back in the 50s. So, it's really been the only industry I've ever known. I’ve been absolutely passionate about it and in love with it for three decades.
I've built two $50 million-plus coaching and training companies in the space. I've done that because I am very mindful of what matters to real estate professionals, what matters to consumers, and bridging the gap between the two. In 2008, I started telling real estate professionals, "You need to start a YouTube channel and start producing content and educating consumers on the dos and don'ts and the things to avoid in buying and selling."
In 2007, 08, 09, I did everything in my power to get as many agents as I could to build their profiles, and then turn around and participate in platforms like Facebook and Twitter, and eventually, Instagram and others, all because I understood that's where the consumer was going. And rule number one in sales and marketing is: be where your customers are.
As a business coach, I've done a little over 30,000 hours of private coaching sessions. I've been named the number one real estate coach for the last five or six years in a row. Today, we have 162 business coaches managing thousands of clients all over the
world and helping them basically run their businesses more effectively.
Gregory Charlop: You're also an author.
Tom Ferry: Yes. Three books. One New York Times bestseller. The last book we published was purely for the real estate industry, called Mindset, Model and Marketing. Because I do so much free content on YouTube, where we've got millions of views and videos with hundreds of thousands of views, that when I published a book, I thought: "Put it on Amazon. Make it digital. Sell it for 99 cents. I don't care." And we sold a gazillion copies. Books are great.
Gregory Charlop: Let’s talk about leads and customer engagement.
Tom Ferry: We're now in the on-demand environment. Imagine if you went to Netflix tomorrow and you could only watch the show you wanted 50 percent of the time. You would absolutely get rid of that service in two seconds. Well, the studies show that if an agent gets 100 leads from lead services, on average, they're only touching 35-40 percent of those people, leaving 60 percent of them with a really bad experience. So, in the on-demand environment, what's happening is smart companies and smart agents are building tech that allows every consumer to get what they want in the timeframe that they want it. Smart agents are partnering with those companies. Solutions like Zillow, Agent Legend, or Agentology are doing a tremendous service for both the agent and the consumer by eliminating a horrific phenomenon in real estate called lead follow up.
As a buyer, I want information in real time. In a perfect world, I don't want to talk to anybody, and the internet has done that for us. Agents are talking about how their tech causes their sellers to sell faster, to sell for more money, and, ultimately, create a better-quality experience.
Look at Dotloop.com. Imagine you’re a consumer buying a home every seven to ten years. You meet with an agent. You look at a bunch of houses. You identify the one that you want. You write up an electronic offer. It gets submitted, and from there you have absolutely no optics on what's happening until your agent calls you and notifies you. With the technology in Dotloop, I am given access as the buyer, as the seller, as the selling agent and the buyer's agent, as the loan officer, the title rep. Everyone involved and associated with the transaction can see in real time what's happening. It's another beautiful degree of separation that has enabled a lot of agents to serve their clients at a higher level through transparency.
Gregory Charlop: As you know, the top agents tend to land a disproportionate share of the real estate business. I think the 80/20 rule definitely applies in real estate, well maybe more like 95/5. What can a newer or less experienced real estate agent do to compete with these top dogs? Can they compete through specialization or better use of technology?
Tom Ferry: Here's the good news. Are you ready? The National Association of Realtors puts out these wonderful statistics. They say that 78 percent of consumers go with the first agent they meet. So, for a brand-new agent, it's very simple: You need to do more meeting and greeting and connecting and prospecting and marketing than Gregory, the experienced rock star in your town who has done it for decades and still does it. But everybody's marketing. The Borrell report tells us that somewhere in the range of $15-16 billion a year is spent on advertising. If an agent just gets out in the marketplace and meets and greets, does more open houses, knocks on front doors, makes phones calls, goes after all the myriad of available lead sources, a new agent's going to win.
Unfortunately, the math tells us that the vast majority of them won't do those things and, therefore, will fail. Some say it's as high as 87 percent, but that doesn't shock me because 90 percent of all small companies fail. So, why would 90 percent of startups fail, and real estate agents succeed at a higher level? It's a dog-eat-dog world. But a new agent who has the discipline to talk to as many people as possible, who knows what to say, has the ability to communicate, connect, engage, ask questions and bring value to the customer will win.
Gregory Charlop: So, if the new agent can get in front of the seller before the experienced agent does, they have a good shot at winning the business?
Tom Ferry: Yes. I usually modify that NAR quote and say, it's not that 78 percent of consumers go with the first agent they meet. I say, 78 percent of the consumers basically settle for the first agent they meet. Agents have to do a better job of bringing value and nurturing the people that they already know, people in their database. And if you're new and don't have the technical know-how, I tell them to align with another agent. Get a mentor. Take on a temporary partner. Join a team. On the flip side, they must have multiple lead sources that they can go after, because, again, it's not that 78 percent of consumers are going with the first agent they meet. They're settling for the first agent they meet. Agents just need to talk to more people.
Gregory Charlop: This is a controversial question, but it’s on the minds of many people that I speak to. With all the new real estate technology and the rise of Internet-based real estate companies, many real estate agents are really worried about what the future holds for them. Do you think that we'll still need real estate agents, in the next five years, or do you think technology will replace them?
Tom Ferry: Century 21 was the first real estate franchise. And the second one? It was a discount broker that was basically looking to get rid of real estate professionals.
The reason I bring that up is this: the only people who are nervous about this are agents who should leave the industry anyway. Good agents will never be replaced by technology. Good agents always have that fiduciary responsibility to walk you through the process, make sure you make the right decision and feel good about the decision, and that you have someone to talk to through the range of emotions that take place inside a real estate transaction.
This is a human business that is tech-enabled, not a tech business that will replace humans. There are a ton of examples of technology completely displacing humans, and I can show you an equal number where the human absolutely matters. I bought a very expensive Tesla in seven minutes online with a salesperson. “What about this? How about this? Does this matter? Do I need this?” I used that salesperson to guide and direct the experience. I could've done it online, right? I still want that salesperson experience. When you’re talking about a house, the vast majority of people, still want that human element to help them make a good decision.
So, do I think real estate agents will be here in five years? I would bet everything I own times a thousand that they will be. Then I would go out 10 years, 20 years, 100 years, and I’d say the same exact thing.
Now, what might change is model and compensation. There is plenty of room for new models and changes in how agents are compensated, but somebody's still going to be there guiding and directing. Did WebMD get rid of doctors?
Gregory Charlop: No, not at all. Thankfully!
Tom Ferry: Right. Doctor Google usually is a scary place to go.
Gregory Charlop: That's a great analogy. You heard it here first! Tom Ferry says that if you're doing a good job, your job is secure in real estate.
Tom Ferry: 100 percent.
Gregory Charlop: What are your thoughts about the future of virtual or augmented reality in real estate? Do you think those will become industry standards, or will they remain kind of niche players? And how can real estate agents take advantage of these tools?
Tom Ferry: The great news about real estate agents is they are independent contractors. They're entrepreneurs. For the most part, they're people oriented. They're experience oriented. Real estate, generally, is really adaptable to new technology.
There will always be the early adopters that go hard. But once you begin to see traction, once you begin to see it is the cultural norm, real estate's usually ahead of that curve.
So, I feel super bullish about VR. I'm looking forward to Siri or Alexa having every possible real estate question downloaded and ready to go. I remember when agents would pay $5,000 to have a video produced. They now do it for free on their iPhone. Agents will pay early and often until it gets disintermediated and becomes free and a
ccessible to all.
Gregory Charlop: You mentioned Alexa and so have a couple of other people I've interviewed. What technological tools do you think real estate agents really should be using that they're underutilizing today? Are they leaving technological tools on the table that they should be using?
Tom Ferry: The answer is always yes. Number one is any kind of CRM. Studies show that the vast majority of agents don't have one, and they have no way to really manage their relationships and their contacts. I'm a huge fan of Contactually. We even partnered with them to provide every one of our coaching members The Tom Ferry CRM Powered by Contactually within a business portal we created called The HUB. Another great tech tool in The HUB is on-demand video role plays. This allows people in our ecosystem to go online, connect with another agent and practice their scripts together live on video.
And I still think agents are totally under-utilizing Facebook Live, Instagram Live, Instagram Stories, and, ultimately, YouTube for creating content and distributing it to as many people as they can in their marketplace. If you asked me for the one thing they're under-utilizing, it's their phone. They still think of it as a texting, calling, and emailing device, when it's really a device that is connected to 2.1 billion people on the planet—depending on which platform you're on.
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