But your a big-shot rich Real Estate Broker... right? Yeah sure, mentally I'm rich.
One of the biggest misconceptions I've run into as a Real Estate Sales Team Owner, Real Estate Investor and Real Estate Property Management Company Owner is, well, it looks like I own a lot of things that would surely make me a fortune. So people assume I'm "rolling in it." I can tell you that for most entrepreneurs and small business owners "rich" is a mindset first and the money comes later. As the businesses grow the owner experiences "growing pains" which is the ebb and flow of money. At some point, if the business is growing, you will hit a ceiling that can only be achieved by spending more money (investing) in the business. This comes usually in the form of purchasing some sort of system or software or hiring a new employee who will either generate more business or allow your current employees to handle more business by assisting them.
So what do the numbers look like in a Real Estate Sales Business?
First, I would tell you to read the The Millionaire Real Estate Agent written by Gary Keller, Dave Jenks and Jay Papasan (Gary you can thank me for this plug later). Now, if you work for another broker you may be thinking right now "Ohhhhh, I see, this is just some BS where this guy tries to recruit me." To that I say, If you don't read this book merely because it's written by the founding father of Keller Williams Realty and you're afraid it's going to be a recruiting pitch, you are an idiot. This book can teach ANY ENTREPRENEUR in ANY FIELD how to create and build a very successful business. The models work whether you sell shoes, nuts or houses.
Okay, back on track...
When you read the MREA book you will notice in the Budget and Economic model that the lead agent of a successful team is supposed to net around 40% (the key word here is "supposed"). That means that if your team grosses $1,000,000 in commissions, you as the owner should take home $400,000 before taxes. However the MREA book also assumes that your agents are preforming substantially above-average... we're talking Listing Agents selling over 100 properties a year and Buyer Agents selling 36-50 per year. In reality most of the top-performing Real Estate Teams in my region (NJ, DE, PA, MD) are closing anywhere between 12 and 18 transactions PER TEAM MEMBER. This shows that in reality you will not get as much production out of your team on average as the MREA model suggests. The original MREA model does not appear to be scale-able nor does it meet real world production numbers. I feel that with the release of the MREA 2.0 we may see some of these issues addressed.
If you would prefer to make the most of leverage sooner, you may find out that you are actually netting 30% or even 20%. If you work in a market where the average sale price is very low, you may find that you have to compensate your agents on a higher split than other higher-priced markets in order to ensure they are making enough to survive and feel fulfilled in their position. This also chews into the bottom line. I'm fortunate (sarcasm) to be dealing with both scenarios. I would rather leverage people sooner and earn more time faster rather than earning more money... I mean ideally I want both but when you're starting out you have to choose which you want first. I also happen to be in a lower market than most areas of the country (at this time the Pittsburgh average sale price is around $200,000 where as the national average is $230,000+). Our numbers show this as well. The profit margin on my sales team is running only around 20%. So on $500,000 in team commission I take home roughly $100,000 after expenses and before taxes if I didn't close a transaction myself that year. The advantage of this set up is that it is very scale-able and allows me to focus on more recruiting, training and system creation activities rather than day-to-day rat-race sales activities.
Let me know what you would like to hear about in my next post in the comments below!
Dustin Nulf is an Associate Broker for Keller Williams Realty in Pittsburgh Pennsylvania. He has been in Real Estate Sales and Investing since 2008 and has had his hand in over 500 real estate transactions since then. Dustin is the CEO of The Dustin Nulf Team and acts as a coach, trainer, mentor and adviser to sometimes hundreds of agents a year.