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My Perspective for May

My Friends,

Real estate continues to march forward, as we all expected. Our weekly office meeting today included over 60 of the 208 agents, and had a review of the current state of the market from our Sr. Vice-President Beth Styne. Listings are down, pending sales are down, closed transactions are down and new listings are down. Altogether it means three things; there will be fewer listings for fewer agents to represent resulting in fewer agents on the market. In other words, heads are going to roll. (Agents are always on full commission at the major brokerages.)
Nothing is served by crying over the figures. All one can do is make sure his/her game is spot on, highly professional, at the top of the bar and all will be well. Lynn and I discuss this item every week with our assistant, and try to learn something from each transaction.

For those of you thinking about making real estate your career, let me give you some advice. It’s an exhilarating business, but requires long hours, tremendous discipline, capital to see you through the first few dry years, and you work seven days a week. (There are no weekends in real estate.) Give that some consideration and keep in mind that it has to fit into your family’s requirements as well. That’s why it works well for Lynn and I; we do it together.

The second item to consider is your social base. If you are not overwhelmed with close personal friends and a tremendous data base of middle aged adults, then forget it. They will be your core business, but they have to be in the position to purchase large expensive homes. Otherwise, if you’re young, you’ll starve leasing out apartments to all of your friends.

Let me run two scenarios by you if you’re considering real estate. Let’s assume that you have a 60% split with Coldwell Banker. You finalize a lease for your client in a luxury high rise at $6,000/month. It’s for two years and the listing agent advertised your commission rate at 3.5%.

$6,000 x 24 months = $144,000 (gross rental stream)
$144,000 x 3.5% = $5,040 (commission due Coldwell Banker)
$5,040 x 60% = $3,024 (your gross commission)
Out of that will come E&O insurance, marketing, advertising, cell phone, supplies, taxes, etc.
Let’s try the same couple, who now have decided to purchase a $1.5M house instead. In our part of the world, a $6,000/month lease can equate to a $1.5M house in West Los Angeles, but the more common commission rate is 2.5%.
$1,500,000 x 2.5% = $37,500 (gross commission due Coldwell Banker)
$52,500 x 60% = $22,500 (your gross commission)

Out of this commission check for $22,500 you’re going to be paying for the same expenses, just with more commission dollars. You may have an increase in marketing and advertising that you wouldn’t with a lease, but your fixed costs are the same.

As you walk through the decision making process, you have to ask yourself a difficult question and have the temerity to answer honestly; “what are my chances of generating three or more sales at a $1.5M average?” If you can’t honestly tell yourself that you can do it the first year, then you’re fooling yourself by considering real estate as a career path.

Lynn and I get requests quite frequently to talk to someone about real estate as a career, and we’re very careful to give honest answers without deflating their ego. But the real truth of the matter is that we are unusually situated to be successful agents due to our age, our many years of community service and the vast network of people we have come to know over four decades of adulthood. That scenario doesn’t normally present itself, and certainly not with the millennials. This business is one of the few that actually rewards someone for being middle age.

Our office in Beverly Hills is consistently the highest grossing office in gross commission income in the country in residential real estate. It’s almost impossible to get into, and comes with tremendous pressure to maintain a performing business. But it also includes a certain amount of panache in the real estate community if you’re in it. Most parts of the country have small brokerage offices where you can hang your license, but it still falls on you to generate the business.

I don’t recommend real estate for everyone, but I do think it is worthy of consideration. It has been very good to Lynn and I, and there is no reason why anyone reading this can’t duplicate our success or surpass it. However, you must be prepared for some long hours and frustration beyond what you’ve ever experienced. If you can master those traits, and be disciplined enough to knock on doors every day for two hours and spend your mornings calling people you know and your evening hours addressing postcards to everyone else, then you are ready to tackle the world of real estate.

Welcome aboard.