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Realities of Real Estate: Risky, rewarding business

With the start of a new year and now that the federal government has stopped extending unemployment benefits, there are probably plenty of people out there mulling over what might be their next careers. For some, a recovery in the housing market has made real estate a more viable option. We thought it would be helpful to review what’s required to become a real estate agent and how agents get paid, as well as the pros and cons of this profession.

How to become an agent: Real estate agents are independent contractors. Generally, an independent contractor is just like it sounds, a person who works independently of an employer under some sort of contractual agreement. Agents are licensed by the Maryland Department of Labor, Licensing and Regulation. To get that license, state law requires that you must:

– Be of good character and reputation. (How they determine that, we don’t know.)

– Be at least 18 years old.

– Successfully complete an approved course in real estate, including a three-hour course in real estate ethics.

– Pass an examination given by the Real Estate Commission.

Once you’ve completed these steps, it’s not like you can just go out and start selling property. The DLLR also requires that you affiliate with a licensed real estate broker. What that means is that you join an outfit like Champion Realty, Long & Foster, Coldwell Banker or any one of the many other local and national real estate brokerages.

Even though you are affiliated with such a broker, agents maintain their status as independent contractors. Additionally, once you are licensed in Maryland, you can sell property anywhere in the state. Even so, the Realtor code of ethics prohibits agents from selling property that is outside the area of their expertise.

Overall, the time and money required to get a real estate sales license is fairly minimal. This is both good and bad. The good part is that it’s an easy, inexpensive business to start. The bad is that, without the proper guidance, an inexperienced agent can get himself or herself and the clients into all kinds of serious trouble.

Just because you have a driver’s license, it doesn’t mean you’re ready to run in the Daytona 500. The same is true with real estate. This is one of the reasons the DLLR requires agents to affiliate with a broker. By working through a broker, it helps ensure that new agents get the proper training to understand what has become a complex process. Selling a house involves a variety of skills with respect to things like marketing, technology and negotiations. In the classes required by the state, people learn only a small fraction of what’s really necessary to be an effective, successful agent.

How agents get paid: As a real estate agent, there really isn’t any limit to how much you can earn. In our office, there are agents who make less than $20,000 a year, and there are agents who make almost $1 million a year.

When sellers list their house, they make an agreement to pay the agent’s broker a commission. All brokers independently set their commission rates, so the amount of commission can vary from company to company, and it also depends on the type of service that firm provides. For illustration purposes, let’s say you agree to pay a 6 percent commission. On a $375,000 house (the median price in Anne Arundel County), that’s $22,500. But, don’t think for a minute that your agent is going to get all $22,500. In most cases, the commission will be divided at least four ways.

First, the listing broker will share that commission with the buyer’s broker. Then, each broker will split the commission again with its agents. As a result, the $22,500 commission can quickly become something closer to $6,000 for the agent you hired to sell the house and $6,000 for the agent who represented the buyer. Plus, there could be fees to a referral company, further reducing the agent’s commission by as much as another 20 percent. In the end, an agent might make less than $5,000 on the sale of an average home.

These numbers can vary according to the contract you make with the listing broker, what you’ve agreed to pay the buyer’s agent, as well as how the brokers have agreed to split the commission with their agents. And finally, that $5,000 is gross profit. In addition to her time, an agent will incur many expenses associated with selling a house and maintaining her business.

The good and bad of being an agent: In some ways, being an agent is different from any other profession out there. On the positive side, you’re your own boss; you make your own hours, and the sky’s the limit on how much you can earn. Nevertheless, there are some downsides. The biggest is that it’s one of the few professions where you won’t make a nickel unless you actually complete a sale, and there is no safety net if things don’t work out.

Real estate agents work on 100 percent commission. There is no regular salary, no paid vacation, no paid benefits, no health care, no pension, no profit sharing, no unemployment insurance, no disability benefits, no nothing unless you actually get a house to settlement. And it’s actually worse than that.

You could spend many months of your time and thousands of dollars out of your own pocket helping someone buy or sell a house, only to have him change his mind. There aren’t many jobs out there where you invest substantial amounts of time and money with no guarantee that you’ll earn anything. In many ways, being a real estate agent is one of the purest forms of capitalism practiced today.

But despite the great risk, there can also be great reward. In addition to the potential monetary gain, there is also great satisfaction in helping people purchase one of the most expensive and important possession they have — their home. Sure, it’s nice to get those commission checks, but what really puts a smile on our face is seeing the excitement of a young couple buying their first place, the pride of family as they move up to the bigger house and the comfort of retired people when they downsize to something simpler.

We get to see people make their way through many important phases of their lives. It’s a perspective that makes the job challenging, interesting and something we never tire of.

So, if you’re a real self-starter, a career as a real estate agent might be something you’ll want to consider. If you have any questions, or want more information, just drop us an email, and we’d be happy to help you out.

Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is