THIS IS MY 65TH BLOG ON UNDERSTANDING MONEY TOOLS
In my last blog I briefly covered the topic of buying a new
versus resale home. In this blog I will cover the employment associated with
both as a new home real estate sales agent and an independent sales agent. They
have pros and cons associated with the professions.
New home sales:
- Most
of the time you are an employee of a corporation, especially the large public
companies, not an independent agent nor a contract person.
- As
with all sales business in real estate you need a real estate sales or brokers
license in the state you are doing business.
- Being
a full time corporate employee you may have certain benefits such as health
care and sometimes dental, optical, and retirement plans are offered.
- In
an employee/company relationship the company will dictate business policies and
procedures.
- Work
hours are regular such as 10 AM to 5 or 6 PM certain days of the week, however
meetings and completion of paper work can go well beyond those hours. In addition you typically have weekly
sales meetings.
- “Big
Brother” at its best. Your company sales office and models may have separate
burglar alarms. Many times this information goes to the main office. The
company knows when you arrive and when you leave. Many times phones calls go
through the company’s main office, therefore they know when you use the phone
and for how long.
- A
five day work week is normal for an employee/agent, and these days usually
include weekends when most traffic comes through.
- In
this agency relationship you sacrifice independence, however the large
companies spend millions on national, regional and local advertising to drive
traffic (customers) to their developments. The customers/clients and
information belong to the company, not you. Most likely the company will expect
you to follow up with each person on an ongoing basis, both in writing and on
the phone.
- Work
environment can vary from a trailer in a parking lot to a conversion of model
home garages made into very nice offices.
- Number
of home models in a development can vary from one example to models
representing each of the floor plans offered. In days past builders built more
models to help sales, these days they want to limit financial exposure/risk and
typically build only one to three models. Some homebuilders will sell their
models to investors and lease back, other builders will retain ownership and
hope prices go up.
- Training
by the company and strict policy is adhered to.
- You
don’t have to drive people to show homes, but your commute from home to a
designated development can be a long drive. The company will tell you where
they want you to work, and that may be temporary or permanent, either for
initial training or as needed. As you are an employee the mileage to and from
work normally is not an allowable IRS deduction.
- Commissions
on sales are less than the norm in the resale market place. The onsite agent
receives approximately 11/2 to 1/3/4 percent of the base price of the home less
the incentives that the builder gives. No commissions on options. Commissions
are not paid until closing on the finished home and that can be 90 days to one
year. Most big builders will place you on a “draw” applied toward commissions
so that you can live and pay your monthly expenses. Many times builders place
two agents on a project. In this case the norm is to split the commissions
between agents. The best policy is to split commissions versus compensating
each employee directly for sales. This way agents will take better care of
“all” clients, not just their own.
- As
with any employee/company relationship you need to perform to meet the
company’s pro-forma and expectations.
- If
you are allotted a draw against commissions and you don’t have any sales in 4-8
weeks your time with the company may be limited.
- If
you leave a company or are released from the company you need to have an
understanding ahead of time in writing as to if you are entitled to any
commissions on sold but not closed homes. In most cases this varies from no
commissions paid to a small commission. With new home sales once the contract
is made the agent “lives” with the buyer through the entire construction
process along with the construction manager and other company employees. If you
leave, another agent needs to take over the responsibilities and he/she will
receive most of your commission.
- Corporate
paperwork. The State approved contracts that homebuilders use are longer
including options and addendums to contracts. These contracts can easily be 30-45 pages in length.
- When
a person walks through the sales door it is up to the agent to qualify the
person and find out why they are there. Most companies want the agent to get as
much information as possible, at a minimum name, phone and email address. This
information is kept on hardcopy and also then entered into the computer and
sent to the main company office.
- The
agent is involved through the entire sales process including, but not limited
to, setting up meetings with the design center for options and attending to
client needs/wants until home is closed. The agent takes the initial offer for
purchase however the sales manager or someone else from the corporate office
needs to negotiate the price and terms, and accept or reject any offers.
- The
agent does not go to the closing, but after closing will usually give out the
house keys and garage door openers…and perhaps a gift from the company.
- Some
on-site agents can’t handle the idle time that can happen with new home sales.
There are days you may not have any customers into the sales office. If you are
the only agent on the project and can’t leave for lunch, you have an eight-hour
day to face by yourself. I’ve heard it be said that new home sales is like ice
fishing without the benefits of alcohol.
Why be a new home sales agent? Many real estate agents feel that all the bureaucracy and
lack of independence is worth it. An onsite agent can make a lot of money
during good times, with very little out of pocket expense. Most agents I know
who have done this type of work for years love it. There is a lot of
flip-flopping between companies in tough market times, as the grass always
looks greener.
Next let’s look at an independent real estate sales
agent:
- Select
a good, reputable broker or brokerage firm.
- All
the independence you desire and work only the hours you want. You are
compensated based upon your own performance.
- If
you are an agent you will need to have your license with a broker, this might
be an individual or a large company.
- You
pick up all expenses in your own business and need to attract your own
customers to make them clients. Some companies pay for national advertising and
make agents pay a portion, or have a reduced commission split to help pay for
this. There is no free lunch!
- The
independent agent probably will use their car more than the new home sales
agent, and this mileage is normally deductible from an IRS standpoint. Keep good mileage records in case you
are audited. Many independent agents buy or lease expensive cars for reflection
of success.
- You
may have to entertain to attract customers. Again, keep good records and all
receipts in case you are audited. These expenses apply to customers and clients
only.
- From
an outsiders perspective real estate agents make too much money and it is easy
work; wrong. It takes a lot of work, and hours can be irregular, including
evenings and weekends when most people are not working.
- Commissions
are usually higher than onsite sales. This range is usually 3-7% depending on
whole or split commissions before the broker holding your license takes their
percentage. Commission norms can vary from one area or city to another.
- Many
times agents need to have “floor time” or be in the office to take phone calls,
or attend to people who might walk in the door.
- Many
sellers want their agents to hold their homes “open house”, especially weekends
when there may be more traffic.
- The
independent agent gets involved directly in more aspects of the business. Corporations have many layers of
employees that work specific duties.
- Today,
independent agents may work out of their car on computers and cell phones. They may also prefer to work from home
versus an office.
- There
is no draw or salary, and it can take several months to start your business so
be prepared to have 6 to 12 months cash available to support yourself and
family while you build your business. It is not news that most people fail in
the real estate sales business. Many people get involved in real estate as a
“hobby” or after retirement and drop out in the first year. It is expensive to
maintain a license with continual education requirements, board of realtor fees
and state license fees.
- To
render support starting out many companies offer a team type of effort/selling.
I would recommend this for people new in the business. It can give you the
mental support to keep going, and you will learn from others who are seasoned
in the business. Select a mentor.
- Check
with your broker as to your additional cash outlays including business cards
and errors and omissions insurance. As a sales agent you need to inform your
auto insurance company that you will be using your car for business. Your
insurance rate will go up, but you want to make certain you and your passengers
are protected if you are in an accident.
- Normally,
the customers and clients you develop belong to you, not the broker, however
this is something to establish while interviewing with the company. Contracts
are between the client and broker, not you as agent or broker agent.
- You
need to have an agreement in writing with the brokerage firm as to who pays
expenses, such as local advertising.
Bottom line, there are significant differences between
on-site sales and being an independent agent. It is very personal. Also, an
independent agent can represent buyers with a new home purchases. Commission
splits are normally the same as with any buyer representation in your
area. The commission is due when
the home is built and sale closes.
Some builders will pay a portion of the commission through the building
process before the closing to help the broker/agent financially.
We have covered generalities in two types of residential
home sales in this blog. I hope that these run-downs of real estate sales give
you a feel as to the occupation. With either one you should look at it as a
“profession” holding high ethical business standards.
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