How to Select a Real Estate Firm.

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ONCE YOU HAVE obtained the necessary education to enter the real estate field, you need to select a real estate firm to hold your license. All licensed real estate salespeople must be associated with a broker in order to be active in the real estate field. In choosing a brokerage office, there are a great many factors to consider. In this chapter we will try to cover some of them. Remember, however, that location should have a tremendous influence on the "right" firm. A firm with national recognition may not be as important in a small town, and a franchise may not be as attractive if it has strong independent competition. A large firm with many offices or departments may offer more resources and more opportunities to try different specialties or to advance on the corporate ladder. Do careful research in your area to find the best firm there.

Training

Perhaps the most important factor to consider in selecting a real estate office is the amount of training and support the firm can provide for its salespeople. This is especially true for those who are entering real estate for the first time. Although some education is required before you can begin practicing real estate, many real estate agents have had very little experience in the day-to-day activities of the brokerage office. It is important to find a firm that will offer education, training, and experience in selling and listing skills and other tasks that the salesperson will be called on to perform. Training courses may also provide exposure to areas of real estate that were not covered in the salespersons pre-licensing training. These may include more advanced topics such as appraisal and financing. Many firms run in-house programs for their salespeople. These may vary from informal courses run by a broker to regular classes conducted by sales or training manager. The prospective salesperson should check to see how often the sessions are offered and if there are any set topics that are covered regularly. It is also wise to ask if the courses are offered to the firms salespeople free of charge.



Because most salespeople work as independent contractors, the firm does not usually reimburse the agent for courses taken outside the firm. However, the salesperson should consider the firms attitude to education in making his or her selection. Does the firm encourage its salespeople to take courses and post notices of available courses in the area? Ask the broker how many salespeople have completed a course in the last year.

Becoming a member of associations such as the National Association of REALTORS (NAR) also gives salespeople access to courses and online information created just for members. For example, NAR offers members online business tools on the Web at realtormag.com and free access to a large library of real estate-related publications at onerealtorplace.com.

Another type of training that will be of benefit to the new salesperson is working with an experienced salesperson. Even with classroom work, the new agent may not encounter all of the situations that can come up in everyday business. For this reason, working in tandem with a seasoned agent will teach the new salesperson techniques that might not be covered in class. Ask the broker if this type of support is available with the firm.

One of the factors that can influence a salespersons success is the success of his or her firm. What is the firm's reputation in the community? Ask local business leaders, lawyers, and the Better Business Bureau about the firm's background. In investigating a possible brokerage, try to get a picture of where the firm is situated in relation to its competitors. Compare the average sales price of the firm's houses to those of others in the community. A firm in the same area as several other successful and aggressive businesses may be having difficulty retaining its share of the clients. Ask what percentage of the market the firm currently holds. Also get information on the growth of the firm over the last few years. Good indications of growth include an increase in the number of sales associates, the opening of a new office, or an increase in the number of support employees. Obviously a firm that has had a steady growth offers greater stability and opportunity than a firm that is just barely making it. It is also important to talk with the broker and find out the firms projections for growth in the future. In asking questions about the firm's growth, the prospective salesperson should also find out about the possibilities for advancement and management training that the firm can promise.

Services and Facilities

The real estate agent should also study the services and benefits offered by the firm. Review the firm's advertising program and see how often the advertising appears. Look at the ads themselves to see what qualities and image the firm projects. You should also consider the effectiveness of the advertising.

Since support staff is extremely important to the performance of real estate jobs, be certain that sufficient office support is provided to salespeople. Also determine what jobs the secretaries are expected to perform. Check the number of secretaries in relation to the number of salespeople. If there are too few secretaries, they will find it difficult to complete all of the work, especially during peak periods. Many successful real estate agents hire their own assistants to handle follow-up work.

Consider the location of the firm's office. If the office is located in the middle of a prosperous shopping or business district, it is more likely to be well known to customers. Such a firm is also likely to receive a certain amount of business from people who just walk into the firm without any prior knowledge of its background. Some brokers are also interested in finding offices that are located close to their homes. This can have the obvious advantage of making the trip to and from work easier. In addition it may be of benefit to the agent because he or she is more likely to know the area near the firm and its potential clients. This knowledge of an area is one of the assets that a real estate agent brings to the profession.

It is also important to consider the physical layout and look of the office. Does the office present an attractive appearance to potential clients? Be sure that there are enough desks, telephones, and other equipment for all of the salespeople associated with the firm. Is the other equipment such as copy machines and computers up-to-date and in good working order? Today computerized listings of properties for sale are a major source of sales for most real estate agents. Not only is this equipment necessary for the salesperson to do his or her job, its condition may be an indication of the professionalism and financial condition of the firm. The size, design, and sophistication of the company's Web page are another good indicator of a firm's growth potential. Ask the broker how many leads are generated from the company's site. While you are investigating the office, also look at the stationery, "for sale" signs, and other written materials of the office to see that they are attractive and in good supply.

Another clue to the prosperity of the office may be gained by looking at the salespeople. Look at their clothes and the age and appearance of their cars. This may be some indication of their incomes and that of the company. The appearance of the salespeople associated with the firm will also contribute to the general appearance and atmosphere of the firm. When investigating the salespeople, a new salesperson should also consider the personalities of the other associates. Although this may not have a major impact on the selling ability of the other agents, a wise person will try to select a firm where the salespeople are congenial with his or her personality. As in any other job, the people with whom you work have a major impact on how you feel about your job. Finding an office where you feel at home is as important as finding one where you can make the most money.

How do the firm's salespeople feel about the firm? Try to find what the turnover rate is in the office; that is, how many people leave the firm for other jobs in a year's period. See how the associates feel about the firm. Try to visit the firm when some of the salespeople are in the office. Ask if you can talk with them and try to see what they say about the firm. Even though there will always be those who complain or praise too much, you still might get an idea of how the salespeople feel about their firm.

Earning Potential

Of course one of the most important questions to ask in considering a new firm is what kind of commission rates it pays. Although commission rates are always worked out on an individual basis between the broker and the salesperson, most firms in an area offer comparable commission rates, with between 6 and 7 percent of the sale price as the norm. In general the salesperson who makes the sale receives approximately 40 to 50 percent of this overall commission, which is then shared with his or her firm. The remaining commission is divided between the firm the selling broker works for and the salesperson who obtained the listing on the property. In many cases brokers have agreements with some salespeople to pay a higher percentage of the commission once they have made a certain amount in any year. Commission rates for salespeople who receive a salary as well as a commission receive a lesser commission rate, usually about 25 percent of the overall commission.

The Size of the Firm

If the benefits and facilities a firm has to offer are similar, the salesperson should next decide whether he or she wants to work for a large or small firm. There are obviously advantages and disadvantages to each of these alternatives. The majority of firms in the United States have ten or fewer sales associates. In fact the 1999 NAR Profile of Real Estate Firms found that 60 percent of all firms had five or fewer sales associates. However, firms with more than fifty employees employ 38 percent of all sales associates. Mergers and consolidations are also increasing the number of larger firms. Though the majority of these smaller firms are located in less populated areas, you will still find many smaller firms in large urban areas.

Many beginning agents believe that a small firm can provide them with more personal guidance as they begin their careers. This may be true, but larger firms and firms associated with franchising organizations are more likely to provide formal in-house training programs than smaller independent offices. Another advantage of larger offices is that they usually have larger advertising budgets than do smaller firms. This will make it more likely for customers to be acquainted with the firm. In addition larger firms are more likely to have administrators, sales managers, and other managers who can instruct the salesperson in specialized areas. On the other hand, the practices of a large firm may not be suited to those real estate brokers who are interested in opening their own businesses. By working in a small office you can gain firsthand experience in operating a small business. Even though the size of the office may have some impact on the nature of the business, a small firm can offer as many opportunities to the new broker as the larger firm.

A continuing trend in real estate is the increased centralization and consolidation of the industry. Many real estate firms are seeking to achieve regional or even national dominance by acquiring other firms. Twelve percent of all firms opened an additional office in 1999, according to the 1999 NAR Profile of Real Estate Firms.

Insurance companies, REITs (real estate investment trusts), real estate operating companies, and some banks also own, sell, and manage large portfolios of real estate. Some analysts predict that real estate giants will soon control the majority of the market.

The national or large regional real estate company may have a more formal business environment than the small independent office. But it is also likely to offer more training and other benefits than the local firm. In addition, the national firm offers the ambitious agent much greater opportunities for advancement than an owner-held office. Because large firms employ more administrators than smaller firms, there are more management positions available in them than there are in the smaller firms. In addition, just as the larger local firm has more than one office where the salesperson can work, the consolidated firm may have offices nation-wide. These advantages make larger firms particularly attractive to college-educated agents interested in moving into management.

The Firm's Affiliations

As important is the firm's size so is the business affiliations. In selecting a firm, the agent should find out whether the broker is a member of the National Association of REALTORS or other trade association. Although there are some fine firms that are not REALTOR members, the association does provide educational materials, information on the state of the real estate business, and other facts that might be helpful to the active agent. Many local boards also offer multiple listing services that can benefit local firms.

Another affiliation that may be of use to a firm is its membership in a franchise. Franchise operations are national networks of individually owned brokerage firms, all of which use the trade name and basic operating procedures of the parent franchise. Some of the most common real estate franchises are Century 21, ERA, RE/MAX, and Coldwell Banker.

Most franchises offer other benefits to their members, such as training material and administrative guidelines. They often give their members assistance in accounting, financing, and office procedures. Franchises also advertise on a national level, thus giving their members customer identification.

Brokerage firms of all sizes belong to franchises, although for some reason larger and smaller firms are more likely to be franchise members than mid-size firms. Even though franchise fees are often high, most brokers who are members believe that overall the franchise has increased their business.

The power of franchises has remained fairly steady. In 1992, 24 percent of firms and 42 percent of the sales force were affiliated with franchised agencies, according to an NAR survey. By 1999, 22 percent of firms and 38 percent of the sales force were represented by franchises.

Going into Business for Yourself

Although the salesperson who is just entering the real estate field should not consider going into his or her own business, many salespeople and brokers have this goal in the backs of their minds. Approximately 26 percent of the real estate brokers questioned in the NAR survey owned their own firms while another 20 percent had some ownership interest in the firm for which they worked. The decision to go into business for you is a complex one. Many good salespeople do not make good managers. The average broker who owns his or her own firm can generally earn more in a year than one who does not, but the owner-broker is certain to have more administrative responsibilities than the salesperson. And since smaller offices do not produce enough income to hire a full-time manager, the broker will have to perform managerial duties in addition to whatever selling he or she does.

As for any small business, the risk of failure for a brokerage firm is high. Many new brokers do not have enough business experience to handle the business. In addition many brokers try to open new firms without sufficient capital. A new broker must establish a presentable office in a desirable location. The cost of maintaining a real estate office may be less than for some other businesses, but it is still expensive to buy office furnishings; pay for stationery, signs, and cards; and pay rent, telephone, and utility bills. The new broker also must do some initial advertising to inform the public about the firms opening. It is a rule of thumb that new businesses should have enough capital to keep their doors open for at least six months before they expect to make a profit, so this capital should include not only the money needed to open the office but whatever monies are needed to keep it running until commissions begin to come in. The new broker should also have enough in reserve to cover his or her living expenses. These expenses have to be paid whether or not a sale is made! In addition, because there is often a lapse of from thirty to ninety days between the time the sale is made and commission is collected; the new owner will have to consider this in his or her income calculations.

With that said, once established a real estate firm often stays in business for many years. According to the 1999 NAR Profile of Real Estate Firms, a typical brokerage firm has been in the business for thirteen years. Approximately 30 percent of all firms had been in business for more than twenty-five years.

How Long Does It Take to Get Started?

Once you have selected a real estate office, do not expect to make a sale immediately. As we have indicated, even the salesperson that has done well in his or her education may have a great deal to learn about selling and the day-to-day operations of a real estate office. Becoming familiar with the contracts, financing options, and listing techniques may take some time. In addition it may be hard at first to find clients. Even family and friends may be reluctant to give their real estate business to an inexperienced salesperson. Finally, even if you do make a sale in the first week, it may take from a month to three months to collect the commission. In addition, about 5 percent of all transactions are not completed for one reason or another. These failed sales produce no income at all.

As in all other professions, success in real estate does not come in a day or a week. But it can come to those who have an interest in the field and who are willing to work hard in acquiring and practicing real estate skills.
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