Why the % of failing agents is overblown/needs rationalization

[Craig Moore]

All,

After doing some research on becoming a real estate agent, getting feedback and taking the preliminary exam courses, I stumbled upon a troubling number. "80%-90% of new agents quit or fail within the 1st year." I believe this number can be very intimidating to new agents who are aspiring to be successful in the business. Here are my issues with this number and why I think we need to be more specific on the topic.

1) Who is accounted for this 80-90% of failing/quitting agents? Are these people with chronic health issues that eventually prevent them from being successful? Are these former people who have battled drug addiction and relapse? Are these people who have had some significant or traumatic experience in their lives that prevented them from going all in on this career (loss of a spouse, house fire, etc.) These can be labeled excuses, sure, but this is the reality. Some people lose hope and quit when their house burns down, or get misplaced. These are some of the things I think about when I read that figure. WHO is accounted for in this 80-90%? What is the quality of agents in this batch and can we use this as reputable data? 

Tons and tons of Toyotas Priuses were recalled in the past. Now, I don't know the exact percentage of this, but are we to assume that all of the other Priuses are non-efficient? Going into buying a Prius, you don't say, "Well Priuses have been recalled before, so maybe this one will be too." Subconsciously you may think that. But these are two totally completely different vehicles, which prompts me to say, maybe your experience as an agent will be different than the other 80-90%? Why are we using this number so faithfully without knowing what constitutes it?

2) In my class, I sat in with 50 other people. FIFTY. There are at LEAST 50-60 other schools in the state of MA alone. So, 50 people x 60 schools = 3,000 new agents. Assuming we all pass, there's 50 students per school, this is 3,000 new students per month! (Assuming everyone takes 40 hours in one month and takes the exam the next month and every school is booked up). Of course the number of failing agents is going to be large, because of the sheer volume of new agents coming in at any given time.  But, out of these 3,000 candidates, who failed after a year and why? What is the specific criterion for this? Everyone's situation is different, and sure we should all want to succeed, but I think it's time to stop using this number because it can very easily intimidate new agents, or prospective ones from even taking the next step. 

What are your thoughts on this?

[Joel Owens]

It's a tough business. New agents often overvalue themselves because they want to believe in the dream versus the very hard reality of what it will take for them to be successful. When that reality hits them in face and they can't put food on the table or keep the lights on then they either get the fire in the belly to do what it takes to succeed or they quit and go back to the J-O-B.

Sales are not for everyone and it takes a certain kind of personality to do it over, and over,and over again on a high level. The rest are like a blind squirrel finding a nut ( commission check) occasionally. They make some money but not enough to live on.

I saw all of this in the last cycle. I am 14 years in and a principal broker for commercial retail properties transacting. Right now residential is hot in a lot of markets. Back in 2003 to 2006 it what was the same. Everyone was an agent and buyers were buying up properties all over the place to live in. Thoughts of sugar plums and fairies danced in the home buyers minds  to refinance in a few years and pull equity out for the new car,boat, vacation,etc.  I saw a property the other day for 185,000 that used to be 100,000 3 to 4 years ago and 25 buyers with showings are looking at it listed just 2 days ( a friend does residential). 

When the last downturn hit I do not know the number but maybe half a million agents left the business or more. You see these ebbs and flows with the cycles. It will happen again when the market changes and the marginal agents will be weeded out quickly and leave the business.

When you have seen a few cycles you do not act like some of the other brokers/agents. I see new agents getting into the business and they know nothing of cycles. They are spending money like water. Especially agents now and the ones 1 to 3 years into the business. They are saying money is good and buy the bigger house for themselves, nicer car, vacations etc. to show off to their friends.

The cycle slows eventually and all that debt comes crushing down on them and the monthly commission falls as deals dry up. Now you see them selling and working part time at Home Depot, Wal-Mart, Lowe's etc. to pay bills.

If they would have invested the money in the good times to get 50k or higher in passive annual cash flow then they would be in a much better situation for themselves. Nobody delays gratification anymore. I live a comfortable life but way below my means. Problem with some agents is they make 100k annually and live an 80k lifestyle.

If you make 750,000 to 1,000,000 annually and live an 80k lifestyle that is a much different example. In one you are 80% of your earnings pre-tax. In another maybe 10 to 15%.

I prefer to invest money to create more passive income. Then I slowly inch up my lifestyle but very conservatively compared to income etc.