How Not To Be Successful in Real Estate

Are you entering the real estate career track? Then you've read at least one hundred articles, attended a dozen seminars, and read a couple of books on how to be a successful real estate broker. What's left to say? Here's a different plan of attack: we're going to learn our trade by focusing on the mistakes of the business, as a gold-plated example of what not to do. We will call our model broker "Joe Schmoo", because everybody who doesn't have that name will understand that it's a random generic name and everybody who does have that name will be just mildly irritated, which is kind of fun.

Joe is quite confident that his new real estate broker business can't lose. After all, he picked up his real estate broker's license from an accredited online source which put him through a grueling two weeks of training. It was a good thing he found that coupon for the course, because without any college degrees he was beginning to be concerned for his career prospects. Despite his own usage of online means to start his career, this is the last time Joe will use the Internet in connection with his business, since he's never heard that three out of four home-buyers use the Internet to find their next house.

Joe has made good use of his seed money to start his business. After two weeks of becoming a fixture in the local print shop, he has business cards, signs, fliers, newsletters, doorknob hangers, brochures, stress toys, refrigerator magnets, and stickers printed up with his company logo. Regardless of whether he is successful or not, he is starting to feel successful already from seeing his own name, picture, and company logo on his promotional items ten times per day. He begins using one of his monogrammed notepads to jot down a shopping list, and makes a mental note to get personalized pens to match. He is oblivious to the statistic that 84% of all new real estate licenses are not renewed, because the licensee is out of business after the first year.

Joe may not go near the Internet, but he never passes a newspaper rack. He runs help-wanted ads and hires people like crazy, cramming them into his out-of-the-way office. There isn't much yet for the employees to actually do, but since they aren't hired for anything but fifty percent of commissions, Joe figures the cost of them doing nothing is almost nothing. More agents will give him a greater sphere of influence which will have to lead to more business. It actually doesn't matter much to Joe how well-trained his little army is. The swimmers will hold up the sinkers.

Joe encourages his minions to list everything they can at any price in every neighborhood. Exposure, exposure, exposure! Joe buys huge blocks of space in newspapers and magazines to advertise, and even prints out his own little magazine. His print shop bill is starting to become the biggest number on his expense list, but he figures if it comes to worse, his realtors will be happy to pay an advertising fee in his own magazine, since they'll be making so much money. Joe is at least aware that advertising is an important part of real estate, and since most customers don't see much difference between one real estate company and another, he is correct in assuming that a few hapless clients will simply wander in because his was the first company they saw. What he hasn't taken into account is that every real estate company in town advertises, too, and some of them have a better reason to count on their return on their investment than Joe does.

Joe is encouraged by the first few sales and begins getting more avaricious. He launches a little program to start charging little fees here and there. A desk fee here, a sign fee there, a transaction management fee. His raw recruited agents don't balk at first, since they've made a commission or two and are now feeling like this can go somewhere. Meanwhile Joe can cover the expenses with these fees, since his initial expenditures have eaten into his own profits considerably.

The agents under Joe's wing begin to feel the pressure. The occasional commission they make on a closing doesn't begin to compensate them for the time and effort they spend on each buyer and seller who changes their mind. To bolster the troops' morale, Joe writes little scripts for the agents to spiel when working with clients on the phone.

The alarming thing is that, like the stock market, Joe's line of work allows the world's greatest idiot to prosper during a market boom. As long as the boom lasts, Joe could wear a dress to work, scrawl his ads on the side of outhouses, and not bother to show up half the time and still stay in business. If the regulations are loose in his area, he has more liberty to dig himself into a deeper hole.

But a market boom has to end sooner or later, or else by definition it wouldn't be a boom. So the inevitable market downturn comes, and Joe walks into his office to discover it half-empty. His agents are quitting in droves. His fliers and brochures are blowing through the windy streets unread. He has a list of properties whose prices have dropped significantly, adjusted by desperate sellers who are dying to get out, even if they have to accept a loss. The last few agents kicking around are complaining about Joe's high brokerage fees, and even if they sell every property they list at this point they're going to have a tough time living on the reduced commissions from the lower prices.

The reality has finally dawned: this business kills optimists. In fact, over-optimistic real estate speculation is both the source of a flash-in-the-pan bull market, and the source of it's own downfall.

Let's have a big round of applause for Joe Schmoo, for providing us with his instructive example.