Have you completed your 2012 business plan yet? Have you guessed at goals, exaggerated your income expectations and underestimated your expenses? I hope so. After all, you don’t want to start the new year on the wrong foot.
All joking aside, let’s talk about agent turnover and why it is disgraceful.
Disclaimer: What you are about to read is controversial, but needs to be discussed.
The core problem: broker-owners and general agents are both operating their own business. The broker-owner typically understands cash flow better than the general real estate agent.
The broker-owner understands the business cannot operate without cash and the ability to manage it, while the general agent understands the need to close a sale, and sooner than later.
Realtor associations may recognize that business owners, not just newly licensed independent contractors, are joining the association. New licensees need business advice. They need to understand a business plan based on cash flow.
I know from conducting seminars for more than 300 newcomer agents over a two-year period that these newbies typically don’t have a "business owner" concept, nor the experience to run one. I know as a broker with more than 30 years experience that the industry knows it to.
Workshops included checklists, the Excel business plan, broker comparison forms, a commission worksheet, 20 questions to ask the broker, and more. Needless to say, we had some interesting discussions and reports from the field.
High but immeasurable dropout numbers would not bother me if we were commission-earning salespeople selling vacuum cleaners. But that is not the case.
Real estate agents make investments of time and money to become independent business owners. They are paid for their services if those services result in a financial closing. Otherwise, the services are free.
With this background, I came to several conclusions about why our industry continues to experience so much turnover.
It has nothing to do with training and everything to do with the relationship between agents and brokers and the industry’s belief that most agents are not going to make it — which is true, and until we change the relationship I do not see how most agents can thrive.
Schoolteachers, housewives, engineers, and others come into real estate as independent sales agents, in a business in which they have no experience, requiring skills they do not have to sell a product they do not understand in a market where people have trouble making up their mind.
This one misconception, in my opinion, is the seed for the high turnover.
The real estate industry for decades has said, "Get out there as fast you can and find a prospect."
That makes for a fast start, for sure, but not a smart one. A smart start would include a crash course in cash flow management.
From our surveys, we learned that:
1. More than 95 percent have no sales experience.
2. More than 90 percent don’t understand cash flow management.
3. None had heard of the "exit policy."
4. They never heard of an "open" vs. "closed" floor.
5. Most estimated their first-year income to be $60,000 to $100,000. Did they plan to share this number in their broker interviews? Yes.
One new agent who attended a seminar said he had interviewed 12 brokers and was offered a position by each one of them. Only one required him to read the policy manual before joining the office.
Here’s the kicker: When asked how many had a good idea how much cash they needed in reserve their first year, few hands were raised. When asked if they would share with the group how they determined the amount, they had no dependable basis.
Three critical needs must be understood and met:
1. They are in their own business. They need to clearly understand what this means.
2. They don’t understand their present and projected cash flow.
3. They don’t know the real estate business.
They do not understand how to manage cash on a personal level, much less a business level. If this one fact doesn’t set the stage for stress and expeditious failure in a commission-based sales business, I don’t know what does.
Some participants understood budgets, but very few understood cash flow. Which brings me to one of several recommendations I could make, but I don’t see how others could work if the following one is not successfully implemented by local associations:
Most of you would probably agree with me that 95 percent of the decisions we need to make become obvious if we have the right numbers. If this is so, then does it not follow that general agents need the right information in a way that makes sense to them?
Here’s a proposal to local associations:
Require new applicants to complete a business management workshop as part of their membership. If presented correctly, new agents would leave the training knowing the following (and the "why" behind the monthly and annual numbers):
- what their sales goal should be;
- what their commission goal should be;
- what they marketing expenses will be;
- what their household expense are now;
- what training they need the most;
- what they should budget for their vacation and when they will take it; and
- their prospects-to-sales ratio, which helps pinpoint training needs.
If nothing else, this exercise would give them confidence, hope and a much deeper understanding of what is required and what the consequences are if the requirements are not met.
By working through this on an Excel spreadsheet and learning in the workshop how to replace projected numbers with actual expenses and commissions, the agents would have a current and real visual of their cash position, minute by minute.
New licensees would leave this training feeling that the association has done them a tangible service. From the get-go, they would be convinced that they joined an association that respects them as independent business operators as well as real estate agents.
I could be missing something. What do you think?