Why Real Estate Agents Are Broke. A Real REAL Estate Conversation.
Over the last five years, as a mega agent, coach, team leader, and trainer, I've observed hundreds of real estate agents struggle and work so hard, for so little.
To help address that struggle, I’m bringing to the forefront some of the most “taboo” conversations in the real estate industry: financial literacy and building a sustainable lifestyle. These topics are taboo because they’re not taught in school and most brokerages don’t address them, either.
Thus, profit and time freedom are what agents want, but they’re rarely discussed? Why?
Well. Read further! And, read to the end if you want to hear some of our solutions to each of these issues. This one can be game changer for you to finish.
Here’s the type agents I see the most and spend time with, but I will also deep dive into each level of production and their corresponding obstacles at that level of production.
The Grind Agents. These agents sacrifice their personal life, relationships, health, and time in pursuit of growth. I know this cohort of agents well, as I was one, and it cost me big time. These agents glorify the “grind” until it catches up with them. They make posts like “no one will work harder than me” — which is probably true.
Yes, these agents are usually the most profitable agents in the room, too, but they’re often paying the price at home with their family and their “grind” phase is not sustainable. They’re being the hero and carrying their entire company on their back, until it breaks or they evolve. Not many evolve, by the way.
The Stagnant Agents. These agents figure out how to get their lead generation down (and provide good service) and build a small team, but then their brokerage platform doesn’t reward them, financially or personally, allowing them to get larger opportunities as they increase in production.
These agents usually hit a ceiling of achievement and remain stagnant, sometimes going backward. Or, they go one step forward, two steps back, over and over again, failing to break through to the next level. They peak out, and don’t engage in personal development, yet are restless because they know there’s more out there and they can do more, they just don’t know how because they’re outgrown their brokerage and peer environment.
Sometimes these agents hop around from brokerage to brokerage looking for magic pills, yet all along they’re looking for someone to change them externally, when really, it’s about who they are becoming internally and getting clarity of what they really want to get out of life (and their business).
The Mega Team Leaders. These agents are often the ones who have blind pursuit of more volume for ego purposes without seeking first to build a sustainable financial foundation for themselves AND their team members. They generally implode under stress and turnover and low to negative profit margins. I’ve seen this too many times.
It gets ugly when you see some mega teams turn in their profit and loss statements and run their numbers (often when buying online leads too). Most will actually refuse to create a profit and loss statement, because they know the truth - it doesn’t look pretty. If they address it directly, they have to change. And, they’re afraid to change.
Yet, it all looks great on Facebook and they’re winning awards, so that’s good, right? Not really. Don’t mistake movement for achievement.
If this sounds familiar or if you’ve observed these type of agents before, that's why I'm here to share some information and perspective on the common problems that real estate agents have in the industry at each level of production (including financial literacy and time freedom), while suggesting some solutions and ideas along the way.
I'm hoping that this post will help several agents who read it, and perhaps they'll consider the perspective, become aware, and then choose a different path. I’ll also be presenting some data (it’s not perfect, but gives us clues) on real estate agents in Northeast Florida.
My goal is simply to start a conversation about the topics in real estate that most brokerages just simply won’t address or acknowledge.
Acknowledging these common obstacles is the first step in fixing them.
Watch the Conversation Here on YouTube.
Real estate agent failure.
Each level of production of a real estate agent poses different obstacles and I have yet to meet an agent who says that the ones outlined below are not applicable to their growth journey at some point.
In fact, the obstacles in real estate sales frequently rhymes with the obstacles for most entrepreneurial endeavors. After all, being a real estate agent is being a small business owner.
Overall, some agents are aware of these obstacles, some are not, and most agents frankly don't track their data closely enough to understand what these obstacles actually are.
By reading the information below, you can have a good idea of what to expect at each level of production along your real estate sales journey.
Keep in mind this is just one person's perspective, mine, and you should take and leave what you may. I'm not looking to change anyone's mind here, I just want to provide information to consider so you can decide for yourself.
The Different Levels of Real Estate Agents
To start, look at this chart to see how many agents there are at each level of production in Northeast Florida.
Source: Broker Metrics Data, December 1, 2020 and Northeast Florida Associations of Realtors (NEFAR) data.
For those of you who are already in production, let me know if any of these sound familiar to you?
$0-2M in sales (0-8 units): The Newbies, Low Producers, and Part-Timers.
This group of low-end producers surprisingly represents approximately 70% of the agent population yet they're generally only responsible for less than 30% of the total production that occurs in a market.
They’re Broke. The agents in this production bucket do not make enough money to live on or have decided to go part-time and keep their license active.
They Join Low Producers at a Low Producer Brokerage. They tend to fizzle out with one toe in and one out and commonly hang their license with a low-fee company so they do business with friends and family. These agents go with the wind and the tide, as they say. They surround themselves with other low producers.
They Generally Don’t Have Experience or Training. It is this large cohort of agents who cause a bad-rap for agents with the general public since they're less responsive and commonly less knowledgeable or "in the know" because they simply don't transact enough business to have significant experience that adds value to their customers.
Of course, there's the rare one-off successful, rockstar, part-timer agent, so just apply the 80/20 rule to anything I say here in absolutes. I'm sure you could easily give me an exception to the rule here of a part-timer who is doing $8M+.
This cohort of agents is generally responsible for the high turnover in the marketplace and the wild statistics of 87% of agents failing (not renewing their license) in their first 2-5 years.
Low Standards. Part of the problem here, which we won't deep dive into now, is that the barrier to entry to manage what is most commonly the general public's largest financial asset, is the lowest out of any financial service.
Thus, we've got a lot of agents who are licensed who should not be. And, they’re most commonly in this bucket of production and hanging their licenses at low-cost brokerages who have limited support.
As my buddy jokes, “Broke, depressed, and confused is the status quo” for the majority of real estate agents. It’s a sad truth.
$2-4M in sales (8-16 units): The Just Making It Agent.
The Hard Life. These agents are making just enough to get by, but don't really build wealth at this level of production, so they tend to burn out or work a long time (10-20+ years) simply to pay bills if they're not able to break through to the next level of production. This cohort of agents generally represents 15% of the agent population.
High Fees, Profit Issues. Many of these agents end up at big-box brokerages with high splits and fees, so while their production is higher and many of their colleagues are patting them on the back, they feel weird about it because they know that their financials don't reflect their achievement and they, in fact, got into this business to build a living to support their lifestyle.
The profit problem at this level of production is significant, even if the agent is purely referral based with no spend on lead generation.
Let's say the agent in this production bucket ($4,000,000 in sales) makes $120,000 in revenue (let's assume 3% commission). But, when you look closer, they often take home less than half of that revenue after taxes.
For example, if at a big-box, franchise brokerage, the broker often takes $25-30,000 off the top in monthly fees, transaction fees, and splits (some are 20% + fees or 36%+ fees with caps, but they end up being about the same general cost) if you add them all up for one calendar year.
Then you have your licensing fees, gas, health insurance and other marketing expenses. Let's say that costs $20,000 and leaves you with $70,000 ($120,000 commission - $30,000 brokerage fees - $20,000 lic., gas, health, other). But that's not what actually goes into your pocket.
You then must pay federal and employment taxes on that $70,000. When it's all said and done, this gets you about $56,000 in after tax income.
What that leaves you with is living on less than $5,000/month and you barely have any room to save or invest.
To summarize: You're working hard basically to pay your bills, but after it's all said and done it may be easier to just work a nine to five job with benefits.
These agents seem to be making it (typically on social media), but they don't really feel like they are -- even though their brokerage is making them feel good. And why wouldn't they make you feel good, they just maximized the squeeze on you.
Since 85% of agents produce less than $4M in sales, most brokerages put their "cap" at less than $3M meaning they make all their money on you upfront so they can maximize their profit.
Whatever you achieve after $3M in profit doesn’t really matter to these brokerages because of this structure.
$4-8M in sales (16-32 units): The Mid-Level Producers.
These agents are beginning to build wealth, yet their largest obstacle is that they often increase their lifestyle (lifestyle creep) ahead of paying down bills or making strategic investments. This cohort represents 10% of the agent population.
Failure to Develop. This group most frequently grows to their natural ceiling of achievement and to get to the next level, must begin developing themselves further into leaders, yet only few choose to do so.
Failure to Give Up Control. They begin feeling like they don't want to give up control of anything, yet know they must give up control to get to the next level. The control that got them to this level of success, is now what they need to document, systematize, and pass off to a team member that they lead. Most of these agents (about 90% in my experience) are unable to give up control and get stuck on the growth journey or end up working much harder than they need to for too long.
We say this cohort of producers are in the "Momentum" phase of production, and for a handful, they break through to the next level which we call Stabilization (successful leveraging).
No One Left to Learn From at the Next Level of Success. Another obstacle that these agents have is that they've started generating cash to invest, but have no one to show them how to do it. They look to leadership in their brokerage, yet their leaders are recruiters and not investors or mega agents themselves. Leadership will generally encourage these agents to continue pushing through what they’re doing currently, which is bad advice, but what it often given. Thus these agents have two options: go figure it out themselves which can be very expensive and time consuming, or go find and then pay for a coach to mentor them. This approach has risks, time investment, and costs.
Huge Opportunity to Breakthrough. The agents here have the greatest opportunity for growth (and the most to lose) as they've already figured out how to lead generate, service customers, yet once they learn how to run the business like a business, they will be able to scale up very quickly and 3-4x their production within a year or two (we know because so many agents are doing this at Momentum Realty). And, by the way, these agents’ lifestyles get better. It unfolds incredibly, and it's beautiful to watch. It’s like flipping on a switch once they understand how to leverage and hold systems and people accountable to see the results.
$8M-20M (32+ units): The Mega Agents.
These agents are making enough money, but most haven't figured out how to get out of production or automate away their entire lead generation model. It keeps them in the business working harder than they need to (the hero agent) or these agents choose to build a massive team (the next logical step, but which often run on very low profit margins -- less than 20%). In most cases, I've seen large $50-100M teams operate on less than 10% profit margins. This cohort of agents represents 5% of the total agent population.
Lifestyle Fatigue, Lower Team Margins. These agents' lifestyles start to suffer yet very few end up breaking through to true leverage because they haven't learned how to hire talent and implement business systems. And ultimately, they most commonly trade lead generation for customers for lead generation for talent.
Limited Opportunity / Outgrowing Brokerage Leadership. Further, these agents are having success but lack an equity opportunity in their brokerage, that's not a 100x+ multiple already (got in too late), nor have enough business to start by themselves an ancillary service like title, mortgage and insurance. They're sending their preferred partners more revenue in referrals than they make themselves but have no solution to capture it long-term. They also have few to learn from at the next level who can teach them about investing.
They want more growth, but don't really have any good options to get it.
Exception: Luxury Agents, But That Can Come with Issues, Too. The only exception to the issues outlined above is luxury focused agents (which is really just a mindset and the decision to focus on luxury). But generally, the luxury brokerages charge an uncapped arm and a leg for a brand - which doesn't make as much of a difference anymore. It's the agent's brand that matters most. The internet changed this for agents by giving agents a platform to promote themselves vs being found and respected through their brokerage brand. i.e. 97% of buyers and sellers choose based on the quality of agent vs the brokerage brand. Brand is just not a factor anymore.
In my personal experience, no one ever asked me what company I worked for and I worked for the #1 company in volume and units in the world. Most consumers wouldn’t even recognize the name if I told them.
$4-8M+ (16-32+ Units): The High Producing Team Agents.
Highest Risk, Lowest Reward. These high producing team agents generally have a more serious problem and the highest risk of all with the lowest reward. They end up doing the bulk of the work (and the time/schedule sacrifice) yet get paid 1/4 or 1/3 of the total commission after splits. These agents rarely ever break through to financial freedom and are constantly in the rat wheel because they don't own anything.
They don't own the leads, the database, the google page, their own reviews, and when they leave the team (which 90%+ do within a 2 year period), they have to start over from scratch and build it all again.
Inability to Build Wealth, Ownership. The problem isn't really the team structure per se, a handful of teams are very well run and make sense to join them, but ultimately the team members can't build true wealth if they don't have equity opportunities that ties them to the upside of the company. They're completely owned and own nothing. They can't sell their high paying, high time demanding job to anyone.
As my mentor used to say, “you’re either the owner or you’re owned.” And, if the team member leaves, they frequently have minimal skills to self-generate business, are used to not doing specific things they need to do to achieve success. The 10% who stay become comfortable, building someone else's financial freedom. Still, for many it makes sense to do so, so there's no judgement here, just a realization upfront that this is the norm and not the exception.
Often Look for Magic Pill. So many times these team agents leave the industry or hop from team to team trying to find the magic bullet to get them off the rat wheel. But they're really just trading apples for apples until they decide to figure it out themselves and go for it. By the time they do, they're frustrated and may not have enough gas in the tank to get back the feeling of Momentum in their life and business. Keep in mind, yes there are exceptions, and I've met them. Reminder: I'm talking about the 80/20 rule here.
Solving These Real Estate Agent Obstacles.
To share where I am coming from, to become a top 1% agent, you must produce $20,000,000+ in sales volume in Northeast Florida.
I achieved this top 1% milestone in my second year of real estate after starting in a new city, with no database, and no money. And I became one of the grind agents who sacrificed it all (health and relationships) to get to the next level. I sold $12M my first year in real estate, then $20M in my second year, and $36M with my team in my third year (with my wife).
By that point though, I had become a real estate investor, coach, speaker, and trainer -- and a net worth millionaire who had achieved financial peace with the option to burn it down and walk away. My business continues today off of referrals (80+ units off a 250 past customer database) and is run by a CEO (my former Buyer Agent).
The truth is: most agents are unable to walk away, even when they have the production.
What's different in my story is that I only lived on 9-12% of my income and invested the rest along the way. I also ran my profitability monthly and hired mentors to help me along the way. I avoided many of the typical pitfalls by paying for education from valid leaders rather than failing my way to the lessons. And, I didn't get distracted by the next brokerage's magic technology or recruiting scheme (getting in at the right moment) that would make me "rich" beyond belief.
I stayed in production on my own path (not getting sold someone else’s dream) and made fundamental money moves that made all the difference while learning from valid leaders across the country.
But instead of burning it all down, retiring, and walking away from the industry, I doubled down and decided to co-found a brokerage whose sole purpose is to solve all of these obstacles at every level of production.
It was a hard choice because we were just picking up our operations on purchasing rentals and doing BRRRRs. It was working very well, but I wanted something more than just making money: I want to make impact in an industry I love and in a market with so agents who truly need financial leadership and clarity.
Momentum Realty launched and we quickly became the #1 independent brokerage in Northeast Florida within only 16 months — in the midsts of COVID (we launched in January 2020).
It was incredibly enlightening. Agents were really having the issues I summarized above. And, it was worse than I anticipated. Especially, financially. Back taxes, credit cards maxed out, insane car loans etc. all hidden behind the scenes while everything else looks great from the public eye. No one was tracking their financials correctly.
The proof is in the pudding, and our platform is helping agents identify address these obstacles every day. We work for the agents, they don't work for us. This philosophy is probably why Momentum Realty was voted Bold City Best Real Estate Brokerage 2021.
So here's how Momentum fixes some of these issues for agents at each level of production:
Problems Observed at Every Level of Production.
$0-2M in sales (0-8 units): The Newbies, Low Producers, and Part-Timers.
These lower producing agents generally do not qualify to join Momentum. Momentum only accepts full-time agents. If it's an agent who has sold less than 10 units in the last twelve months, there's only two ways this cohort of the 70% of the agent population can join Momentum.
Mentorship Program or Team Agent. These low producing agents can either apply through the Mentorship Program or start on a team as a showing agent / team member for an agent who is already at Momentum. Momentum recognizes that the next wave of top producing agents exist in this large cohort, but they must prove their commitment to personal development and show that they have what it takes to succeed upfront. Momentum has specific tests and assessments for this.
Standards. The primary purpose of the production standard is that Momentum doesn’t want agents out there who are not willing to or not capable of providing a 5-star consumer experience. We don’t want agents who are not committed or who could give the brand a bad name out there in the marketplace.
Ultimately, having a standard for agent quality, in terms of production and mindset, has been the #1 reason why Momentum is the powerful and productive tribe that it is today.
$2-4M in sales (8-16 units): The Just Making It Agent.
Low Fees to Reinvest. Due to the low brokerage cost at Momentum, this cohort of agents generally save $10,000 to $12,000 compared to the big-box split and fee structures. This helps these agents save more money so they can reinvest in their business. Cash is fuel for these agents as they are right in the risk zone.
Business Coaching. Each agent gets one-on-one meetings with brokerage leadership (who have actually achieved what the agent wants to achieve) to come up with a plan to match their strengths to the lead generation activities that will get them to the next level. Leadership makes themselves accessible for those agents who want or need it. Agents commonly go off and connect with other top producers as well, separately. The conversations that these agents get access to are what change the game for this cohort.
Group Training. Agents have access to some of the best coaches and speakers in the country to help them navigate to the next level quickly. It is critically important for agents move out of this cohort of production as soon as possible and doing so requires a new mindset and environment, and for many, a lot of personal development.
$4-8M in sales (16-32 units): The Mid-Level Producers.
Additional Income + Leverage by Becoming a Mentor. Agents who produce $4M+ can qualify to become a Mentor an earn a very significant amount of additional income.
Revenue Share. These agents also generally begin to become influencers in their community so they can influence bringing in other agents under them through Momentum's Revenue Share Program. A difference here is that Momentum intends to reward producers, not recruiters. So, the financial incentive system is set up that way.
Capping Structure. Momentum has a $8M cap so after the cap is hit, the average agent only pays $100 per transaction. So these agents are starting to pick up multiple streams of income while lowering per sale costs.
Assistance with Business Structure, Recruiting, & Investments. Momentum helps its agents do the following:
Document their activities and time,
Recruit and train staff, and
Teach fundamentals of real estate investing (if it fits their investment criteria and timeframe).
Profit and Loss Review. Leadership also helps these agents create and run their profit and loss statements and help them look at automating their business through referral, repeat, and review business. Leadership encourage its agents to create evergreen content so they have a legitimate path of getting off the rat wheel.
Expanding What Is Possible. The key here is for these agents to break through and think bigger. This is frankly Momentum's primary niche service to agents who join. These agents come in as a $4-6M producers and often want to get to the next level and break through to $10-16M within a year or two. These agents desire real estate investments to create passive cash-flow. These agents don't want to work harder; they want to work smarter. They want to have a bigger life. Momentum achieves this through conversations and events of those who have actually done it themselves. Agents grow into the environment around them.
Productivity Environment. Most agents outgrow their brokerage or have few resources available to support their goals. For these agents, this is where Momentum shines. We've had so many success stories and examples of agents coming in at $4M and going to $16-20M within 12-14 months and then buying investment properties. This is obviously life changing in many ways, and it's beautiful to watch the Momentum platform work for these agent partners both financially and personally. These agents are most commonly inspired as doing this has become the norm, not the exception. The energy and passion is contagious. Everyone at Momentum is productive and is held to specific communication standards.
$8M+ (32+ units): The Mega Agents.
Generally, these agents have no opportunity to get to the next level after proving themselves as producers. They don't get equity opportunities in their brokerage or if they do, it's already priced in for the next 100 years -- the opportunity is missed. Or, these agents don't have any access to ancillary businesses like title, mortgage, and insurance. So they can either go off on their own and try to build this entire platform themselves, which is a completely different skillset than a producer, or they just sit where they are and keep trekking along.
Phantom Stock Program. That's why Momentum is starting a Phantom Stock Program where $8M+ producers (deemed Momentum Champions) receive phantom shares that tie them to Momentum's growth pre-IPO. We want our tribe’s top performers to be rewarded significantly and be partners with Momentum’s leadership.
Ancillary Benefits. Further, these agents can get access to and benefits from the preferred title and mortgage companies of Momentum Realty. At certain levels of production, for agents who choose to, Mega Agents at Momentum will be provided equity opportunities of these companies that rewards their level of production. This vision is being built currently!
Investing Conversations. These Mega Agents also most frequently are the ones who are buying investment properties and looking for more coaching and development. Momentum has relationships with different mastermind groups and brings in talented speakers and entrepreneurs to help agents thing bigger and smarter about investing their funds.
To Summarize.
No matter the level of production of an agent, Momentum is a life philosophy in action that can apply. It's about living big, going for it, and achieving financial and personal peace.
We do this through real estate sales, yet we believe the purpose of getting into real estate is to get out of it. This is the opposite of practically every other real estate company we know or have observed in the industry. They are not missionaries like us, they are mercenaries fighting for themselves. Instead, we fight for YOU.
If you’re a producer who is interested in personal development and have an open mind, we want to help you achieve your version of financial peace through real estate.
If you have any comments or want to connect more, or even challenge the ideas put out here, go ahead! We are always open to healthy debate. We all have something to learn from one another. Thanks for hanging with me.
Jon
If you're interested in following my journey more, here's how you can find me.
Instagram: @realestatejax and @brooksonbiz
Facebook: Jon Brooks
YouTube: Brooks on Business
LinkedIn: Jon Brooks
Tiktok: @MomentumRealty
Websites: movewithmomentum.com and brooksonbusiness.com
