Top 9 Reasons Why Real Estate Agents Fail
Gina is a licensed real estate salesperson, experienced trainer, and former high school educator of 1,000+ learners. She writes for Fit Small Business with a focus on real estate content.
This article is part of a larger series on How to Become a Real Estate Agent.
A common and shocking statistic in the real estate industry is that about 85% to 90% of agents leave within the first five years. That means if you’re in a prelicensing class with 10 people, about nine of those people will not be working in the industry with you five years down the line. In hopes of minimizing this troubling rate, we’ve examined the top nine reasons why real estate agents fail, as well as how you can avoid these issues and remain successful in the real estate industry.
1. Failure to Account for Upfront Expenses
Real estate agents are considered independent contractors, not salaried employees. This means you are the CEO of your own business, even if you work under a sponsoring brokerage. It also means that while many brokerages provide free perks for marketing or advertising, for the most part, you are expected to fund your own expenses. Typically, a real estate agent will spend an average of $11,500 on business expenses per year, and the top performers often exceed that. This covers everything from leads to health insurance, lead generation costs, internet, marketing, advertising, and travel.
Real estate agents often fail when they do not account for these ongoing expenses as well as transaction fees charged by their brokerage, which are also known as fee splits. For example, an agent might see a $100,000 commission check and adjust their lifestyle accordingly, when the take home pay they should expect is closer to $34,000 (34%), and that’s before taxes. Also, taking into account that the average time to complete a deal from offer to closing (not including finding your client the home) can take between 30 and 45 days, your paychecks may be more sporadic than a typical salaried position when you are first starting in the industry.
Key to Overcoming This Challenge: Have a Money Cushion & Budget
Before jumping straight into real estate, it’s important to have a cushion of money saved to fall back on while you’re still getting your feet wet. That way, when you’re still learning the processes and waiting for your first paycheck to hit your bank account, you’re not struggling to pay bills.
There are many online software systems you can utilize to organize your real estate accounting that will automate and track your expenses. Using a system such as QuickBooks to organize your finances can be extremely helpful, or rather, 100% necessary. Understanding where money is coming in and going out is essential to building your wallet and your business, but most importantly, will keep you viable in the real estate industry.
2. Lack of Training & Mentorship
When starting any new position, training is paramount to being able to know how to operate within your role. The prelicensing courses will teach you a lot about the rules and regulations of real estate, but the nitty-gritty knowledge of how to actually be a real estate agent and get a deal done will be taught to you by your brokerage and the agents that work there. All brokerages will claim that they have a training program, and most will, but if their training style does not match your learning style, it won’t be a good fit.
In addition to training, finding a mentor is the key to progressing in your career. Eighty percent of CEOs, Mark Zuckerberg of Facebook and Mary Barra of General Motors included, said they received some form of mentorship that propelled them to success. Having a mentor can increase your confidence, build your network, and provide you with constructive feedback. With the help of a mentor, 70% of businesses survived the first five years, which is the statistic you should be striving to break.
Key to Overcoming This Challenge: Vet Your Brokerage
When picking the best real estate brokerage to work for, it is important to ask your brokerage the details of their training program, such as what type of training do they offer? How long is the training program? What pedagogical methods do they use in training? What happens after training?
Then ask yourself the following questions: What type of learner am I? Do I learn best in a classroom setting with visuals or do I prefer kinesthetic learning with hands-on experiences, and so on? Will this training program work to provide me with the best and most comprehensive knowledge of the industry?
There are no right or wrong answers here, but you want to ensure the brokerage you choose aligns their training with your specific needs and encompasses processes that will propel you to success.
Finding a mentor may be the more difficult part, but a 2018 survey by Olivet Nazarene University states that 81% of people found their mentor worked in the same industry, 61% percent said they worked in the same company, and 67% said their mentor was their manager. When you are interviewing, inquire if your brokerage provides a mentoring program or ask to speak with other agents at the firm to see what their mentor experience has been. Ordinarily, there are managers at each firm who act as mentors for the agents.
If you’re looking for a mentoring program to get an outside perspective, take a look at SCORE Small Business Mentoring, a national nonprofit service organization that matches small business owners to volunteer mentors for free.
3. No Defined Strategy or Business Plan
Very often, real estate agents will leap into their career and go where the clients, properties, and money blows them. While those components are exciting and help to start building your business, they will not set you up for long-term success like having a business plan will. According to the Bureau of Labor Statistics, an astounding number of real estate businesses fail within the first, fifth, and 10th year:
The Journal of Small Business Management found that business planning and success go hand-in-hand. In a study, they found that companies with over 92% growth in sales from one year to the next usually have business plans. It is difficult, if not impossible, to understand how your business is progressing without solid plans of where you want it to go.
Key to Overcoming This Challenge: Set & Measure Goals
To combat those harrowing statistics, it’s in your best interest to create a business plan. Seventy-one percent of fast-growing companies have business plans that include budgets, marketing approaches, sales strategies, and monthly, quarterly, or yearly goals. A real estate business plan should outline not only your mission statement and strategies but also your specific, measurable goals for achieving these milestones. Remember to consistently revisit your goals to adapt and reevaluate when necessary.
For more information, check out our step-by-step guide to creating a real estate business plan.
4. Treating Real Estate as a Part-time Job
When I was hiring real estate agents, a question I was often asked was, “How much money will I make?” I answered, “The amount of money you make depends on the time and commitment you put in.” A part-time agent typically works 21 to 39 hours each week, whereas full-time agents can work anywhere from 40 to over 60 hours a week.
Since about 16% of individuals are starting real estate as their second career, many prefer to enter the industry part time because the thought of working solely on commission is scary at first. Unfortunately, since the amount of time commitment equates directly to money earned, part-time agents tend to bow out of the industry because they are not making the money they are hoping for.
Key to Overcoming This Challenge: Determine Your Needed Salary Requirements
While it is possible to be somewhat successful in a part-time capacity, there are only so many hours a day to devote to a part-time job, especially if you have another part-time or full-time job as well. It becomes a vicious cycle for agents who are not making enough money because they cannot devote more time to make more money. To jump this hurdle, you need to decide the real estate salary you are comfortable with and then determine whether a part-time or full-time real estate career is best suited for you.
5. Real Estate Lifestyle Burnout
Unfortunately, burnout is a very common reason why real estate agents leave the industry. To achieve the salary most agents desire, they tend to work longer hours, many upward of 50 hours a week. In addition, the average amount of time for clients to find a suitable home is between four and 10 weeks.
Getting a continuous flow of clients and money means agents are hustling day- and year-round. From my experience, clients were also eager and anxious during the homebuying and renting process, which could mean texts, emails, and calls past “working hours.”
Key to Overcoming This Challenge: Set Boundaries
There is a reason that the “typical” work week is five days on and two days off—you need the time to decompress. This is a very difficult issue to overcome as time equals money in the real estate industry, but it’s necessary for agents to create boundaries for themselves. Make sure to schedule at least one day a week to be “off.”
This doesn’t mean that you can’t answer a pressing email, but be selective about the communication you make. You can also limit your screen time by enacting controls on your cell phone that do not allow access to certain applications during specific hours. Even if you set aside an hour a day to exercise, eat, meditate, and so on, these boundaries can make a huge difference in keeping your mind and body healthy so you’re able to keep on top of your real estate game.
You can also take advantage of the features of your customer relationship manager (CRM) to automate communication or complete other tasks while you are taking time off. This way you can still maintain contact, but without sitting in front of your computer all day. Freshsales is a great tool to automatically reply to inquiries, qualify leads, and integrate your social media.
6. Lack of Marketing & Identifiable Brand
Marketing is used to showcase who you are and what your business is all about. What is the promise you are making to your clients? How are you different from every other agent? Many agents will adopt the branding of their brokerage and forget to market themselves as a separate entity, but finding a balance between the two is optimal for displaying your qualifications to the public.
Most agents suggest spending about 10% of their gross commission income (GCI) on marketing; top agents spend anywhere from 15% to 20%, especially if they have heavy competition in their area. Marketing can be used online and offline to ensure people choose your services over others.
Key to Overcoming This Challenge: Create a Marketing & Lead Generation Strategy
Real estate leads can come from a variety of places: marketplace advertising, direct mail, pay-per-click leads, social media, organic, and referrals. Employing an effective marketing strategy is essential to jump-start your business and keep it fluid for the future. Check out our marketing ideas and strategies guide for suggestions on how to capitalize on your real estate brand.
You should also consider investing in lead generation tools to ensure you will have multiple pipelines of lead generation flowing. There are many lead generation providers to choose from to align your specific needs with your marketing strategy. If you’re looking for a product that will assist with website building, ad management, auto-text responders, and third-party integrations, take a look at Real Geeks for your marketing needs.
7. Not Utilizing Your Personal Networking
One of the hardest parts of starting your real estate business, or any business, for that matter, is building your client base. According to Placester, 60% of agents said they prospect for new clients on a daily basis and 26% devote several hours a day. Although purchasing leads is a viable option, leads can cost anywhere from $20 to $200. However, a majority of agents forget that their most trusted leads come from referrals within their own personal network. I’ve heard agents frequently say they were afraid to reach out to their own network due to rejection or embarrassment, but by not doing so, you’ll miss out on a lucrative pipeline of potential clients.
Key to Overcoming This Challenge: Focus on Networking Strategies & Social Media
In conjunction with lead generation tools, generating leads organically by building your personal network and leveraging your sphere of influence is a great way to build your client base for free. To build and rekindle your network, you can, for example, participate in local networking events, send handwritten notes, and support local businesses.
In addition, it’s reported that in 2021, 82% of the U.S. population uses social media, so if you’re not networking using social media marketing, you’re missing out on countless opportunities. Social media tools like Loomly can help to schedule, automate, and create content to get your brand out there and the leads coming in. By integrating your brand with popular outlets like Instagram, LinkedIn, YouTube, Twitter, and Facebook, you will take advantage of your network with engaging content and maximize your lead generation.
8. Being Disorganized With Your Client Base
Once the leads start flowing in, you will need to learn how to manage them in an effective and time-efficient manner. Leads will come from a variety of sources, so you want to make sure you are utilizing strategies to track and monitor them so as not to let anyone fall through the cracks. To convert leads, an industry standard is a response time of no more than five minutes; in addition, persistent follow-ups are a must. A disorganized agent will lose clients and money daily if they are not systematic with their communication.
Key to Overcoming This Challenge: Invest in a CRM
A client relationship manager (CRM) is the key to creating a consistent and powerful machine to maintain organization. With an array of features and functionality, CRMs can do anything from lead tracking to lead qualification, email integration and automation, reporting, and much more. Depending on your needs, you can find CRMs specifically for real estate agents, teams, and brokerages.
If you’re looking for a CRM that will keep track of leads and nurture clients with automated responders and drip marketing campaigns, LionDesk could be a solution for you. They also offer marketing resources at a reasonable cost to get your leads flowing in an organized manner.
9. Pursuing Every Lead
If you are spending a huge amount of time and money on gathering leads, it’s natural to want to work with every single person who crosses your path. But it’s important to keep in mind that not all leads are created equal. The National Association of Realtors (NAR) found that the lead conversion rate is 0.4% to 1.2%, which means if you are getting 400 leads, you might be able to convert four people into clients. There may be a variety of reasons why the leads are not converting, but those reasons are often not because of you. Clients may not be a good fit based on a number of reasons, such as unreasonable expectations, not serious about moving forward, dishonesty, rudeness, or unethical behavior.
Key to Overcoming This Challenge: Screen Your Clients & Know Your Limits
Screening your clients is necessary in order to avoid working with clients who are not ready to work with you. Research your client through LinkedIn before you meet them so you are aware of their background and have common talking points. Schedule a phone call or video call with your client to talk them through the process and understand their financial situation and qualifications. This will allow you to get to know your clients and feel out their sincerity and personality. Ultimately, it is always important to meet your clients face-to-face to determine the seriousness of the transaction.
Once you have your initial conversation, you’ll be able to better judge if your client is worth your time and effort. If you feel as though the client is not worth pursuing, you can always fire your client. As the owner of your own business, you can refuse your services to whomever you choose as long as it is not done in a non-discriminatory manner. Gently, while maintaining professionalism, explain why you can no longer represent them in the real estate transaction. It may feel like you’re throwing money out of the window, but sometimes it is necessary to prioritize your business.
Bottom Line
Like any career, real estate can have its challenges, but it is definitely a worthwhile profession. You have the joy of finding people the place that they will call home and that is truly the gold at the end of the rainbow. Ultimately, finding the balance between work and play is difficult for a real estate agent, but if you can achieve that balance using effective real estate tools and strategy, you can guarantee that your real estate career will continue for the long haul.