Why Real Estate Agents Will Fail in 2023

Real estate is not an easy business.

Extremely professional, capable, and intelligent companies have spent hundreds of millions trying to start real estate businesses in America and failed spectacularly.

If you’re considering getting started in this business, you need to be committed. Between 80-90% of new agents do not make it to their third year as agents.

One reason for the high failure rate is the low barrier to entry combined with the very high upside. Top agents do very well for themselves, often in just a few years after joining the industry. And it’s very easy to get started!

Once suckered into the game, however, many new agents learn it is not an easy industry. And then leave.

Remember the Pareto principle. 20% of the agents do 80% of the deals. That suggests that of about 2 million licensed salespeople in the United States, 400,000 agents are making money. The other 1.6M agents in America are fighting for scraps.

If you are getting into this industry, you need to have a mindset that you are going to be in the top 10%. Those are the agents that survive and thrive. It’s not good enough to be average.

The average agent fails.

Before you even get your license, make sure real estate is something that appeals to you.

Reach out to a broker before you start paying for classes. Ask if you can perhaps help as an unlicensed assistant for a week. Follow a top producer and see what the daily schedule actually looks like for a successful agent.

Does it enervate you, or invigorate you?

If the answer is “invigorate”, then read on! And make sure nothing gets between you and doing what you love.

You’re in the Wrong Business

When someone asks you what you do for a living, what do you answer?

“Real estate!”

Of course! But it’s not true.

Your business is lead generation.

He who has the leads has the business.

Look at Zillow. What does Zillow do?

• close homes
• run CMAs
• have clients
• give advice
• take photos
• put up signs
• inspect homes
• generate leads

Lead generation is all they need to be one of the biggest companies in American residential real estate.

If you are a terrible agent with lots of leads, you will make money.

If you are an amazing agent with no leads, you will go broke.

Don’t forget what business you’re in.

Solution

I think there are two routes to solving this problem.

• Join a Team. Sign on to an existing lead generation machine. Learn from a top producer in your market. Don’t reinvent the wheel trying to go out alone. Then, when you know a little something about yourself and the industry, you can spread your own wings and fly.
• Focus and Prospect. Lead generation is your business. Pick your lead generating activities and do them. Don’t worry about headshots, websites, stationery, or previewing open houses. Prospect like your livelihood depends on it. Because it does.

Overspending

Let’s do some back-of-the-envelope math.

The median agent salary is about $54,330 according to the NAR 2021 Member Profile. That’s for a median agent – not a new agent, who likely makes much less.

But, going with the average, let’s imagine you buy a CRM ($50/mo), cheap website ($100/mo), e-signature software ($10/mo), document storage ($10/mo), desk fee ($100/mo), and your licensing and professional membership costs ($750/yr).

That’s $3990/yr.

7% of your income.

You haven’t even begun to actually waste any money yet!

It’s easy to spend $10/mo here. $50/mo there. It doesn’t seem like a lot when it’s paid monthly.

The result is that your commissions slip away in subscriptions to products you don’t fully utilize or that don’t add to your business. Or worse, they distract you from your business.

When you get more money, you start immediately spending it on the cool new tool you wanted.

You’ll find that at the end of the year you’re still on the hamster wheel, chasing transactions and wondering where all those fat looking commission checks went. It will feel like starting over. And that is depressing.

The Solution

I made a list of the things I think a new agent should spend money on.

It’s a short list.

If it’s not on this list, I wouldn’t spend money on it until you are making enough money to pay yourself your target earnings and then some. Everything not on the list is superfluous until you are making money, in my opinion.

You can get by your first year without yard signs, business cards, websites, paid leads, office space, and other toys. Go borrow some lockboxes for any listings you get. Just stop spending money.

Short Runway

I was told it would take 6 months to earn my first paycheck.

I didn’t realize it would be another 6 months before I earned my second.

That’s not entirely true. I did 6 deals in my first year, as a part time real estate agent. That’s not terrible, I suppose. But barely enough to cover my expenses for the year let alone live off it.

My second year I would go full time and did 12 deals. Which was still far too few in my market with low price points. We were hurting.

In year three I did 24 deals. In year four I did 36. I had finally made it but had exhausted far more of my savings than I had ever budgeted for. For me and my growing family, it was a disaster.

I left part-time for full-time too early. I did not have enough savings budgeted.

And later, I started making other mistakes on this list like overspending.

Remember, even when you are successfully generating leads, real estate has a notoriously long funnel. A great lead today might not close until a year or two later. I’ve worked with clients for over three years before finally closing on a new construction and seeing a paycheck.

Make sure you have a runway to get your business taking off!

Solution

• Part-Time It. Wut! Most other articles on real estate failures strongly recommend against doing it part-time. I disagree. Especially if you are the sole earner for you or your family, start scrappy. Keep your income and healthcare coverage. Balancing two careers is challenging, but I think it is a fine way to start learning the business and testing whether it is the best fit for you. I don’t think there is any reason you can’t at least make a decent part-time income, enough to demonstrate that you can successfully make it as a full-time agent.
• 2 Years. If you are jumping into it full time and are relying on it for your income, I recommend having at least two years, not six months, in which you don’t have to make a dime. Your first year will most likely be hit and miss, and some of your early checks will be just be breaking even on your expenses.

Spread Thin

Start blogging!

Host open houses!

Be in the office!

Network with lenders and local business owners!

Spend a little on Realtor.com!

Door knock! Call expired listings! Mail your farm! Advertise on Facebook! Start a YouTube channel!

I think I literally did everything on the list above at some point.

I was directionless, and did almost no single thing well or consistently. I was spread too thin.

It was two years in before I started to get focused, working almost exclusively on content marketing and investors.

Solution

• 4 Pillars. I had coaching with Workman Success Systems who taught me the four pillars. Limit yourself to four lead generation methods and focus exclusively on those. That allows you enough space to diversify your income sources, but few enough to master something. You don’t need a YouTube channel, or social media, or even a website, if they don’t fit in your business plan and focused lead generation strategy.
• Pick a niche. You’re competing with hundreds if not thousands of other “small businesses” in your local market. Everyone, even friends in the office, is your competitor! Picking and mastering a niche is a great way to begin focusing on a well-defined customer avatar and shrink the number of people you are competing with. The riches are in the niches!

Inconsistent

Closely related to spreading yourself too thin is inconsistency.

There are few lead generation strategies that work without consistently applying yourself to it. Building a personal brand on social media requires regular and consistent engagement. Dialing FSBOs doesn’t work if you take weeks off at a time.

Most critically is follow up. Few leads are ready to convert immediately. Most take months or even years of nurturing.

Solution

• CRM. Notice how I didn’t say a “good” CRM. You don’t even have to spend anything if Excel works for you! Just use a customer relationship manager tool that you use and works for you.
• Good Daily Habits. There are a variety of productivity hacks for agents. One of my favorites is “hot time – warm time”. Time block “hot time” which is purely for lead generating activities and prospecting for new business. “Warm time” is time spent nurturing the leads you have. The rest of your time is dedicated to the (still important!) work of servicing your current clients and any other business. Consider accountability groups and checklists as well!

Failing to Make the Leap

Some agents are conventionally successful, doing deals, earning money, maybe even good money!

That is great! But now you are going to deal with burnout. Extreme ups and extreme downs. You’re ready for a vacation, but are never free from your business.

This is when you need to make the leap from technician to entrepreneur.

Malcolm Gladwell’s book The E-Myth is all about the technician-entrepreneur divide. Technicians are experts at their craft, and work in the business. But entrepreneurs are capable of working on the business.

The E-Myth Real Estate Agent: Why Most Real Estate Businesses Don’t Work and What to Do About It

Michael E Gerber Companies

Michael Gerber’s legendary E-Myth series for small business owners is adapted to the real estate agent!

Gerber’s “E-Myth” refers to the “Entrepreneurial Myth”, the mistaken belief that people who are good at their jobs are also good at running their business.

It’s not enough to be a good Realtor. You need to become a good business person if you want to succeed, which means working not only in your business but on your business.

This could be the beginning of a team, or just automating some processes, or partnering with another agent so you can take a vacation.

But you need to transform from a real estate agent into a real estate business.

Solution

• Consider Help. It may be a time to consider an assistant. Assistants don’t have to set you back. Some tools like Transactly allow you to bring on a transaction coordinator and pay at closing. Other virtual assistant services offer affordable part-time help.
• Team Time. If have turned into a successful agent, consider bringing some other agents on as a team. Hand off some of your deals for referral fees. Teach them your best practices. Begin training them to overtake your least critical tasks so that you can continue working on the business and get to the next level.

Fail to Create an Exit Plan

Successful agents who fail to plan for “what next” are still failures. Or, at least, they are leaving a lot on the table.

What happens is they end up leaving the business or, worse, feel stuck in a business that is no longer their main source of fulfillment.

Another related mistake would be missing your exit. From time to time, take a pause and consider where you are. What are your goals? Have they changed? Are there opportunities that now exist that didn’t before?

Take care of your business so that you can take your exit profitably and continue to your next chapter!

Solution

• Take Care of Your Database. Your business is your database. A successful agent who is leaving the business for whatever reason should be able to sell their database. You can sell your database and collect referral fees for the business created therein.
• Be a mentor. Whether leading a team or something more informal, cultivate the relationships now that can put you in a good position to offload some of your work, or even exit entirely.

Reasons Agent Will NOT Fail

• Down Market. The post-COVID real estate markets have been unpredictable and volatile! So who knows how 2023 will end with interest rates, inflation, and home price appreciation? None of it is an excuse, however. A successful real estate agent is nimble and can adapt their business to the changing market. Mind your market and be prepared to shift to short sales, investor relationships, or assumption loans.
• Disrupters. Realtors seem to be in constant turmoil, it seems, concerning would-be-disruptors like iBuying, discount brokerages, lawsuits, or other trends. Yet each year real estate changes, at most, gently. 2023 will be no different. The real estate agent is not going away any time soon.
• Artificial Intelligence. ChatGPT is spooking even really smart software engineers. Shouldn’t you be spooked, too? No. A language model program is not about to take your job. There are many reasons for this but I will focus on just one: real estate data is analog. Most of what you probably know about your local community does not exist digitally. Until ChatGPT grows eyes (which, admittedly, they’re working on), hears your every conversation with local builders, title agents, and clients, it is not going to be able to replicate the knowledge and experience of a good agent.

Conclusion

There are a lot of mistakes you can make as a real estate professional. You will make many, and most of them are not fatal.

But the above mistakes cannot be maintained forever. And it’s best to just avoid them altogether if you don’t want to fail.

Updated April 6th, 2023; Originally published September 11, 2020.