Getting Started as a Broker
I have spoken to brokers in my market about what they did starting out, but understandably nobody wanted to get too specific. Since this is an anonymous forum I figured I'd see if you guys could help me out.
How did you handle the financial strains of the first 1 or 2 years of being a broker? Did you have money saved up? Help from your parents? Go on a draw?
I'm 23 and happily married, currently in sales. I've been wanting to become a broker and I am currently getting my license. I was planning on saving up a years worth of expenses before making the jump. I just wanted to get an idea for how you guys got your start and any advice you might have. Thanks
Totally depends on the brokerage firm, real estate class (industrial, office, retail, [multi-family for sales]), and transaction type (sales or leasing).
This is some background on leasing brokerage: I started out as a retail leasing broker at a dominant local brokerage firm with good mentors. It took two years to get a semi-dependable pipeline going. Generally the first year you're salaried at a token amount ($25k for me) with no commission earning potential. The thought is that you are learning the ropes while working on other people's deals. Then, hopefully, you've gophered enough and engraciated yourself with the guys you've been working with that you start getting a piece of their deals, again usually token amounts like 5-10% of total deal. Hopefully you've started to branch out on your own and get your own connections that you can leverage during that first year. You can expect to be splitting these new relationships with the team/individuals that have shepharded you through your beginning to repay them. The mentors will not be hands on with these new relationships but will be willing to help you in LOI/Lease negotiations.
It's a tough industry and certainly not for everyone. I decided to drop out after two years and use the knowledge and connections that I gained to do a little work on the side. The lag time between closing a deal and getting paid could be 6 months to a year.
Piggy Backing off this.
I am not a broker, but I have a friend I graduated from our MSRE program with who went into brokerage. He had an internship with them during grad school and signed with them after graduation.
He was paid a salary for 6 months, after which he went to a "draw schedule" where he was getting paid the same amount but any deals he closed goes towards paying down the draw amount. It's been 2.5 years and he seems to really like it.
He works in Industrial Leasing and tenant rep. He's been pulled into buyer rep by some older brokers after he was there for a little over year. The idea is very relevant to what Holeymoley said above...He is getting token amounts to basically do the grunt work, but he's also the one getting face time with clients, showing, etc. Other than that, he spends a good part of his day Cold Calling on businesses, trying to build his own client book.
The idea is to spend 5 years or so getting around in the business, networking and building and then you really start to come online and get momentum. He said lots of the top earners in his office were just straight shooters with no gimmicks, worked hard and then got a few big fish. He said he gotta be thirsty and you have to be successful.
Brokerage is not for everyone. I seem myself working in brokerage eventually, but for now, I am content working for the debt side.
Piggy backing off the piggy back...
I can add some color for the investment sales side of things. I spent about a decade doing this for both small and large firms, and now I work directly with brokers at all the big national firms regularly.
I'd first like to define a "highly successful" broker as someone who makes $1mm or more a year in commissions from their brokerage. If the split is 60/40, then that means gross commissions around $1.7mm gross commissions. Keep in mind, this is just net from the firm. After that, they may have further expenses depending on the firm they work for. Some of these folks also have staff and operating expenses on top of that. And then they have to pay taxes. And if they are good, the firms will often hold-back some of your checks, kindof golden handcuff style. Also remember, b/c you are 1099 for virtually all these brokerage jobs, you also pay self-employment tax, you get no employer match for 401(k), you buy your own health insurance, etc. I only point all this out b/c one of the big misunderstandings is that $1mm is a huge number, but after all these effects, what's left is often nowhere near as awesome or brag-worthy as the headline figure.
I don't know that much about leasing, but I don't know any brokers who fit the above description that do both investment sales and leasing. Further, I don't know any that do more than one property type. Yes, occasionally they will do an oddball deal, but most are very closely related. Like a rockstar multifamily broker will do a student housing deal, or one who specializes in office might do a retail deal. But these are definitely on the margin, not the rule. And several of the firms that do investment sales don't even do leasing. Like HFF, Eastdil, or Marcus & Millichap. That strategic choice is another discussion entirely, but regardless even at firms that have more comprehensive offerings, the individual brokers don't really do both unless you are at a really small local shop or are working for a firm that does primarily residential but happens to have a couple people who do commercial.
So my suggestion is to pick investment sales OR leasing, and pick a property type and stick with your choice. It really doesn't matter so much WHICH you choose, just that you pick one of each and stay there. I know people in brokerage of every property type that are highly successful, even niches like student housing and self-storage.
But kindof as you allude to, it's going to be extremely tough to start with a wife and kids and responsibilities. While I was doing this, I saw lots of people come in the door, show up every day in a suit and tie, work 80+ hours a week under the promise of future fortunes, and do this for YEARS without ever cashing a single check. Most of them have second jobs, live with their parents, or are married to someone else who is the breadwinner.
An interesting story, there was this one guy who came in actually had a full-time 6-figure job that he somehow kept the entire time he was doing brokerage. He was able to kindof "hide" from his other job and just make calls on his way into and out of the brokerage office. He was there about a year and a half until his other job got wise and fired him. He never closed a deal and quit the day after to go get another job selling insurance or something like that.
When I first interviewed as a broker, the guy who hired me asked me if I had a trust fund. It was many years before I realized why he asked me that. What they don't tell you in the beginning is this job is all about staying power. If you can be detached (not chasing crappy listings) and still stick around (not go broke) then it's a job that will ultimately lead to big paychecks. The first 3-ish years are super tough, potentially just making enough to make minimum payments on your credit cards as you max them out. The next couple years you should be able to dig yourself out of the hole you go into in the first three years, and from then on out you should be pretty good to go. Again, assuming a reasonably stable market.
It's definitely not easy, and it also depends highly on the market. Basically when the market is super hot, newbie brokers can come in and get listings just by pricing them higher than experienced folks and waiting for the market to catch up. If they can get enough experience and traction while the market is hot, they will eventually get to the tipping point that their track record allows them to take listings that aren't overpriced and still get enough of them to make money.
If you can start with a team that has track record and work your way up inside that mini-firm inside a larger firm, that's a great low-risk way to get into the business. But because it's low-risk, it's also low-return, which is what a few other people have alluded to here. If the team is very established, the obvious clients will basically always be off-limits to you or will be available but your cut of those deals will be minuscule.
Luck has a lot to do with it too. Because of the specialization thing, each office often has a "most senior" agent for each property type. So if you come in as retail, for instance, and there is only one retail agent above you, this could be a good spot if that agent leaves. I saw this happen several times where a successful team left and created kindof a power vacuum that allowed other agents in the firm to quickly move up. Of course, there aren't really too many "formal" positions, it's all about closing numbers, but what tends to happen is when someone gets a retail deal, they bring in a retail agent to get it closed. So if you are the top retail agent in the office, then you will get brought into a lot of deals regardless. And like I said, you really have no way of predicting when someone will leave for another firm, if all their team will go with them, or if someone will retire, die, move into ownership, etc.
I don't see the market collapsing like last time, but when the market turns, brokers go broke. There were several agents in our office in 2007/08 that made ZERO who had made over a million dollars in 2006. The ones who didn't save their money are now selling insurance. Those that had balance sheets stuck around and are now making 3x or more that figure.
Remember that success at sales and success at this type of sales are not the same. This is the most hard-core type of pound-the-phone sales I have ever seen. Similar to the pressure level you see in Boiler Room or Wolf of Wall Street type sales. It is truly old-school eat what you kill stuff. There are no "leads" handed to you, you don't "manage accounts" and you won't have a "protected territory". And someone will be genuinely trying to screw you out of your commission check on every single deal. Sometimes those people are your clients, sometimes your colleagues, sometimes people you don't even know.
Here's another example, there was an attorney in our area who signed up for CoStar and would watch for deals to show up as pending, then he would go in and look for ADA non-compliance. He would call the listing agent on the deal and basically tell them he wanted $10k-ish to go away or he was going to file a complaint, and that complaint would hold up any closing for months. The broker would have to either pay the guy or risk not having his deal closed.
The success rate is extraordinarily low. I'd say that fewer than 1% of brokers ever reach the "highly successful" level I describe above over the long-term. Some might hit that level once or twice, or they do so every so often but have lots of terrible years in-between. But perennial high-earning investment sales brokers are very few and far-between, despite the way they are portrayed.
Also remember that once you have been a broker for a while, if you ultimately fail at it your exit options are limited. There is an extremely long list of failed real estate brokers. So if it ends up not being the right gig for you, find out fast and move. Once you have been in the biz for several years, you kindof become lumped together with every other failed salesperson from a hiring standpoint and the only people that will really hire you are those who are looking for all-commissioned salespeople and you are back at stage one just in a different industry where the sales isn't quite the same. Lots of people who leave go sell insurance, become "financial advisors", or some other job where there are virtually no qualifications required but have "unlimited upside potential".
I hope this helps...
Usually it is b/c they focus on the wrong activities. Until you have closed a good number of deals, your job as a broker is basically a combination of data entry and telemarketing. It sucks to say it that way, but that's the reality. You look up owners, find their contact info, and then call them over and over until they agree to meet with you. That's it.
If you can do nothing but call and generate meetings with owners of the targeted type of real estate, you will be successful.
But, the work is terrible, and because you are wearing a suit and have a college degree, it is EXTREMELY TEMPTING to overthink what you should be doing.
You will be amazed at the lack of sophistication in people who control millions of dollars of real estate. I remember when I first started and my mentor told me, "don't worry about IRRs, most of our clients don't even understand cap rates". He was kindof joking but not really, lots of people who own $10mm buildings really only care about cash flow and value. How you get there (cap rate, IRR, etc) is irrelevant. They have an irrational value in their mind and either you can get there or not.
So there's this underlying thought that kindof goes through your head like "Wow, I went to college so I can basically sit in a call center? Isn't this 'setting meetings' thing the job I did for $12/hr work-from-home that one semester? I must be missing something. Maybe I'm doing it wrong... I should be doing more!"
And then what people try to do is kindof "self elevate" the real position and make it more than it actually is. So the first time you know this is happening is when you hear someone selling on the phone. The phone is NEVER for selling. The phone is to get meetings. That's it. NEVER EVER EVER sell on the phone in this business. Once you hear new people start doing this, you know their days are numbered. This means they are getting lazy and not getting in front of people.
There is more that follows, but IMHO this is by far the biggest thing that stops people from being successful early on. Trying to make the job more complicated, more interesting or higher level than it is. Your job as a new agent is to get as many meetings set with the telephone as humanly possible. Then go on the meetings and take some experienced folks with you. If the opportunity is legit, you will have senior agents chomping at the bit to go with you.
It's not about working hard, and it's not about working smart. It's more about working on the RIGHT SET OF ACTIVITIES and making sure you know what those are. There is nothing "smart" about the first few years of brokerage. If anything, there's probably an inverse correlation between IQ and success in the early years of brokerage. It's really tough for super smart people to get their heads out of the way and just do something monotonous and terrible.
Also when I started, it was around November. I had to do all this pre-training stuff which took probably 3mos. Then I went away for a week long training and after I came back it was another week or two before I passed my follow-up skills tests. Then I was allowed to get on the phones. I got extremely lucky and got my first listing after about 2 weeks, and this was I think March-ish. That deal finally closed in October the following year. So that was 11mos and it wasn't even a bad market. It got really bad after that, but that's a diff story.
But there is just a lot that has to happen. You have to learn what you are supposed to be doing, then you need to learn how to do it properly. This all takes time. Then you have to actually start calling, then you need to set appointments and get listing OPPORTUNITIES. Only a small percentage of those opportunities at the outset will turn into listings, and even once you have several listings, they don't all close. And b/c you are new, you will undoubtedly screw this up the first several times. Learning along the way takes time and since as a broker you are paid for RESULTS, you don't get paid until that deal closes. I got really lucky and it took 11mos. There are probably people who have done this faster, but I am there are definitely many who took way longer or never did it at all.
There are lots of moving parts that you have no control over, but as long as you don't lose sight of the basic underlying role, over time the law of averages helps a lot. As long as you don't go broke in the process.
i wanted to follow this up b/c i thought of another reason people fail in the early stages of brokerage.
it's called "working the buy-side". and it's probably the worst thing you can try to do as a new agent.
so what will happen is legit agents will go out and get listings and start working them and depending on the firm they may or may not be required to allow other agents to bring buyers to their deals. and, as a new agent it seems super easy because you think "well, wait a minute, this guy already got a listing, why would i kill myself cold calling to get listings when there's already one here? i'll just go find a buyer, that should be easy enough..."
the problem is that when you are working the buy-side, you are only one of several buyers on any given deal. and that means your guy has to be the highest bidder, or have the best terms out there. so every deal is a function of the quality of the buyer you have sourced. and, as a new agent, there is no way on earth you have somehow uncovered a buyer who is more qualified than everyone else. in all likelihood, it's almost certainly the complete opposite.
i have seen people go down this path. they start pulling all the firm listings and calling to try to pitch other people's deals and start emailing out exec summaries and what-not. this is a complete waste of time as a newbie. until you have closed a deal with a buyer, you shouldn't be pitching them any deals at all.
and what tends to happen is you get this kindof gambling syndrome thing that happens where these people get more and more desperate as the emotional roller coaster continues to go up and down as you put in offers and they get rejected or worse they get accepted and then fall out of contract. then they tend to just try to go after bigger and bigger deals that are already listed, which of course are even less likely to have not already been shown to the entire universe of buyers, even making the probability lower.
and of course at this point, they don't even have time to go out and get a listing and wait for it to close because they can't wait that long since they will run out of money before that happens or their credit cards will be maxed out by then.
but boy it is tempting. and a lot of people get caught up in this.
and i'm telling you, it is really easy to lose sight of the real purpose of the job (prior post in this thread) and do things like calling to meet with buyers instead of sellers, which is way easier and more comfortable. and it feels a lot like real work. and because you are at a brokerage there isn't a lot of oversight on your daily activities other than call logs and what-not, so you can get very caught up in this cycle chasing what is definitely NOT an income-producing activity (for you).
the regional manager at our office used to say "you gotta know whether you're working on a paycheck or a project".
there are lots of projects and working the buy-side on another agent's listing is one of the lowest-paying ones for new agents.
Above is a good overview of leasing. If you're thinking of investment sales/capital markets as well, I'd say that it is very difficult to prospect/do business development as a young guy on your own. 9/10 of the successful young brokers I've seen come through have always hitched their wagon to a strong established investment sales teams and they work their way up through the ranks and have the relationships 'transitioned' to them during the course of their junior/mid-level years. Very hard to get someone with millions of $ in property to trust a very junior person with the dispo of it without any support/experience/infrastructure backing them up.
My 2 cents...
I work in a very small operation consisting of 3 agents working under a very hands-off 79 yr old broker that hasn't given any relevant guidance since the 1980s. I do tenant rep of industrial clients for the vast majority of my business and have a handful of industrial property listings that serve to garner leads for tenant rep assignments.
To get at the initial question, I am just at the beginning of my 3rd year and the first year was very lean. In year 1, after my 60/40 split with my broker, I net $35K. That was not what I had in mind, but my pipeline was becoming more robust by the day and in year 2, I net more than 3X my first year earnings ($111K). Starting out year 3, I am on a pace to exceed the previous year by 1.5X (shooting for $175K).
In my case, this is in a 100% commission, eat what you kill environment, where the ropes were learned on your own time, but if you get past those initial lean years, it can be good to you. I'm not going anywhere.