Fairfax Living Real Estate Blog: May 2010

This just in from WTOP News.....not exactly but the article is published on WTOP's website. I have provided a link below. Two local criminals (thats what they are so lets not sugarcoat it) have been arrested with at least one getting a five year jail term and likely deportation to Bolivia after he serves his five year term. Too bad he just can't serve it in Bolivia but that's not how it works.

Ruben Rojas, a poster child, for why the general public has such a low opinion of real estate agents. We are ranked right up there with insurance and used car salespersons. No offense to those professions but they are perceived they way they are perceived. Please read the article link below from WTOP, Washington, D.C. A local news operation and considered one of the best radio news organizations in the country.

 http://www.wtopnews.com/?nid=25&sid=1952300

From time to time on the internet or from people on the street, I hear "real estate agents make too much money." I think alot of that is the misconception that the percentage charged for listing a property all goes to the agent. In fact, I have seen that on the web from person who really don't understand where all that money goes.

As those in the industry know, the agent may get 25% of the total take depending on the agreement with their broker, etc. They may get substantially less if they have to split it with another agent on their side of the deal (either Buyers or Sellers). However, there are other expenses to consider. First if all, if the agent is a listing agent, they have to buy the signs, signposts,lock boxes, pay for marketing the property, pay to use the MLS system (not cheap), pay for membership in the National Association of Realtors, their state association and their regional association. Then there is gas, wear and tear on one's automobile, insurance for their business, health insurance, and of course taxes. When its all said and done, the average real estate agent in the country makes less than $50,000 a year before taxes. Many make alot more but they work long hours, nights and weekends to attain that level of income. Considering the fact that the real estate agent is considered to be self employed and is responsible for their own expenses, then one could say that many real estate agents might be better off working at a regular old 9 to 5 job with a demanding boss.

There are positives. To some degree, you can choose when you want to work. Most savvy agents work when they can and take the slower season to take time off (usually the dead of Winter). That time of year is probably the best time to head South for a sun-filled vacation.

I mentioned the agent on either the buyers or sellers side might get 25% (more or less) on a deal before the expenses mentioned above if no other agents on their side get a cut. Keep in mind the agent works for a broker and that broker gets their share as does the agent and their broker on the other side of the transaction. The broker is responsible for supervising the agents. There is the cost of a real estate office and the usual business expenses that go with that.

In reality, only a small percentage of agents make the big bucks. My experience is those that work the hardest build their business and offer their clients top notch service are the ones making all the money, and if they worked that hard, then they deserve to be compensated like anyone else.

Lately, I have been getting a "gut" feeling that the days of buying houses for cheap and fliping them at a profit (wholesaling) are coming to a close in this cycle in many markets and certainly my own (DC & No. VA). I suspect there will always be value, especially after every Tom, Dick, and Harry gets out of the wholesaling and flipping business, in buying properties that are in horrible shape in good stable neighborhoods. The value comes in when an investor buys a neglected property and improves the value by good old "sweat equity." This may be the only way soon to make money with buy and hold strategy as well. When interest rates rise it will be the creative investor who makes a profit in residential real estate.

Then there is commercial real estate. Probably at or near the bottom in some instances, commercial real estate is not as competitive as most investors either do not understand it, do not have the higher capital requirements, or just don't want to deal with it. There are certain types of commercial real estate that are considered somewhat recession proof; apartments, self storage, Senior Living, and possibly one or two others, I don't think I would buy an office building, for example, right now unless it was filled with Doctors and near a hospital or filled with title companies, bail bondsmen, and a lawyer or two and near a courthouse. I certainly wouldn't buy a retail property unless I could handle the carrying costs or it was in a high demand area. If you want to know why I would stay away from these properties (for the time being at least) all you have to do is look at the "For Lease" signs dotting the landscape. Eventually they will come back but I think it will be awhile.

Overall, if you have the time and the financial ability to buy and hold residential, or even commercial property (some exceptions as noted), then you could find yourself cashing in over the long term.