The real estate world is changing. In a July 2015 Washington Post article, real estate agents from across the country identified some of the biggest challenges that the industry is currently facing. Several experts pointed out that the real estate brokerage world is flooded with “untrained” or “unethical” agents. This trend hurts the industry as a whole because buyers will have less trust for agents after working with these unqualified and unprofessional individuals. Another issue cited in the article is that commission rates are under attack, threatening the potential for real estate agents and brokerages to make a profit.
The Washington Post article did offer a slight ray of hope, noting that a “new generation of brokers and agents” are in the process of developing and experimenting with new business and pricing models. These experiments could pave the way for the next evolution of real estate selling and make it possible for agents and brokerages to stay profitable for years to come. For now, real estate companies—particularly independent brokerages just getting into the business—are having to face the challenges presented by an industry exhibiting growing pains.
The Unusual and Irregular Earnings Model of a Real Estate Agency
If your real estate agency is like most others in the United States, then most of your business earnings come from commissions. If you sell a house, you get a big payout for it. If you close five or six sales in the space of a week, you end that week with five or six commissions and a lot of profit. Those weeks, of course, are what every real estate agent hopes for.
Unfortunately, you aren’t going to have those big weeks all the time. Selling houses is a process and one that requires laying a lot of groundwork before you can see any financial return. Even if you meet with two dozen new clients in January, there’s virtually zero chance you will see a dime from any of them that month. Instead, you will have to start the process of searching for homes for each of them, setting up showings for those homes, and hoping each client finds something they love.
Once a client decides to buy a home and signs a contract, the average time to close is between 30 and 45 days. Even getting to that point takes a long time: according to the “2015 Profile of Home Buyers and Sellers” from the National Association of Realtors, the average buyer shops for ten weeks before finding an ideal home. Plus, there is always the chance that one of your clients will look at homes for a while and then decide they aren’t ready to buy just yet.
Living House Sale to House Sale
The irregular model of earnings for the home selling industry means that a residential real estate agency is essentially “living house sale to house sale” (instead of paycheck to paycheck) rather than generating a “consistent” or “stable” cash flow. This industry is one defined by good months and bad months, and the differences between those two extremes can be massive. As a result, if your agency has a rough month and then needs to turn around and cover bills, pay for memberships to real estate associations, or buy new office supplies and equipment, it’s possible for money to get tight quickly.
In such situations, it can be tough to get a traditional bank loan to bridge the gap between sales. For one thing, bank loans can take a long time to get approved and just as long to get processed. Since it’s difficult to predict when you are going to need money to bridge gaps in your agency’s cash flow, bank loans aren’t a good option for staying afloat during those rough patches.
Alternative business lending solutions like working capital loans and business credit lines can be game-changing options. Both of these solutions can give your company greater financial freedom, even when cash is tight. With the right lender, working capital loans and credit lines are also quick to process and short-term in nature, which means you can use the money while you need it, pay off the loans when a few sales go through, and get out of debt quickly. Try out one of these solutions and keep the lights on for your independent real estate brokerage—even in the face of industry change and challenges.