MONOPOLY, IT’S NOT : Real Estate Schools Are Overflowing With Students Aspiring to Cash In on California’s Housing Boom--But Those ‘Gold Rush’ Dreams May Be Unrealistic
Jim Droz had been in the real estate business only three years when he earned $447,000 in sales commissions for 1984. He nearly doubled that income last year when he earned $925,000 by selling property in the Newhall area.
Inspired by the financial success of people such as Droz and lured by a booming market, more and more Californians are flocking to real estate licensing schools to obtain the credentials required to take the state’s licensing examination.
Yet, even Jim Droz, with his heady early success, says far too many of these aspiring real estate agents have unrealistic gold rush dreams of a quick and easy financial strike--hopes that will be dashed.
“Many develop an interest because they see other people having success,” Droz says. “But most don’t realize how hard it is. A lot of people see it as an avenue for fast income, and most of these people are very disappointed when they get into the business. You have to work 14-hour days, seven days a week to make this kind of money.”
In fact, the notion that most real estate licensees reel in large amounts of money is “stereotypical,” according to Leslie Appleton-Young, director of research and policy for the California Assn. of Realtors.
“It’s just not true,” she said. “Most are (income-wise) just average people.”
The incomes of many real estate professionals have been rising and some have substantial earnings, said Appleton-Young. However, some full-time professionals have relatively low incomes and the commission earnings of many part-time salespersons is also part of the mix.
For example, in 1982--the nightmare year when the number of existing homes sold in California slumped to 234,269--the combined median income for the association’s brokers and sales agents was $15,000.
However, the association’s 115,000 members--about half of all brokers and agents in the state--had a combined median income of $25,000 after a surging 1986, when housing sales increased more than 20%. The 1986 median was based on a questionnaire sent to members; about 12.6% of the respondents worked part time. (The median figure means half earned more than $25,000 and half earned less than $25,000.)
Publicity About Market
Commissions on sales, which are negotiated, range from 2% to 10% depending on the level of service.
Although income levels are not rising dramatically, enrollment at most major real estate licensing schools has surged, school managers say. Enrollment also tends to increase when the market rises because the fortunes of the market, the real estate profession and real estate schools are closely linked, according to Steve Crane, vice president of Lumbleau Real Estate School, a Van Nuys-based chain with schools in 21 California locations.
“There’s been publicity about the real estate market,” said Crane. “Interest rates have been down, and people have been buying houses based on lower interest rates. That sort of information leaves a favorable impression on those thinking about career changes. There’s definitely a relationship between the market and those thinking about a career in the business.”
Industry trends and statistics are the foundation for that observation. For example, the the number of existing, single-family homes sold in California rose from 488,335 in 1986 to 512,447 in 1987; the median price in 1986--$131,530--rose to $139,420 last year.
Another factor for career changers is the relative low cost of obtaining certification: The range of about $80 to $120 per course compares favorably to graduate school tuition, which can run in the thousands.
It’s no surprise, then, that the number of persons taking the state sales examination rose from 41,371 in the 1986-87 fiscal year to 58,136 in 1987-88, the most recent fiscal year. Excluding quirky 1985-86, when a wave of applicants rushed to get licenses before tougher educational requirements went into effect, the number of applicants in 1987-88 was the greatest since 1979-80.
Officials of the California Assn. of Realtors expect interest in the profession to continue rising--there are already more than 230,000 brokers and agents in the state--because they expect home sales to continue their climb, to 523,300 by year-end--the highest level since 1979.
Faced with new waves of students--many with unusually high expectations--executives at private real estate schools say they must manage a balancing act. Operating in a fiercely competitive atmosphere, many school managers say they must actively recruit students.
On the other hand, many school operators say they also feel obligated to try to dispel any unrealistic get-rich-quick notions with straight talk to dampen the interest of some would-be real estate licensees. In many classrooms, that straight talk begins with a clarification of the school’s mission.
“We want our teachers to explain that real estate schools don’t teach salesmanship,” said W. A. McAlwee, president of Anthony Schools, an Oakland-based chain that offers real estate instruction in 32 California locations. “We prepare people to take license exams. Getting a (real estate) license is like getting a hunting license. It doesn’t capture game.”
Anthony Schools is one of the revenue leaders in an industry that was buoyed by a 1986 state law that made classroom instruction a more significant prerequisite for real estate licensee candidates.
Before the law, applicants were required to pass only a state exam to get a real estate sales license. Now, prospective sales agents must pass one college-level course--real estate principles--before they can take the exam. If they pass the course and the state exam and get the sales license, they must also take and pass two other college-level real estate courses within 18 months to retain the license. If they fail to do so, the state revokes the license.
Few Can Make Fortune
The 1986 law, designed to improve professionalism in real estate sales, also created stiffer educational requirements for brokers who provide financing arrangements and other assistance to sales agents. Brokers were required to pass six college-level courses before the 1986 law. They must now pass eight. Many real estate schools also offer the college-level courses licensees must pass to renew their four-year operating certificates. In all, brokers and agents must take courses totaling 45 hours of actual class time to renew their licenses.
Many former licensees, market-wise part-timers who move in and out real estate depending on sales conditions, are renewing their licenses because they are being presented with opportunities to sell property, according to Michael Wurmbrand, administrator of the Anaheim-based American Schools, a real estate correspondence school. However, licensing school classrooms are also attracting more naive students, said Wurmbrand.
“Many think they can make a fortune,” said Wurmbrand. “But few can make a fortune.”
The fortunate few will be optimistic students who learn the industry’s ropes, develop top-notch skills and work hard, according to Paul Mangan, training director for a Century 21 Real Estate Schools operation based in West Covina. Century 21 recruits some of its agents from affiliate schools, which are located throughout the nation.
“Those who make a fortune are those who have the determination to do just that,” said Mangan.
However, only a very small minority will--like Jim Droz--make hundreds of thousands a dollars annually, according to Sonny Bloch, a real estate consumer advocate and host of “Real Estate Action Line” a syndicated radio call-in program and “Inside Real Estate,” a syndicated television program. Bloch advocates the establishment of laws that would make a college degree mandatory for licensee candidates.
“It’s too easy to get a license,” Bloch said. “The misconception is that some think they will make it by going to real estate school. But about 10% of the (nation’s) licensees sell 90% of the real estate.”
