A California real estate agent’s impression on clients and colleagues plays a critical role in their success. Here’s how you use asset accumulation to build your net worth, one leg of a full power base, and take your income from real estate services to greater heights.
This article is the first in a series exploring the critical components of an agent’s successful power base.
Effective real estate brokers and agents
One has only to browse the internet to find a myriad of suggestions for how a real estate agent may boost their income. Methods range from stealthy social media networking tactics to simplistic signature slogans and stylized marketing.
However, underemployed agents will not be able to durably fix drooping transaction rates with a smile, though disposition is important in communications. Their ability to charm prospective clients may win them friends, but it is less likely to win them business with staying power beyond first appearances.
Instead of focusing solely on marketable persona, agents looking to get ahead need to take a look at cold, hard background facts. What tangible personal achievements do they have on their records? What proof of real estate savvy can they present for their clients to see?
It all begins with the agent’s power base – a multifaceted tool an agent uses to improve their income. An agent first needs to understand what their power base is, and how to start building it through net worth.
What is a power base?
An agent’s power base is, essentially, the sum of the agent’s assessable achievements. However, it is the way an agent uses their power base that directly affects their real estate business.
An agent’s power base is built from several factors, including:
- education – past and continual;
- civic engagement beyond voting and jury duty;
- longevity – familial roots and name recognition;
- wealth – net worth in assets and debt; and
- measurable achievements of note.
A balance of these factors is required in order for an agent to create a lasting power base. For example, an agent won’t be able to dramatically improve their business income simply because they remain in an area where their family roots are well-known, although that is initially helpful. The agent also needs to:
- attain and maintain a level of education that commands attention;
- commit to direct, high profile involvement in community activity;
- collect assets and liabilities in a stable portfolio with a positive net worth; and
- achieve prominence for doing something noteworthy.
The purpose of the power base is to enhance the agent’s aura to the point where it helps the agent attract better clients with greater frequency, thus enhancing their earnings. In short, an agent’s power base allows them to:
- expand their client base and industry network, teaming with others;
- develop greater earnings and increased professional opportunities; and
- maintain ownership of durable real estate and financial holdings, alone or with others (syndication).
Assets and net worth
Asset accumulation is one aspect of fortifying an agent’s power base. Assets may be any of several possessions in which the agent has invested, including:
- a home and furnishings;
- a car;
- real estate ownership interests;
- trust deed notes;
- business ownership interests; and
- other possessions of value.
Assets give an impression of the wealth and financial savvy of those who possess them. For example, an agent who drives a new luxury sedan gives an impression of possessing greater wealth than an agent who drives up in a rusted pickup truck. Accumulation of several significant assets, such as vehicle and homeownership, further enhances the agent’s impression on clients and colleagues of their success and stability.
However, an agent has reason to act wisely, with patience and timely moves, when accumulating assets. When the cost of acquiring an asset vastly exceeds an agent’s income potential for managing the accompanying debt, the agent needs to exercise caution in the race to enhance their power base. An agent does not want to take steps which will likely lead to a sharp decline of their personal finances when that inevitable next recession hits. Such a setback damages the agent’s image and takes years to overcome.
Part of wise asset accumulation involves whether assets are liquid or illiquid. Liquid assets, such as trust deeds notes and bonds, are easily converted into cash in the event of real estate sales and leasing slowdown or a personal financial emergency. Illiquid assets, however, are more difficult to convert. For example, the equity an owner holds in their home or other real estate is an illiquid asset, requiring months to convert to cash through a sale or equity financing.
Next, agents need to evaluate their net worth. An agent’s net worth is the sum of the value of their assets less the agent’s total debts (mortgage, car loan, etc.).
For example, an agent who owes more in financial obligations and debts than they have in the value of assets has a negative net worth; that’s insolvency.
To determine their net worth, an agent uses a balance sheet to tally their liquid and illiquid assets, debts and financial obligations. [See RPI Form 209-3]
Positive net worth means an agent is solvent, worth more than what they owe to others. A solvent agent with personal income is able to accumulate more assets to further increase net income – creating a positive feedback loop which benefits the agent professionally.
Using your power base to boost income
The mere possession of assets and the knowledge others have of an agent’s holdings won’t boost their business overnight. Instead, agents need to know how to leverage their power base to increase their personal earning potential and ability to capture business opportunities.
Agents and broker-associates seeking employment exploit their power base to project increased professionalism and business acumen to potential employing brokers. An agent who can show they have invested in education and tangible assets and have marketable ties in their local civic activities is a shoo-in at an interview with a prospective client or brokerage office.
n the other hand, agents and broker-associates already employed by a broker use their power base to increase their net income. Buyers and sellers are more likely to trust and confide in an agent who gives the appearance of a more affluent and seasoned professional. An agent who owns a home (and other real estate) is able to apply not only industry knowledge but personal experience making decisions as a principal in a real estate transaction, which further influences clients – and entices them to refer their friends and family members to a stable, trustworthy agent.
Agents also use their power base to influence coworkers and colleagues. An agent who appears more successful to their colleagues – whether by actually earning more income or by holding assets – more easily garners respect and admiration based soundly in their personal achievements. The agent further uses the respect they receive in the workplace to enhance their career and income, such as by negotiating higher fee splits.
Additionally, accumulation of liquid assets gives agents and brokers a form of safeguard against a business failure in the event of a market downturn. When the real estate business falters due to a changing economy of declining sales volume, an agent will be able to cash in their liquid assets to create a financial cushion until the market regains its footing. Some years yield significant gains; in other years, agents give some of it back as a reduction in liquid assets, such as savings.
In other words, an agent’s power base accelerates their success in the real estate business. Agents need to invest wisely in assets and balance their debts to maintain a positive net worth. The reward includes an increase in their standing within the real estate industry – which in turn increases their earnings.
Look for future articles exploring education, community involvement and other aspects of an agent’s power base.
