Kevin is the Founder of Marker Real Estate, an innovative firm with a transparent, inclusive, client-focused strategy.
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When the pandemic hit, real estate closings in many cities ground to a halt. Moments like these remind us that risk tolerance is a quality every agent needs to survive. But in real estate, risk tolerance isn’t just something one needs to survive pandemics and market crashes. Even during the best of times, risk tolerance is critical.
Do you have the risk tolerance needed to be a successful agent? Start by asking yourself the following questions:
1. Can you live without a regular paycheck?
Unlike other professions, most real estate professionals don’t start out in real estate. The vast majority of real estate professionals I know came to the profession after trying out one or more other careers. For anyone coming to the industry from a sector where regular paychecks are the norm, the transition can be difficult. After all, in real estate, you can’t depend on a regular paycheck. Your income will be entirely based on commissions.
Without a high level of risk tolerance, this single condition can make a career in real estate a bad match. From the start, you must be able to live without the security of a monthly or biweekly paycheck. Also, say goodbye to the benefits that often come with a regular paycheck (e.g., healthcare).
2. Can you stay the course as you scale up your business?
From time to time, there are exceptions. For example, a young agent gets off to a great start by selling multiple high-end properties in their first couple of months in the business. In most cases, one’s rise to the top is slow and structured by starts and stops. You have to be prepared to scale your business over time.
3. Can you go all in?
I meet a lot of aspiring agents who assume that it is fine to scale up their real estate business as they continue to work in a salaried position. Some assume real estate is an ideal long-term side gig. In my experience, if you lack the risk tolerance to go all in, your chances of failing as an agent are much higher. It takes a lot of mental and financial stamina to be successful.
4. Can you have trust in your systems, even when the going gets tough?
Real estate is often seen as a fast industry that requires a lot of energy and an always-on attitude. This is true, but only to a certain degree.
Real estate is also an industry where major decisions typically don’t yield a real return for 60 to 90 days. Between an offer being made on a property and a closing, a lot can change. You have to have the risk tolerance to ride these ups and downs.
When the going gets really rough, as it did early on in the pandemic, you also have to trust your systems. You have to believe that work invested now will pay off, even when there may appear to be no light at the end of the tunnel. This is why it is also always advisable to join a brokerage that has proven systems and processes. When you experience a slump, having these proven systems and processes on your side will make it much easier to keep going.
5. Do you have what it takes to manage other people’s risk tolerance?
Purchasing a property is one of the most important and expensive decisions most people will ever make. As a result, it is full of risks — both emotional and financial. Your clients’ risk tolerance will at times determine whether a sale ultimately closes. It is not unusual, for example, for someone to make an offer and to question their decision just a week later. Some clients will worry they are in over their heads on the money side. Others may wonder if they are purchasing at the right time.
In the end, consumers need an agent who can stay calm as they ride their own emotional roller coaster. They need an agent who can assure them that the decision they are making is the right decision for them. In this respect, an agent’s own risk tolerance also has a direct influence on clients’ relationships to risk and may even impact what deals close.
Assessing Risk
As someone who invests in every agent I recruit, assessing risk tolerance is my first order of operation. Before I invest in a new agent with extensive training and direct leads, I investigate their work history. Whether they failed in their previous career isn’t necessarily a concern. What I want to know is how they navigated their career and handled its associated risks. This is why candidates coming from high-risk but unrelated careers (e.g., acting) often prove to be stronger candidates than those who have held desk jobs in more closely aligned industries (e.g., banking).
The bottom line is that real estate is a mentally taxing industry. It takes grit and stamina to succeed. It also takes a high degree of risk tolerance. Whether the market is surging or crashing, risk tolerance is the No. 1 differentiator between agents who thrive and agents who just get by or exit.
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