MLM Scams vs Real Estate
One of the common comparisons that representatives of MLM scams like to use to confuse people about the scam they are running is to compare the relationship of a MLM representative and their upline to the relationship of a Real Estate Agent and a Real Estate Broker. I want to take a little time and clear up the confusion.
Here is a breakdown of some of the similarities and key differences:
Real Estate Business Model:
- Broker Hires Agent.
- Broker Trains Agent.
- Agent Sells Property.
- Agent Gets % of Selling Price.
- Broker Also Gets % of Selling Price.
- Broker can have multiple agents.
- Agent cannot have multiple brokers.
- Agent cannot have multiple agents under them.
Do I have to pass a background check to get a real estate license in California, or to take the California real estate exam?
Yes. In California, all applicants for a real estate license are required to get fingerprinted. This is done by using a Livescan, which is an electronic fingerprinting system. CalBRE compares the real estate applicant’s fingerprints to the California Dept. of Justice database of all people who have been arrested or convicted in California.
The median gross income of REALTORS® was $45,800 in 2014.
REALTORS® with 16 years or more experience had a median gross income of $68,800 compared to REALTORS® with 2 years or less experience that had a median gross income of $9,100. – Source National Association of Realtors
How hard is it to become a real estate agent?
MLM Scam Business Model:
- Upline Recruits Representative.
- Representative Purchases Startup Pack.
- Upline Trains Representative.
- Representative Purchases Products And Recruit Others To Qualify For Commissions.
- Representative Sells Products To Friends And Family.
- Upline Receives Commissions And Bonuses From Representatives Personal Spending, Recruiting, And Sales.
- Upline Can Have An Unlimited Amount Of Representatives.
- Representatives Can Have An Unlimited Amount Of Representatives.
The median annual gross income for MLM representatives is $2,400. – Source DSA Spokeswoman Amy Robinson
The vast majority of people in the first year of a MLM scam lose money. Associates earning as little as one commission check a month and associated with USANA for more than six months equal only 3% of all ordering Associates. – Source USANA Income Statement
Here is what the editor of the personal finance blog Bargaineering.com had to say about these two business models:
MLM is a world away from how real estate is done, where I sell houses other people own and get a percentage of each sale I make. If I was going to do real estate MLM-style, I would have to buy not just one house but many houses from the real estate broker at a huge markup based on the belief I would still make money selling them. Then I would have to sell the houses (hopefully for more than I bought them for), and if I sold enough, maybe get a little bit of a kickback amounting to a few percentage points from the real estate firm. The real money I would make would be from recruiting other real estate brokers to buy overpriced houses from me, and then I would get to keep their commissions. That doesn’t sound much like how real estate works, because if it were, there would be no real estate agents. – Source Bargaineering.com
MLM Scams vs Real Estate Conclusion
Purchasing training from a Broker and recruiting other Agents is not required for your success as a Real Estate Agent.
MLM scams require both buying inventory upfront, mandatory monthly quotas, and recruiting other representatives to reach any significant amount of income. MLM scams are typically designed to make the majority of the profits rise to the top. The reason that this happens, is that there is typically no limit to how many levels and people you can have underneath you. With Real Estate an Agent splits the commission for the sale of a home with a Broker. An Agent can even have a Broker that pays them the full commission for the sale of a home by paying a monthly Desk Fee to the Broker.