Starting a real estate business is like any other small business startup. There are expenses that need to be considered as part of the cost of doing business before the agent can take a personal income. Many people see the low cost for the introductory classes and think it will not cost them anything to be an agent, or if they know there are costs, they don’t understand what they will be. And there are agents who, after many years in the business, still don’t fully understand the flow of their money.
This article is going to lay out a basic structure for items to consider as part of the expenses and benefits for your business. Some of them are set and required, mostly, and many of them are variable, but become set once we sign up for a subscription service. Everyone needs to review their own budgets according to their resources, market and goals.
Not all agents have the same arrangement with their firm or with their MLS and association. Review this as a guide for your situation. For most agents, the required items that need to be considered as regular expenditures are:
- Monthly or regular fees at their brokerage firm
- Dues to the multiple listing service in your area – monthly, quarterly or part of the Association dues.
- Dues to the association in your area – monthly or annually, generally.
- A Key System, like Sentrilock or Supra – annual.
- Errors & Omissions Insurance – every 2 years
- Internet Access
- Some kind of dependable vehicle and gas
- A computer or access to one
- Some office supplies
- Education for continuing education and improvement of skills for business
Notice what is not there. Marketing. Much marketing and connecting can be done for free at the beginning of your business and then add to it as you grow your business and decide what methods serve your growth goals. Listing marketing is done only when you have a listing, so it should pay for itself at closing.
Let’s look at variable cost items.
- Advanced training at conferences or designation courses at your association.
- Listing marketing – professional photos and printed materials.
- Closing gifts
- Contact Management System – Start with Excel and move towards something more powerful
- Better technology
- A home office that is comfortable and cultivates professionalism
- Closing percentages due to the brokerage firm
- Staging items
- Business Marketing items like postcards or an email marketing system
Some of these variable expenses will come only when you have business and some will be ongoing. Agents need to understand what base monthly fees they need to keep in their business to keep it running strong financially. Another thing I find that agents don’t fully understand or maximize are the brokerage benefits. Do you know all the technology, training and mentoring options that area available at your firm? Some of the items mentioned above are included in what you pay your broker in your monthly fees and commission splits. Maximize the benefits that are free or inexpensive. Ask your broker for a clear understanding of the options that are available to you to help you grow your business.
We all have various levels of abilities to manage all these numbers and details. Some people can and do keep running, detailed spreadsheets while others of us run away from spreadsheets. Creating this overview and reviewing it every year will help you protect your money from getting away from you. The saying is true that “a penny saved is a penny earned”, though I would rephrase that with “$30/month in an automatic transfer to software I don’t need can be $30/month back into my pocket if I pay attention to my expenses”. If managing money is really difficult for you, don’t be hard on yourself. Find someone, a family member or an affordable bookkeeper, who can help you understand it and manage it.
Don’t forget your state and federal income tax. People who come from an employee situation are often unprepared for this. As an independent contractor, you will have to pay the full portion of your social security and medicare portion, where you had paid ½ of that as an employee. Set aside 25% of every closing to pay your taxes. You can adjust that as you learn what the real percentage should be.
If you are a member of the National Association of REALTORS®, please access the excellent product they developed for members, the Center for REALTOR® Financial Wellness. It can be found at FinancialWellness.Realtor.
As a new agent the numbers will be smaller, and as you grow your business and possibly add team members, the numbers and details will be more complicated and larger. Build good habits when you start your business that will serve you well as you grow and add income and expenses. And it is never too late to start learning this and reducing expenses as needed and increasing them in the areas you have chosen in order to grow and serve your clients better.