HGTV has brought the glitz and glamour of the real estate industry to the foreground. Shows like “Million Dollar Listings” highlight the million dollar homes and the realtors that list these home. HGTV’s “Flip or Flop” shows us the highs and lows of what real estate agents Tarek and Christina El Moussa (also a designer) go through to make a profit. Yes, it all seems so glamours and it looks like all these agents are just rolling in dough, but is that really the truth?
Most of these agents have been working in real estate for more than 5+ years before they get to a level of consistent earnings money. It doesn’t happen overnight, and there are a lot of upfront fees involved that aren’t known or openly disclosed to someone looking to get their real estate license.
I’ve seen many “deals” for real estate licensing schools that offer special discounts to enroll in the required real estate sales classes to become a licensed realtor. I’ve even seen deals on Groupon for classes to get a real estate sales agent license. Don’t get me wrong, I’m all for getting a good deal but there’s a lot more that comes out of your pocketbook once you’ve taken the classes and pass the exam that you should be aware of before you take the plunge.
Once you’ve passed the exam here are a few things you have to do:
- Find a real estate brokerage to work with, or as the industry says, “find a company to hang your license with”. Note: Some brokerages charge you a signup fee. Some offer training courses but you have to pay for them. (I’ve seen anywhere from $100 – $2,000 for their required training programs.)
- Sign up with a local real estate board – which can be anywhere from $100 – $2,000 depending on the board, the state, and the time of year (most of the time the board will pro-rate the costs depending on the month you sign up).
- Pay the state filing fee – there might be an additional processing fee required by the state depending on the state that you’re licensed in.
- Pay for the Multiple Listing Service (MLS) fee – some real estate boards include that fee with your membership, others charge it as a separate expense – which can be anywhere from $50 – $500.
Congrats, you’ve paid your fees, signed up with the brokerage and now you are ready to make some money! Not so fast, unfortunately, there are other costs involved such as:
- Car Insurance – Talk to your car insurance representative to make sure you have the appropriate coverage. Note: Its very common for the managing broker to ask for a copy of your insurance card and updated policy to reflect the correct coverage amount especially if you plan to have clients ride in your car to see houses.
- Marketing and Advertising Expenses – It is extremely rare that your broker manager or team lead (if you joined someone’s team) will provide you a marketing budget to help you get business cards, postage, create and run online ads, purchase leads through a third party source, run a direct mail campaign, purchase ‘For Sale’ signs, buy a domain name, create a mobile-friendly website, and have a CRM to help you keep track of your leads and clients.
- Required Dues – The MLS usually has a monthly fee. If you use a secured digital lockbox, such as the Sentrilock system, there are usually fees associated with this service. The board (depending on your board) may charge a monthly, quarterly or annual fee. Your brokerage may also charge a monthly fee, which usually goes to cover their Errors & Omissions Insurance that they need to have to protect themselves and their agents in case of a lawsuit.
- Continuing Education – Yes, there are mandatory continuing education classes that you need to take which have a fee. Your real estate board is usually very good with notifying their members ahead of time of mandatory classes required by the state. They also usually offer multi-topic classes to help their members fulfill the requirements in a day or two. Classes can range from $50 – $500+.
- Special Certifications – Some brokerages and/or team leads “strongly encourage” their agents to obtain special certifications such as Buyers Representative Certification, etc. You must take required courses which are usually offered by your real estate board or through online courses and can cost anywhere from $99 – $500+. Most of these certifications require a membership fee in order to fulfill the certification requirement and the use of their logo. Note: I personally think that a solid real estate sales training course for new agents provide this information and that special certification isn’t needed. I would only encourage the certification to an agent who’s been in the business for a while and found a niche they really enjoy, such as working with first-time home buyers.
- Health Insurance & Investment Plans – Most brokerages do not offer health insurance or any kind of investment plans like a 401k or pension plan. They usually have “preferred” businesses that they refer you to but they usually don’t have anything set up in-house. You can also check with your real estate board for a list of realtor services. Some companies even offer incentives or discounts for real estate professionals so check with your board.
You have to remember that in real estate, you are considered an “Independent Contractor” which means you are responsible for all costs to do business. You have to think of yourself as an entrepreneur or small business owner. You have to track your sales, get business, and market yourself so that you can get consistent business. You must stay on top of your taxes because most brokerages do not deduct taxes such as Medicare, state and federal out of your commission checks. You need to have a good tax accountant on your side and you have to pay for them too.
If you start getting a lot of sales and you need help, you will have to interview and hire your own personal assistant. It’s very common for a brokerage to have an assistant but they usually charge the agents a fee to contribute to the assistant’s salary if you want to use their services. If you want to have your own assistant, you will have to put up an advertisement for the position on job boards, interview, pay their salary out of your own pocket, and pay the state the appropriate taxes for your assistant’s salary. It’s extremely rare that your broker manager will contribute any funds to cover these expenses.
These are all things you need to think about before you start your real estate career. I suggest that a person have at least 3 to 5 months (preferably 5 months) of income to cover their current living expenses in a saving account. This will help give you financial peace of mind while you focus on your new career. You’ll be able to focus on gaining clients, selling homes and closing without worrying about how you’re going to pay your car note or mortgage. You have to remember that unless you’re a salaried agent, which is extremely rare, you will not be getting a paycheck every two weeks. Real estate sales agents only get paid when they close on a deal minus their agreed upon splits. Don’t forget to put a portion of each commission check (my rule of thumb is a third) away for Uncle Sam.
Real estate can be a fun and rewarding career but its best when you’re not worried about your monthly finances. Many agents start off doing it part-time and then transition to full-time once they’ve gotten their momentum going. Some continue to do it part-time. I know some amazing real estate sales agents who only do real estate part-time.
As always, I strongly encourage you to do what’s best for you and your family. Don’t get swept into some kind of hype that could put you and your family in financial harm’s way. At the end of the day, it’s the quality of life that matters and being surrounded by your loved ones. Life is too short my friends.
Written By: Shena Omotola, Dream Home Specialist & Broker Owner of Skyward Realty – Skyward Realty services Chicago, Suburbs, and Northwest Indiana
P.S. Feel free to email me any questions. I’m always here to help. Check out my recent resources for first time home buyers and sellers. Save $4.00 off each book with the discount codes.
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