New Agent Expenses to Expect in Real Estate
Any discussion of expenses for real estate agents must take into account the many ways in which brokers and agents work together. Brokers can and often do pay for certain marketing and other expenses necessary for the operation of the new agent's business. This doesn't mean that an agent should make who pays expenses their top consideration in choosing a brokerage.
The brokerage that pays a lot of the expenses of the new agent could also be taking a larger percentage of the commission split. Or, if desk fees are charged, they could be higher, offsetting some or all of the expense savings. There are also commission split business models that give the broker a higher percentage of early deals to recoup expenses, and then the split is better for the agent after the target amount is reached.
For the purposes of this article, let's just assume that you're the new agent and are paying all of these expenses yourself. You are an independent contractor, and they are almost always completely deductible as business expenses on your tax return. But, we're not talking taxes here, just what you should budget and plan for when it comes to expenses in your new real estate business.
New agent expenses will include start-up costs similar to those of any new business. There will also be some start-up costs specific to real estate. Let's look at some of your cost items to get started:
- License fees
- MLS setup fees
- Ongoing MLS fees
- IDX fees for a website search function
- Computer hardware and software
- Business cards
- Other marketing materials
- Vehicle expenses related to your work
- Continuing education costs
- Possibly client entertainment expenses (lunches, etc.)
A good start is to investigate and quantify all of these expense items to the best of your ability. It's not a do-or-die if you don't hit the nail on the head, as we're just budgeting here. The point is to come up with a pretty close idea of your coming expenses so that you can plan for income from whatever sources to overcome them for success.
By knowing what the expenses are in your market, you'll be better able to compare brokerages for the benefits packages they offer you. Expenses are only one component, and I'll be clear that they're not the most important. A brokerage that provides marketing training and resources can feed your lead generation and income stream with enough money to offset expenses and put profits in your pocket.
I think that the one big mental disconnect with new real estate agents is their inability to see themselves as an independent contractor with a standalone business model. Yes, you can get leads and benefits from a brokerage, and you usually must affiliate with one. However, your income is going to be dependent on a number of factors, and expense is only one. However, when it comes to choosing where you want to hang your shingle, you do want to know these costs so that you can make an informed comparison of brokerages.
Once you're up and running, it's even more important for you to have an accurate estimate of your business and personal expenses. Too many promising real estate careers are cut short for lack of cash flow. Use our Identifying Real Estate Agent Expenses tips and spreadsheet to help you.