real estate industry real estate business

7 Expenses That New Real Estate Agents Must Consider

By Todd Sumney on December 11, 2018
Todd Sumney

According to a National Association of Realtors (NAR) report, at least a quarter of agents spend between $500-$2,000 a year on technology. That number is impressive, but here’s the $500-$2,000 question: How much of those technology expenses were budgeted for in advance?

New real estate agents enter the business with enthusiasm and lofty goals. Unfortunately, many are blindsided by fees and expenses that cut into their profits and sap their idealistic enthusiasm. Some new agents fail to consider the business side of their business, which can lead to giving up on real estate altogether.

The real estate industry is as much to blame for this problem as new agents are. The recruiting pitches and education for new agents are too focused on the real estate transaction; the business part of the job gets the least attention. Savvy agents learn to run their businesses as businesses, budgeting expenses and calculating ROI.  

Basic budgeting keeps expenses in check and allows you to see which strategies are working better than others. Even successful agents who are winging the process keep a simple budget plan and march to it—and subsequently see results. However, you also need to know what costs are lurking. Here are seven expenses, ranked in order of importance, that new real estate agents must consider as they build their careers.

1. Brokerage Fees

A large amount of expenses real estate agents face comes from the brokerage firm they partner with to complete transactions. Variable commission splits plus technology, marketing, and brokerage fees can run from a few hundred to several thousand dollars, and the uncertainty around how much you’ll end up paying makes budgeting difficult. Moreover, these multiple commission deductions and expenses can be discouraging and disillusioning for new real estate agents, who may feel the excitement of a sale evaporate when they discover how much they are forking over to the brokerage firm—and how little is actually left of their commissions to take home. Agents should always fully read a brokerage’s independent contractor agreement (ICA) before they join or move their license to a firm. Thorough research is essential not only for estimating deductions, fees and expenses, but also for finding a brokerage firm offering the best terms—including flat fees that make budgeting easier and keep more money in your pocket.

2. Transportation

Real estate agents know a lot about selling homes, but they also become car experts because of the amount of time they spend driving—taking buyers to properties, conducting research, and all the other necessary tasks that can’t be done from a desk. The $20 tanks of gas add up, as well as maintenance and insurance, meaning you could easily be spending $40-$50 a week—or $2,500 a year—just on using your car for work. Real estate agent expenses must account for transportation as you budget, not after the fact.

3. Operational

Most real estate agents know the tools necessary to run a business: smartphones, computers, iPads, and so on. Unfortunately, many of these same agents don’t budget for basic operational expenses and freak out when their bottom lines aren’t what they were hoping for. Plan ahead and budget for the things you need to run a business, such as business cards, print materials and signs, office space, office supplies, lock-box rentals, and websites. Write them down. You can make decisions on which expenses are necessary and which you can scale back (though an unlimited data plan on your smartphone is almost non-negotiable), but do so from your budget and not on the fly.

4. Software

Similarly, the software you use to organize and run your business must be budgeted for. For example, many new real estate agents use Office 365, and it’s relatively inexpensive—but as shown, all the little expenses you don’t account for can add up in a hurry. Another consideration on this front is that the brokerage firm you partner with might offer software and online tools to help you operate. You are paying brokerage fees, of course, but the tradeoff could improve your bottom line … if properly budgeted.

5. Career Development

You only have so many hours per week to spend on your business. Thoughtful career development will show you the right thing to do at the right time. Working on your business and your skills inevitably helps you work smarter rather than work more. Career development strategies can be as easy as listening to webinars or podcasts or as involved as taking classes. You will need to budget for both, either in the time away from other business-related tasks or the time and money needed for classes. Focus on one or two action items and set a goal to complete those items and turn them into best practices that produce a return on your investment. In other words, go slower to go faster.

6. Marketing and Business Development

Some new real estate agents bypass all the expenses listed above and focus on marketing, and though a few get lucky, others struggle because they don’t have the foundational elements in place. A simple budget ahead of time puts you in better position to then focus on marketing, which comes with its own expenses—social media, advertising, photography, print and email marketing, lead generation systems or purchased leads, apparel and gifts, events and face-to-face lunches with clients and prospects, the cookies you provide at open houses, and so on. Writing your marketing strategies down provides a better idea of what you can spend and what you should prioritize. Adding marketing tools to your business is like adding gasoline to a fire: The more you do, the more business you can bring in. Just be sure not to light the match too soon.

7. Professional Fees

Finally, you will need to budget for things you don’t know how to do (e.g., accounting) or simply don’t want to do (e.g., busy work such as stuffing envelopes). Furthermore, you will likely need to pay dues for professional real estate associations and boards, MLS fees, and even neighborhood organizations such as a chamber of commerce. These fees should come last in the budgeting process, because you can’t plan for these business expenses if you don’t have much of a business.

New real estate agents may feel intimidated by writing down expenses and setting a budget—no agent wants to get bogged down in numbers when they would rather be connecting with clients and closing deals. However, the process doesn’t need to be daunting. Agent-centric brokerage firms offer budget tools and plans that can be followed or customized. These partners provide training classes to learn how to budget, as well as automated marketing software and favorable transaction fees so less of an agent’s hard-earned money is sent elsewhere. This support helps new real estate agents thrive within a budget, rather than drown in unanticipated expenses.

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