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A Few Critical Money Tips for Real Estate Agents

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When you’re self employed, YOU are responsible for more than you think.  As an employee, which you may have been familiar with up until the point you decided to become self employed, your employer handled your taxes and social security for you.

Now that you’re self employed, you MUST have a simple roadmap to account for what you’ll owe the government simply for doing business.

Tip #1: Taxes and Crap Like That

When you get your first commission check, or your next commission check, for those of you who have not planned well, you will apply the following formula to the check.  As an example, I’ll use a $100,000 sale with a co-broke of 3%, you being the buyer’s representative, without the broker’s cut considered in the calculations to make round numbers and .

On that $100,000 home, you earn a 3% co-broke, which is $3000.00.  You dance your way to the bank, deposit the $3000.00 and have a jolly old time at happy hour with your clients and friends.

Did you really make $3000.00?  No.  You didn’t, because you MUST set aside a portion of that money for self employment tax and income mcc4tax.  So, a basic rule of thumb for a new agent who isn’t sure what their tax bracket will be would be to put 30% of the gross income in a separate basic, plain jane savings account.  So, on your $3000.00 check, you put $900.00 away for the piper…whom you’ll pay…quarterly.  Isn’t that fun?  Look, self employment tax is 15.3% as it is, and that’s on TOP of your tax bracket.  So do yourself a favor.  Plan according to what you think you’ll make.  It’s nearly impossible to calculate exactly what you will owe, but you can get good at estimating, over time.

Tip #2:  Plan for your annual dues on a monthly basis.

You have annual fees that you pay.  You need to determine how much that annual fee costs you monthly.  Add the sum of the monthly calculation of all of your annual dues together to determine what it costs you per month to have all of the compare motor trade insurace business privileges you have.  If you can be billed monthly on anything, it’s easier to manage your monthly cash flow if you switch.  If you cannot, you need to know what an annual fee looks like monthly.  For example, Scottsdale Association of Realtors bills annually, but it can be expressed monthly.  Figure out that number.

Then, using your business checking account, set up an online transfer that happens monthly for the amount you need.  In the case of a single annual expense of $440.00, you would need to transfer roughly $37.00 per month from your business checking account (account used for business purchases) into a plain jane, separate account designated solely for annual dues expenses.  When the bill comes for the annual expense, you will no longer feel like you’re being raped by the system because you will already have grown accustomed to 1/12th of the amount every month being moved into a designated account just for this purpose…and nothing more.  You cannot borrow from your own account to pay for other crap.  This money is considered spent already.

Every year when I get an annual bill, the money is already there because I move it there in little chunks so it doesn’t seem so bad (that includes things like my annual accountant fee for doing taxes.)  And, every quarter, when I estimate that nasty tax bill, I have the money to cover it and if I’m short, it’s not by very much.

Be smart as an agent and a self-employed person and put money that you earn away or they’ll come get it from you, and that will suck.

How do Real Estate Agents Get Paid

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…and who pays them?

Before I was a REALTOR, I was a consumer, and I bought a house. Fortunately for me, or maybe it wasn’t so fortunate, my REALTOR was my father. He also owned the house that I purchased. This worked both for and against me, but we won’t go into that now. The point is, I had no idea how REALTORS made a living prior to diving into the business myself, and you may also have questions about how we get money on our european wallets.

Real estate agents are 100% commission based jobs. That means, we don’t get a paycheck unless we do business. Makes sense. Open up shop, provide a service, get paid, or sit on the couch all day wondering what to do.

Real estate agents also work as sales agents under a real estate Broker. That broker typically collects a percentage of what we make to cover the costs of running the company. At Realty Executives, we pay a premium to use the name while we conduct business according to their standards and the standards of the Arizona Department of Real Estate and the National Association of Realtors.

If we don’t sell a home, we still pay our broker, mortgage, utilities, etc. So we’re always in a position where cash is flowing out, but not always in a position where cash is flowing in. We’re also in a business where we need to be available when most of the rest of the world is not. This means that we sometimes have to work on the holidays that you get to spend having fun. On the other hand, we have the freedom to “take a lunch” whenever we want.

What does having a Realtor cost the Buyer? Answer: Nothing. Zero. Zip. Nada.

When you meet me for the first time and express an interest in purchasing a home, I assess how serious you are about purchasing, and then I begin to spend money on you to help you find that home. Searching for a home with a REALTOR costs you only time. You will spend nothing out of pocket, but we will commit a large portion of our business day(s) and marketing budget to provide you with the most pleasant showings as we possibly can. We fill our tanks, fill your stomachs, and become your city tour guide for the duration of your search. If you purchase a home without using us after spending all that time, we don’t get paid, but we also don’t hold it against you, because you may not have known, which is why I’m writing about it. 🙂

When the seller hires a broker to sell their home, the broker charges them a commission to do so. When that broker lists the property on the MLS, they indicate how much of that commission will be paid to the agent who brings YOU (the buyer) to the table to purchase the home.

The buyer won’t have to open their wallets until an offer is accepted, at which point a series of events begin that justify why the selling broker is willing to pay us in most cases half of the agreed upon commission.

What does having a Realtor cost the Seller?

The seller is the one who has the highest expense. From fixing up their property to staging it, the seller will bear the majority burden of cost in selling a home.

When the seller strikes an employment agreement with the broker, they typically agree to a set commission of the final sales price of the home and they offer a portion of that to anyone who brings a buyer. When the property closes escrow, the funds owed the listing brokerage are distributed according to the agreement between the two brokerages and each real estate agent is paid accordingly.