How Much You Can Expect to Spend As an Agent
A nearly unlimited earning potential is just one of the many perks of a career in real estate. A real estate agent’s annual income can range from $20,000 to over $1 million, depending on how many hours you put into the job, the housing prices in your area, and the commission agreement with your broker. With such a high earning potential, it’s easy to forget the operational, everyday costs of being a real estate agent.
There are certain startup fees when you first become a real estate agent, including things like licensing courses, business cards, signs, advertising, and association fees. These costs are estimated between $1,500-2,000. If you’re creating a monthly budget to prepare for your real estate career, be sure to incorporate the below expenses that the average agent encounters.
One of the factors to consider when determining your potential for earning is the commission split with your brokerage. Let's look at an example of how much a listing agent earns if the commission paid is 7%, with a 50% split with the brokerage who produces the buyer. Say the sales price is $200,000. The total commission at 7% would be $14,000, of which $7,000 is retained by the listing brokerage. From that $7,000, as the listing agent, you would be paid on a split, which on average is around 60% for a first-year agent. This means that you would gross $4,200. After deducting federal and state taxes, which could amount to 30% or more, you would net about $2,940. You would also pay overhead and expenses, which could deplete another 20% of the gross, resulting in a net income of $2,100.
Commissions are typically paid by the property sellers and are negotiable by law. Some listing agents get 2.5 percent of the contract purchase price and offer out the same to buyers’ agents, but it varies.
You will spend an estimated $100-500 per year on your initial license and subsequent renewal fees. These costs vary widely from state to state so it’s important to check your local requirements. After you are licensed, you may choose to become a part of a local or national association, such as the National Association of REALTORS® (NAR) and those fees can fluctuate (NAR’s annual fee is $120). Your brokerage may provide access to a multiple listing service, but if you have to cover the costs, it could be anywhere between $25-100 per month for these services.
According to most REALTORS®, the largest expense throughout their year was related to vehicle expenses. In 2016, REALTORS® estimated that they spent $1,380 on transportation. It’s important to factor gas prices, car repairs, and upkeep into your financial expectations.
Marketing and advertising is very broad and could encompass anything from yard signs and flyers to business cards. Yard signs each cost about $50-85 but vary depending on size and material. It is recommended that you start your career with at least two yard signs, two riders, two open house signs, and five pointers to be properly prepared. Business cards can also cost you about $50 for 1,000 cards and 100 flyers can set you back just $35 if you print at home. There are always cheaper options when it comes to your marketing efforts so you can make sure you’re making the right bang for your buck.
Operational expenses include anything that keeps your office running. Simple things like printer ink, paper, and utilities quickly add up and become a large factor in your budget. Median business expenses for REALTORS® were estimated at around $6,000 for 2016. In that same year, REALTORS® spent an average of $70 to maintain a website. All of this would not be possible without a personal computer, printer, and mobile phone, which should also be considered in your budget.
49% of agents spend over $500 a year on training and education. Continued learning and career development is an essential part of the real estate industry. Continuing education courses could cost anywhere from $50 and $1,000 and help keep you up-to-date on industry rules and regulations so your business can remain legitimate. Real estate conferences, which could cost $50 and upward, offer unique opportunities to network and keep up with the latest industry trends. For those agents looking to stay relevant, these costs are necessary.
Each of these expenses are important to remember but they are also a small portion compared to the average agent’s income. Unlike other professions, you will not spend years of your life and thousands of dollars to prepare for your career, and developing your career will not be a major investment down the line (in some states, continuing education courses are as low as $20). Becoming a real estate agent has a relatively low barrier to entry and you will see direct results from the time and money you put it into your career.
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