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Expenses of a Real Estate Agent

Public perception is that real estate agents make a very good income. Some people think agents make too much money for what they do, but is it true? Is it really that easy? Everyone strives to be paid well, and be appreciated for their efforts. A real estate career can be very rewarding and profitable, but like anything else it requires a good amount of work and commitment. Maybe you are considering a career in real estate, or maybe you're a seller hoping your agent will lower their fee. Either way, this article will give you a better understanding of the expenses that a real estate agent has.

Many people do not realize that real estate agents are self employed independent contractors. Agents do not receive weekly paychecks as a regular employee would. There are no paid vacation days. They also do not receive the benefits of health and dental insurance, nor a pension or 401.

Not all companies are the same, but this will give you a general idea on what usually happens. The costs of doing business can easily cut in to any profit the agent may receive. In Rochester, NY generally a home owner will pay a 6% commission to sell their home. By law commissions are negotiable so this amount can be different, but for discussion purposes, let's say the amount is 6%. The listing brokerage receives 3%. The other 3% will generally go to the buyer's broker. The agents themselves receive approximately 50% of that amount. In the end, each agent generally receives 1 ½ % of the total commission. Out of that amount, the agent will need to pay for expenses incurred to complete the sale. These fees range depending on the agent, and the company they work for.

Laptop GPS and Map

Below is a list of expenses an agent may have. In many cases, a good real estate agent who invests in their business to serve their clients better will have higher expenses. I personally have invested a good amount in modern technology to provide top notch service more efficiently.

1. Board/MLS dues 11. Desktop computer or laptop

2. Errors & Omissions Insurance 12. Quality camera

3. Franchise fee for each transaction 13. Continuing education classes/courses/designation fees

4. Business cards/name tags 14. License fee

5. Direct Mailings (postcards,etc.)-Postage 15. Office supplies-ink, paper, etc.

6. Professionally made brochures/flyers 16. Fax, scanner, printer, copier

7. Print Advertising (newspaper, magazine ads) 17. Business clothes

8. Cell phone with data plan for client email 18. Closing gifts.

9. GPS for car 19. Lockboxes, electronic key, flashlight(s)

10. Internet; Web site domain and hosting 20. Gas, gas, did I mention gas?

21. Signs: Yard, open house, and name

22. Car expenses

Then there are those pesky self employment taxes that need to be paid. Feel free to comment, or add anything I may have missed.

Pictures courtesy of www.publicdomainpictures.net

Posted by Kristal Perrone - Associate Broker on 01/09/2009 08:35 AM

Comments (125)

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125 Comments on Expenses of a Real Estate Agent

JAN

One of the highest fees I have is the fee for maintaining and hosting web sites. However, it's where our business come from and there is no way to reduce it.

Good list.

Client gifts, dinners, lunches when showing. Somehow I seem to have clients that expect me to pay so I have in recent times managed appointments after lunchtime and I take bottled water in a small 6-pack thermos. (I buy the water at Costco for 13 cents a bottle rather than at the convience store for $1.25 a bottle)

What about gas..again. maybe that should be 21-25. Personal Promotional Items and Magazines.

I'm taking an in depth look at 2008 expenses. It was a fairly good year, but I think the expenses were too high. Yes, everyone has the perception that we walk away with a good sized check and it's all ours. Don't we wish!

It's true they say if you are making between $100,000-$150,000 you take home about 47% of that commission. Which sounds bad but most people would like a 47% return on investment but it's true we dont make what people think we make.

Print advertising runs $600-700 per page in a "homes publication" - sometimes less and sometimes more. This is a huge expense, but necessary for seller confidence.

I'll add internet advertising tools- IDX for website, vflyer, iContact, any sites you pay to promote like www.stable.com for horse properties. I think it is important for clients to understand how realtors make money- many people simply don't get it. They just think we are all rich! Educating our clients one by one we can change some perceptions.

You are so right. I think that expenses are out of control in our industry. That is why so many are looking at websites and places they can advertise for free.

And how about insurance for that car? And car repairs? i.e. if you drive your car 50% of the time for business, are not the insurance and repairs 50% of the costs also? My accountant said "YES"

What about the dues we typically pay to our Chamber and other organizations we join to assist us in networking?

Kristal,

This is very true- the other thing is, this is a good list to go off of for tax purposes. Thank you for that! Cindy

Business cards, and other promotional products, should be added to this list.

We do not need justification for the money we make. We work very hard, have endless expenses!

Great list. You for got the fees each year to all the designations we belong to, and depreciation of the vehicle, MLS fees. In Atlanta we have the highest MLS fees in the nation. We pay per transaction. Some years the MLS fess can be over $15,000 Also how about fees to connect to the Internet, paper for the copier, the plastic flyer holders, flyer boxes, software, custom sign riders....etc. I also have a high fee to the broker I belong to that is over $1K a month.

Kristal,

Excellent summary. An agent might use a CPA to prepare tax returns, and possibly Legal consultation as needed. Cha-Ching$ Cha-Ching$

Kent Davis

Kristal. Great summary. And what about the fact that most of us do not get company cars?

Expenses are needed to expand your business but they do take a bit out of the bottom line. Typically may expenses are 1/3 of my income. With Uncle Sam taking half of what is left that leaves 1/3 for me.

The expenses go on and on. Don't forget that lots of people want to try and re-negotiate our commission. And don't get me started on all the extra work involved with short sales either as a buyer or seller agent. Risk vs. reward there is a high potential upside and also a big potential downside. I don't think most people think real estate agents are making a killing right now.

So true, it all adds up. and the thing about it is you could have 5 listings or 25 listings and a lot of those expense numbers stay the same. The moral of the story... go get some more listings :-)

Kristal, IMHO I believe you are at risk of a violating the Sherman Anti-Trust Act by stating "In Rochester, NY generally a home owner will pay a 6% commission to sell their home." That might be true, but stating that in a blog gives the perception to the public that there is collusion among the brokers in Rochester, NY. I would remove that statement and just say something to the effect of "By law, commissions are negotiable. However, for let's say a the commission negotiated is 6%."

You hit the nail on the head!!! Great summary of our expenses.

This should be posted in Real Estate school....just so everyone is aware, at the start, of all the expenses...they are always way way way more than anyone is expecting...good post! :)

I agree with Jan, I had no idea when I was taking classes how much it costs to be an agent. I don't think the general public would think that we were "overpaid" if they really knew what it takes to do this job.

It all adds up. Especially in times like these. Recently I've been using a text service instead of a brochure box. It sends photos of the home to your cell phone. However, I had to take it out of the budget for 2009.

Times are tough,

Gas - of course we all say that and driving slowly around town does not get anyone the best mileage. Also, monthly website fees, and I also pay for a contact database management system. And of course we have our accountant fees.

Kristal - It costs the average agent $13,000 to $20,000 per year to be a full-time, working agent. Once one calculates, dues, fees, education, marketing, advertising, signs, additional listing costs, printing, mailing, efax (regular fax), gas, insurance, cameras, meals and on and on and on........This doesn't even cover your broker split (if you pay that). This is why I have changed my business model to shift marketing costs back to my clients unless they want to pay a premium commission. Many of the agents I know are going out of business as I write because they can't make up the cost of doing business with the dwindling amount of business in our market. Sad but true.

Great post Kristal.

Hi, I like this post. It is so relevant for me because I just left a salaried position with the Top agent in the Country to become independent. The biggest expense that I am finding is the cost of a competent assistant!

While it is a good and in-depth list, put yourself in the consumers shoes. What would the common consumer today say about this? I could guess... a big "so what?" Consumers today want to know about the service you'll give them not about the bills you have to pay as a professional. We don't hear about any other salespeople of other professions complaining to us about their operating expenses, and if we did, we probably wouldn't care.

Does having or paying these expenses guarantee over the top service, or will it make you adhere to a standard of practice that other Realtors will not? Will it make your systems so air-tight that you're replying to any phone/web inquiry within 20 minutes regardless if you're in a meeting, with clients, or just at home on the weekend? You could argue yes to many, however consumers care about service, not the bills we pay.

Lenn- Yes, fees for websites do add up, but we know the Internet is crucial these days.
Gail- ah yes, I added gifts, but not food.
Keith/Shelly- gas, gas. gas-luckily the prices have come down. I showed thirteen houses one of the weeks it was at an all time high, but I understand it's a part of doing business.
Jeanne- Yes, it would be nice. I think it's important to educate people when they think we get the whole amount.
Heather- ouch
Chris- yes, that is a large expense
Kim- I agree, it does add up. The main reason I started this post is because of a cashier asking me about this career, and making a comment that we all make alot.

It's been my observations that many agents have income from other places and don't rely on their income from real estate to pay any bills other than those related to their real estate business. Many full time agents in my area are successful business owners, retired or have a spouse that pays their for the family's needs. Any income the agent makes is just extra. For example, my office is getting a new agent. Her husband is a doctor.

Thank you all for your comments.

Kristi- Yes, as with any business it can get out of control. I think that's why it is important to see what makes a difference, and what doesn't.
Kenneth- As far as a car and insurance goes, I think we all need that anyway, so I didn't include it.
Jacque- thanks for adding to the list.
Cindy- It is a good reminder for tax time in case we forget something.
Rebecca- business cards are listed as part of number 4. I suppose other promotional materials could be considered under number 5.
Gloria- yes, many of us work hard
Jim- Mls is #1 Wow, $15,000 for MLS? I haven't heard of the fees being that high before. Thank you for the additions.
Kent- thank you for your input
Barb- a company car would be great, but probably unrealistic
Scott- that is true, expenses are a necessary evil in any business.

great post, the majority, if not 99% of the public only see and hear abut 5-6% commissions, they know nothing of splits, costs, co-brokers, and business expenses

To BIll Dunn -

What a bunch of crock - that is in reference to your attitude about your new agent who's husband is a doctor. HE is the doctor SHE has chosen the profession of Real Estate. You do not know what thier financial agreement is or how they pay bills, household items ect.

I am glad that in your experience your friends and colleques have other income to depend on - since in this market a full time realtor would die of starvation. My requests is all the ones that have income from other sources GET OUT OF REAL ESTATE. I don't need the competition.

Kristal:

You are right - even advertising is a big expense and the web fees - ouch. The public does not realize these are out costs. Good thoughts.

David- that's why I wrote "for discussion purposes" Thank you for the reminder. I added the negotiable part.

Jan- I really think this should be explained before starting the course. We were told after the course started that only 2 of the 50 people would still be working in real estate in one year.

Margie- the cost of a competant assistant would probably be priceless.

Brint-I think you have a point, some may not care. But for someone thinking about getting in to the business, I think they would care. I agree that consumers care more about service, and that's understandable, but it's never a bad idea to learn, or put yourself in someone else's shoes.

I realize the post was spawned by a question of someone asking about getting into the business, but I'd have to agree with Brint above, that the consumer cares about service more than costs. They are OK if they see "Value".

$$ Add to the list - tech help for #10 & #11. Like maintenance on a rental, no-one seems to budget for it!

Kristal - Good points - my favorite pet oeeve is postage! Have a good year!

Well spelled out. Ironically that "Million Dollar Agent" is on the poverty line.

I have just finished my first full year in real estate...wow! There is a lot of expenses. I will definately plan better in 2009, getting started is definately harder than I thought. But, I plan on having a prosperous 2009, with maybe a little help from my understanding, working hard husband (that was for Bill). Have a great 2009!!

I do agree it is great for new agents, brokers should do a better job in helping them understand the costs of business.

Good post, we've cut back on our marketing, we've been able to do so because over half our business comes from friends and referals.

I've noticed that when things slow down, some agents that you see plastered all over town struggle mightily, their marketing costs are way too high in relation to what they are making. My old broker Jack said he's seen towing trucks coming to realtor offices to repo Mercedes etc

This is SOOOO true! I may write a post very similar to yours because I think that the average consumer does not understand this! Great post and congrats on the Feature!

I just thought of another one, and I'm surprised nobody noticed. Lockboxes! And the lockbox key that we have to rent. How the heck did I forget that? I realize some people have it on their phone, but here you still have to pay for it.

I have had clients that thought that somehow, my company provided almost everything "for free" and that the whole commission was profit for me.

UnusualCommercialLoans.com said - "Good points. It is good for some folks out there to see how much we spend in generating business."

I disagree. Maybe for new agents, but that's it.

Last year It cost me over $50,000 to be in business. Last night at a listing appointment a potential seller asked if I would negotiate or "cut" my commission.

I let my seller know that I wasn't planning on cutting back on any of my FIXED expenses or advertising so I'm not ABLE to cut my commisison, especially when he was not going to BUY anything once his home sold.

I have a 4 page letter outlinning ALL my costs for times like this. If somebody challenges my FAT income I quickly show them "cost of doing business."

You get what you pay for in this world. If you want a sign in the yard and a spot on the MLS then maybe a discount broker with discount type services and results will suit you better.

I spent more on coaching last year than ever before. I had an SEO coach for my website and group coaching at the office as well as a personal coach.

Thanks for the great post. We need to make a point of letting clients know what we do for them so they see the value in what we do. Realtors do great marketing for clients that would be cost pro-hibitive for them to do themselves.

I just did a post on tax time as a reminder to taxpapyers but this post gave me a reminder of what I can and should deduct for my own taxes. It is a very nice running list and something that all should add to their listing presentations to maybe head off that question of commission reductions. Thank you very much for all who commented!

it all adds up!!!!! And we make it look easy to them because we are good!

well said! remember this next time you take a listing and cut your comission.

Expenses add up in any business...before we go trying to tell our service providers that their rates are unfair, unjustified, etc...we need to take a look at what made us even look at doing business with them in the first place - in most cases it will be all those items that we spend money on to project the professional image and quality of service that the client expects - you can go quality or you can go discount - rarely can you have both. Great post!!!

Kristal, no problem. I apologize if I missed that part. Good post about the costs involved with being an agent.

Excellent post, Kristal. You do a fine job spelling out the expenses of your average agent. And with technology becoming so much a part of this industry it is actually adding some cost I feel.

This is why realtors get a bad rap sometimes.

What are you saying? That you're IN BUSINESS? That you have a COST OF DOING BUSINESS?

The reason most realtors are NOT successful is that they ARE in business, yet don't ACT LIKE IT.

You are an entrepreneur.

If you want to get into the real estate business, you need a marketing plan, you need capitalization, a business plan...

How many realtors have EVER had ANY of the above? The only requirement to get into this business is a few hundred dollars for a license and a short term memory to remember information for the test which will most likely not really help you sell real estate anyway. You don't even need a high school diploma.

Many got into the business without a nickel in their pocket and just waited for business to fall in their lap - because they HAD no business plan, no capitalization, no marketing money, no clue. And no "Plan B" (unless it is their wealth husband).

Sorry. I don't feel for you at all. This list is the SAME as every other business. It's call the cost of doing business. It's called overhead.

Every business has overhead. If you don't want to be in business for yourself, there may still be some mall jobs open who will provide that overhead FOR you. For minimum wage earnings.

Wining and dining customers is a part of business, qualifying them to see if they are motivated or if they are just taking a ride on your hard earned dollar is a different story.

Thanks Kristal. You have generated a great discussion. I suspect that MLS fees and Board fees will be going up to compensate for the loss of agents during this down cycle of our market.

Kristal ... a great article .. thank you for sharing! pippa

Kristal, great post. Then there's all the "little" expenses that add up quickly: software like Relay, DocuSign; professional quality photo for your web site, joining online lead sources and web sites, "sponsoring" communities like here at AR, name badge, voicemail, video cam & microphone, mortgage calculator, calendar system, office supplies, mobile aircard (for internet access while traveling), cross-cut shredder, DSL at home, flyer boxes, open house sandwich signs, filing cabinet, training.....

Join my NEW group for professionals who work from their home office at http://activerain.com/groups/virtualoffice

Regina P. Brown

my expenses for this year are projected in the 15 to 18K range, just brutal.

I belong to 4 MLS systems just to make sure I market my properties to the widest group of agents. That is ridiculous. We need a consolodation of MLS systems.

What a perfect time for this list with taxes coming up. I think, with the addition of the comments, this is a pretty comprehensive write-off list for my accountant. GOOD POST!

While many agents "may" have income from another source like their husband with a good job, many including me do not. This is our only income. Real estate is a tough way to try and make a living especially in this market.

This is a fabulous post. I think I'd like to print it and show it to the next client who wants me to reduce my commission...

I would add though the wear and tear on your car and the ink and toner for the printer and copier... those can be very expensive.

It is somewhat painful to see that large a list. I think I'll keep it in a binder in case I ever need to refer to it with a seller client.

Kristal... THANK YOU!!! I can't tell you now many people think we just open the door, and collect $20k for that. Most people who inquire, I say to them that if it were so easy, everyone would be doing it. As you know about 5 years ago everyone was.. and they screwed it up.

Yesterday, a client visited and wanted me to list one of their apartments for rent. With this, as you may know the commission is *in this case* one months rent.. or $775. He wanted to know if I would take less. Can you believe this? My response was *yes*.. I'll take less aggravation and stress. He was serious and said *no* I was mentioning the commission. Once again I said, one month's rent seems fine to me, but I'll always take more if you wish. He finally got the clue.. I think.

valerie osterhoudt

Postage, postage, postage!!! Did someone say postage?

http://activerain.com/blogsview/873460/Dear-Realtors-STOP-IT

That list is just way too long. Is there a real estate office that will just pay you by the hour??? LOL

Well, there are many expenses... However, just as is the case of the proud homeowner who thinks their house is the only one that should sell above the market price of all other homes, it doesn't matter how much we belly-ache over our costs. It does not justify what we charge.

We have to justify our costs based on what we bring to the table. When sellers are in the market to sell, they consider the costs of selling and what do they get for those costs...

I belly-ache of the huge list of expenses only to my wife!

Very helpful post. I do not believe people in the real estate profession are always aware of the expenses that are involved in running our business.

Absolutely Kristal...Thanks for the reminder to us realtors and explanation to the public. I'm right there with you. We better "gross" a lot if we want to "net" a decent amount....Happy Selling in 2009

Gail- Ok, I'm going to add postage. Thank you for the reminder.

Hi Kristal;

Great list and I do appreciate you sharing with us. It is very expensive to operate as a realtor.

If you think that is expensive you ought to see what the Brokers exspense sheets look like. But hey Real Estate like any other business cost money right. I used to get a kick when I worked for RE/Max and clients would say "man they sure furnish you a nice car to ride around in".

Good post, hope all buyers and sellers see this ad and quit hitting us up on our salary

This has been a great discussion, and I have enjoyed the many thoughts and comments.

Paul- I respect your opinion and appreciate you sharing it. My guess is that many consumers feel like you do. What I want you to know is that there are Realtors who treat this as a business. I don't think it's fair to judge all of us by what a few do. I come from a family of entrepreneurs. I started my first business at the age of 23. I'm not saying this to toot my own horn. I'm giving you some background on who you are judging so coldly. I am very well aware of the cost of doing business, and overhead. My goal was to educate people. I consider myself lucky to live in the USA and have the chance to be an entrepreneur even in a challenging market. I make my business plans, and I stick to them.

It sounds like you have some experience in the area of business ownership. If that is the case, then you are aware of the fact that capital can be eaten up quickly even with the best of intentions. Many entrepreneurs in different areas of business fail every year. I doubt you would want to be asked to work for less. I'm sure you would also give an honest assessment of a situation to others like you have here. That my friend, is what I was doing.

I'd encourage you to expand on this article with the information shared here Kristal. I believe you've done a good job of conveying an idea and can do an even better job of breaking it down with some of the input you have received. I could see the updated article being spread virally. Nice work.

There is a myth that our job is very easy and it's easy money. It was definitely easier before than now:)

Kristal - very good subject to discuss. I would divide it into operational expenses and business generating investments categories. In my case Centralized showing system is a substantial part of operational expenses. IDX, Call capture system are all going to Investment category. Internet Advertising is a big part of our investments, too. Coaching and training - another good investment. Great topic!

... sobering, but realistic post, to show really what goes into our year as Realtors from an expense standpoint....I am positive that many reading this do not really know how much they spend, and almost certainly havent created a categorized 'budget' ... both things which are critical to know when running your own business....like we do !

Great post Kristal - hope it made a lot of people go back and analyze some things :o)

Hard to believe we can even make a living after all of those expenses! Thanks for the good post.

In my opinion, too many agents spend $2 to make $1 and forget that they need to treat their business like a business. They love to brag about the millions in real estate that they have sold and their market share, but the reality is that they aren't profitable at all.

Great post. The Real Estate Profession is not easy, nor is it for the cheap. Alot of investment must be put into your business if it is to flourish.

Great post. I try to keep this in mind when ever sellers ask me to cut the commission

Why should the agent/brokerage firm split be 50% if the agent pays all these things him/herself? What does the brokerage firm provide for 50% of the commission the agent earned?

Boutique Brokerage Firm is the way to go. I provide my trained agents with 80% of the transaction side.

-Kathleen Buckley, Broker-Owner, STAR REALTY Hopkinton, MA.

Attaching the estimated $$ to the list would really help consumers understand what sales agents are up against. Real Estate is not for faint of heart!

Kristal, very good breakout for public consumption of the gross commission and the expenses of a Realtor. Much of the public think the Broker provides a base salary and benefits. Ha!

Yes maintaining websites is expensive. You have to advertise

Amen to your comments. Add yard signs and riders to the list. Lately, I have been replacing these on a frequent basis. They appear to walk away. Great Blog!

Your post would be a great addition to a listing presentation. Consumers are not fully aware of the enormous expenses that are involved in running a successful real estate business.

Kristal, great post and I get your point perfectly. I'm amazed at how misconstrued the message became through some of the comments I read. But, it sure made for some lively discussion. And by the way, PAUL, CHILL OUT!

Kristal - The list goes on and on...we pay a lot for marketing and consulting with our marketer, our web site developer and so forth. We also have a paid assistant who posts some of our ads on Craigs List and so forth. In addition, we use a sign company to professionaly install and remove signs when we take a listing. A lot of the signs need to be hung as they are rowhomes with no front yards. And of course we still have some print ads we pay for (not sure how much longer) ! The list goes on and on but it is well worth it !

Thank you all for contributing to this post. I added some of your suggestions.

50% split. I would have to find another brokerage. At that rate, the company would have to cover basically all my cost of the transaction.

Great summary! It is so hard for sellers to understand that I only see a fraction of the real estate commission.

I spend so much just marketing my listings -- Realtor.com, Trulia.com, VFlyer, eContact, TopProducer, photographers, virtual tours, SIGNAGE, my websites and blogs, professional flyers, staging items... the list goes on and on and on...

Yes and you might add that even though sales can be down the expenses don't go away so we are "paying" to go to work! I wonder if we can get refunds on some of these expenses! ha ha

Great post!

$2 Bucks an hour....

Debbie

Great post. A great example of costs associated with operating our own business.

Kristal, our overhead is at times way too much. We are constantly trying to cut our costs. It's not easy. Great post! Thanks,

Deb

you can add hours of blogging to that list. our time is not free either!

Kristal: This is a GREAT post and you have mention just about everything possibe. Of course we could tag in the dreadful cost of lead generation too

AMEN! great post!

My fiancee' is in the banking industry where he gets 4 weeks paid vacation, 401K matching program, awesome health insurance options, and a neverending supply cabinet.

Even my significant other sometimes can't understand why I can't take a week off for vacation or just I have to spend $300 at the office store.

If he can't understand it is certainly true that most of our clients have no idea how it all works either.

Kristal: I agree that Realtors need to understand that they are an independent contractor and with that title comes benefits but at the same time they have to foot their own start up cost. Perfect planning and goal setting will better help them successfully stay in business. I am an agent who has a husband who serves in the US Army and who supports my business decision 100%. I was somewhat confused that another agent would ask those who have other means to income to leave the business because she does not need competition! I guess Home Depot should ask Lowes to get out of the business too! I never think of other agents as the competition. I have a mission to provide extrodinary service to all my clients and I always assume no one can match that. If clients chose to go elsewhere, there lose! You could include the cost of home office. Has anyone ever tracked their hours spent with a client to determine an hourly rate?

wow - you really touched a few hot buttons - I think you made good points and you and I (and a lot of other agents) know it is a business, even if Paul didn't think you did. But it would be nice if more people understood that the commission is not all gravy - there are expenses related to earning that commission just as in any other business,and it is not a "return on investment" - it is our livelihood. This is money that we earn for very hard work and long hours with no guarantee of payment. Since we don't provide a finished product at the end of the day like a car or a hamburger, no one thinks that we have expenses, just income.

JAN

Great post and you're right...the public does think we just make a lot of money. Sellers do too when we go in to take a listing - that's why I break it down for some of them. it helps the understand. And then if you are an REO listing agent, on top of all of the other expenses, you are floating money for the banks for utilities, repairs, etc. right now. It adds up very quickly!

Kristal, all I can say is...AMEN Sister!!! Thanks for the post and happy blogging!

I have a few buyers that won't let me pay and then I feel like a freeloader myself... I like the idea of after lunch showings and water...Thanks Great post and wonderfull comments!!!!

RE: Client gifts, dinners, lunches when showing. Somehow I seem to have clients that expect me to pay so I have in recent times managed appointments after lunchtime and I take bottled water in a small 6-pack thermos. (I buy the water at Costco for 13 cents a bottle rather than at the convience store for $1.25 a bottle)

01/09/2009 08:38 AM

by Gail Tassey** Austin Texas **512-217-9482 (Keller Williams Realty)

My expenses are equal to about 25% of my gross income. That's before I pay Fed and State income taxes. Net, after taxes is probably about half of what I gross. Still, it's a good job.

Great post Kristal and I'm sure it would be an eye opener for those not in real estate, but considering it.

Great posts, and helpful comments everyone. I know when I decided to persue a career in real estate I was very much blind sided. I never realized all the expenses I would have to incur. Not just on classes, books, and sitting the tests but also the daily expenses of being a self employed Realtor. In the beginning all I knew was that I wanted to sit in a model home on a desired subdivision, meet a lot of people, show them what the subdivision and neighborhood had to offer and automatically make money.

All of you reading this knows I was. But hey, I was young and naive. Didn't have a mentor to confide in and share my thoughts with. If I did, I'm sure I would've been schooled and advised differently than what my preception was of Realtors.

In any event my first year in real estate was definately trial and error. About 8 months in I knew the real truth of what it would take for me to be in this business. Nonetheless, I decided that despite it's faults, I love this business so good or bad I'm here to stay.

Adell

You have given the public a good tally of our expenses and as technology advances they will go up, because we will have to keep up or retire!

As for Paul, his comments come from some kind of disgust with a former agent probably and we should let him know that we are well aware of spending money to make money and business expences. The general public has the misconception that we get paid for showing houses whether we sell them one or not! WE GET PAID AFTER THE BUYER CLOSES ON THEIR PUCHASE! We pay our expenses whether we sell a property or not. The last year or so has been very costly to our profession, with many fine agents leaving because of the net operating income being lower than can be tolerated! It might also be added that they cannot claim unemployment benefits!

Paul does have a point that we cannot miss. As an independent contractor, you are in business for yourself. Of course we have expenses. The goal is to know how to keep our expenses in line so we can make a profit.

I just returned from Inman and met not only some great people, but this conference attracts the BEST of the BEST. Smart, smart people.

I spent quite a bit of time speaking to a company that was launching a new product for REALTORS. She told me how she had spent most of the past two years putting this business together and it was launching here for the first time. The founders funded the business personally to the tune of tens of thousands of dollars of personal money.

A) All of these expenses were incurred BEFORE one sale was ever made to a REALTOR

B) All of the expenses were incurred WITHOUT a guarantee of one sale ever to a REALTOR

C) All of these expenses have been paid for regardless of whether any sales are ever made to anyone.

They are gambling that their investment will pay off by seliing their product to REALTORS.

So my question:

How is this ANY different than what a REALTOR deals with? We front expenses to market a home with no guarantee it will ever sell. Those expenses are (hopefully) intelligently made on a property that we feel we have a reasonable expectaction to sell.

It think this post is a lot of whining about something that is a GIVEN. Realtors, businesses ALL have expenses in regards to their businesses, most of which are not known about or thought about by the consumer, as it's NOT THEIR BUSINESS. They're interested in what that business or service can provide to THEM, and are not concerned (nor should they be) with what your expenses are to provide those services. That's what business is all about. If you're not able to control those expenses so you are profitable, you will be OUT of business. Pretty simple concept.

By driving into a parking lot of a real estate office any day would give the impression that REALTORS are making a LOT of money, as it looks like a used luxury car parking lot!

Maybe we're going overboard to give off an impression to customers that may be backfiring?

Hi Kristal, Congratulations on the feature! Great post and well deserved! Your hit the nail on the head. I remember when I got in the business 13 years ago. And, I figured out that a Million Dollar Producing Realtor was making a mere $16,000 a year! I was shocked! Hope you have a great weekend!

Kristal, great list...MLS dues and assessments are absolutely outrageous and we have to pay them in order to be able to do business as realtors! Software and luncheon expenses with my sphere and clients plus technology are the greatest expenses for me....

Have a great 2009! Bo

What percentage of each listing do others typically spend on marketing? I was recently in a class, where they said the average was 10-15%, but during this shift in the market, we should adjust to 5%. How are you getting more bang for your buck?

Barb,

Your looking at it!

Sean

I'm not sure if anyone said xanax, but I'm sure there's some of you out there.

JAN

Yep....the cost of being a realtor is high...many consumers do not realize how much expense we have to carry to be in business...they look at the gross and think, wow, you are making a lot of money for not much work...but it is work to get the clients and have all the things necessary to be good and serve your clients..

FEB

Kristal,

From the list of overhead costs above, are you saying that this justifies the 6% realtor sales commissions? I disagree.

Here's why: The realtor sales commission is based on the sales price of the home when the sales transaction takes place. Can realtors demonstrate that their overhead costs go up in relation to the sale price of the home they've working on? That'd be interesting to observe.

If a realtor sells a $500,000 home, that's $30,000, split down the middle - $15,000.

If a realtor sells a $300,000 home, that's $18,000, split down the middle - $9,000.

In either case, the Realtor spends the roughly the same amount on advertising, gas, paperclips, auto insurance, dues, GPS for a car?, etc. for closing the $500k home sale as for the $300,000 home sale.

So with all of your known overhead expenditures above, most of them fixed, why don't realtors charge consumers flat fees?

As a potential homebuyer myself, I find it hard to trust any realtor these days, even the one I'm paying to represent my interests in the transaction, because I already know how he/she will be paid. The higher the price, the more they're paid. Do you guys really not see anything wrong with this commission arrangement as far as the consumer is concerned?

This problem is evidenced even more by the actions of the NAR, which is pushing for home prices to be more expensive with loan limit increases. Not a surprising move, given how you're all paid, but not exactly a good demonstration of a consumer-driven organization, nor in the best interest of the American economy, if you ask me.

Thankfully, this age old real estate sales commission arrangement is changing very, very rapidly across the country. I'm sure it's a good profession and no doubt good agents who rode this nightmare train all the way up have good connections to ride it all the way back down again and make a decent living. But I don't agree with your statement that realtor overhead costs must justify realtor sales commissions. It doesn't make any sense. Overhead costs either make a business competitive or uncompetitive. This is what you should remember:

As a consumer I don't care about your overhead costs one iota. In the world of business, all I care about is the VALUE THAT YOU PROVIDE ME WITH YOUR SERVICES AND WHETHER I THINK IT'S WORTH 6% OR NOT!

If attorneys had any sense, they'd charge a flat fee to fill out these forms, review contracts, and make a ton of dough. All the other stuff can be done or soon will be done online by the consumer.

Just my $0.02.

FEB

Markus,

Thank you for your comments. I understand your concerns. Let's start with you finding it hard to trust any Realtor. It is in a buyers agents best interest to get you a fair price, not the highest price based on pay. A happy and satisfied client is more apt to use the agent again or refer friends. And believe it or not many of us want to help you find what you're looking for at a price that is fair to you. I personally point out the pros and cons to my buyers when looking at a house. Not only do I want them to make the right decision, but I may need to come back and sell it for them some day. You don't have to pay a buyers agent, and you may be surprised at the value you receive. My guess is you can read people, and you will know if the agent is not the right fit for you.

As far as commissions go versus a flat fee based on home price, I understand what you're saying. You're not the first to mention this. I do not make the rules. The brokerages do. Most independent agents are working for the company. Blaming an agent for their company policy is not much different than blaming a cashier for what a grocery store charges. Do you see my point? My guess is that a consumer somewhere doesn't agree with what your company charges either.

Attorneys are not out in the field with buyers and sellers on a daily basis. They simply don't have the time to do what we do. I personally wouldn't want someone representing me on a house sale, when most of the time they're working on things that have nothing to do with numerous real estate sales. (divorces, estate planning, lawsuits, etc)

If you ask For sale by owners their opinion on trying to sell their home on their own, even with the internet, you my be surprised at what you hear. It's not as easy as it sounds. There are agents who have tried it too, and ended up using full service. If it's so easy why do more than 85% give up?

Just my 2 cents.

Kristal,

Great response to Markus. I have a few thoughts to add to help him. It's a very competitive business Markus, if you don't trust a Realtor to represent your best interests, then find one who will. When I'm helping a Buyer find a house they know I'm going to get them the best value possible. A good Buyer Broker can help you find the right house at the right price and serve you so well you won't care what the Seller previously agreed to pay whoever brings the Buyer.

Why would a Buyer buy directly from a Seller and not use a Realtor? Simple answer - no commission involved. Now then, why would a Seller not use a Realtor to sell their home? Same answer - to save paying a commission. See the problem? Two dogs fighting over the same bone. As Kristal pointed out, that is why 85% can not get a sale closed and give up.

Usually you don't need a lawyer* to buy a house, or sell one for that matter. Unless they specialize in real estate sales, Kristal is right, a lawyer is the wrong person for the job. I have clients who are very good lawyers, they don't even think about trying to buy or sell real estate without representation.

Markus there are many business models of real estate brokerages today. Commissions are highly competitive - do a little research and interviewing and you can find someone who puts your interests ahead of their own. I see them every day working hard to protect their Buyer's interest.

Just my 2 3 cents worth.

Kent Davis

* Occasionally a legal question or issue may come up, that's when you need a lawyer!

MAY

not to mention that this is a risky business...we never know when our next sale is coming...we never know when we list a house, if it is going to sell...the great the risk, the higher the reward..

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