Expenses of a Real Estate Agent

By
Real Estate Agent with Hunt Real Estate- Columbus Division

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.

Lens 

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. 

Mobile Phone

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. 

LaptopGPS 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

 

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Show All Comments
Rainmaker
146,482
Caren Wallace
Premier Property Group LLC - Tualatin, OR
Portland Caren Real Estate

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! 

January 10, 2009 07:17 AM #114
Ambassador
1,231,751
Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

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.

January 10, 2009 07:40 AM #115
Anonymous
Anonymous
Melanie

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?

January 10, 2009 08:13 AM #116
Rainmaker
620,871
Sandy Shores Broker, Melbourne Real Estate
M & M Realty of Brevard Inc. - Melbourne, FL
Brevard County FL Real Estate

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!

January 10, 2009 08:56 AM #117
Rainmaker
216,123
Bo Kociuba & Buster Elliott - The B&B HOME Team 405-812-1572
WelcomeHomeOKC.com - We Can Move Anyone, Anywhere, Anytime! - Mustang, OK

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

January 10, 2009 09:52 AM #118
Rainer
13,748
Barb Overmann
Keller Williams Realty - Lugoff, SC

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?

January 10, 2009 10:05 AM #119
Rainer
55,361
Sean Dreznin
NAI Tampa Bay - Sarasota, FL
Commercial Investment Real Estate Agent

Barb,

Your looking at it!

Sean

January 10, 2009 03:57 PM #120
Rainer
16,098
Quad Cities My RealTeam (Mel Foster Co.)
Keith Allen Allborty - Davenport, IA

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

January 10, 2009 08:48 PM #121
Rainer
59,862
Sonja Adams
Samson Proprties - Purcellville, VA

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..

January 11, 2009 10:36 AM #122
Anonymous
Anonymous
Markus Arelius

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.

February 19, 2009 01:28 PM #123
Rainer
33,927
Kristal Perrone
Hunt Real Estate- Columbus Division - Rochester, NY
Associate Broker

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.

 

February 20, 2009 12:44 PM #124
Rainer
11,660
Kent Davis
Kent Davis - RE/MAX Alliance of NM - Albuquerque, NM

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!

February 20, 2009 10:05 PM #125
Ambassador
526,989
Konnie Mac McCarthy
Realty Direct, LLC/Realty Direct, Inc. - Mc Lean, VA
Associate Broker - VA & MD

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..

May 30, 2009 06:48 AM #126
Rainer
147,546
Don Spera
CR Property Group, LLC - East York, PA
Serving York and Adams County, PA

There are way too many people out there that still have a misconception on how much time and energy goes into being successful and how we are constantly on a roller coaster ride.  I don't think John Q. Public will ever understand unless they have been there and done that.

July 07, 2010 04:00 AM #127
Rainer
11,660
Kent Davis
Kent Davis - RE/MAX Alliance of NM - Albuquerque, NM

Village of Los Ranchos de Albuquerque NM (in the North Valley of Albuquerque) requires a For Sale Sign Permit Fee of $35.00 to put up a sign in front of a listing!

July 09, 2010 12:02 AM #128
Anonymous
Anonymous
dave

Hey Paul. You sound like a disgruntled business person. Were you involved in those high risk mortgages? Believe it or not, after reading your comments I would guess your age to be around 30 years old.

I don't know where you got your information, but it soumds like you did not look very far. The requirements for obtaining a Sales Associate License requires a High School education in most, if not all states. Insurance rates in all areas has gone through the roof. By the way, Paul, agents have to have quite a few more expenses than what you must be referencing, which is just the average yuppie.

I AM a sucsessful business man, that is getting into Real Estate sales. From the looks of your little note, Paul. I do not think you are or have ever been (stock brokers dont count)in business. At least not one that grosses more than fifteen grand a year. Grab a pad and take a note, junior! There are many,many businesses that require absolutely no overhead! They have a very big profit margin, and they have a growing client base. But..... If you want to do something legal.... there are some businesses that are more costly than others. Some have a potential of a greater reward, and those have very big expenses because the risk tends to be a little bigger. Real Estate sales falls in the latter category. There are services out there that are taking unfair advantage of this fact, and they need to be exposed! Paul!

Word to the wise! Research a subject before you rant! Don't just rely on conversations at football games.

August 13, 2010 12:12 PM #129
Anonymous
Anonymous
dave

Markus, I have a couple of questions for you. What commission should be charged when a piece of property sells for $1000.00? What commission should an agent charge when a $500,000 deal never finds a buyer? How about when an agent shows 25 houses to a couple that never buys?

One more. How much money in actual take home does the average Real Estate agent make? Here are some facts. Forget about what you have seen in money that you think is payment for service. In order to make $40,000 a year, an agent will have to sell 21 houses a year, and spend more than 50 hours a week chasing deals. Desk fees, office fees, insurance fees, broker fees, vehichle fees are just some of the things they will have to take care of on the journey to that 40 grand.

I feel ya Markus, but Real Estate is like every other occupation. It looks like gravy to the person that pays for the service. I hear it every day. My family Doctor charges $100 for an office call. I know where his money goes, and believe me, it aint even a fraction as pretty as it looks!   

August 13, 2010 12:42 PM #130
Anonymous
Anonymous
Sean Smith

I sell on via friends and refferals and I clear 150,000 a year no problem.

 

 

December 15, 2010 05:35 PM #131
Anonymous
Anonymous
anonymous

do agents have to split expenses with the broker if a person pays them for research and there is no transaction or commission involved?

December 27, 2010 05:41 PM #132
Anonymous
Anonymous
Kim Davis

Thank you for writing this article.  I have been considering being a Realtor for awhile now.  I did a google search for Realtor expenses, which brought me to your post.  I always assumed the broker covered the costs of signs and web sites and did not realize they took such a large % of commission.  This has been extremely helpful to open my eyes as to what I need to budget before starting.

January 03, 2012 03:12 PM #133
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Rainer
33,927

Kristal Perrone

Associate Broker
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