What Expenses do Real Estate Agents Have?
In a previous blog, How Much Does It Cost to be a Real Estate Agent?, which you can read HERE (link to blog), I shared some examples of what real estate agents are on the hook to pay for. Things such as association dues, brokerage fees, and marketing.
When you are just starting, every dollar counts since there usually aren’t a lot of them. So you must budget as accurately as possible so you know what amount you have to market (especially to your database) and generate business. To help you with this, I want to take expenses a step further and break them down a bit.
Expenses are broken down into two categories, fixed and variable. Fixed expenses are typically paid every year, and the dollar amount doesn’t change often, which makes them easy to budget for. Variable expenses tend to be one-offs whose amount can be anything, and are a lot more challenging to budget for.
I’ll do my best to break them both down for you below, but please don’t rip my head off if I am not completely accurate. The estimates I share come from my experience, the agents I mentored at my brokerage, and research I have done, so while yours may ultimately be different, they should help guide you when writing out your first budget.
Oh, by the way, if you are looking for something to help you plan your budget, I have a workbook titled Designing Your Budget in my book The Education of a Real Estate Workbook. You can purchase it HERE, or if you just want the Designing Your Budget workbook, you can purchase it for a few dollars on my website HERE.
Fixed
I believe in just ripping off the Band-Aid, so I am going to start with the expenses that are often the largest: your association dues and brokerage fees. To sell real estate, you must hang your license at a brokerage. More often than not, your brokerage is going to be part of a real estate agent association, meaning there is a good chance you will have to pay the annual fees for both. When you are part of an association, you are required to pay annual dues that go towards the association’s bank account and other things like MLS (Multiple Listing Service) access. These tend to be in the $1,000 - $2,000 range (if you want to know what your local association fees are, check out my New Agent Resources page HERE, click on the region you live in, find your state, and click more information to go to your state’s page, where you can find your local association).
For your brokerage, these fees are going to vary depending on what your brokerage charges. Some brokerages will charge fees such as: transaction fees ($100-$300 paid out of every transaction you do), processing fees ($100-$300 paid out of every transaction you do), printing ($.10/page), technology fees ($50-$100 paid as a monthly fee), and E&O (Errors and Omissions) insurance in case you really mess up a transaction ($500-$1,000+ paid annually). There may be others, but these are some of the basics.
NOTE: Make sure you know exactly what any brokerage you join charges so you can budget accordingly.
The rest of the fixed expenses will depend on what you choose. Some of the basics are: cell phone, car, gas, and car insurance. For these, look up what you pay each month and include them in your budget.
NOTE: If you join a franchise, you might also have a monthly franchise fee and maybe annual ones on top of everything I mentioned above. The brokerage I owned was a franchise that had both a monthly and an annual fee.
Fixed expenses tend to be the easiest to budget for, obvious reasons; variable expenses are where things get tricky.
Variable
The rest of the expenses I am going to cover essentially relate to running your business. These tend to be harder to predict, but I will do my best to be as accurate as possible
The main expense (and the one I cannot stress enough that needs to be spent on as much as possible) is marketing to your database. When I was starting, I didn’t have a lot of money, but I still spent around $100/mo on marketing to my database (mainly on sending postcards, which included the card and postage). As my business grew, I increased my budget to include marketing my listings, and when I stopped selling full-time, I was spending $500+/mo on marketing (sending multiple postcards, listing photos, listing marketing materials, food and drink for open houses).
Another expense you will need to consider is the CRM (Contact Relationship Manager) you choose to use to help you keep track of your contacts and market to them. When I started, I didn’t use a fancy program; I just used an Excel spreadsheet to keep track of everything. Then, when my career took off and I could afford to, I got a CRM. CRM costs vary depending on the options you choose, but you can expect to pay from $500-$1,000+ a month.
NOTE: Some brokerages offer CRMs for free or at a monthly fee, so make sure you ask brokerages about it when you interview.
The other main expense I want to mention is your website. Depending on which brokerage you join, you might be on your own to pay for your website. Some brokerages do offer websites as part of the “package” you pay for monthly. Before you get too excited, these sites are not sexy. Most of them are dull, boring, and are mostly promotion for the brokerage since their branding is smeared all over it. But, if you don’t plan to use a website, they are serviceable. If you do plan to use your website to enhance your business, I highly suggest considering building one yourself with your branding owning 99.9% of that site (legally, you have to put your brokerage name on the site, but they make footers for that).
There are many websites to choose from, but since you are reading this on Squarespace, let’s use it as an example. Their Basic Plan starts at $16/mo.
The rest of the variable expenses to consider are: real estate events (free - $200 per event), client gifts ($25-$500 per gift), continuing education ($100 - $300 every few years, depending on the state), and client meals ($100 - $500 per meal).
NOTE: In my blog, How Much Does It Cost to be a Real Estate Agent?, which you can read HERE, I explain how, although you have to pay all of these expenses, you can write them off on your taxes and lower the amount you will owe at tax time. But, unfortunately, you cannot write off business clothes, I tried.
So, ya, there is a lot to pay for as a real estate agent, and that’s just for your business. Don’t forget you have to pay for life as well.
Personal
OK, I have no idea what your personal expenses are. But I wanted to mention them here because so many agents omit them when they are doing their budget. Life doesn’t stop, so make sure you also take into consideration anything you are currently paying for.
NOTE: I highly suggest you speak to your accountant about what you can and cannot write off, so at tax time, you are not surprised with a larger-than-expected tax bill.
ANOTHER NOTE: If you want more information on expenses, check out my New Agent Resources page HERE.
I hope this makes sense. If not, leave me a comment so I can explain it more clearly for you!
“If you want something you’ve never had, you must be willing to do something you’ve never done.” —Thomas Jefferson
P.S. IF you are serious about becoming a real estate agent and want to learn how you can avoid the mistakes 87% of new agents make, I encourage you to check out the coaching program I have developed to help agents before they enter the industry. The program is designed to help you avoid the frustrations I and so many other agents felt when entering the industry, struggling to survive while clinging to the belief we will succeed. It is completely based on proven results from my experience as a top-producing agent, owning a brokerage for almost a decade (where I helped agents average 2x4 times the amount of sales and income), and from spending over 25,000 hours learning from history’s most legendary people! If this sounds like something that would benefit you, please click HERE to set up a FREE 30 Minute Virtual Call to learn more about how I can help you.