How To Plan Real Estate Agent Income and Expenses

As a real estate agent, you can’t rely on steady income like someone with a salaried job can. Instead, you have to operate like a business owner, weathering the natural peaks and troughs in your income and managing expenses.

Ensuring you have sufficient income and planning your expenses is essential for real estate agents who want to have a steady income for themselves and their families.

Real Estate Agent Income

A real estate agent typically doesn't get paid a regular income or salary. Instead, they get paid on a commission basis. That means that as an agent, you only get money when you close on a deal. How much you earn depends on the details of the transactions you’re helping with and the value of the transaction.

How much your broker keeps from the commissions you earn depends on your employment contract. New agents might split the commission with the broker 50/50, while top-end agents could keep 100% of the commission.

Types of Real Estate Agent Expenses

An agent generally operates as an independent contractor under a real estate brokerage, which means they have to consider various expenses that are essential to their work.

Marketing Expenses

An agent only gets paid when they close deals, which means they need a constant stream of new customers coming in.

Advertise to potential customers to help convince them to contract your services. The more clients you have, the more money you can make. The more you advertise, the more clients you can land.

MLS Subscription, License Renewal, and Education

Real estate agents will want to have a subscription to the Multiple Listing Services (MLS), which lets them view details about homes on the market and list homes for sale so other agents can see them. There are multiple MLS out there and you may want to subscribe to more than one. Typical subscription fees range from $20 to $50 a month per service.

An agent usually needs a license to operate in their state. Paying for the license and renewal fees costs money. Some states also have educational requirements to get or renew a license, which adds to the cost.

For example, Massachusetts requires 40 hours of real estate education and completion of licensing exams before you can start working as an agent.

Office Overheads

Working in an office means paying overhead costs for that office. This can include everything from rent and utility bills to covering the cost of stationery, computer equipment, and more. You have to factor these expenses into your budget.

E&O Insurance

Errors & Omissions (E&O) insurance protects real estate agents from liability for negligence and inadequate work. When helping people with transactions that involve hundreds of thousands of dollars, this kind of insurance is essential to protect yourself, so budget for these insurance premiums. Real estate agents must also account for other types of insurance, such as general liability, and those costs can add up as well.

Tracking Expenses for Real Estate Agent

Knowing the things you have to pay for as a real estate agent is one thing. Tracking those expenses and planning for them is another.

Do your best to track business expenses and spread them out throughout the year to ensure you’re not facing a massive surprise bill when all of these costs come up at once.

Separate Personal and Business Expenses

Separating your personal and business expenses makes it much easier to keep track of when your business bills will come due. It’s also useful when it comes time to file your taxes.

Consider setting up a business bank account or business credit card and running all of your real estate expenses through those. That may help you track how much you’re spending and when the spending occurs.

Recurring or Big-Ticket Expenses

If you have large, recurring expenses such as license renewal fees or office rent, pay close attention to how much you owe and when those bills come due. Set reminders for yourself and try to always have a cushion of cash available to pay for these expenses.

Use Tracking Software or Spreadsheets

Financial tracking software can be helpful for both your business and personal finances. You can also track your money manually using a spreadsheet program.

Most automated financial trackers can be configured to alert you of low balances and remind you of upcoming bills, which can make it easier to keep track of your money.

Business Plan and Budgeting

Real estate agents need to act like a business. That means having a coherent business plan and budget they can follow.

Set your company’s budget, including things such as your personal salary, how much you’ll spend on advertising, and how much you can spend on other expenses, then stick to it. If you make more than you expect, you can start thinking about how to use that money to expand your business—but make sure to always keep some extra cash on hand to cover the lean times.

With a strong plan and a clear budget, you’ll be equipped to handle anything the real estate industry throws at you.

Frequently Asked Questions (FAQs)