Agent

12 Unexpected costs when starting a real estate career

Although becoming a real estate agent doesn’t involve significant startup costs, nothing in life is free. Like any other small business, you’ll need a budget to cover your expenses. But, unlike other startups, you’ll need a large financial cushion to manage your expenses.

If you prepare for the following unavoidable or unexpected costs, you’ll be in a better position to stay on track. With planning and hard work, you’ll protect yourself from financial stressors. Here are the costs of becoming a real estate agent:

Financial cushion. Unless you have another full-time job on the side, you’ll need to save a lot of money in case a home takes months to sell. One of the key factors in deciding if the industry is right for you is patience. If you don’t want to wait months until your next paycheck, real estate isn’t for you.

Pre-licensing courses. Before you sit in for your real estate licensing exam, you must take a pre-licensing course at a qualified real estate school. Pre-licensing courses cost $300 to $1,400, depending on your state and could take you several hours to complete. Online coursework is typically less expensive.

Your personal time. While not a direct cost, being on-call 24/7 isn’t the most glamorous aspect of being an agent, but it’s a part of the role. Whether you’re eating dinner or at a wedding, a client could call at any moment. While you can take time off work, you’re mostly married to your job, which could affect your relationships.

Examination and licensing fees. Most real estate application fees cost $25 per exam, and you’ll also have to pay for the fingerprinting and background check, which costs $50 to $75. State exam fees vary but are usually $20 to $50. Finally, agents must pay $150 for the license itself, totaling $300 or more. 

Off-the-clock duties and tasks. This is another cost that is all about your time. Real estate is a people-first business, meaning customer service is very important. To stay competitive, most agents will answer questions, recommend a contractor, or inspect the house after the sale is complete. Most of these services won’t be paid for by your clients or broker.

Real estate brokerage fees. Once you’re a licensed agent, you’ll likely partner with a local broker. A broker takes care of the majority of your business expenses, like photocopies, internet, office supplies, and insurance. However, you’ll pay a percentage of your commission or a set fee, back to the broker to cover these items.

Real estate association membership dues. While your membership dues are a tax write-off, they’re still a notable expense. If you choose to become a certified Realtor (or member of the local, state and National Association of Realtors), you’ll need to pay a monthly fee. Even if you don’t, you’ll still likely become a member of your local or state real estate board, which also costs money.

Business expenses. Running a real estate business comes with various miscellaneous costs, such as your cell phone and internet bill, office space, supplies, client meetings and gifts, lunches, and software. Some brokers cover these expenses, others don’t, so they may come out of your pocket.

Self-employment and income taxes. Real estate agents are self-employed and subject to a 15.3% tax rate. They also have to pay income tax on top of that, meaning you could pay 40% or more per year. Your employer doesn’t deduct your taxes from your paycheck, so you’ll have to pay them when you file.

Marketing and advertising costs. Marketing costs are one of the biggest expenses to consider when starting your real estate career. It’s estimated that 10% of your gross commission income will go towards marketing spending. Be prepared to set aside $1000 to $5000 per year on traditional and online ads.

Health benefits. One of the benefits of having a conventional job is reduced health insurance premiums. As a real estate agent, you aren’t afforded this luxury. Whether you have dependents or not, real estate agents should keep a portion of their salary saved for health insurance.

401(k) and retirement savings. While not all employers offer a pension or 401(k) matching contributions, quite a few of them do. Living in the moment is fine when you’re young, but if you don’t pay into your retirement plan, you may work longer than you expected. Plus, paying into your 401(k) offers tax benefits.

Business and liability insurance. As stated, most brokers will pay for your insurance, but that typically only includes errors and omissions insurance (E&O). You’ll still have to fork out money for general liability, workers’ compensation (for hired photographers), cyber liability, and business owner’s insurance.

Real estate continuing education. Your real estate education will continue for the rest of your career. You’re required to take continuing education classes to meet ongoing licensing requirements. Depending on the course you take, you may earn special designations to determine niche specialty in specific markets.

Jasen Edwards is the chair of the Agent Editor Board of Agent Advice.

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