Great Pay?

Wanting to make a good income is a great motivator for getting into the real estate business, and the potential is there to actually become wealthy. Being realistic about how much you can make, and how quickly, is also important. From real estate school to your license, to business cards and marketing materials — it is essential that you are aware that you will be writing a lot of checks before you receive one. Be prepared for this. (We'll talk more about managing your finances in Chapter 15.)

You may spend hours and hours with someone who never buys or sells and you could also have the good fortune of spending very little time with someone and receiving a sizable commission. You cannot predict how these things will go and having unrealistic expectations can set you up for disappointment.

The Client's Best Interest

If you are only in real estate for the money, it stands to reason that you will not always be working in your clients' or customers' best interest. Having money as your primary goal will direct your efforts toward your own best interest, often to your clients' detriment. Your clients will realize this and, even if they complete a transaction with you, they will not refer you to their friends and family. Without referrals, your business will eventually fold. However, if your clients' and customers' best interests are your first priority, they will refer their friends and family to you and you will make good money. Success will come from focusing on the service you provide, instead of the income.

Alert

Most states do not allow you to pay a referral fee, or kickback, to anyone except licensed real estate agents and attorneys. Thanking people for referrals is important, but paying for referrals can lose you your license! Taking a friend to lunch is usually just fine; be creative and legal in how you reward referrals.

Being Self-Employed

If you've always worked as an employee, you are accustomed to being on the job during specific hours, on specific days, as dictated by your employer. No matter how your days are spent, you receive a paycheck for your time. Your employer also deducts taxes from each paycheck and sends tax payments to governmental agencies. When you file your taxes, a refund is often forthcoming.

ssential

A small percentage of real estate agents are employees of their firms. Although an employee arrangement is not typical in the real estate world, it is something you should clarify when interviewing for a position.

Working in real estate is very different. You're in charge of your own schedule and put in as many or as few hours as you choose. At first, your pay may seem to have absolutely nothing to do with the number of hours you work. You may put in hundreds of hours before you receive a paycheck (called a commission check), and it may account for only some of the hours you actually spent working. You may have other instances where you spend very little time and receive compensation that far exceeds the hours expended. When you do get that first commission check, you'll see that it's a lump sum with no tax deductions. It's up to you to pay any taxes owed to your state or the federal government.

Most licensed real estate agents are considered statutory nonemployees by the IRS, and are treated as self-employed individuals if a few conditions are met.

  • Payments for their services as real estate agents are the direct result of sales or other efforts, and are not related to the number of hours they worked.

  • The firm and agent have entered into a written contract that stipulates the agent will not be treated as an employee for federal tax purposes.

Agents are often asked to do “floor duty.” This entails working in the office for a certain number of hours or days each month, answering phone calls and helping customers who walk in unannounced. An agent is also expected to adhere to a firm's formal policies and procedures and might be expected to produce a certain amount of business for the company in order to continue working there. Even though the real estate firm controls your time and performance to some extent, neither of those requirements makes an agent an employee if the two IRS rules are met.

Fact

You may hear the term independent contractor used to describe a selfemployed agent. That designation has the same meaning as statutory nonemployee.

Real estate agents typically pay estimated taxes on a quarterly basis. The amount they pay is based on the amount they earned during the current quarter or expect to earn during the next. Tax estimates are sometimes difficult for a new agent, whose closings and pay can be sporadic. A tax professional can help you determine how much to pay each quarter, but it's up to you to put aside a portion of each commission check so that the funds are available when the payment comes due.

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