A real estate commission advance is a financial transaction in which a real estate agent sells a pending commission (or a portion of one) for a fee. In exchange, funds are advanced to the agent before closing. This provides the agent with access to a commission prior to the closing date, giving you the cash you need to grow your business.
A real estate commission advance can be used for normal business expenses. As a real estate agent, you typically must invest money before you make money. Normally, you must market a property before you can sell it. You promote yourself to attract buyers and sellers before you see a commission check. As business expenses, these costs should be tax deductible and ought to be documented throughout the year.
Below are six great ways an agent can use real estate commission advances as needed to balance cash flow:
#1 Real Estate License and Education Fees
There are quite a few expenses associated with obtaining and maintaining your real estate license. Most states generally require at least 20 hours of ongoing real estate education. Once you’ve passed all your real estate pre-licensing courses, you’ll apply to take the state licensing exam. The cost of the exam itself, and other expenses associated with the exam, will vary slightly from state to state. After you pass your state exam, you will be required to take real estate continuing education courses to keep your real estate license moving forward. But the continuing education doesn’t stop there. Here are a few examples of real estate licensing and education expenses:
- Real Estate Pre-Licensing Courses: $100 to $600
- Real Estate State Licensing Exam: $75 to $125
- Real Estate License Fee: $50 to $100
- Continuing Education: $100 to $1,000
- Additional Education and Training: $500+ per year
You can use your advance to cover these ongoing license and continuing education fees.
#2 Marketing and Advertising Investment
Marketing and advertising are major investments for real estate agents, especially as you’re trying to grow your customer base and increase the number of your listings. Both paid and free advertising are huge parts of a targeted marketing plan and budget. Your advertising expenses might include a new website, direct mailing lists, print advertising, flyers, paid search, display advertising, postcards, promotional materials, logo clothing, or anything else you pay for to market your real estate business.
Here are just a few examples of how you can use your commission advance to pay for advertising investments:
- Real Estate Website: From $20/month using a website template to $1000s for a custom website
- Online Advertising: $500 to $5,000/month (includes paid search, lead generation, social media, ads on real estate sites)
- Print Advertising: $100 to $500/month (includes yard signs, direct mail, newspapers)
- Postcards: $250-$500/month (Just Sold, Just Listed postcards in your target area)
#3 Tax Payments
Because real estate agents are typically independent contractors not subject to tax withholding, you are required to pay estimated taxes to the IRS. These must be paid four times a year and are used to pay both income taxes and self-employment taxes (Social Security and Medicare tax). You can use your commission advance to pay your quarterly estimated taxes, and any fees associated with your commission advance should be tax deductible!
#4 Real Estate Industry and Membership Fees
Another way to use your commission advance is to pay industry and local real estate association fees. Your real estate association membership dues, even though they are tax write-offs, are major expenses. As a real estate agent, you’ll likely become a member of your state and local real estate boards, your local Multiple Listing Service, and the National Association of REALTORS®.
Your local real estate board may require a monthly fee – sometimes paid directly to the association, at other times paid to your broker. The same holds true for the local MLS fees. State association fees vary from state to state but are typically a few hundred dollars, as are the membership dues for the National Association of REALTORS®. Use your RealCommissions advance to pay these fees while continuing to invest directly in building your business.
#5 Business Operations Expenses
As an agent, you encounter many miscellaneous real estate business expenses. These include your cell phone and internet bill, office space and supplies, computer hardware and software, client meetings and lunches, and client closing gifts. Your brokerage may cover some of these, but probably not all of them. So be sure to add them to your list of costs to cover with your commission advance.
Furthermore, many real estate agents need a support team, especially as business grows. Payroll expenses can be covered by your commission advance to balance your cash flow. So, go ahead and hire an assistant!
#6 Transportation Costs
Real estate agents across the U.S. put millions of miles on their cars each year as they drive to preview properties and shuttle clients from house to house. Vehicle expenses are one of the largest expense categories for most agents. Transportation expenses include things like auto insurance, gas and maintenance. A commission advance can help you cover these expenses to make sure you are always on the go!