Many real estate agents are small businesses, facing costs and uncertainties

Many real estate agents are small businesses, facing costs and uncertainties
By Alan J. Heavens

Eight out of 10 real estate agents are independent contractors, not salaried or commissioned employees.

Which means that a real estate agent can be "fairly described" as a small businessperson, said Walt Molony, spokesman for the National Association of Realtors. Or, in the view of the IRS, a 1099 employee.

And although there was considerable consolidation in real estate a decade or more ago, with many mom-and-pop offices merged into larger ones, there are still plenty of small brokerages in operation, too.

"This business is 24/7," said broker Christopher J. Artur, owner of Artur Real Estate in Mayfair. "No one else but you is there to open the door, wait for clients, determine staffing, buy and pay for supplies, and find, purchase, learn about and use the latest technology."

Add to that the costs of errors-and-omissions insurance and its higher premiums if you manage properties, as well; commercial insurance for your office; fees for the Multiple Listing Service and local and national Realtors organizations, and a whole host of expenses "before you even talk about trying to sell a house," Artur said.

Fixed costs consume most of the money a small broker takes in, he said. "I sell low-price housing" in Mayfair and surrounding neighborhoods, so Artur depends heavily on volume.

According to the Bureau of Labor Statistics, real estate brokers and agents do the same type of work. But brokers are licensed to manage their own businesses; agents must work with brokers.

An agent typically provides services to a broker on a contract basis. In return, the broker pays the agent a portion of the commission earned from the agent's sale of a property.

The bureau further says that the broker or agent who obtains a listing usually shares the commission with the broker or agent who sells the property, and with the firms that employ each of them. It recommends that an agent just starting out "should have enough money to live for about six months, or until commissions increase."

"Each month, we start at zero. No salary or any type of compensation other than the sales generated by our individual effort," said Diane Williams, of Weichert Real Estate in Blue Bell. "One has to be strongly motivated and a self-starter - willing to work long hours, especially in this challenging market.

"Each month is different," Williams added. "One must be disciplined financially to plan your spending around an irregular income."

Expenses are hefty from the very start.

Not only do agents pay for their licenses, which are required before they can sell real estate, but many states - Pennsylvania and New Jersey included - require continuing education as a condition of license renewal periodically, and the costs of those courses are borne by the agent alone.

Agents and brokers pay for their own medical coverage, unless a salaried spouse in a different field has a family plan. If a brokerage has clerical staff, it has to provide medical coverage for those who work 30 hours a week or more.

"Major medical costs can break a small brokerage, especially when sales are down and premiums rise," Artur said.

For agents who use a broker's office part time, there may be desk fees, copier fees, and shared costs of electricity, he said.

Though today's technology means less time in the office, cellphones, keeping a website fresh, and equipment cost money. Traditional advertising expenses and signs can cut deeply into commissions.

And agents need reliable cars to get to appointments and transport buyers to listings.

"We can work for months on a transaction, and if it falls apart, there is no compensation for all the time and effort expended," Williams said.

"You must be upbeat and optimistic," she said. "You've got to be able to pick yourself up and start all over again."