Before becoming a real estate agent, it’s crucial to assess your financial situation and the costs involved in entering the industry. Here are 5 financial factors to consider:

1. Licensing and Education Costs

Becoming a real estate agent requires completing pre-licensing education, which can vary in cost depending on the state and educational provider. In New York, for example, the required 75-hour course can range from $250 to $1,000. Additionally, you’ll need to pay for the licensing exam with the State.

2. Brokerage Fees and Commission Split

Most new agents work under a brokerage, and they must typically split their commission with the brokerage. The commission split can vary greatly, from 50/50 to 65/90 or more, depending on the brokerage’s policy and the agent’s experience. Be sure to understand the terms of the split and any additional fees (e.g., desk fees, marketing costs) that may apply. Understanding these fees is important but beware of Brokerages that sound “to good to be true” with regards to split. Remember, you get what you pay for! In the beginning, it is training, mentoring and administrative support that are most important. Get your foundation set first and the compensation will follow.

3. Marketing and Advertising Expenses

Real estate agents need to budget for ongoing marketing and advertising costs to generate business. These can include creating a website, social media ads, business cards, open house expenses, professional photography, and listing promotions. These costs can add up, especially when starting out and building a client base. Don’t worry though, there are free things that you can do to promote your business. (More on that later!)

4. E&O Insurance (Errors & Omissions Insurance)

As a real estate agent, you are legally required to carry Errors & Omissions (E&O) Insurance to protect yourself from lawsuits due to mistakes or negligence. The cost of E&O insurance can range from $300 to $1,000 annually, depending on your coverage and the state in which you practice. This is a necessary cost of doing business and in many cases is pro-rated depending on when you join your brokerage.

5. Income Fluctuations and Initial Earning Potential

Real estate agents are typically paid on commission, meaning income can fluctuate based on sales volume and market conditions. During the first few months or years, you may face income instability, as it can take time to close deals and build a steady stream of clients. It’s important to have savings set aside to cover living expenses during the initial phase of your career.

Conclusion: Becoming a real estate agent can be financially rewarding, but it requires upfront investment and careful financial planning. Understanding these costs and preparing for income variability will help ensure that you are financially prepared for success in your real estate career.

Turbo Tax has a great article that you might find helpful. https://turbotax.intuit.com/tax-tips/self-employment-taxes/tax-tips-for-real-estate-agents-and-brokers/L6JBCu3uH In addition, when you begin your career it is advisable to seek out a tax professional to guide you through the process as an independent contractor.