How Do Agents Get Paid? (Part 2)

Article from: http://www.stlagent.com

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By: Darin "Sid" Cameron, CRS
Tue, Oct 17th, 2006 11:53 am

Understanding the HOW in How You Get Paid…

Since the average first year real estate agent is usually someone who enters the industry from another career (generally outside of sales), the next piece to understanding compensation is to realize that it will probably be unlike any other job you have ever had.

First off, the vast majority of real estate brokerages “hire” agents as independent contractors. (I’ve seen statistics from the National Association of Realtors that shows that number as high as 90%.) Being an independent contractor means you technically aren’t an employee of the brokerage- you are a self-employed person who “contracts” for work with the brokerage.

The distinction between being an independent contractor over being a traditional employee is that your broker doesn’t pay you an hourly wage or salary- you are only paid based on output (i.e. commission on sales). They also do not hold or file federal or state withholding taxes (FICA, Social Security, etc) for you (you need to save up money and send it in each quarter yourself). Your employer is also limited by law from providing you paid-for benefits (health insurance, 401K retirement benefits, etc).

In return, you have some amazing freedoms. Broker’s have minimal input in how you run your day to day business- you can not be told to work set hours, attend mandatory meetings or trainings, what to wear or even where or what types of clients you can work with (within limits).

So what does this really mean? With this freedom comes the need for amazing self-control. There won’t be anyone standing over you forcing you to punch a clock every morning, so it is all too easy to put off work and allow yourself to fail. Even though your broker can’t tell you when to work, they can fire you for not producing sales.

The act of getting licensed also doesn’t train you how to be a sales person or teach you anything substantial about real estate. Since brokers can only encourage you to attend trainings, whether or not you learn anything about real estate is up to you (and is often at your own expense).

More important, very few brokers will supply new agents with qualified leads or clients. Generating leads is expensive, so those tend to go to the proven agents.

As a result, you are often largely responsible for finding your own clients and marketing yourself. By and large, you are the sales force, marketing department, bookkeeper and accountant of a one person company who doesn’t get paid a dime unless something sells.

Tomorrow’s Installment

Tomorrow we will explore the various kinds of real estate work that exists for an agent to do, and then follow it up on Wednesday with a discussion on how commissions are paid out and how much money an agent can expect to make.