If you’re thinking about starting a career in real estate, you’re probably wondering what the top real estate agent start up costs are.
In this article, we’re going to discuss some of the top start up costs every real estate agent will see. This way, you have a better idea of what to expect and can plan your personal finances accordingly.
From pre-licensing fees, to brokerage fees, to general operating fees, it’s going to feel like everyone has their hand in your pocket and is taking your money.
We’re going to look at some of the common start up costs and share some ideas on how to lower these costs.
All of your costs are broken into five main categories:
- Getting your license (one-time fees)
- Brokerage Fees
- Marketing and Lead generation expenses
- General operating expenses
- Continuing education and certifications
Let’s break each of these down. At the end of the post, I’m sharing why it is important to write these expenses out before committing to becoming a real estate agent.
Cost to Get Real Estate License
Expected total: $525+
Each state has different costs when it comes to getting your real estate license. Your overall cost for a real estate license will vary based on the pre-licensure course requirements in your state and their filing fees.
However, let’s look at some examples as a comparison.
In Michigan, potential real estate agents are required to complete a 40-hour pre-licensure course that ranges from $200 to $400 depending on whether the class is online, in-person, and any sales or discounts available.
As an example, a Michigan real estate agent can complete the pre-licensure course for as low as $100.
For those looking to get their license in California, you can expect to pay significantly more for your pre-licensure courses. California requires roughly 135 hours of pre-licensure training, nearly 3.5x more than Michigan.
Some other typical real estate agent fees you can expect to pay are:
- Exam fees – $150+
- Practice exams, study guides, and books – $50+
- State Background check and application fees – $75+
The exact amount you pay depends on your state, how much study material you need, the type of course you take, and more.
To lower these expenses, online real estate courses are often cheaper than in-person classes. Although, not always. So, do your research.
If you served in the military or are the spouse of a veteran, you can get your application fees waived in some states.
Brokerage Fees
The most variable start up cost for real estate agents are brokerage fees. There are so many different brokerages — from well-known franchises, to small independent brokerages — and most have a different fee structure.
There are three types of expenses you’re likely to see at each brokerage:
- Commission splits
- Desk fees and office fees
- Transaction fees
Every brokerage keeps a portion of your commission, referred to as a commission split. Common commission splits are 70-30, 80-20, and 90-10.
For example, on a 70-30 commission split, you will pay your brokerage 30 percent of the commission check. Say you get a $10,000 commission check. You keep $7,000 and your broker keeps $3,000.
Some real estate brokers have tiered commission splits or offer caps. We’ve written excellent guides on some of the most common splits real estate franchises offer,
In addition to the commission split, you will see transaction fees. These are fees that are only assessed when you close on a home.
For example, a portion of your commission may go to pay errors and omissions insurance. It could be $35 per transaction, as an example.
So, out of the $7,000 you got in the example above, you will need to pay $35 to your broker. In this case, you’re left with $6,965.
Real Estate Agent Desk Fees
Real estate agent desk fees and office fees are generally charged every single month. Meaning, you need to pay these expenses every single month to the broker, regardless of whether you close any transactions.
These kinds of start up costs can eat a new real estate agent’s budget. Desk and office fees vary dramatically from broker to broker.
There are real estate companies with no desk fees, like Exit Realty. On the other end are companies like Re/max which often have high office fees.
Costs can range from $0 to $800+ per month.
Make sure your sponsoring broker is a good fit for you.
Marketing Expenses
Aside from brokerage expenses, the next costly start up expense for real estate agents is lead generating and marketing.
Your lead generating costs take three forms:
- Time
- Money paid upfront
- Money paid after closing
Each of these marketing costs have their own pros and cons. For new real estate agents, I always recommend using time over money unless you’re getting started in real estate with a sizable budget.
There are likely to be some minor expenses with marketing efforts that are more time-focused. For example, you may need to pay $30 to have fliers designed or printed for your open house.
Money paid upfront for marketing includes third-party lead companies, like Zillow leads. Often, you pay Zillow a fixed monthly rate for a number of leads. These leads may or may not convert. Pricing varies based on your zip code and competition.
Lastly, you can pay after closing on a home. These kinds of companies charge a percentage of the sales price after closing. For example, Opcity may charge 30 percent after closing.
This is in addition to what your commission split.
Here are some additional expenses you may find yourself paying as a real estate agent
- Website – $50+ per month
- Real Estate Agent CRM – $0 to $79 per month
- Marketing material – $300+
- Postcards and mailers – $80+ per month
How Much Should I Spend On Marketing?
How much you spend depends on your budget and goals. As a general rule, you should try to pay no more than 10 percent of your gross commission income to marketing.
So, for example, say you plan to sell 10 homes in your first year as a new real estate agent. Your total commission income for the year is $90,000.
Ideally, you should have spent no more than $9,000 for the year.
Often this is hard to do in your first year unless you plan to spend a lot of time instead of money. That means pursuing marketing channels like open houses and floor time.
General Operating Expenses
Since you are in business for yourself as a real estate agent, you can expect some general operating costs.
Examples include lockboxes, monthly MLS access fees, board dues, fuel expenses, client and vendor coffee, and a software solution for tracking real estate agent start up costs.
These are typically around $200 to $300 per month for a real estate agent. They will vary based on whether you come up with free solutions, borrow lockboxes, if your broker has some for you to use, and how frequently you are getting coffee with clients or vendors.
Quickbooks is a great solution for real estate agents looking to record and track expenses.
Education And Certification
As part of your real estate agent license, you’re required to complete continuing education classes. Each state varies in their requirements.
For example, Michigan requires 18 credit hours every three years. Out of those 18 credits, a real estate agent must complete two credits every year on law.
In addition to the requirements, you may wish to seek specific certifications or endorsements. For example, you may wish to become a Pricing Strategy Advisor or e-Pro.
Education costs are usually marginal and typically range from $35 to $400+ per year.
Why List Out Real Estate Agent Start Up Costs
Okay, we’ve talked about all of the expenses a real estate agent is likely to experience when getting started.
Now, I want to make the case for why anyone considering becoming a real estate agent needs to list out these expenses before getting their license.
Sadly, roughly 80 percent of real estate agents fail within their first three years. Some will attribute the failure to lead generation or marketing efforts.
The real reason is there isn’t enough money coming in compared to the amount going out. There are plenty of third-party lead providers willing to give you leads for a price.
Take a look at a common breakdown of money in and money out by month you can expect.
- Month 0 (getting your license): -$525
- Month 1 (brokerage fees without a sale): -$300
- Month 2 (marketing and brokerage fees without a sale): -$900
- Month 3 (same as month 2): -$900
- Month 4 (Same expenses and closed on $300,000 home): $5,200
If you total up these values, after month four, the total net income is $2,575. Now, if you worked 20 hours each week for a total of 320 hours, your hourly rate is about $8.
Ouch.
The hardest part about real estate is managing your costs properly and getting leads at a low cost that makes all of your time and effort worth it.
Tips For Managing Start Up Costs For Real Estate Agents
In the first few months of being a real estate agent, you can expect more money to go out then come in. There are exceptions to the rule, like agents who close on a home within their first 30 days.
Here are some tips for managing start up costs so that you succeed long-term as a real estate agent.
- Select the right brokerage.
- Have a plan for negative income. Avoid credit cards.
- Leverage time when it comes to marketing.
- Avoid any marketing methods that require long-term commitments or contracts.
- Budget for your personal finances.
- If you have a spouse or partner, make sure you’re on the same page and they know the expectations, too.
- Consider working part-time while building your business
Before you get started as a real estate agent, have a plan for negative income. The last thing you want to do is pay for the difference with a credit card.
This will make your start-up costs higher. If you financed all of the costs in the above example, by month four, you would pay roughly $55per month in additional interest.
