Real estate is a notoriously challenging industry for new agents because pay is based entirely on commission. Agents only get paid when a home is successfully bought or sold. While this arrangement can lead to large and very rewarding pay-offs for weeks and months of hard work, the arrangement can make it difficult to plan ahead. After all, monthly bills won’t wait for a tough client to close, no matter how rewarding the commission might be.
How can real estate agents overcome the challenges of a commission-based income? This guide will help you plan ahead to keep your finances balanced even when your pay doesn’t happen on a schedule.
Build a Buffer Savings Account
Build yourself a buffer. With every commission, set aside enough to tide you over for a few months between sales. Many new real estate agents build up an ample savings account before they go into real estate full-time. This way, you don’t have to worry about running low on funds while working with your clients. Clients should be free to take their time and make the right decision, and a buffer account will give you the serenity to provide the best quality guidance and support.
Allocate Each Commission in Percentages
Each time you get a commission, allocate some percentage to known expenses including taxes, business expenses, and emergency fund. Decide the percentages that work for you and stick to them. This way, you will always be able to cover the essentials. Experiment with the right percentages until you find the correct balance for your expenses and working pace.
Budget Your Investment in Each Job
When a client gives you their ballpark range, you’ll be able to estimate your potential commission from the real estate sale when complete. This will allow you to safely plan ahead when budgeting your financial investment in each job. There are tons of things a dedicated real estate agent can do that cost little to nothing, so a little smart budgeting will ensure that you also don’t go overbudget on “extras” unless the payout will be worth it.
Establish a Steady Pipeline
Always be marketing. The best way to create a steady income on commission is to establish a steady pipeline of clients. Build your visibility and try to maintain a pace of clients that keeps your bills paid without worry. In a busy market, you may be able to maintain multiple clients at once by properly splitting your time. But even in a small market, it is usually possible to establish a semi-predictable pace of client acquisitions and closures.
Diversify Your Income Sources
Lastly, if you’re worried about an unreliable commission pace, if you’re still building your business, if your market is highly seasonal, or if your real estate market is not that busy – diversify. Set up additional sources of income to ensure that your bills remain paid even if there are long gaps between clients. Maintain a day job, sell crafts online, or design web pages between real estate sales; whatever works for you.
Planning Ahead is the Key to Commission Work
If you are working on commission, the key to survival is planning ahead. Know your pace, your predicted income, and your budget. Have a buffer in case of dry spells and emergency expenses, and don’t be afraid to set up multiple income streams. More income is always better, and allows you to give your full focus to each client, whether your commission work is full-time or occasional. For more insights on how to thrive as a real estate agent, contact us today.