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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on October 29, 2021
Investment range
$1,190 - $2,070
Revenue potential
$25,000 - $62,000 p.a.
Time to build
4 - 6 months
Profit potential
$22,000 - $56,000 p.a.
Industry trend
Growing
Commitment
Flexible
When establishing your real estate business, consider these significant factors:
You May Also Wonder:
Are real estate prices – and agent / broker commissions – negotiable?
Yes. Almost everything in real estate is negotiable. The negotiations mainly depend on discussions between the buyer and seller. For commissions, agent and broker come to an agreed-upon division. Property prices and commission negotiations hinge on the experience level and leverage of the main parties.
Should I be a part-time or full-time real estate agent?
This depends on your life circumstances and desired work schedule. Keep in mind, your average seller or buyer is less likely to use a part-time agent, who are thought to have less expertise. In addition, as a part-time agent you may be required to lower your commission or agree to a less favorable split with your broker.. Being a full-time agent, on the other hand, requires more time and energy, while offering greater earnings potential.
How do I find a good real estate broker to work with?
As a new agent, search for a broker just as you would for any business partner. Find a brokerage you can trust, with strong management, industry expertise, reasonable commission splits, an online presence, solid reputation, and the capacity to support your career. Real Estate Express provides a handy guide for new agents.
What type of real estate makes the most money?
Generally, commercial real estate, such as prime retail or office spaces in high-demand areas, can be more profitable due to higher rental incomes and potential appreciation.
How can I find and evaluate potential real estate investment opportunities?
To find and evaluate potential real estate investment opportunities, consider working with real estate agents, browsing online listings and platforms, networking with other investors, conducting market research to identify growth areas, performing financial analysis to assess profitability, and conducting thorough property inspections and due diligence.
What is the most common way of selling real estate?
The most common method of selling real estate is through traditional channels, such as listing the property with a real estate agent, utilizing Multiple Listing Services (MLS), marketing through online listings, advertising, open houses, and property showings, and conducting negotiations between the seller, buyer, and their respective agents.
A prospective real estate professional should first determine which type of business offers the best fit. Business in real estate can include:
This article will focus on starting a real estate agency or brokerage, in which you become a licensed agent and work with prospective buyers and sellers to move properties for a commission. Real estate agency customers include future homeowners and business owners buying office space.
Real estate agents are professionals with knowledge and expertise in the residential or commercial property space or both. To legally help people buy, sell and lease real estate assets, they must operate with an official real estate license issued by the state in which they work. Generally, agents work for a sponsoring agency or brokerage firm, though some work independently.
Real estate brokers are agents who have gone through further education to gain their broker’s license. Brokers can work independently or hire agents to work for their business.
Realtors are licensed real estate agents or brokers who are members of the National Association of Realtors (NAR). They are as a result beholden to NAR’s code of ethics and are part of a reputable trade association, which provides significant resources.
Essentially, on your journey into the real estate industry: you begin as a real estate agent and then can work to acquire more experience, knowledge, education, and licensing certifications to become a real estate broker or a realtor, or both. Each additional title is viewed as an upgrade, enhancing reputation and earnings potential.
The education and examination process to gain a real estate license typically takes 4-6 months, so if you’re just starting now you have some time to prepare for launching your real estate business.
Every business has its advantages and disadvantages. It’s a good idea to weigh these factors to help you decide if real estate is right for you.
The global real estate industry saw total revenue of $4.24 trillion in 2020, highlighting a compound annual growth rate (CAGR) of 1.3% since 2016, according to market research firm Research and Markets.((https://www.businesswire.com/news/home/20210902005568/en/Global-Real-Estate-Industry-Almanac-2021-A-4.24-Billion-Market—Value-and-Volume-2016-2020-and-Forecast-to-2025—ResearchAndMarkets.com))
Federal Reserve Economic Data (FRED) shows US real estate revenue on a steady incline over the past decade, despite significant dips every year.((https://fred.stlouisfed.org/series/REV5312TAXABL144QNSA))
The value of all US real estate experienced its biggest increase in 15 years in 2020, gaining nearly $2.5 trillion in value, according to leading online realtor Zillow.((https://www.prnewswire.com/news-releases/2020-us-housing-market-gains-were-biggest-in-15-years-301214718.html))
In a 2021 report, leading consultancy PriceWaterhouseCoopers (PWC) detailed the key trends in the real estate market.((https://www.pwc.com/us/en/industries/financial-services/asset-wealth-management/real-estate/emerging-trends-in-real-estate.html))
Trends in the real estate industry include:
Challenges in the real estate industry include:
A real estate agent needs to get a state license to operate, which includes the cost of a pre-licensing course (~$300), study guides, books (~$35), and any fees to take the exam (~$150), plus a background check (~$40). The total average cost comes to $525.
Real estate agent advisory Building Better Agents says that as a new real estate agent you should expect the following startup and early operations costs:
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Real estate license | $500 - $550 | $525 |
| Brokerage fees | $300 - $400 | $350 |
| Operation cost | $115 - $345 | $230 |
| Lockbox key | $10 - $20 | $15 |
| Business cards | $5 - $10 | $8 |
| Board of Realtors (NAR) | $30 - $50 | $40 |
| Multiple Listing Service (MLS) access | $20 - $40 | $30 |
| Gas | $25 - $75 | $50 |
| Client coffee/lunches | $25 - $150 | $88 |
| Marketing expenses | $100 - $300 | $200 |
| Education expenses | $10 - $30 | $20 |
| E&O insurance | $50 - $100 | $75 |
| Total | $1,190 - $2,070 | $1,631 |
Operating as a real estate agent, you will typically split your commission with a broker according to a predetermined arrangement. The commission split can range from a 90% (you) / 10% (broker) split to a 50/50 split, depending on experience level and negotiation process. You must pay certain fees at startup and then on a monthly basis, averaging $350 at startup and $125 per month thereafter.
Monthly operational costs will include some of the basics for running your real estate business, not including an office space rental. Marketing costs – which can vary wildly depending on your approach – include your website, photos and videos of listings, and online ads to promote your business and your properties.
Online resources such as 360 Training and Real Estate Express offer more detailed cost estimates and relevant discussions by real estate professionals.
Established real estate agents can expect to earn nearly $50,000 per year, according to the latest data from the US Bureau of Labor Statistics. These annual income figures are based entirely on commission and can thus vary widely, from less than $25,000 for the industry’s bottom 10% to more than $112,000 for the top 10%. Real estate brokers, given their higher certification and education, typically earn more, with the median at just over $60,000 in 2020.
A real estate agent’s first few years may be in the lower-income bracket due to inexperience and the need to build a reputation and client base. But after a couple of years, an agent or broker is likely to be closer to the $50,000 median. Real Estate Express highlights the advantage of sticking with it: an agent with 10+ years of experience ($83,177) makes more than double that of an agent with 2-3 years experience ($41,023).
The average real estate agent commission in the US is about 5-6% of the sale price, according to real estate advisor Clever.
This means agents and brokers can potentially live off just a handful of sales per year, depending on the area of specialization. In fact, the average US real estate agent closes just 5 to 12 sales per year, according to the NAR. The challenge is making those sales and getting those commissions, which are likely to be your sole source of income.
In your first year or two, you could sell two homes for $250,000 each in a year, bringing in $25,000 in annual revenue assuming a 5% commission. If you’re just working from home with minimal overhead costs and 90% profit margin, you’d make a profit of at least $22,000. As you gain experience, sales could climb to 5 homes a year. With annual revenue of $62,000, you’d make a tidy profit of $56,000.
Barriers to entry as a real estate professional include:
Now that you know what’s involved in starting a real estate business. It’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
If you are a people person with a knack for understanding how a new home or office can change lives, then starting a real estate business could be perfect for you.
A good first step is to narrow down your business location for your business: do you want to be urban or rural? Working in a big city or a small town? Next, consider what type of property you would like to focus on: residential, commercial, industrial, or land. Keep in mind, while residential homes may see the most sales, they are also the most competitive.
Researching the top real estate opportunities in your area should help determine which category to pursue.
Look for answers to questions such as: What kind of homes are people buying? Where have home sales recently increased? What types of commercial properties are most popular in my area? Are any niche property types drawing more attention lately?
As a real estate agent you will need to ally with a broker to complete your transactions. A smart approach is to choose someone with whom you’re able to communicate and collaborate. New agents are legally required to work under a broker for a period of time that varies by state, but is often several years. The ideal choice is a broker that is willing to guide you through the industry ropes, so look for a professional you can trust. Remember your earnings will rely on commissions that will be split with this person.
As an agent you will be focused on meeting people and showing them the features, as well as the buying or selling options, of a certain property. It’s crucial to be pleasant and personable as you guide people through one of life’s major milestones.
Real estate offers several industries and roles you might tap into, each with their own certifications and designations:
No matter which avenue you choose, your goal as a professional is to provide indispensable value to your clients on assets that will likely be vital to their business or their lives.
The average commission is 5-6% of the sales price, which will be split by the agent and the broker as per their agreement. Depending on the client and the broker, commissions may be negotiable.
Top real estate agents often demand a higher commission and a more advantageous split with their broker. Both agents and brokers require a license to receive a commission, and brokers generally pay agents as independent contractors.
Your target market depends largely on your area of specialization. If you choose residential, you will zero in on families and working professionals ready to invest in a home. If you go with commercial, your focus will be on business owners and companies in need of retail or office space.
Keep in mind that homeowners and business owners may buy property with investment criteria in mind, such as a specific appreciation rate or sales timeline. It is an agent’s job to be aware of their buyer or seller’s criteria for each and every transaction.
Since most of an agent’s in-person work can take place at the property itself, the profession is flexible in terms of premises. You can rent or buy office space and have a place to host clientele, plus room for assistants, partners, or employee agents. Or you can operate from home, working part- or full-time and traveling to meet clients on-site when needed.
This flexibility, along with the income potential, attracts many entrepreneurs. In the early stages of your business, you may want to operate from home to keep expenses in check. As your business grows, you might need to hire workers and move into an office space. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
Here are some ideas for brainstorming your business name:
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to real estate.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Businesses come in several varieties, each with its pros and cons. The legal structure you choose for your real estate business shapes your taxes, personal liability, and business registration requirements, so it’s important to choose wisely.
Here are the main options:
We recommend that new business owners choose LLC for a real estate business as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate on a calendar year (January–December), or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best options, other than friends and family, for funding a real estate business. You might also try crowdfunding if you have an innovative concept.
Starting a new real estate business requires you to obtain several licenses and permits from the local, state, and federal authorities.
To operate as a real estate agent or broker, you will need to do the requisite coursework and take the exam to gain the license for your state. To operate as a realtor, you need to already be a licensed agent or broker, then work to attain official certification from the National Association of Realtors (NAR).
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Property sales commissions tend to be sizable sums, so you will need somewhere to keep your earnings, and that means opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your real estate business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer business account options, just inquire at your preferred bank to learn about rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked but is vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your life and business.
Here are some of the different types of insurance to consider:
As opening day nears, prepare for launch by reviewing and perfecting some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, a number of excellent software programs and digital tools can help you with many business tasks.
You may want to use industry-specific software, such as Propertybase, Zillow Premier Agent, RealScout, Contactually, and Structurally, for customer relationship management, lead generation, back office operations, and a homebuying search engine.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your real estate business meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your real estate business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a real estate business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in real estate for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in real estate. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
You may not need to hire any employees if you are starting out with a home-based office. But as your business grows, you will need to hire full-time employees for various positions, such as:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
In a comprehensive overview of the 2020 US real estate market, Forbes noted a crucial statistic for prospective real estate business owners: more than half of real estate transactions today are facilitated by inexperienced, part-time agents.((https://www.forbes.com/sites/forbesrealestatecouncil/2020/10/06/15-upcoming-trends-that-will-impact-the-real-estate-market/?sh=6d0c12c6d513)) This has spurred greater demand for more experienced agents who provide clients with best-in-class service and results. Additionally, Forbes expects independent brokerages to receive a smaller share of real estate business as corporate and venture capitalist-backed brokerages gain market share.
It’s to your advantage that you keep these data in mind when you set up your real estate business. You’re now ready to start your entrepreneurial journey. Good luck!
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