What Is a Real Estate Broker Salary?

If you’re wondering, “How much does a real estate broker make?” the answer is it depends. When talking about a broker, we mean someone licensed at a higher level than a real estate salesperson (even though a salesperson is sometimes referred to as a broker in some states). Another point of confusion is that earning a salary is rare in real estate. Most real estate professionals are independent contractors, so when we use the term “salary,” we’re referring to the amount brokers can earn through commissions, splits, brokerage revenue, and fees.

Real estate brokers generally earn their income from the revenue of the real estate brokerage, primarily a portion of each commission from the agents in the office. This revenue is commonly referred to as a “split.” A typical split is 75-25, meaning that for every property bought or sold, the agent keeps 75% and the brokerage gets 25%.

Brokers and brokerages may also earn money from charging agents monthly desk fees—a flat fee that agents pay whether they close sales or not. Though technically an income opportunity for brokers, most offices use those fees for recurring costs like rent, utilities, and technology tools.

Finally, as a real estate broker, you can assist your clients in the buying and selling process and earn the full commission for those transactions. Read on to learn more about the real estate broker’s salary.

The Average Real Estate Broker Salary by State

To create our database and proprietary information on broker salaries, we collect data from numerous sources, including Indeed, ZipRecruiter, Salary.com, Glassdoor, and the National Association of Realtors (NAR). 

Keep in mind that these are general averages, which regularly change. So much depends on whether the broker is also selling, is a sole brokerage owner, or pays commission splits. As with every real estate professional, the local market and time spent in the business also play a big role. Here is the average salary for a real estate broker in every state:

Why Are Broker’s Earnings So High (or Low)?

Are these numbers not what you’re expecting? Here are some reasons why:

• Data issues: It’s hard to get a true sense of average broker income. Salaries are collected through self-reporting, NAR surveys, and job postings. Throw in the confusion over income versus salaries and the various types of brokers, and it can be a wild statistical ride. So take all this with a grain of salt, and remember that the true test of your potential salary is your local market and your hustle.
• A volatile housing market: Since real estate brokers’ total compensation is based on commissions, it makes sense that states with higher average sale prices would yield higher average incomes. This also means big cities with high prices can skew state-level data upward.  
• The demand-to-broker ratio: Real estate markets with high demand for brokers will result in higher average salaries. Let’s say Small Town, USA, has a median real estate broker salary of $100,000. And the median real estate broker salary in New York City is $110,000. If the average sold price for a home in Small Town is just over $175,000, compared to a median sold price for a New York City home of $839,000, why are those two salaries so close? Competition. In Small Town, there may be 30 real estate brokers operating, compared to, say, 1,760 in New York City.
• Some brokers buy and sell; some don’t: A real estate broker can represent their clients in purchasing or selling real estate, but they aren’t required to. Some brokers choose not to sell so they can focus on running their businesses and managing their teams. However, the ones who continue to represent clients earn more money in direct commissions. NAR’s most recent member profile shows this clearly, as the median income for a selling broker is $105,900 and a broker who does not engage is sales has an income of $91,900.

Should You Get Your Broker’s License?

Working toward a broker’s license makes sense if you’re hoping to increase your take-home pay and have the necessary qualifications in your state. Remember, you don’t have to manage other agents unless you want to. For example, an associate broker (jump to the FAQ section to read about different kinds of brokers) has many benefits of being a broker but without hiring and firing agents. Getting your broker’s license is straightforward and almost always means taking required coursework and passing a state licensing exam. The commitment is serious, but the rewards could be exponential. How much do brokers make? The sky is actually the limit!

Considering getting your broker’s license? Colibri Real Estate is the quickest and most affordable way to pursue your broker’s license. Our top pick offers online classes to meet your course requirements, great test prep options, and all the information you need to set yourself up for success on your broker’s license exam right from your living room. For more information on getting your broker’s license, visit our article How to Become a Real Estate Broker License (Without the Stress).

Real Estate Broker FAQs

Got more questions? We’ve got answers!

What’s the difference between a real estate agent & a broker?

What are the different kinds of brokers?

Bringing It All Together

Nailing down the average real estate broker salary can be tricky because, like all things real estate, it depends. But the bottom line is you’ll almost certainly make more than you would as a salesperson. So, if you want to increase your take-home pay and assume more leadership, getting your broker’s license is the perfect next step. 

Have any advice for future brokers or experience to share? Please tell us in the comment section!

The post The Average Real Estate Broker Salary for Every State appeared first on The Close.

Establishing a solid foundation for your brokerage is not just a recommendation—it’s the key to ensuring long-term sustainability. By understanding these nine potential mistakes on the brokerage management side, you can position yourself as a trusted broker and ensure the growth and viability of your new business. 

1. Lack of Proper Market Research  

Do you understand your target market and how are you going to reach them? What is the demand for your services? Who is your competition? 

If you open a brokerage, these are all questions you need to answer in order to reach your target demographic and succeed. A great reputation as a Realtor doesn’t necessarily translate to a successful brokerage, especially in the beginning. I quickly learned that most people won’t hang their hat on a maybe!  

How to Avoid This Mistake 

Understanding your target market is the first step to success. Dive into thorough market research to identify your audience, assess demand, and comprehend your competition. Being a top producer in your area is an asset, but translating that into a successful brokerage requires a clear strategy tailored to your target demographic.  

When I opened my brokerage, I drove through town and did a thorough evaluation of my competition. At the time, there was nowhere that aligned with the way I wanted to do business. In essence, I created my own solution, and that allowed me to be different and stand out.

2. Poor Business Planning & Financial Management                                   

I don’t doubt that you understand that starting a brokerage takes a significant financial investment. But many new broker-owners still manage to underestimate how long it will take to start bringing in consistent income. It is crucial to have a contingency plan for slower-than-expected startup or even a market shift that could prolong your projected trajectory.  

How to Avoid This Mistake 

Secure your future. Never let yourself forget that launching a brokerage requires a significant financial investment, and success might not happen overnight. Develop a comprehensive business plan that not only factors in financial investments but also considers the time it takes to start generating consistent income. After you create your ideal business plan, create a secondary contingency plan that takes into account slow starts or market shifts.

3. Inadequate Legal Compliance 

No one needs a lawyer until they need a lawyer! Legal issues may seem distant, but having a legal partner who understands them on your side is crucial. Also, as a broker-owner, you’re taking on a lot more liability than you ever did as an agent.

A lawyer is your best business friend—mine literally is my best friend! My lawyer is also a real estate broker, and as both a lawyer and practitioner of real estate, we together were able to successfully navigate many difficult scenarios.

How to Avoid This Mistake 

Not all lawyers are created equal, so do your research and find a good partner in a real estate attorney to help you navigate legal issues as they arise—and they will. I suggest finding a lawyer who is also a practitioner of real estate and someone who understands your market along with your local boards and how they operate.

4. Failing to Expand Your Leadership & Management Skills   

Most broker-owners are the highest selling agents in their areas. But being a top producer is often a whole different skill set than running a real estate brokerage. If you are looking to truly grow the brokerage, you will likely need to step out of the top producer role and into a full-time broker management role. Be watching for when that shift starts to come. 

How to Avoid This Mistake 

Recognize the point at which you need to step into a full-time management role to truly grow your brokerage. For me, that point was about 3.5 years in, where I didn’t need my sales to support the brokerage functions. It is often a hard shift to make for yourself financially, so make sure you are ready to make that leap.

But before you make the leap, ensure you have what it takes. Transitioning with grace from being a top-producing agent to a broker-owner requires a shift in skills. Learning to balance leadership and management is key to fostering a thriving, collaborative environment.

The Close Recommends

When you’re ready to start hiring at your brokerage, check out ZipRecruiter. It’s the number one rated job search app on both Apple and Android devices, which means you’ll cast the widest net possible for new talent.

Visit ZipRecruiter

5. Not Mastering the Intricacies of Real Estate Contracts 

I know it seems like common sense, but alas, I run into brokers all the time who do not have a real understanding of the contracts underpinning their business. The majority of questions you will field from agents will be contract-related and it is important to be able to advise them correctly to avoid legal complications.

How to Avoid This Mistake 

I love contracts! As a continuing education instructor, my favorite class to teach is our three-hour contract class. I pride myself on the fact that seasoned agents walk away from my class with a new understanding of contracts that they didn’t have before. Let’s take it a step further: Get yourself certified as an instructor so you can keep your agents educated and keep yourself in front of your agents providing value. 

6. Failing to Prioritize Networking & Relationship Building   

Relationships—whether we’re talking clients, fellow brokers, or other professionals in the field—are the backbone of the real estate industry. For me, building trust with fellow brokers was something of utmost importance as I built my brokerage. It paved the way for my agents to have successful transactions. Upholding a high level of professionalism and integrity will build your reputation and foster trust with clients and colleagues.

How to Avoid This Mistake 

You will feel pulled in so many directions in the beginning. But if there’s one thing I attribute to my success, it’s jumping into anything I could to get involved in, community-wise. Follow your passions and do what you can to give back, and it will come back to your brokerage tenfold.

7. Not Devoting Enough Resources to Marketing & Branding 

Remember—branding isn’t just your brand colors and logos, but much more. It is the essence of your values and philosophies and how you do business. Your branding should tell a story about you!

How to Avoid This Mistake 

Develop a robust online presence through a professional website and social media platforms. Invest in marketing strategies to showcase your listings effectively and build that online resume for the future of your business.

The Close Recommends

In examining the best real estate lead generation companies available to agents in teams, we found CINC’s custom, hyperlocal advertising strategy, advanced customer relationship manager, and artificial intelligence nurturing tools work together to live up to its lofty promise of better leads for your agents.

Check Out CINC

8. Neglecting Technology

Embracing technology is vital for real estate agents. They are drawn to technology that will help them do their jobs better and more efficiently and edge out their competitors. You can look at this as part of agent recruiting and retention.  

How to Avoid This Mistake 

You must be prepared with tools, brokerage software, and online platforms. And you may have to look to other teams and companies to see what you’re missing. As I transitioned out of brokerage ownership and took my team to a large brokerage, I realized that—while I had indeed invested in good tools and we were thriving—there was much we were missing. Now that my team has these new tools, I see that we have an even bigger edge today thanks to the great technology they have access to.

9. Failing to Adapt to Market Changes 

Real estate is dynamic and ever-changing. Markets fluctuate and challenges arise, but adaptability is your greatest asset. Develop resilience to navigate uncertainties and bounce back from setbacks. We are all feeling this a bit in our current market! 

How to Avoid This Mistake 

No one can predict the future. But you can be proactive about remaining relevant in your market and to your agents, ensuring your brokerage remains a dynamic force in the ever-evolving real estate landscape. Another element that can help you here is adopting the mindset of a lifelong learner. Stay updated with the latest trends, technologies, and legal changes through continuous education.

Cheers to You

Congrats on setting the stage for a successful, optimistic journey in the competitive world of real estate brokerage. Here’s to your thriving brokerage and a future filled with growth and success!

The post 9 Common Mistakes New Broker-Owners Make (+ How to Avoid Them) appeared first on The Close.

I learned this from experience. In my 28-year career in real estate, I have launched or coached more than 20 startup real estate brokerages. Accurately estimating expenses was one of the most critical steps we took. That’s why I decided to put together this article to outline the right way to estimate expenses for your new brokerage.

Real Estate Brokerage Expense Categories

In this article, we’ll review all the common real estate brokerage expenses you may incur operating a new business. Each of the categories below represents a group of expenses along with their estimated annual costs—just divide by 12 to grab your monthly cost. I’ve also pinpointed each category’s ideal percentage of your overall revenue.

I’ll break each category down and explain it in detail. After reviewing each of your brokerage expense categories, you can move to estimating your revenue and completing your real estate brokerage budget.

It’s important to note here that, strictly speaking, profit is not an expense. However, we’ve factored in a 20% profit margin, assuming you want to run a reasonably profitable brokerage business by efficiently managing expenses and revenue according to the guidelines we’ve set forth here. More on this topic later.

Real Estate Brokerage Expense Categories: Costs vs Revenues

Let’s do a quick high-level overview of your expenses. We’ve done a breakout of: 

• Categories
• Annual costs
• Percentage of annual revenue

Payroll Expenses

Estimated total annual cost: $40,000-$120,000
Ideal percentage of revenue: 25%-30%

Your real estate brokerage payroll expenses may vary. Many new brokers forget to factor in the other expenses from employees—think payroll, paid time off, insurance—and, of course—taxes. A few more considerations when it comes to payroll include:

• The number of employees you have and their statuses (full time, nonexempt, etc.)
• The employment market
• Any additional benefits you choose to offer your employees

Here’s a breakdown on the main payroll expenses you’ll need to account for:

Employee Payroll

Estimated annual cost: $32,000-$96,000

The number of employees you have at any given time depends on the services you’re offering to attract agents and the size of your brokerage. For deeper insight on which employees to hire at different stages of growth, see my previous article: The 5 Employees You Need to Hire to Grow Your Brokerage.

The city and state in which you’re opening your brokerage will also affect the cost of payroll—an office manager’s salary can vary significantly between a city like Chicago and a rural town like Wichita. To get an accurate estimate of hiring costs in your area, you’ll need to research average salaries in the area (make sure to filter by county).

Employee Benefits

Estimated annual cost: $3,200-$9,600

Remember to factor in employee benefits like health insurance, life insurance, vacation days, family leave, 401(k) contributions, and bonuses. These expenses can surprise you later and throw off your profitability if overlooked. Decide now what your policy will be for paid time off and whether or not you will contribute to a retirement plan on behalf of your employees. Keep in mind that these benefits are also great recruiting tactics, which help attract the best talent for your business. 

Employer Payroll Tax

Estimated annual cost: $2,700-$8,100

The most common expense new broker-owners overlook is the additional taxes the government requires employers to pay. Let me tell you, the IRS doesn’t take kindly to businesses that fail to pony up. In addition to the hourly wage or salary that you agree to pay your employees, you must also pay employer payroll taxes, which are an additional 7.65% that your brokerage pays to Medicare and Social Security.

Workers Compensation Insurance

Estimated annual cost: $560-$1,680

Most states also require employers to provide workers’ compensation insurance. Failing to do so may result in significant fines or even closure. Workers’ compensation insurance protects the employee and you in the event that your employee gets injured on the job and isn’t able to work.

Payroll Servicing Company

Estimated annual cost: $900-$2,700

If all this gives you a headache, you can hand off all your payroll worries to a payroll servicing company. These companies will handle all the state and national requirements for hiring and managing employees, including legal regulations, tax withholding, and workers’ compensation insurance. Just be sure to factor the additional expense for payroll servicing into your budget.

There’s plenty of broker software options to help you with payroll and accounting, as well as other back-office tasks like compliance management, transactions, and commission management. For example, Lone Wolf Back Office, formerly known as brokerWOLF, has been in the business for more than three decades. The software user interface (UI) leaves a bit to be desired, but it gets the job done.

Office & Office-related Expenses

Estimated total annual cost:  $80,00-$260,000 ($0 virtual)
Ideal percentage of revenue:  20%-30% (0% virtual)

Unless your real estate brokerage operates virtually (without an office), your office will likely take up a large chunk of your expenses. Still on the fence about the benefits of a brick-and-mortar versus a virtual office? Consider the type of agents you’re looking to recruit, the services you’ll be providing, and the flexibility of the lease terms. Each situation is different. Since there are so many factors to consider, choosing the right office can be challenging.

For expense purposes, you can break the costs associated with a brick-and-mortar real estate office down into four categories: 

• Base rent 
• Common area maintenance (CAM) 
• Utilities
• General maintenance

Base Rent

Estimated annual cost: $36,000-$66,000

The base rent is the amount your brokerage must pay each month for the use of the space. In a city like Boulder, Colorado, typical office space can range from $25 to $50-plus per square foot. To calculate your base rent on a commercial lease, you’ll need to multiply the total square footage of the portion of the building you are leasing by the cost per square foot.

For example, if you’re looking at office space that is 3,000 square feet and the landlord is asking $22 per square foot for base rent, then your cost would be $66,000 a year in annual base rent. Divide your annual base rent by 12, and you will have your monthly base rent, which in this case would be $5,500.

Common Area Maintenance

Estimated annual cost: $15,000-$30,000

Common area maintenance fees are additional expenses associated with the property that are passed through to the tenant. These tend to include costs directly related to the space you occupy plus the costs associated with the rest of the property, like parking lots or other shared spaces.

Common CAM expenses are cleaning, repairs, building maintenance, utilities, internet, insurance, security, parking lot maintenance, snow removal, landscaping, trash, and taxes.

CAM fees can add $7 to $12 per square foot to your lease, and you can even be charged retroactively if the landlord underestimates the CAM. So, before you sign that lease, make sure you understand your potential liability and what you can afford.

Utilities

Estimated annual cost: $3,000-$13,000

If your lease or CAM doesn’t include utilities, you’ll need to budget for them as well. When you budget for utilities, you may think only of gas, electricity, water, and sewer. However, if you plan to make calls and use the internet, you’ll need to budget for communication costs too. They can add up quickly.

Maintenance

Estimated annual cost: $1,500-$3,000

If everything goes as planned with your brokerage (and why shouldn’t it?), you’ll have lots of wear and tear from busy agents using your office. To keep things ship-shape, you will want to budget for common maintenance tasks. This can include services like trash removal, recycling, and paper shredding.

If you are renting a standalone building or building maintenance isn’t covered in your lease or CAM, then you’ll want to budget for additional building maintenance to ensure your agents and their clients aren’t turned off by a poorly maintained office.

Software Expenses

Estimated annual cost: $13,000-$36,000
Ideal percentage of revenue: 3%-6%

Gone are the days of having four to five employees to run your real estate brokerage. Today many of the services brokerages provide are managed with software, allowing you to run your brokerage with as few as just one employee.

Since there are so many options for brokerage software available today, estimating these expenses can be tricky. For a detailed breakdown of the software choices available to brokerages today, see my article on essential real estate brokerage software tools.

For now, here is a quick look with rough pricing estimates for software you’ll need to consider:

Associations, Professional & Insurance Expenses

Estimated total annual cost: $12,000-$18,000
Ideal percentage of revenue: 2%-4%

Some expenses to run your real estate brokerage are necessary but are far less exciting than renting a flashy office. We’re talking about unavoidable expenses like insurance, banking, and legal costs.

Additionally, expenses like membership dues, licensing fees, and tax preparation can easily be overlooked because they only happen once a year. To create a comprehensive budget, you will need to remember to include each of these annual costs—they can add up, and you don’t want them to catch you by surprise. 

Here is a quick breakdown of the expenses associated with licensing, insurance, bookkeeping (assuming you’re not using a payroll service or managing your own books), and other professional costs.

Outsourcing: Transaction Coordination, Compliance Management & Back Office Services

Estimated total annual cost: $18,000-$24,000
Ideal percentage of revenue: 15%-20%

To keep your employee costs low, consider outsourcing as much as you can from the beginning. Fortunately, you can easily outsource brokerage tasks like transaction management and brokerage file review. While you’re at it, consider outsourcing other agent services like photography, marketing, or sign installation and storage.

Transaction coordinator companies charge between $150 and $300 a file, depending on the volume you’ll be sending them. If money is tight, you might consider paying a detail-minded, experienced agent in your brokerage to do it on the side for less. You can also consider integrating your transaction management and commission management into a back-end software like Brokermint or Paperless Pipeline. Check out our guide on the best transaction management software to see if one of those options might work for you.

Lead Gen Advertising

Estimated total annual cost: $20,000-$100,000
Estimated return: $40,000-$400,000
Percentage of revenue: Excluded from operational budget

While providing buyer and seller leads isn’t required to operate a brokerage, many brokerages today pay to generate brokerage referred leads.

To help manage this, many tech-savvy brokerages use all-in-one customer relationship manager (CRM), website, and lead management software platforms like Real Geeks to generate leads. The cost of these systems ranges from $500 to more than $2,500 per month, excluding advertising costs. The advertising spend necessary to generate a consistent return starts at $1,000 per month and can quickly exceed $10,000 per month. If you’re looking for a more hands-off approach, you can buy leads directly for your agents from services like zBuyer or realtor.com. But keep in mind that you’re spending hard-earned commission dollars to save that time. 

To maximize your return on investment (ROI) from leads you buy for your agents, you might want to consider hiring a leads manager to handle the system, track leads, and keep agents accountable. This one hire can increase your ROI up to 400% of the investment you make in lead buying.

Separate Profit & Loss Statement

So why isn’t this in the operational budget? Instead of including the cost of the system, advertising, and leads manager in your brokerage’s overall budget, I recommend having a separate profit and loss (P&L) statement for the leads program. This P&L will combine the expenses of running the program with the revenue received as referral fees. Your agents will pay a portion of their commission or referral fee at the close of any transaction referred from the leads program. This P&L will quickly show you if the program is operating profitably.

Recruiting, Advertising & PR Costs

Estimated total annual cost: $7,000-$60,000
Ideal percentage of revenue: 5%-10%

Recruiting, advertising, and PR expenses will also take a significant chunk of your revenue each month. Here are some quick estimates of common costs associated with recruiting, advertising, and PR.

Agent Recruiting Ads

Estimated annual cost: $3,000-$6,000

Even if you do no other advertising, you’ll want to budget for agent recruitment ads on websites like Indeed, ZipRecruiter, and LinkedIn if you wish to grow your brokerage rapidly. These websites charge a monthly fee to run recruiting ads. 

Newspaper Display Ads & Press Releases

Estimated annual cost: $0-$24,000

Yes—the newspaper is still an effective way to promote your brokerage and your listings. This is especially true in high-traffic tourist destinations, small towns, and areas where the average population is older. To save money, negotiate your display ads in six- to 12-month agreements instead of weekly ads.

When your agents feel appreciated, they will stay. The best way to welcome a new agent aboard or celebrate an agent’s accomplishments is to do paid press releases. Most newspapers will run these for a few hundred dollars. Take my word for it—it’s totally worth it!

Signs, Swag & Business Cards

Estimated annual cost: $1,000-$8,000

Printing, storing, and managing your brokerage’s listing and open house signs will not only make your agents happier, it will help you maintain your brand image and standards. Contract with a sign company for a volume discount.

Physical swag like custom pens, coffee mugs, shirts, hats, or umbrellas can also go a long way to helping you promote your brand and make your agents feel part of a team.

Another outstanding way to maintain your brand while standing out from the brokerages that make agents pay for everything is to provide business cards for your agents. It is a low-cost and simple gesture that agents will cherish. Check out our breakdown on the best real estate business cards (plus mistakes to avoid). 

Social Media & Google Remarketing

Estimated annual cost: $3,000-$22,000

Build your brand awareness by having a solid remarketing campaign on both Google and Facebook. This displays your brokerage ads to visitors who landed on your website when they later use Google or Facebook. It will not only build your brokerage brand with the community, but with new potential agents as well.

Also, don’t miss the opportunity to set up your Google Business Profile and Yelp for Business accounts. Both of these will help consumers find your brokerage quickly.

Office Supplies & Other Expenses

Estimated total annual cost: $8,500-$15,000
Ideal percentage of revenue: 3%-8%

The expenses related to office supplies have decreased dramatically this year, but they can still be significant. Yet, if you are building a full-service brokerage, you still want to be prepared to support the busy agent who needs their marketing and presentations professionally printed and bound.

You will also have some costs related to your part-time and full-time employees working at the office each day.

Coffee & Filtered Water

Estimated annual cost: $1,500

Truth be told, I love coffee, and I am a coffee snob. Brokerages that don’t provide their employees and agents quality coffee and filtered water may as well be saying, “We actually don’t want you here!”

Do yourself and your team a favor and spend a little extra on the small things that matter. Coffee and water service companies like Lavazza will keep you stocked up and prevent you from having to run to the store for coffee five minutes before the team meeting.

Office Supplies & Paper

Estimated annual cost: $1,200

The cost of pens, paper, and Post-it notes adds up, and if not managed, these can quickly eat up your profits. To keep office spending under control, set a monthly budget so everyone knows where the spending limit lies.

Copy Machine & Ink

Estimated annual cost: $3,600

You may find this shocking, but a top-of-the-line copy machine today can cost as much as a used car! Copy machine companies will do their best to tie you into a long-term lease on a new machine for $500 to $700 a month.

They will tell you that you will save money over time. What they don’t tell you is that the lease cost usually doesn’t cover the total cost of the ink. They will say things like, “Ink is only 3 cents a page.” What they don’t say is that a color page uses four ink colors per page. In reality, each color page costs 12 cents a page, and this is in addition to the cost of leasing the copier.

To keep your budget within reason, I suggest you find a used copier for $3,000 to $5,000 and then pay for a maintenance contract for $200 to $300 a month, including ink for a limited number of copies.

Shredding

Estimated annual cost: $480

With identity theft at an all-time high, shredding confidential printed documentation is a must. You can even turn this into an event at your brokerage for agents to invite their clients and generate business.

Meals & Event Expenses

Estimated total annual cost: $9,000-$24,000
Ideal percentage of revenue: 2%-5%

Unless you want to be personally footing the bill each time you meet a potential recruit or have a team meeting (guilty!), you will need to include meals and events in your expenses. Here is a quick breakdown of estimated expenses for meals and events for a small brokerage:

Profit as an Expense

Most people don’t think of profit as an expense. But if you wish to build an accurate budget for your real estate brokerage, you will need to factor in the profit you want to make.

Let’s use a comparison of selling apples at your local farmer’s market. Say the cost of buying the apples from a local organic grower costs you $5, and then you spend $2 on cleaning them and placing them in a bushel. Your cost of goods is $7, right? However, you also have other expenses like gas and the rent on your space at the farmers market to consider. These two expenses run you an additional $60 a month.

So what’s your profit? Well, your profit will depend on how many bushels of apples you sell. To determine how many apples you need to sell each month, you must first determine how much profit you wish to make.

Let’s say your goal is to make $300 a month in profit selling apples at the market. Knowing that the cost of goods is $7 a bushel and your monthly expenses are $60 a month, we can now calculate that you must sell 120 bushels each month to make $300 in profit.

Creating a budget for your real estate brokerage is no different. Decide on an amount or percentage of profit you wish to achieve each year and add it to your expenses before estimating your revenue.

Further Reading & Next Steps for Aspiring Broker-owners

Now you’re ready to estimate your expenses. Once you complete that, you can move to the fun part: estimating your real estate brokerage revenues and finalizing your budget. Don’t forget to grab your free real estate brokerage budget worksheet. 

If you are building or considering starting your real estate brokerage, check out our growing list of industry insider articles on starting, running, and growing your brokerage. And if you’ve got some budgeting tips that we haven’t covered, let us know in the comment section.

The post How to Estimate Real Estate Brokerage Expenses appeared first on The Close.

Common mistakes many new brokerage owners make are overlooking expenses or overestimating revenue. Doing either of these may lead to you losing money, or even worse, utter failure. To give you the best chance for success, I created my real estate brokerage budget worksheet to help you get started with your budget without missing a step.

Download the Brokerage Budget Worksheet Now

Step 1: Download My Brokerage Budget Worksheet

Fortunately, you won’t need to start from scratch to build your real estate brokerage budget because I have already done the hard work for you. Start by making a copy of this Real Estate Brokerage Budget Worksheet and reviewing each section (you’ll need to log into your Google account to get copying permissions).

Next, I will walk you through how to fill out each section by adding some assumptions, then expenses, and finally, I’ll help you estimate revenues. Feel free to add or subtract expenses to modify the worksheet for your needs.

Once you have downloaded the worksheet, go to step two to enter your brokerage averages.

Step 2: Add Your Brokerage Assumptions

Once you have downloaded the worksheet, you will need to research and determine some assumptions about your market and what you believe your average agent’s production will be. These estimates will be used later to calculate your brokerage earnings. Be careful not to overestimate.

When it comes to your budget, you are often better off underestimating the income and overestimating the expenses. Ideally, your budget is conservative, so you are easily able to surpass any expectations you may have. A conservative approach ensures that you will have the money and resources to achieve your ultimate goal, which is long-term business success.

For example, when you’re estimating the average sales price of a home in your market, you may use 80% of the area’s average sales price if you are a buyer-heavy brokerage and 90% if you are a listing-heavy brokerage.

Add Your Brokerage Assumptions Into the Worksheet

Using the Real Estate Brokerage Budget Worksheet, add what you believe the average sales price and the average transactions your agents will produce each year. Then input the average commission percentage your agents will charge.

Next, add the splits and fees your brokerage will charge. If you are not charging either a split or monthly office bill, you can leave it blank. If you charge your agents a monthly fee for E&O, you can also add it here.

Once you finish adding your estimates, it’s time to move on to your expenses.

Step 3: Calculate the Expenses to Run Your Brokerage

Your brokerage’s total annual expenses are the sum of all the expenses to run your real estate brokerage for an entire year. These include payroll, brokerage software, staff, office space, office supplies, and advertising expenses. For a complete list of expenses and estimates, see my previous article on how to estimate expenses for your new real estate brokerage.

Once you have them together, add them to the budget worksheet.

Enter Your Expenses Into the Worksheet

Working your way through the spreadsheet, you will enter the appropriate monthly expenses into the correct month and category. The worksheet will automatically calculate the year-end totals.

Fixed Expenses vs Variable Expenses

Notice that you may have both fixed and variable expenses. Fixed expenses are ones that don’t fluctuate month to month, like rent and payroll. Variable expenses are those that fluctuate based on sales, agent count, or seasonality. These are expenses like listing photography, training events, agent websites, and association dues.

Take your time here to ensure you are accounting for all of your brokerage expenses. Brokers often overlook costs related to common area maintenance charges, coffee and snacks, and office cleaning.

Each section will automatically calculate a monthly expense and total to the right. Next, you will estimate your theoretical agent count and closings.

Step 4: Project Your Agent Count & Closings

The type of agent you choose to recruit and the size of your brokerage will have significant impacts on your real estate brokerage’s overall profitability.

It’s no secret that newer agents sell fewer homes—and less expensive ones at that—than agents who have been in the business for five to 10 years. Therefore, if your brokerage is geared toward newer agents, you will need more of them to generate enough closings and revenue to cover your expenses.

Estimate Agent Count in Your Budget Worksheet

Using the real estate brokerage budget worksheet, estimate your month-over-month agent count. Be conservative in your estimates. Keep in mind that you will likely have some agents who won’t ever produce and others who will leave your brokerage.

When you enter your agents, the worksheet will automatically calculate the closings and commission income based on the estimates you entered in step two. If you wish to adjust the number of transactions your agents close, you can return to step two and adjust the average transactions per agent.

Once you have completed your month-over-month agent count, move to the revenue section to complete the budget worksheet.

Step 5: Estimate Your Brokerage’s Revenue

Now you will estimate revenue to determine your profitability. Your brokerage revenue is derived from the splits and fees you charge your agents, as well as any other additional services you may offer.

Additional revenue sources can come from renting office space to your agents or vendors. In some states, you may also be able to secure additional revenue through mortgage, insurance, title, or escrow services.

Enter Your Revenue Into the Budget Worksheet

The split income and monthly bill sections will automatically calculate from the estimates you provided in step two. If your real estate brokerage has office space and offers shared or private office space for rent, add it to the worksheet under agent office rent.

Agent services income is the revenue your brokerage will receive for providing additional services like transaction coordination, marketing services, and training. Estimate and insert this additional revenue into the worksheet.

Don’t forget to account for additional revenue opportunities like training, event sponsorships, and vendor marketing agreements.

Step 6: Calculate Your Profit!

Congratulations, you have completed your brokerage budget! Now you may have noticed that your profitability isn’t what you had hoped, or you may even be showing a loss. It is normal for a startup business to lose money for a few months or even years.

The secret is knowing this in advance and being prepared by having enough money set aside to cover the losses until you are consistently profitable.

Adjusting Your Brokerage Budget: Easy Areas to Cut Costs

If you’re losing more money than you are comfortable with, you may need to adjust your business plan or budget. Be cautious with this. It is easy to get swept up in the possibilities of success and overlook the actual difficulty of achieving some of your goals.

Keep a clear head and have someone else review your budget for overly optimistic assumptions and inaccuracies. Here are some tips to follow when making adjustments to your budget.

Services & Software

Review your services. Are there services that agents can just as easily provide for themselves? If so, delete them and save the money for more impactful expenditures. Or are there services you can provide later, once your brokerage grows in size? I have found that most agents don’t or won’t use the customer relationship manager (CRM) their brokerage provides, making a CRM an easy item to cut from your budget and add later on, in your next phase of growth.

Staff

Fewer services and software also means fewer staff to fulfill the offerings or to train agents on the software. Start your brokerage lean and mean, with part-time and outsourced help whenever possible.

Office Space

Sadly, the “build it and they will come” mentality has doomed many potentially profitable new brokerages. New broker-owners think splashing out on expensive office space will help them attract top-producing agents right out of the gate. Don’t fall for this.

You are better off starting in a less costly building or location and drawing agents with your services and company culture, rather than renting an expensive office only to find out that agents don’t value the services you’re offering or your company’s splits and fees.

Splits, Fees & Agent Count

It is easy to “correct” your budget by overestimating your splits, fees, and agent count. Therefore, don’t make adjustments to these until you are confident that your services warrant the fees you are charging, and you can attract agents using your brokerage’s compensation plan.

Over to You

Do you have budget items that we overlooked? Let us know in the comments below!

Further Reading for Aspiring Broker-Owners

If you are building or considering starting your own real estate brokerage, check out our growing list of industry insider articles on starting, running, and growing your brokerage:

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