7 Costs to Consider Before Becoming a Realtor
May 11th, 2020
What Are The Costs To Become a Realtor?
Choosing to become a real estate agent and get your real estate license is the first step in pursuing a rewarding, exciting, and profitable real estate career. As a Realtor, you must think about your real estate career as a business, meaning you will be responsible for budgeting, expenses, startup costs, and marketing and administrative expenses that come with starting a business. A lot of first-year Realtors don't realize just how expensive it is to be a Realtor and that's why it's a good idea to prepare before you decide to move forward.
In addition to knowing how much it costs to become a Realtor, it is equally as important to have an approximate idea of how much money many Realtors make, the day-to-day activities involved in being a Realtor, and how challenging it is to obtain and maintain a real estate license – which we dive into below. Another important thing to note is that the cost to become a Real Estate Agent in North Carolina is going to be different from becoming a Real Estate Agent in other states.
Before you become overwhelmed by the expenses listed in this article, bear in mind that all real estate related expenses are tax write-offs, so it is important to keep a detailed list of all expenses. Better yet, open a separate bank account that you use to make payments related to your real estate business. That will make it much easier when calculating your real estate expenses when you pay taxes each quarter. Here is a list of Real Estate Agent Tax Deductions.
How much does it cost to become a Realtor?
Pre-licensing real estate class
Approximate cost: $300-$500 (one-time fees)
All prospective real estate agents are required to complete a pre-licensing course, which is designed to help you understand the terminology and concepts in the real estate industry. For example, prior to beginning your pre-licensing course, you may not understand the difference between ‘Tenancy in Common’ vs. ‘Joint Tenancy’ or know how to calculate acreage, but you will have a strong grasp on these concepts after completing the course.
The cost of the pre-licensing course will vary considerably from state to state. Some states offer the pre-licensing class online and it may only cost $100 or $150, whereas other states do not allow online pre-licensing courses and will require all prospective real estate agents to take a live class. Most live classes in North Carolina typically range from $150 to $300, depending on the school. Compare the prices and reviews of various school options before committing to one to ensure you’re getting the best value and the best teachers.
While the class will provide appropriate study materials, any additional materials you purchase to help you learn – i.e., flashcards, textbooks, real estate guides, etc. – will come at an additional cost.
Real estate exam and licensing fees
Approximate cost: $300+ (one-time fees)
In the state of North Carolina, there is a $30 application fee to take the exam and then an exam fee of $66. The exam fee will vary in other states, but it is typically between $50 and $75. You will also be responsible for paying about $50 to have your fingerprints taken and for a criminal background check. In other states, the fingerprints and background check may go up to $100 or more. While North Carolina does not charge for the real estate license itself, some states may charge around $150 for the license. In North Carolina, and in many other states, you will be responsible for renewing your real estate license each year. Some states may only make you renew your real estate license every two or three years. Renewing a real estate license typically costs between $100 to $200 depending on the state.
Real estate brokerage fees
Approximate cost: $25 to $500+/month
After obtaining your real estate license – i.e., taking the pre-licensing course and passing the exam – you must join a local brokerage who will hold your license. You might also be responsible for paying a desk fee if you choose to have a designated desk area in the brokerage office. If you choose not to have a desk, this fee will not apply.
In addition to paying a desk fee, you will also be responsible for paying brokerage fees. Brokerage fees are typically deducted from your commission split and cover various administrative and marketing-related costs such as office supplies, social media advertising, signage, brochures, etc.
Real estate membership dues
Approximate cost: $0 to $200+/year
After becoming a Realtor, it is advised to become a member of the National Association of REALTORS®, which provides resources to help real estate agents maximize their earning potential and strengthen their professional skills. It is comprised of commercial and residential brokers, property managers, salespeople, appraisers, and many others in the real estate industry. Membership costs $150 per year.
Of course, this membership is entirely up to you – not all real estate agents become members of the National Association of REALTORS®. If you choose not to become a member, you may want to join your state and local real estate boards, which have fees associated with them. State association fees typically cost several hundred dollars per year. If you are a member of your local real estate board, you may pay the fee directly to your broker.
Realtor Marketing expenses
Approximate cost: $1,000+/year (variable)
Marketing costs are typically among one of the highest expenses a real estate agent will pay each year, totaling around $1,000 or more on an annual basis (although this will vary). This will be particularly applicable as a new agent because you will want to spend considerable time marketing yourself and spreading the word about your real estate services. Real estate agents typically spend money on maintaining a website, which could cost upwards of $500 - $1,000 per year on its own, as well as signage, business cards, brochures, social media advertising, and mailers. While marketing costs add up quickly, they are a critical component to running a business and can lead to a considerable return on investment in the long run.
Some real estate brokerages may provide a marketing budget to help new agents grow their business. Prior to joining a brokerage, it is advised to discuss marketing-related expenses and learn about what level of support the brokerage offers when it comes to advertising and promotion.
Approximate cost: variable, but can be around $75+ per month
Administrative and miscellaneous costs play an important role in strengthening your business. These may include office supplies, a new computer or printer (if working from home), cell phone and internet bill, etc. In addition to administrative costs, you may also spend money on gifts, lunches, and meetings with clients while working with them.
Real estate continuing education courses
Estimated cost: $50–$300+/year
It is imperative that you maintain your real estate license by taking continuing education courses required by your state. Although these can be costly – sometimes as high as $300 per year in some states – it is essential to complete the required coursework so that you don’t risk losing your license. Those who fail to complete the continuing education coursework on-time may need to pay additional fees or may lose their real estate license altogether. If that happens, you will not be able to get paid on any deals until you re-take the full real estate licensing course and pass the exam(s).
Although some may see continuing education as a burden, it is a helpful way to stay informed about new real estate trends, terms, and resources and will help you be an even stronger resource to your clients.
What do Realtors do?
As a Realtor, you will be responsible for finding buyers and sellers and guiding them through the transaction process. Finding new clients involves attending networking events, participating in local events in your community, marketing yourself on social media, and staying in close contact with friends or family members who may be interested in buying or selling a home in the future. It involves diligence and persistence, as many prospective clients may take months – or even years – until they’re ready to buy or sell a home. In addition to obtaining clients, it is also important that you stay ahead of the real estate market and inform your clients about any noticeable trends or projected changes. This involves researching recent homes that have closed in various neighborhoods, understanding the rental market, and staying up to date on mortgage-related information.
If you obtain a client that is a buyer, you will be responsible for meeting with them to discuss what they are looking for in a home. You will then do research in the area where they wish to move, find homes that meet their criteria, and schedule appointments for them to view the homes. While some buyers may find the home of their dreams the first time they go out to look at houses for sale, this isn’t quite as common. It may take several weeks for your buyer to find the home that they want. After finding the home they wish to purchase, you will then handle all aspects of the transaction process, negotiate a lower price for them if necessary, and help them save as much money as possible.
If you are working with a seller, you will assist them in staging their home to sell, which may involve providing guidance on where to position furniture and other items in the home to make the space appear as appealing as possible. After listing the home, you will then hold open houses frequently until you find a buyer. In addition to hosting open houses, you will also be responsible for marketing the property through digital advertising, mailers, and various other marketing methods. When you successfully find a buyer, you will then work with the buyer’s agent to complete the transaction. This involves helping to negotiate the price and various other costs the seller may be responsible for such as repairs on the home, etc. Ultimately, your job is to ensure your seller gets the highest price possible for their home. This is how to be a successful Real Estate Agent.
How much do Realtors make?
According to the U.S. Bureau of Labor Statistics, the median annual salary for real estate agents totaled $48,930 (as of May 2019). The highest 10 percent earned more than $111,800, whereas the lowest 10 percent earned less than $24,930.
Real estate agents are paid a commission, meaning they earn a percentage of the property’s closing price. In nearly all states across the U.S., the average commission on a real estate transaction is 6 percent of the home’s sale price. The commission is split between the buyer’s agent and seller’s agent, meaning each agent typically earns about 3 percent. That 3 percent commission is also shared with the brokerage – which may take as much as 50 percent of the commission, leaving you with about 1.5 percent. So, if you sell a $300,000 home, you may earn $4,500 on the transaction. If you factor in the various expenses that were spent to close the deal such as advertising costs, client gifts, etc., you may make less than $4,500. This is how Realtors get paid.
How hard is it to become a Realtor?
The barrier to entry is not difficult when it comes to real estate. As long as you are over the age of 18 and are a U.S. citizen, you can take the necessary pre-licensing courses to obtain your real estate license. A college degree is not necessary, and some states do not require a high school diploma either. Obtaining a real estate license involves taking the pre-licensing course, studying the applicable materials, and passing the exam. Although obtaining a license is not terribly difficult, being a successful real estate agent can pose more of a challenge. Every transaction is different, meaning there isn’t a “cookie-cutter” approach that can be applied to every deal. Successfully closing a transaction involves hard work, dedication, and a tremendous amount of patience. You may work with some buyers who are extremely easy-going, whereas others are a bit pickier in what they want in a home. Or you may have sellers who are eager to sell their home and want to move quickly vs. others who are very attached to their home and want to wait for the “perfect” buyer to come along. Every transaction is a wonderful learning opportunity and will help you strengthen your skills as an agent.
In terms of the schedule, being in real estate is somewhat flexible. You will not be required to sit at a desk from 9 to 5 each day – you are your own boss (unless you work for a team, in which case you will report to the lead agent). Although it is important that you are always available for your clients if they call or email you with questions, you can work from home or work in the brokerage office.
What does it take to become a Realtor?
Many agents quit real estate prematurely because they expect to see huge profits early on in their careers. Television shows such as Million Dollar Listing can often make real estate appear to be a breeze, as they love to focus on millionaire real estate agents. It is important to remember that even the most successful real estate agents in the world had to start at the same place you did: passing the real estate exam and studying the industry. Those who stick with it and put dedicated time and energy into learning all they can about real estate, diligently follow up with prospective buyers and sellers (without being overly aggressive), and take the time to genuinely get to know each and every person they work with will have a greater chance of being successful. Real estate agents should have a strong backbone and know when to say no, but they should also have a kind, caring energy that makes their clients feel at ease.
What is the average salary of a real estate agent?
As of May 2019, the U.S. Bureau of Labor Statistics reported that the median annual salary for real estate agents totaled $48,930. This will vary state by state and person by person, as the amount of money you make in real estate is primarily contingent on three elements: the amount of time you put into real estate, your level of experience, and your ability to keep costs down.