Budgeting Tips for New Real Estate Agents

Mistakes are inevitable when one starts out. New estate agents are no exception. Typical mistakes that new estate agents make include “doing” the business without a roadmap, budget or marketing plan. Then, there’s poor cash flow – or lack of it when sales are slow – which can be compounded by confusing personal and business expenses. In this article we share some words from the wise so that you can avoid – or overcome – the financial challenges new real estate agents often encounter.

Commission-based vs regular income

Unlike a normal 9-5 job where you earn a set salary, being a real estate agent means that your income varies both in amount and regularity. Even if you manage to land a new listing every month, there is often a considerable time lag between listing your first property, securing a firm offer, and then waiting for registration to go through before you will receive payment of your commission.

This means that unless you have prepared for roughly three to six months with no income, you could have a problem. The secret sauce is careful financial management and staying on top of your game.

Budget

Most of us avoid budgets. Even if you’ve managed to draw one up, most of us have trouble sticking to it. A realistic and well-managed budget, however, is your best friend. To begin with, this means working out what your expenses will be each month. No item is too small (yes, this includes buying your client a cup of coffee) or too big to be left out. After your regular monthly overheads, like operating fees, marketing costs, and other related services like photographers, remember to make provision for your continuous professional education (CPD) and other annual subscriptions and fees.

Budgeting Tools

Make friends with Excel: draw up a spreadsheet that shows projected income and planned expenditures for a year. Then, revisit it each month, as well as annually, to track actual income and expenditure. This way, you can monitor your own successes (and failures – hopefully not!) as well as plan ahead.

If you’re not a freak in those Excel sheets, then download a budgeting app. There are so many to choose from these days, many of which link to your banking app to track and categorise your spending automatically.

Save for taxes and emergencies

There’s an old saying that life happens when you’re not paying attention, and usually when we least expect, and can least afford it. Every time you earn a new commission, remember to put some aside for those rainy days. By including these savings as a line item in your budget, you will remember both, and you’ll have a nest egg to use when things slow down. It is also super important to remember to provide for your own income tax. If you’re unsure how to budget for this, set up an appointment with a tax professional to help you budget effectively.

Stick to the budget

Creating a budget is the easy part – sticking to it is a whole different challenge. This means actively monitoring all your actual spending against the plan and making adjustments as appropriate. Working your budget in this way can also help you track the seasonal trends in your market and see how your business is performing. This can help you with future planning and strategizing.

Consider rentals for a regular income stream

As an estate agent, you don’t have to restrict yourself to selling property. You could also offer rental and/or property management services which would have the added benefit of enhancing your professional status as well as a more regular income stream.

Planning for changing market conditions

No business, least of all estate agencies, exists in a vacuum. Commission-based earnings can sometimes mean that estate agents work in a cycle of feast or famine — feast when the local market conditions are good, and famine when conditions become unfavourable.

Understanding this, and preparing accordingly, is the other ingredient in the secret sauce for your success. Stay on top of things by monitoring the local and national economic trends, and especially property trends, by subscribing to the Lightstone and Property Professional and by reading the latest RE/MAX National Housing Report.

Build your network

An agent’s network is the jewel in their real estate crown. Having a large network of clients, colleagues, and related business partners helps you build repeat and referral business and will lead you towards greater success as an agent. Neglecting this aspect can lead to fewer sales - and ultimately, budget and cashflow problems.

Local business and networking events, as well as engaging with clients, play an important part in this. Through these interactions, you will build an essential pool of bond originators, conveyancers and other professionals that complement your business, build your credibility and help you to shine.

This is also why it is so important to join a big brand, like RE/MAX, to tap into the wealth of knowledge and experience of those in the same industry. RE/MAX is the largest real estate brand both globally as well as locally. We host massive real estate agent events across the country every year, giving new agents the best possible opportunity to build their network and grow their skills. If you want to learn more about joining our team, reach out to your nearest RE/MAX Office.

Have more unanswered questions? Here are some related questions – and answers – that might help…

What is the basic salary of a real estate agent in South Africa?

Estate agents don’t usually get a basic salary but rather earn commission based on each sale. This does, however, depend on the agreement between the individual and the agency or franchise with which they work. RE/MAX offices are independent franchises which means that they will each have their own rules around agent compensation. Get in touch with your nearest RE/MAX Office to find out more.

When can an estate agent claim commission?

An estate agent can claim commission when, in legal speak, they can prove that what they have done was the ‘effective cause’ of a sale, which could become complicated if there is more than one estate agent involved. This is why it is important that all the conditions – for everyone – are spelt out in the offer to purchase (OTP).

*Disclaimer: This article is not intended as official financial advice. We recommend that you consult a registered financial advisor or tax consultant. RE/MAX of Southern Africa cannot be held liable for any action taken by readers of this article.