Chapter 1 Getting Started in Real Estate Opportunities in Real Estate Real Estate sales Residential single-family sales Mobile home Sales (registered mobile homes on lots) Commercial property sales (multifamily residential, retail, office, industrial) Business opportunity sales Real estate assistant Transaction coordinator Real estate lending Property management Appraisal Title insurance Escrow Real Estate License Requirement A real estate license is required to receive compensation from another person in connection with a real estate transaction Examples: Selling, buying, exchanging real property Soliciting buyers or sellers or obtaining real estate listings Leasing real property Soliciting, negotiating, or buying or selling loans secured by real property Activities by Unlicensed Employees (Assistants) Unlicensed assistants, under the control, direction and supervision of the broker, can: Assist with an open house (handing out written information, placing signs, greeting the public) Prepare comparative market analyses Provide written information about loan terms, conditions or qualification requirements Arrange appointments with non-principals (appraisers, inspectors, etc.) Meet non-principals at the property Prepare advertising Prepare, deliver, or pick up documents Role of Department of Real Estate Department of Real Estate (“DRE”) Gives real estate license examinations Issues real estate licenses Writes regulations that affect real estate licensees Has power to discipline real estate licensees Regulates disclosures for new subdivisions Real Estate Sales Business There are over 537,000 real estate licensees in California 27% Brokers 73% Salesperson Majority of licensees work in single-family residential sales Broker License vs. Salesperson License Salespersons must work under the supervision of a broker Broker must have a written agreement with each salesperson who works for the broker Brokers must supervise salespersons who work for the broker
Chapter 1 Getting Started in Real Estate Salespersons can receive compensation only from their broker Not from the buyer, seller, other broker, or escrow Only brokers can contract with principals Listing agreements and buyer agreements belong to the broker, not the salesperson Real Estate Sales Broker Compensation is Typically Based on Commissions Property sellers agree to pay commission when listing broker finds buyer who is ready, willing, and able to buy on seller's terms Commissions are paid to listing broker Listing broker may offer to split commission with other brokers (selling broker) if selling broker finds buyer Salespersons working for broker typically earn a percentage of the commission paid to their broker if Salesperson obtained listing, or Salesperson obtained buyer and was procuring cause of sale Commissions are typically paid after sale closes Trends in Broker Compensation Discount brokerages Offer sellers a percentage commission less than the commonly charged percentage May offer fewer services Flat fee brokerages One price for services Many offer “a la carte” menu of services MLS only brokerages Fee for placing property in MLS No other services Broker/Associate Licensee: Written Agreement Written agreement must include: Broker supervision of licensed activities Duties of broker and associate licensee Compensation Date Signature of parties Employee vs. Independent Contractor Difference between employee and independent contractor status is generally right to control work See factors, Figure 1.2, Text page 16 For DRE supervision purposes, salespersons are always considered employees of broker Also for workers' compensation For other purposes, salespersons are generally treated as independent contractors Example: for income tax withholding, FICA, unemployment insurance IRS Independent Contractor Test A salesperson will be treated as an independent contractor for federal income tax purpose if: the salesperson is a real estate licensee compensation is based on sales, not hours a written contract states that individual is not an employee for tax purposes
Chapter 1 Getting Started in Real Estate Salesperson Income Tax Treatment If treated as an independent contractor for income tax purposes: Broker does not withhold taxes Salesperson must file estimated tax payments quarterly Broker does not contribute employer’s share of Social Security and Medicare (7.65% of wages) Salesperson contributes 15.3% of earnings for self-employment tax Can deduct ½ of this amount on tax return Real Estate Sales Profile Median gross income: $47,700 Real Estate Broker median: $73,700 Real Estate Salesperson median: $34,600 Median increases with experience two years of experience or less: median $15,300 three to five years of experience: median $44,200 16 years or more of experience: median $76,200 Average hours per week 45 hours Top producers: 60-80 hours Weekend and evening work typical Business Expenses Average Business Expenses: $27,000 per year Expenses typically paid by individual salesperson: Health insurance Automobile expense Clothing Entertainment Self-employment taxes 7.65% of gross income, for a total of 15.3% Other Business Expenses Realtor® Association and MLS Fees approximately $350 per year Business supplies Equipment (telephone, fax, copier, computer, etc.) Promotional and advertising Errors and omissions insurance Tips from Top Producers Out work the competition Work with a mentor Copy what top producers do Emphasize client satisfaction Persistent farming and marketing Continue education and training Work on negotiating skills Questions to Ask Yourself Why are you considering a career in real estate? Will working on weekends and evenings affect your lifestyle?
Chapter 1 Getting Started in Real Estate Do you have the personality traits and discipline to work in sales? Figure 1.4, Text page 22 Do you have the money to carry you until income from sales start to flow? Choosing a Broker Factors to consider: Training program Mentor or team opportunities Support services Expenses Compensation/Commission Split Choosing a Broker Drive by and visit office Interview an active agent in the office Sample questions to ask in interview with the broker: What is the broker’s training program? How many new agents does the broker train? How many new agents are still there after one year? What does it cost to hang your license with the broker? How will the broker help you to generate business? Goal Setting How much money do you want to earn? What goals do you need to set to earn this amount? For rookies, what do you need to do in your first month? What do you need to do in your first three months? Six months? Nine months? Year? Goal Setting Principles Make measurable goals Examples: make 15 calls, earn $60,000, research sales on 2 blocks in neighborhood Use short-term goals to reach long-term goals Examples: what number of contacts do you need to get one listing? Include timeframes Example: Visit 3 FSBOs this week Put it in writing Preparing for Your Career Learn the inventory Become familiar with office procedures Brush up on computer skills Equip yourself with business tools Cell phone Computer Personal data assistant Car Continue with sales training