The allure of selling real estate has never been stronger, with more people being enticed by a plethora of popular television programs that suggest there is big and easy money to be made.
Despite what HGTV might have some believe, real estate is indeed a tough business, with many costs and unpredictable and fluctuating streams of income. The top players in the business spend a significant amount of their cash flow on overhead and marketing, with the need to reinvest in their business to build their personal brand and grow.
Few in Canada understand the financial realities of the real estate business more than Larry Weltman, customer service representative at AccessEasyFunds, a commission advance company. It enables real estate agents to recover up to 95 per cent of their commissions, often within 24 hours rather than waiting for closing. That can be a very appealing alternative for agents as they typically wait between 60 and 150 days before they see their commissions in their bank accounts.
Jim Trainor, president of Agent’s Equity, calls how commission advances work “Financing’s Best Kept Secret” on the company’s website. “It’s a multi-billion dollar business in North America. It’s used daily by individual businesses and multi-national corporations. It’s a method of financing that’s been around for hundreds of years. But, you may have never heard of it,” says Trainor. “Many Realtors don’t even know that they can finance their commission receivables to accelerate their cash flow in order to help them grow their businesses.”
Another trend spurring on this emerging trend of advances on commissions is the red hot condo market in Canada’s major cities, now that the price gap between houses and condos has widened and there is a significant volume of new inventory being built. In Toronto, according to market research firm Urbanation, there were 52,464 condo units under construction as of the end of 2014, and a total of 285,217 units are being built in the next 10 years. With limited inventory of family homes, many new real estate agents are venturing into the pre-construction condo market.
The challenge is that buying agents may only see one-third of their commission within a few months and then they may wait up to four years until they see their full commission, when the condominium corporation is registered and the deal officially closes.
“To survive, that means agents must sell a significant volume of inventory to ensure they have a reliable revenue stream with a pipeline full of opportunities,” says Johnson Chen, a condo brokerage expert and the president of Cornerstone Marketing.
For these reasons, it is no surprise that Weltman and AccessEasyFunds have seen incredible growth in commission advances since the company began helping real estate agents in 2007. “We have advanced commissions on more than $5.5 billion of real estate sales and continue to see substantial growth. Our advance volumes in 2014 are more than 500 per cent higher than in 2008,” says Weltman.
What might surprise some brokers is that commission advances have become mainstream among some of Canada’s top property sellers. “Our clients are some of the most successful brokers in the country, with several writing in excess of $1 million in commissions a year; but we continue to help many clients writing $50,000 to $250,000 a year in commissions that use our services in order to access their money and grow their business,” says Weltman.
During this busy spring market, agents write a significant portion of their annual commissions between March and May, with most deals not closing until late June, July or August. Agents must invest heavily in sales and marketing throughout the winter and spring while managing high overhead costs. Meanwhile, commissions don’t typically get paid until the end of the summer. As a result, spring is the busiest time of year for real estate agents to get advances.
Mike Donia, a top Re/Max Reality Specialist agent based in Brampton, Ont. has been in the business for more than 27 years. He is a recipient of the franchise’s Hall of Fame, Lifetime Achievement and Platinum Awards and has used commission advances for years.
“To be honest, I used commission advances for eight years straight. It became part of my cash flow, so that I could access my money immediately, do more deals and reinvest my commissions faster. Time is money. I could do the deal on Friday get my money on Monday. It is immediate compensation for your work,” says Donia.
He says that commission advances became part of his business plan and cash flow.
“I actually increased my revenue by about 30 per cent the first year I started to use advances. Instead of having to wait for three months for the money to come in, I was able to reallocate that money into my business the same week on marketing. It is a strategic advantage.”
Some agents simply don’t understand how it works and how inexpensive it has become. Donia puts it in simple terms, “Ask yourself, do you want to get paid 95.5 per cent of your commission in four months or 93.5 per cent of your commission tomorrow. I spend more money on my cell phone or the 407, than I do on commission advances. It’s just part of doing business.”
What you pay
What young or aspiring real estate salespeople may not realize is that there are many fees and costs associated with running a successful real estate business, including:
- CREA fees and dues
- Monthly provincial real estate board dues and fees
- Listing fees
- Staging costs
- Office rent – for those not working from their own homes
- Staff – administration to write up and track and submit offers
- Cell phone / Internet expenses
- Computer and printer
- Car / fuel, maintenance and insurance costs
- Contact management software
- Website development and maintenance costs
- Property signage costs
- Photography and videography costs
- Direct mail and other print marketing costs
- PR and social media promotion
- Insurance
- Business attire
- Desk and transaction fees
- Administration costs
- Taxes
Heath Applebaum is a contributing writer for REM.
