How Much Does It Cost to Start a Real Estate Business?

Blog_11292019_RE_StartupCost_Blog-80
Many new real estate agents quit within their first two years. There's a pretty good reason for this: most new agents aren't prepared for the reality of starting a business. That's exactly what you're doing when you become a realtor. Being self-employed means startup costs and business expenses come out of your pocket. Combined with the long lead time before you start earning, it's easy to see why some aspiring real estate agents get discouraged. It's important to understand the expenses required ahead of time, so you won't be blindsided. Knowing the costs will allow you to make a plan and give you a reason to ride out the early years.

The Cost of Getting Your Real Estate License

You can expect to spend about $1,000 to get licensed. Let's break this down, to give you a better idea of not just the total cost, but on where the money goes.

Pre-Licensing Education Costs

All states require you complete a certain amount of real estate education before you apply for a license. However, the overall cost depends on your state, as well as the real estate school you choose. Additionally, the number of required hours varies a lot. For example, you only need 48 hours in Missouri, but in Texas, that number jumps to 180 hours. The other factor is the type of courses you take.  Fees vary by individual school, but the biggest factor is classroom versus online education.  As you can probably guess, online pre-license courses are much cheaper.  They're also more convenient because they're self-paced, can be taken anywhere, and are easier to fit around your current schedule. Make sure that, whatever school you choose, it's approved by the real estate board in your state—otherwise they might not accept your credits. We recommend looking for a package with exam prep materials included. They'll cost a little more, but you'll be ready and confident when test time arrives. Estimated Cost (2019): $200 to $1000+

Real Estate Licensing Exam Costs

Your state sets this fee.  For instance, some states allow you to take the exam online through an approved third party, while others require you to show up on a designated date in an official testing center. Keep in mind that you can retake the test if you fail the first time—for another fee. That's why it pays to invest in exam prep, so it's one and done. Estimated Cost (2019): $50 to $150

Fingerprinting and Background Check Costs

States often outsource the fingerprinting and background checks to a third party. Additionally, the process may cost more and take longer if you're applying for a license in a state other than the one where you live. Estimated Cost (2019): $50 to $100

Real Estate License Application Cost

This is also set by the state, and it also varies a lot. For example, Florida only charges about $90, but Texas charges around $200. Estimated Cost (2019): $100 to $200

Post-License or First-Year Renewal Education Costs

A few states issue a temporary license for your first year. Then, they require you complete additional post-license or "first renewal" education to earn your permanent license. Similar to your pre-licensing education, the cost will vary based on local requirements and how you choose to complete the hours. Estimated Cost (2019): $100 to $1000+ where required

The Cost of Maintaining Your Real Estate License

Keeping your license active requires additional costs—real estate agents typically estimate around $1500 a year.  These expenses will be ongoing throughout your career.

Sponsoring Broker Costs

You can't have an active real estate license without working under a licensed broker. Unfortunately, the cost of "hanging" your license on a broker is the hardest to ballpark before you commit to a brokerage. Brokers get compensation for their sponsorship by taking a percentage of your sales commissions, charging a monthly "desk fee," or a combination of both.  A low or absent desk fee means you'll take home less of your commission. On the other hand, to take home more of your commission, you'll have to pay a higher desk fee. Some firms charge upwards of $1000 a month, especially if you're not paying a commission split. In some cases, the "desk fee" doesn't guarantee a desk, just legal sponsorship. How much brokers charge their agents—one way or the other—varies by how much support they provide.  For example, support can come in the form of leads, marketing, mentoring, or office infrastructure. Keep in mind that as a new agent, a "cheap" broker relationship can end up costing you more in the long run.  For leads and mentorship, this may equate to fewer sales.  For marketing or office expenses, you'll have to pay for those services yourself (independently or through additional fees to the broker). Since we're talking about predictable startup costs, we'll focus on desk fees alone because you'll owe those regardless of any sales.  Most new real estate agents can expect to pay at least $50 a month.  More support will cost a couple hundred dollars, at least. Estimated Cost (2019): $600+ a year

Errors & Omissions Insurance Costs

For your real estate practice, you'll need to carry liability/malpractice insurance, known as Errors & Omissions (E&O) Insurance. You'll often pay for E&O insurance through your broker. The median cost of E&O insurance for real estate businesses is $55 a month, but it varies heavily based on your risk and location. Estimated Cost (2019): $600 a year (or less)

License Renewal Costs

If you live in a state without special first-year renewal requirements, you probably won't need to worry about this for two to five years, depending on the state. However, no matter where you are, your state regulator will have continuing education requirements, as well as state license renewal fees. Estimated Cost (2019): $300+ per renewal

The Cost of Doing Business

The National Association of Realtors® (NAR) member profile in 2019 reported that their members' total median business expenses were about $4,600 a year. That figure includes some maintenance costs described above, but you'll also have to cover:
  • Professional association memberships (NAR, state and local boards)
  • Multiple Listing Service (MLS) membership
  • Yearly lockbox fees
  • Office space (whether cubicle, semi-private, or private)
  • Office supplies
  • Professional website
  • Business cards
  • Marketing materials
  • Computer hardware and software
  • Phone and internet service
  • Client lunches, entertainment, and gifts
  • Vehicle expenses (the largest category for NAR members, with a median of $1,370/yr in 2018)
  • Professional development, conferences, and other networking opportunities
Some of these may be included in your desk fee, as discussed above.  But, don't assume your broker will provide you with anything unless they explicitly state it in your broker agreement.

Additional Financial Considerations

The typical NAR member completes 11 transactions a year, according to the 2019 member report. But most new agents complete significantly less, and your first payday might take a long time to get to you. While you might get lucky, veteran real estate agents often advise to expect at least six months of work before you make a deal. Even then, you won't get paid until after closing.  For example, the average residential closing period is 47 days, but it could take three or four months. The real estate business is a marathon, not a sprint. That means you need to consider how you're paying your business and living expenses while you build your network.

Bottom Line

Starting a real estate career is an investment and a long game. You'll need to allocate resources wisely. That's why getting your real estate education online is so smart.  You can work through the material at your own pace. That will give you an edge, whether you're trying to get through your requirements as quickly as possible or you want to squeeze them in while earning money at your day job. Good luck, and good hunting!  

Privacy Policy  |   Legal

©2020 360training

©2020 360training