As a newly licensed California Department of Real Estate (DRE) sales agent, your first use of the license before any engagement as an agent in sales, property management or mortgage originations is to find a suitable broker to employ you as their agent. As a licensed salesperson, you cannot independently act as an agent and earn fees. You must be employed by a licensed real estate broker and act as their agent. In turn, you are their agent in real estate transactions.

As a new agent, you do not have a track record of experience rendering services negotiating real estate transactions. Thus, you have limited power to bargain for the best fee split or participation in leads generated by a broker’s office. However, you do control the selection of your employing broker and the office environment best suited for you to learn to properly operate as a well-trained real estate agent.

When you consider a brokerage office as a possible employer, initially conduct a search of the broker’s name and business online. Always check DRE’s website for information and a profile on brokers you are considering. Inquire of broker-associates and agents who are active in your community for their recommendation of a broker who:

  • provides a stable and supportive working environment for new agents just learning the ropes; and
  • is up-front about the income, expenses, and initial investments you can expect to experience from employment with them. [See RPI Form 504]

Also consider these questions in your search:

  • Does the broker have realistic goals for you?
  • Does the broker appear well organized in their practice?
  • Is the office alive and run efficiently?
  • What is the broker’s reputation among experienced licensees?

To get a feel for a broker’s office environment, talk to – interview – other agents in that office. Figure out how the agents work together, the teams they have formed and whether they are the type of individuals you want to work alongside and emulate. The broker who motivates and keeps the office mood upbeat, dynamic, and evolving provides you the greatest opportunity for success.

When a broker gives you reality-based expectations about what working for them will produce for you, both you and the broker will be satisfied with the results of the employment relationship. When a broker is candid concerning the effort required and earnings you can expect, you have greater assurance that employment with them will result in your time, energy, and resources having been well placed. It is difficult to meet goals that were unrealistic from the outset.

Ask about the broker’s success

To determine the success of the broker with their agents, ask questions about sales, prospecting and lead generation fostered by the office. Look into the turnover rate the broker is experiencing among agents in the office. Does the turnover rate seem high? Why aren’t agents staying for at least two years?

Look for an office where you can imagine yourself working for at least two years. It takes 24 to 30 months to develop an enduring competitive position within the local real estate community and to acquire a well-rounded understanding of how to earn a sufficient income providing services in the real estate industry.

Other questions you will want to ask prospective brokers include:

  • Why are agents successful working within your organization?
  • What makes your brokerage office successful?
  • How many full-time agents and broker-associates do you employ – is information also available online at the DRE website to confirm?
  • Do you have weekly sales meetings and what subjects do you cover?
  • Are you achieving your overall sales goals?
  • Why do you believe I can be successful with your office?

Interview with multiple brokers — patience finds the right one

As a newly licensed agent seeking to locate a suitable broker, make a commitment to yourself to visit the offices of several brokers. Your observations will tell you how different brokers operate; they do not often act the same. Some questions to keep in mind when interviewing with brokers include:

  • What does one brokerage office offer that another does not?
  • Is one brokerage more successful than others and in what way?
  • Where do you see yourself best fitting in and earning an income?
  • With which broker will you most likely attain your personal goals?

Consider each of your interviews of different brokers as a separate trial run. When a broker does not feel like the right fit, move on until you sense you have located the right one. Their attitude and yours as compatible without disruptive friction are productivity considerations.

Part-time vs. full-time

When you are a part-time agent, your income will not come exclusively from real estate services you render. Part-time work means you depend on another source of income and your real estate fees will supplement that income. However, you might use a part-time real estate position to establish yourself in the industry, transitioning gradually toward full-time work as success sets in.

Usually, brokers are hesitant to hire new part-time agents. Brokers view part-timers as:

  • devoting insufficient time and lacking flexibility to seek out clients, negotiate transactions, and close escrow;
  • less committed to the enterprise than full-time agents as they generate less than average per person brokerage fees while employed by the broker; and
  • requiring as much office space and administrative oversight as a full-time agent.

Brokers are not likely to employ a part-time agent and provide the same degree of amenities and supervision when they can hire a full-time agent who will produce more sales for the same or less effort by the broker. Initially, as a new agent you will need extensive training and above average oversight. Brokers are not inclined to invest the time needed to train a new agent in exchange for a part-time commitment.

So, ask employing brokers if they are hiring part-timers and what they expect of part-timers. By their response, you will understand what is at stake if you seek employment as a part-time agent. On the other hand, as a full-time agent, you need to build up clientele quickly to generate income through transactions sufficient to cover your business and personal expenses. This means immediately branding yourself as an agent who actively searches for and pursues real estate opportunities daily.

To state the obvious, without a business development plan, you will not survive in real estate sales, leasing and property management, or mortgage lending. Worse, you will generate little income, insufficient to support a minimum standard of living.

Finding a compatible broker who will employ you is more likely when you commit yourself to work as a full-time agent and not part-time. Brokers see agents who commit to full-time work as:

  • willing to put in the time necessary to solicit sales, leasing or mortgage lending opportunities and close deals;
  • personally committed to long-term engagement in real estate services as a profession; and
  • responsive to client needs and not distracted by the demands a second job places on time and energy.

A fully submerged prospective agent makes brokers more likely to invest in giving you the training and supervision you need to succeed as an agent.

Know the meaning of an independent contractor

As an active agent, you are typically employed by a broker under an independent contractor (IC) employment agreement. [See RPI Form 506]

As an employee of the broker under an IC employment, the broker carries workers’ compensation and errors and omission (E&O) coverage — but you are on your own for:

  • payment of self-employment taxes on your net business income (at 15.3% of net trade income, not just half that amount);
  • payment of your installments for estimated tax on taxable income;
  • car insurance premiums;
  • health insurance premiums; and
  • unemployment insurance premiums.

Before entering into an employment relationship with a broker, you need to learn what employment as a licensee entails. A review of the typical employment agreement brokers enter into with licensees is instructive, like Realty Publications, Inc. (RPI) Form 506.  Form 506 lays out the duties and responsibilities, and thus the reciprocal expectations of the broker and the agent on entering into the agreement.

Critically, the form contains a schedule for sharing fees you generate and the charges you incur as an agent with the broker.  These charges most often are offsets against your share of the total brokerage fee from transactions you negotiate.

Do familiarize yourself with the contents of this form before contacting a broker. The information it contains prepares you for discussions with prospective brokers to set the parameters of your employment. Question whether the broker requires you to join a trade union, and whether you have access to the local multiple listing service (MLS) — and always ask about the costs and benefits of these services for you.

The benefits of a broker with a mentoring program

All real estate offices have a different culture brought about primarily by the broker or manager. Further, each type of real estate has its own unwritten but customary rules of conduct to follow — industrial, retail, office, apartments, SFRs, land, farms, business opportunities, mobile homes, mortgage lending, etc. Also, each region of the state has local ordinances, customs, and courtesies.

To understand and acclimate to best practice as an agent, you need on-the-job training from a mentor or senior agent. Otherwise, you will not learn how to quickly fit in locally with the activities of other agents, a necessary collaboration for early success.

A mentoring program offered by a broker provides you with advice and guidance on how to handle real world situations you will encounter. You need training to deal with diverse and often difficult clients, to market and qualify properties. Also, how to best manage your time spent with others, on property data analysis, and preparation of documents. It also gives you instant networking capacity with other real estate agents.

A broker who does not offer a mentoring program leaves you to figure out by observation, trial, and error just how to conduct yourself. After interviewing a few brokers in your selection process, you will acquire a sense of what level of training or support you need from an office to develop into a competent agent. Until you sense a particular broker is for you, it is best you move on in your search for the broker with the right fit.

Set realistic goals for the income you want

Before you look for an employing broker, and certainly before you interview with one, you need to peremptorily set your own goal for the annual income you want to earn. The volume of real estate sales you close during your first year in the business is essentially a “numbers game” you work and play with yourself. You will soon discover that only a fraction of all sales efforts come to fruition in the form of fees received from closings. Thus, to be successful, you need an innate curiosity and the enthusiasm for estimating and forecasting your annual income and expenses.

If you become discouraged or daunted by the exercise of completing worksheets for projects, you are not a prime candidate for employment in the real estate business.

Setting realistic goals is the result of forethought and analysis. Goals are personal objectives. Do not leave your employment as an agent to somehow evolve into goals after you start work. Once set, goals are what you expect of yourself and your broker. As a result of preparation, you will fast learn to balance the use of your time, energy, and finances most wisely.

In your first year as an active agent, you might not earn as much as you planned when you first set your goals. But you do pursue goals, the objective of your work schedule which you update from month to month.

Income earned by agents varies greatly. The reason variation exists among agents is that annual income depends on how much time, effort and planning you put into the occupation. Personal confidence and talent are prerequisite traits for an early uptick in successfully soliciting clients, negotiating transactions with others and closings escrows, and in turn first-year earnings.

To figure out how much you will most likely earn in a particular set of real estate transactions – sales, type of property (SFRs, commercial, apartments), leasing (residential or commercial) or mortgage originations (consumer or investment) – speak with the brokers you interview about the market they are in and how they believe you will fit in.

Ask them questions such as:

  • What is the dollar range of the sales, leases or mortgages you will work with?
  • How many sales, leases or mortgages will you likely close in your first year?
  • What cash reserves will you need before your first transactions close?
  • What business equipment and supplies will you need to provide?
  • Is the model of your car sufficient for your employment?
  • What special knowledge do you need to handle the class of sales leasing or mortgages the office handles?
  • What level of mentoring programs or training do they offer?

You need to determine the approximate amount your annual gross earning, operating costs and marketing expenses will be during your first year as an agent. Without an upfront analysis, you will not develop a realistic expectation of the net earnings you will end up with annually — and thus the financial support you need from fees to sustain or upgrade your standard of living.

RPI’s Form 504 helps you keep track of the costs and expenses you expect to incur in your first year of employment as a real estate agent, such as:

  • gross fees you will receive from your broker as their agent [See Form 504 §2];
  • transaction deductions taken by the broker from your gross fees [See Form 504 §3];
  • office expense contributions you need to pay from your gross fees (equipment rentals, membership fees, library/subscription charges, etc.) [See Form 504 §4];
  • your business expenses acting as an agent (auto, licensing fees and education, travel, insurance, etc.) [See Form 504 §5]; and
  • other marketing and sales expenses not covered by the broker. [See Form 504 §6]

On the worksheet, you enter the likely gross fees the broker receives on your transactions and your share of those fees based on your interviews with employing brokers. [See Form 504 §§1 and 2]

Ultimately, your sales goal is a reflection in the amount of after-tax income you seek. [See Form 504 §11]

Unless you studiously fill out the worksheet, forecasting the fees you will receive and estimating expenses you will incur based on sales volume goals, your expected after-tax earnings are woeful, uneducated guesses.

Completing this worksheet also works to accurately set the goal for the number of transactions you expect to close during the first year of employment. With this analysis, you will gain a better understanding of the net income and after-tax income you can expect with each broker you interview.

The broker steps forward, with information

Brokers are best able to anticipate the income and expenses you will incur working for them. It is the broker due to experience who is able to draw a conclusion about your future with the broker’s office.

A broker’s primary objective when hiring an agent is to increase the gross broker fees received by the office without a disproportionate increase in their operating and marketing expenses. A broker’s full disclosure — upfront and prior to employment — about your likely income and expenses leads to your better expectation of income.

To be ready for an interview with a prospective agent, a proactive broker needs to prepare an income data sheet estimating the expenses they believe you will most likely incur. Also, the broker needs to estimate the initial cash investment you will need to make to cover one-time, nonrecurring expenditures. Also, you do need cash reserves to cover your personal living expenses for a period of time before you produce closings and generate fees sufficient to sustain your standard of living without further resort to savings. [See Form 504 §10]

After establishing your operating expenses, nonrecurring costs and carrying costs for 12 months — based on the broker’s history with their agents — what remains is the difficult task of anticipating your gross fees from transactions you will most likely close during your first year of employment.

The broker helps estimate your future fees

You alone will not be able to estimate the gross fees you will initially generate as an agent. Here, the broker’s first-hand experience is necessary.

A couple of approaches for estimating future fees are apparent. For one, the broker may project a range of gross broker fee amounts, varying from the earnings generated by a high producer to those of a low producer during their first year with the office. Until you have been on the job six months working as an agent for the broker, they will not know at what level you are likely to produce income, but they can give you a range of income earned from that of the weaker to that of stronger producers.

For analysis, you need to enter the various gross broker fee projections brokers give you — ranging from low, medium to high — on separate copies of the income and expense worksheet. Thus, you calculate your after-tax income based on various levels of sales. [See Form 504 §8]

Another approach in an interview is to ask the broker what range of gross broker fees a typical first-year agent employed by the broker generates. Here, you enter and calculate the income you either:

  • believe you can produce; or
  • want to produce to attain the after-tax income you seek.

The worksheet then becomes both your budget and a sales goal, which the broker needs to review and confirm as what you will likely experience.

Comparative shopping for a broker

After two years of financially successful employment in the business of real estate sales, property management or mortgage lending you will be able to negotiate a more advantageous fee split for the time you spend:

  • listing properties and buyers or tenants;
  • locating buyers and properties; and
  • engaging in all the activities surrounding a real estate transaction.

Before walking into the broker’s or manager’s office with a demand for the office to cover more expenses and provide you with a larger share of the broker fees, conduct a comparative shopping investigation to determine how other brokers share fees and expenses with their agents under comparable conditions as you have with your broker.

Whether you seek to renegotiate your employment arrangement with your broker or move to another broker’s office, first prepare the income worksheet on your current operating conditions. [See RPI Form 504]

Limit the analysis to listing your expenses which then serves as your budget, a forecast of your expenses for the next 12 months. Further, you analyze the variables controlling the amount of your income and expenses and adjust your sales goals for the next 12 months.

The second step is to distinguish your current arrangement with your broker from the earning opportunities available with other acceptable brokerage offices. You work up the comparative analysis by preparing a separate worksheet for each prospective brokerage office. [See RPI Form 504]

Gather information for the worksheets from interviews with those brokers or their managers.  Also, from agents in those offices who have a handle on their fee sharing and expense arrangements with their broker. On completion of the worksheet for each office, a comparison shows the distinctions and parallels between the different offices.

Armed with comparisons reflected by the data on the worksheets, you are able to intelligently renegotiate fee splits and the allocation of expenses with your present employing broker — all based on the marketplace of employing brokers.

Ultimately, your goal is to negotiate an income and expense sharing arrangement which satisfies you and provides a better opportunity for greater earnings — expectations logically based on comparison shopping and your sales history.