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Commissions are the lifeblood of the real estate industry, so accurately calculating them is crucial for any agent or broker. Indeed this is something real estate pros depend on to make a decent living, which is why it can’t be carried out inexpertly.
As such, knowing what points to pay attention to, and which tools to use, can make a big difference to each of the real estate commission calculations you have to make in the line of duty. Here are the main aspects to consider if this is on your to-do list.
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Don’t Forget About Commission Split
The commission earned in a real estate transaction is usually split between the brokerage and the individual agent, so precision is key when doing the math.
By using the standard split commission calculator, you can instantly work out how much each party will make, based on the value of the property and the proportion of the sale that is to be paid in commission.
That standard split usually works out as 70 percent to the brokerage and 30 percent to the agent, but obviously if you have a different weighting agreed, this can be reflected in the figures used in your calculations.
Whatever the arrangement, using a calculator which is made for working out real estate commissions, rather than doing it manually yourself, is sensible both to ensure accuracy and to avoid any ambiguity.
Remember Tax Obligations & Incurred Costs
As you’d expect, real estate commissions are taxable, since they constitute some or all of the earnings that an agent or broker brings in each year.
While you can take care of your tax obligations yourself, it is far better to work with a certified accountant to calculate what you owe and submit your returns for you.
What you do need to remember to do is keep tabs of the costs you accumulate in the pursuit of your professional aims. These count as deductible business expenses, which will then mean that your tax bill is smaller.
From computer equipment and stationary to transport and business insurance, lots of expenses are allowable under existing tax laws.
All you need to do is track this, keep your receipts and update your accountant so that you can enjoy as much of the commission you earn as possible, while still keeping the tax man happy.
Track Your Average Time To Close And Consider The Work Involved
At the end of the day, if you work in real estate then your main goal should be to sell as many properties as possible as quickly as possible. Because of this, you need to be willing to analyze your past performance, see where you are falling short, and ideally make improvements to streamline your operations in future.
From a commission calculation perspective, that also means looking at the amount of time you need to dedicate to a sale to get it over the line on average, and using this as a basis for determining how much of a cut to take in the first place.
If you aren’t valuing your time fairly or competitively, then you could be missing out, even if you are careful about how you do the actual calculations.
If you have any doubts about real estate commissions, talking to an industry veteran and asking for advice from an accountant will definitely be helpful.
You can also see how the competitors are doing it to determine if what you are asking for is adequate, or whether you have gone too far in either direction, which could put off prospective clients.