A heavy sign settles at the bottom of your lungs. Your rib cage has expanded as far as it wills. You are grappling with the frightening thought of no income. You have a livelihood and plans that depend on your paycheck. You know that other professionals have a comfortable little parachute called unemployment.

But as an aspiring real estate agent, it only makes sense that you are wondering, with all the reasons that can cause agents to lose their licenses, can real estate agents get unemployment?

Unfortunately, no. Real estate agents classified as independent contractors are not eligible for unemployment.

The independent contractor status means real estate agents are self-employed. And in most states, self-employed business owners don’t qualify for unemployment. This rule has several exceptions, like incorporating your business and becoming your own employee or joining a brokerage as an employee.

In this article, we will review how real estate agents are classified and ways to achieve incorporation. This piece will also explore the different avenues real estate agents can use to generate extra income.

Employment Classification of Real Estate Agents

Employment classification in the US for tax purposes is in two categories: employee and independent contractor. Employees are often eligible for various benefits, among which proudly stand unemployment.

But, independent contractors are regarded as self-employed, for-profit entities. These individuals and their businesses are a unit.

They enjoy the freedom to work on different projects, for whomever they will, and whenever they will.

However, there is a difference between typical contractors and real estate agents. This disparity has often been the cause of contentions within the industry.

Even though regarded as independent contractors, real estate agents don’t have the freedom to work for different brokers at a time. Agents can only submit to one sponsoring broker.

Does this still classify them as independent workers? Indeed, it does. Though agents are tied to one brokerage, they can work with several clients simultaneously.

Two rules categorize independent contractors:

ABC test
Common law

The ABC test is not a real estate favorite. It has been criticized by a number of organizations within the industry for not being diverse enough to accommodate the unique nature of real estate. At the forefront of this advocacy is the National Association of Realtors.

NAR argues that the ABC test jeopardizes accurate real estate agent classification. It favors the Common Law, which more suitably classifies agents.

Under Common Law, for an individual to be considered a contractor, three factors are reviewed:

Behavioral: Does the employer control the operational scope of the worker? Do they have a say in where, when, and how the workers do the job?
Financial: Are the worker’s revenue-generating avenues dependent on or controlled by the employer?
Type of Relationship: What type of relationship exists between the worker and employer? Is the relationship solely by contract, or does their work afford them employee benefits?

This scope more closely defines the operational nature of real estate agents and grants them the freedom to work their own hours and employ their own methods. However, this same freedom is what deters agents from receiving unemployment benefits. A small price to pay, I often say.

Of course, there is always an exception. Some agents work as direct brokerage employees, complete with tax withholding and a W-2 form.

Consider agents at Redfin. Not only is Redfin one of our favorite companies for new agents for a host of reasons, but it also employs its agents. Due to their employment status, agents at Redfin often qualify for unemployment.

A Hidden Loophole

As with most things legal, there is a little loophole real estate agents eager to receive unemployment can explore. We have established one thing beyond any reasonable doubt: the majority of agents are independent contractors, and this status is what hinders them from receiving unemployment.

But what if you could employ yourself?

Real estate salespersons who are eager to earn unemployment can venture into the less common but nonetheless legal route of becoming their own employees.

The first step is to turn your real estate business into a corporation. If you are considering incorporation, I advise registering as an S Corporation. An S Corp reads like a corporation with the tax benefits of sole proprietorships.

This step will require extra housekeeping, like ensuring you file for your company and yourself. You will also need to keep implacable records to maintain a clear distinction between you and the corporation.

However, before you continue with this step, contact your state authorities to ensure this type of incorporation is permissible within your state.

Some states prohibit this corporate loophole or may have restrictive requirements around allowing real estate agent corporations.

The additional tax weight may also far outweigh the hope of unemployment should you experience unfavorable outcomes.

Alternatives to Unemployment Benefits for Real Estate Agents

While unemployment benefits may not be an option for most real estate agents, there are some alternatives to tap into if you are struggling financially.

Grants and Loans

Consider applying for special real estate loans or grants designed to support agents through periods of lower or no income. For example, real estate salespersons in disaster marred zones can also apply for Disaster Unemployment Assistance.

The DUA program offers unemployment benefits for individuals whose work has been disrupted by disasters. If your city or work area is affected by a disastrous event that the president has declared a major disaster, you may qualify for a DUA.

But to qualify, it must be evident that the disaster has hampered your ability to work, and you are not eligible for the standard unemployment insurance.

DUA is available for several weeks after the major disaster, extending as far as 26 weeks after the event.

There may also be local charities or professional real estate networks providing aid.

Managing Expenses

Getting costs under control is another key way of stretching your money. Look at cutting any discretionary expenses, tap into emergency savings when neccessary, and try deferring non-essential payments until you get back on your feet.

Having access to personal credit or HELOCs can also help smooth cash flow gaps.

Plan Ahead

Always plan ahead. Bulk up your savings when earnings are steady so you have adequate reserves if listings and commissions decline. Keep networking and marketing yourself, even between closings, so you can accelerate the rebound when conditions improve. Have passive income sources like referral networks.

Ways to Supplement Your Income

One of the best things about being a real estate agent is the flexibility to manage your schedule. That freedom can allow you to add other ventures to your revenue-generating box.

Armed with your real estate license and knowledge, here are several income sources you can explore:

1. Digital Photography

Real estate is among those industries where a picture is not only worth a thousand words but a thousand dollars as well. There is nothing like good photography to accentuate the features of a home and draw buyers.

As real estate agents, we capture pictures regularly for our listings, so why not monetize this skill? There is a rare group of homeowners who prefer the DIY route to home sales but who may not know the makings of a good listing or what angles to use for their shots.

They may need a digital photographer with real estate experience to help them create professional listings.

2. Property Management

Property management aligns with real estate skillsets and enables agents to generate extra earnings using their housing market know-how. As property managers, agents are responsible for maintenance requests, expense payments, and ensuring the optimal condition of managed properties which directly links to their roles and responsibilities as real estate agents.

Offering property management not only provides a steady cash flow from reliable rental income, but it can also build an agent’s reputation and credibility. Managing properties helps cement an agent as a true real estate superstar able to juggle home sales while overseeing vital property operations. This holistic experience can ultimately funnel more referral business and expand community connections.

In most states, property managers only need a real estate license.

3. Real Estate Notary

Another profession that closely relates to real estate enough for agents to jump into is notary. Every real estate closing requires the presence of a signing notary. This individual acts as a witness and walks clients through the closing documents.

Real estate agents can use their experience backed by a notary license to help clients understand the closing process. And if you opt for the remote option, you can notarize from any place with a computer and internet access.

4. Property Tax Appealer

There are instances where a home or piece of real estate has been overvalued. This overvaluation has often translated into higher property taxes for homeowners.

But as a property tax appealer, you’d be the person to stop this. You can review homes, establish their real value, and appeal for appropriate taxes. Your clients would then pay you an agreed-upon percentage from the savings they made.

Unemployment Won’t Work

From incorporating your business and becoming its employee to exploring grants or loans designed specifically for real estate agents during tough times; there are avenues agents can explore as cover during difficult times. Unemployment insurance may not be a realtor’s shield, but by capitalizing on your skillset, you can prepare for any storm.

Next Steps:
If you’re a struggling real estate agent:
1. Diversify: Find different income sources to help you generate more revenue.
2. Research: Explore loans and grants targeted towards supporting real estate agents.

3. Cut Costs: look at ways to manage expenses, like cutting unnecessary costs.

4. Get a line of credit: If the situation looks bleak, try getting a line of credit or applying for HELOC.

5. Incorporate: The final thing you could do to ensure you get unemployment benefits is to incorporate your business and employ yourself.

We hope this article has shed light on the possibilities open to you as a real estate agent navigating through challenging financial times. What do you think? Do these options resonate with you? Or maybe there’s something else we missed that could be helpful?

Share your thoughts in the comments section below! If this information is helpful to you, don’t forget to share it with professionals who might also benefit from it!