Frequently Asked Questions> Real Estate License

Do Real Estate Agents Work for Themselves

Did you know that by January 2024, the United States had 132,55 million full-time workers? Most of these professionals relish in benefits like unemployment, health coverage, and a pension fund.

As a real estate exam coach, students have often ambushed me, wondering if real estate agents are included in this favored group. The unrelenting question is usually, do real estate agents work for themselves? Yes, real estate agents work for themselves. They are what we call statutory nonemployees. This means they are taxed as self-employed professionals.

Every commission goes into their pockets, minus the broker’s cut, while every expense is drawn from the same pocket.

Below, we’ll further explore how real estate agents operate and their employment structure. By delving into this article, you’re setting yourself up to gain valuable insights that could shape your understanding or even your career path in real estate. So buckle up, and let’s dive in.

How Do Real Estate Agents Work?

Real estate agents are a unique set of professionals. Their operational scope is defined by several laws, which create a lot of red tape for agents.

How agents work is governed by four major laws:

  • Federal law: these are rules established to regulate real estate across the country.
  • State law: this portion of legislation is state-specific. It speaks to a specific state and governs agents within that arena.
  • Local law: local laws are rules set by smaller territories within a state; they don’t necessarily affect the whole state but a portion. This could include cities or even counties.
  • Association laws: these are regulations established by organizations agents decide to join. They don’t affect how real estate agents work in general, but rather, they affect how their members operate.

The first three laws affect the legal scope in which agents work. According to federal law, real estate agents are independent contractors. Instead of filing the W-2 tax form, real estate agents must file 1099 forms.

This fashion of work affords agents the liberty to set their own hours instead of being bound by the typical 9-to-5. The schedule is one of the best things about being a real estate agent.

However, this autonomy doesn’t translate into no supervision. Brokerages play a crucial role in overseeing transactions carried out by agents. Their primary responsibility is to ensure legal compliance during property deals, from drafting contracts to closing sales. In fact, no deal can be finalized without the explicit approval of the broker.

Despite being associated with a brokerage, real estate agents bear their own expenses. This is one of the negatives of being an agent. Included in this list are licensing and maintenance expenses, dues, and marketing costs, among others.

They do not receive traditional employee benefits such as healthcare or retirement plans. Instead, their earnings primarily come from commissions on successful property deals.

But there is always an exception. Real estate agents contracted by one of our favorite companies for new real estate agents, Redfin, are W-2 employees. This group of agents is employed by their brokerage, working for a set monthly income.

The independent contractor model also indicates that generating leads and clients falls exclusively on the agent’s shoulders. Successful practitioners self-start branding and networking efforts to drive viable deals.

So, agent income potential correlates directly with diligence levels, marketing savvy, and workload capacity agents willingly shoulder.

Real Estate Myths

The idea of being a real estate agent often leaves hopeful agents excited. The thought of being your own captain? It’s enough to send any ambitious mind into overdrive.

But before diving in head first, aspiring agents must review the validity of some of the most celebrated real estate agent’s functional activity.

You Are Your Own Boss

One of the common myths in the real estate industry is the notion of real estate agents being their own bosses. Agents enjoy an extensive level of freedom and independence. But it is not without broker oversight.

Although real estate agents get to set their own schedules, they work for realty firms or companies, however, not as employees. This requirement for broker sponsorship limits the autonomous freedom agents get to enjoy.

Beyond the supervisory and ultimately finalizing authority brokers have, they also design the brokerage rules agents are mandated to adhere to.

So, while agents have significant freedom, it is nothing like the entrepreneurial vision often tooted.

You Have Total Flexibility

Another myth is the idealogy of total flexibility within this profession. It’s tempting to think that being a real estate agent means having complete control over your work hours.

However, success in this field often requires more dedication than what meets the eye. Long working hours are frequently necessary to make substantial earnings or close major deals.

Moreover, since most potential buyers or sellers might be available outside standard business hours due to their own jobs – evenings and weekends become prime time for property viewings or negotiations.

Flexible Yet Confined

Real estate agents do work for themselves in the sense that they are responsible for their own taxes, expenses, and generating leads. They enjoy a level of autonomy not found in many other professions. However, this does not mean they are without supervision or responsibilities.

They operate within an intricate web of federal, state, and local laws and must adhere to regulations set by brokerages.

Next Steps:
If you are looking to enter the real estate industry, there are a few internal checks you need to make:

1. Evaluate: Are you willing to take on the responsibility of being your own boss in terms of handling expenses and taxes?
2. Consider: Can you commit to the required time even outside standard business hours?
3. Research: Review several brokerages before deciding where to hang your license. Remember that while some provide more support than others (like Redfin), they also come with specific guidelines you need to follow.

We hope this article has been informative! If any questions or thoughts came up while reading it – we’d love for you to share them below! Let us know what crossed your mind!

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