09 Nov Unlock Your Earnings Now: Master the Basics of Commission Advances for REALTORS®
If you are a REALTOR®, chances are you’ve heard of commission advances – but what exactly are they and how can they help your business. Let’s answer the most common questions:
What is a real estate commission advance?
A real estate commission advance is a financial service designed specifically for real estate agents and brokers. It is a way to receive payment of a portion of earned commission on unconditional contracts before the closing of a real estate transaction. In essence, it allows agents to access a portion of their future commission upfront, providing them with immediate cash flow.
Traditionally, real estate agents have to wait for the closing of the transaction before receiving their commission. This waiting period can range from a few weeks to several months. However, with a commission advance, agents can bypass this waiting period and receive a portion of their commission as soon as the transaction is unconditional.
How does a commission advance work?
Here is how a commission advance request typically works:
1. Application: The real estate agent submits an online application to a commission advance company. The application usually requires information about the transaction, such as the unconditional purchase agreement, the agent’s contract, the real estate broker’s approval and signature and other relevant documents. No credit checks take place, as this is not considered a traditional loan.
2. Review: The commission advance company reviews the application to ensure the submission is complete.
3. Funds disbursement: Upon acceptance, the commission advance company disburses the funds to the real estate agent. The funds are typically transferred directly to the agent’s bank account on the same day, pending time of application submission.
4. Repayment: The commission advance is repaid when the real estate transaction closes, and the Brokerage receives the full commission. At that point, the commission advance company collects the advanced amount, as well as any fees or charges specified in the contract directly from the Brokerage.
REALTORS® use commission advances to access their income earlier, allowing them to cover business expenses, personal expenses, or invest in business growth. However, it is crucial for real estate agents to carefully assess the terms, fees, and conditions offered by different commission advance companies to ensure they are getting a fair deal.
Is a commission advance a loan?
It’s important to note that commission advances are not loans, as real estate agents are essentially selling a portion of their earned commission rather than borrowing money. The commission advance is repaid directly from the future commission earned on the transaction. There are no credit checks or lengthy approval processes required for a commission advance.
How much can I get with a commission advance?
This is dependent on the commission advance companies’ individual policies. With FRAME, we advance up to 90% of the original commission amount. This is to account for any fees, dues, or other expenses paid to your brokerage after a payment comes in.
What are the benefits of commission advances?
Commission advances can be beneficial for real estate agents in several ways. They provide agents with immediate access to their income so they can cover various expenses, such as marketing, business costs, personal expenses, or investing in their business growth. Additionally, commission advances can help agents maintain a steady cash flow, especially during slow periods or when waiting for larger transactions to close.
For REALTORS®, maintaining a steady stream of income, or healthy cash flow is not just about balancing the books—it’s about sustaining the lifeline of their business. Picture your bank account as a reservoir; it’s crucial that the inflow of funds not only matches but exceeds the outflow.
Now, imagine a scenario where your outgoings are sprinting ahead of your income. This imbalance isn’t just a temporary hiccup; it’s a signal of a persistent cash flow challenge. If this continues, the well dries up, leaving you unable to cover the necessities. Future profits are just that—future. They won’t solve the immediate need for liquidity when creditors come knocking, demanding immediate payment. A REALTOR® without accessible funds is like a home without a foundation—vulnerable and unstable.
In real estate, the gap between closings can be a chasm, leaving you straining to bridge the gap. It’s not merely about slashing expenses; that’s a short-sighted fix. The keystone of robust cash flow management for REALTORS® lies in proactive strategies—such as leveraging commission advances—that keep the capital circulating, ensuring you always have the funds to invest back into your business and keep your operations running smoothly.
Are there drawbacks to taking real estate commission advances?
While commission advances can provide immediate cash flow and flexibility for real estate agents, one thing that agents need to be aware of is that you will not receive your full commission as a small fee is paid in order to receive the advance.
All commission advance companies offer different fees and structures. FRAME offers a fee of $0.66 for every $1,000 advanced, per day. To provide an example, if a real estate agent were to advance $5,000 for 15 days, the calculation would be as follows:
Advance amount: $5,000. Rate: $0.66 per $1,000 per day. Number of days: 15
The daily cost of the advance would be (5×$0.66)=$3.30 per day.
For 15 days, the total cost would be 15×$3.30=$49.50
Therefore, for a $5,000 advance over 15 days, the agent would only pay $49.50 in fees.
How do I qualify for a commission advance?
Firstly, you will need an unconditional contract, and then it’s as easy as filling in the online application, uploading the requested documents, with both you and your broker’s signatures, and, once approved, FRAME will provide you with email confirmation of the approval and the money is then delivered via e-transfer directly to you. This process can go from start to finish within the afternoon and you will have your commission advance by dinner (based on time of submission).
In conclusion, commission advances have emerged as a valuable tool for REALTORS®. By providing quick access to a portion of their earned commissions, real estate agents can alleviate cash flow challenges and seize new opportunities to grow their business. Whether it’s investing in marketing campaigns, expanding client portfolios, or simply covering day-to-day expenses, commission advances can empower real estate agents to thrive in a competitive market. So, if you’re a REALTOR® looking for a reliable way to bridge the gap between closing deals and receiving commission payments, consider exploring the benefits of commission advances and take your business to new heights. At FRAME, our goal is to help you grow your business! We hope to get the opportunity to do that.