Penny-Wise and Pound-Foolish
It may be slightly more difficult to budget commission-based earnings, but it’s not impossible.
In a perfect world, those who earn commission would write their own pay cheques. However, the world is far from perfect, and those who earn a percentage of what they sell often fall on hard times when their performance levels drop or the market for their particular product cools.
Estate agents can, and very often do, earn very large sums of money – particularly when the going is good and property is in high demand. Unfortunately, as most of you reading this are aware, there are times when nothing seems to go right, and deals either fall through (usually at the last possible moment) or good, solid buyers are rare and no one is buying.
It may be fair to say that while agents are the experts when it comes to lecturing people on the importance of saving for a deposit, or the importance of owning an investment property, they generally don’t practise what they preach and aren’t in the habit of putting something aside for when sales slow to a trickle.
The sad part about all of this is that agents don’t function properly when they are broke. Firstly they come across as desperate – a somewhat unfortunate attitude, given that the average buyer can smell desperation at 50 paces. Secondly, in an effort to save on petrol costs, they tend to compromise their buyers by showing them homes close to the office even though they know something more suitable is available further away.
Being a successful agent has never just been about owning a car and a cellphone. Good agents have backups in place and run their own well-oiled real estate enterprise, albeit sometimes under the umbrella of one of the larger franchises. They budget monthly and understand that essential business costs have to come first if they want to continue making money. They drive well-maintained cars, tend to have cellphone contracts as opposed to pay-as-you-go services, have a reliable internet connection at home and own a wardrobe of smart business clothes.
Their less fortunate counterparts live from day to day. They don’t plan ahead, and they tend to make hay while the sun shines when commissions are paid out. They regard themselves as “successful” if a sale goes through and promptly take their foot off the gas while they spend what they have earned.
The problem is that inconsistency has dire financial consequences, and these agents often resort to bridging finance or revolving credit when things turn bad.
Bad habits tend to be the hardest to break, but there are ways for agents to take back control of their financial affairs, irrespective of how frequently – or infrequently – they conclude sales.
Draw up a Budget
It’s not easy to budget when earning a commission income, but it’s not impossible either.
Collect all the previous year’s financial documents so that you can determine exactly where your money is going. Ascertain what your monthly expenses are, including taxes and bank charges. Make a list of all fixed expenses, including bond or rent repayments, insurances and car instalments. Then make a note of expenses that fluctuate from month to month, such as groceries, petrol costs, telephone bills and utilities. Next, list all expenses that can either be cut back on or forgone altogether, including eating out, entertainment and excessive clothing purchases.
Now draw up a monthly budget for the year, and remember to factor in expenses that fall due at various times of the year, such as licensing your car. You should then estimate the income you realistically expect to earn from month to month. Subtract your expenses from your anticipated income, thus determining which months are going to be more financially draining and when you may need to either delve into your savings or cut back on your spending.
It’s very important to remain realistic about your earning potential, and as such you should create three different scenarios of what you could bring in if the odd sale falls through: an optimistic estimate, a moderate projection and a conservative estimate.
Stick to a Budget
Experts have been telling agents for years about the dangers of spending commission before it is in the bank. Of course, it’s disappointing when a sale falls through, particularly when this happens shortly before the property is registered. However, agents often max out their credit cards or opt for bridging finance because they assume that the sale is a done deal and that the commission is guaranteed. Unfortunately, the fallout from this can be catastrophic and generally leads to a major debt load. Bridging finance and credit cards have their place, of course, but they should never be regarded as an extension of an agent’s earnings and should only be used as a last resort.
Successful agents stick to their budgets regardless of how much commission is earned during the allotted period. For some reason, many agents gamble their current earnings on future potential sales, assuming that they will build momentum and that past success is a predictor of future success. The fact of the matter is that an agent is only as good as their last sale.
Savings are always going to be an estate agent’s secret weapon and they should make every attempt to squirrel away a percentage of each month’s earnings.
The experts maintain that as much as 20% of what we earn should be put away for that proverbial rainy day and for when we retire. Agents can and do earn a great deal of money selling property. The ones who manage to hang on to it can generally retire comfortably, while those who don’t are forever on the treadmill, waiting for of the next sale.
Words: Lea Jacobs