Are you self-employed?

It amazes me how many self-employed real estate agents do not act at all like they are self-employed.

Most real estate agents are independent contractors. To the Internal Revenue Service, the tax form defines whether a whether a worker is an employee (W-2 form) or independent contractor (1099 form).

Editor’s note: Meet Teresa Boardman at the upcoming Real Estate Connect conference in San Francisco, which runs from Aug. 5-7, 2009. She will be available to meet with conference attendees from 12:30 p.m. to 1:30 p.m. in the Palace Hotel’s Ralstom Room. Click here to send Teresa a message.

Are you self-employed?

It amazes me how many self-employed real estate agents do not act at all like they are self-employed.

Most real estate agents are independent contractors. To the Internal Revenue Service, the tax form defines whether a whether a worker is an employee (W-2 form) or independent contractor (1099 form).

The IRS says that entities engaging independent contractors have the right to control or direct the result of the work and not the means and methods of accomplishing the result.

There are some other differences, too. Sometimes employees get health insurance and paid vacations and sick leave. Independent contractors do not get any of those things. Agents like to say they "work for" ABC Realty. They really don’t work for ABC Realty.

There are some brokerages that cross the line in how they treat agents. They have mandatory meetings or mandatory floor time and tend to treat agents like employees without giving them any of the benefits that a W-2 employee would be entitled to.

Some agents prefer this kind of relationship where they depend on the brokerage for just about everything, including a place to go to work each day. They go into the office just like a W-2 employee would, drink the coffee and have co-workers. They call it synergy.

As real estate offices are closing or combining, agents are being displaced and their businesses are being disrupted as they have to drive further to go to work and may have to change their phone numbers, e-mail addresses and mailing addresses.

These agents are the backbone of our industry and they are the people who make it all work. I see the recruiting ads from the local brokerages promising a fun and exciting work environment and state-of-the-art technology.

The agents join the firms and behave as employees. They depend upon the brokerage and don’t really see themselves as small-business owners.

When it comes to marketing, they use the materials supplied by or purchased through the company. They end up advertising the company brand instead of their own brand, and in some cases they end up paying more for marketing materials.

If they decide to move on to a new company, they have to start their business all over. …CONTINUED

I see formal listing presentations that have page after page of information about the real estate company and all the wonderful things that it does, and a page or two about the agent who wants to list the property.

By perpetuating the myth that real estate companies sell real estate, the real estate brands become stronger and the Realtor or independent contractor becomes weaker. Making a brand stronger is a good thing for all who work under the brand, but the work and money won’t help the agent who leaves the brand.

Consumers don’t understand that the brand that dominates the market is the brand that has the most agents, and it is the agents who sell real estate.

When an agent’s office moves or gets purchased by another firm or closes altogether, the agents who do not see themselves as small business owners flounder. They never had a plan on how to continue their business if the brokerage couldn’t continue.

They depend heavily on leads from the brokerage, marketing materials and other items supplied by the brokerage.

Instead of depending upon leads from the brokerage and paying the huge referral fees, it might be best to learn how to generate leads. The pay is better and building a client base can lead to repeat business and referrals that will generate business long after the real estate office that sells leads closes its doors.

It is empowering to be able to generate leads and experience all the freedom of being self-employed instead of just experiencing the lack of a steady paycheck, health insurance and paid vacations.

There are agents who need to be employees. A friend recently took a W-2 job and loves the way he gets a paycheck every two weeks. When he was a Realtor his office was right by the branch manager’s office and he lived off of the leads he got from the company and his relationship with the manager.

That seemed unfair to other agents in the office, but today — a year after the manager retired — they are selling real estate and he is working for a local retailer.

If no one told you this and you are a Realtor and get a 1099 form every year, you are a self-employed small-business owner. And thinking like one can make a big difference in your bottom line.

Teresa Boardman is a broker in St. Paul, Minn., and founder of the St. Paul Real Estate blog.

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