• The legal minefield is ever-changing, and agents need to understand the best practices.
  • Understanding what costs are involved when working under a broker is essential to the viability of your business.
  • Make sure it’s all in writing. If necessary, seek legal counsel to ensure your interests are protected.

Real estate agents have many financial aspects to consider when structuring their business. The experience of an established brokerage can guide you toward the best results. As you consider making the move to a new broker, go over these seven questions with your potential employer to ensure you’re getting the most out of your transition:

1. What forms of training and continuing education do you provide?

Real estate agents, both seasoned and new, need consistent training and continuing education to stay up to date with the current laws and best practices in the industry.

Mentorship programs coupled with an extensive new agent training series is the best way to provide a well-rounded education.

Mentors can teach new agents real-world scenarios including the do’s and don’ts of the industry. The legal minefield is ever-changing, and agents need to understand the best practices, including training, to keep mistakes minimal and litigation at bay.

2. What structure of business entity formation is typical?

Although most real estate agents operate as sole proprietors, it is not the best approach for lawsuit protection and tax reduction. The best business formation is an LLC to operate your business as an agent; your LLC will contract with the broker.

As a sole proprietor, the income is paid to you individually, and you will receive a 1099 — the worst way to take income. Many options minimize taxes with payments made to an LLC rather than payments made to you as a sole proprietor.

An LLC also protects your personal assets from lawsuits. G. Kent Mangelson, a certified financial planner at the American Society of Asset Protection, said an agent’s total asset protection plan must consider three methods of protection: lawsuit protection, strategies for tax reduction and strategies for estate planning.

3. What costs will I incur?

Building a new business is difficult. Understanding what costs are involved when working under a broker is essential to the viability of your business.

One of the most important elements of the cost structure is the errors and omissions insurance; you want to purchase the proper insurance to protect your assets while maximizing your capital output.

Understand the coverage provided by the brokerage and what further steps are needed to keep your business protected and safe.

4. What marketing materials are available?

Marketing is the core of what agents do. The marketing materials provided by brokerages vary from firm to firm, but be aware of the guidelines for use of each marketing medium within the firm.

Often the firm will know what words and images are best for promoting your properties and protecting you from litigation.

5. Do you have a company policy manual?

Policy manuals are generally boring and dry. However, most policy manuals are written to legally protect the company, and you should read and know the policy manual of your firm. It’s a red flag if your potential broker does not have a policy manual.

6. What are the commission splits?

This is your business, and you need to know how much cash you will make on a sale. After all, you only eat what you kill in this business; there are no paychecks and no free rides.

Commission splits need to be reasonable and within an industry standard. Know what commission splits other brokers offer as well.

7. Do you provide an independent contractor agreement?

Independent contractor agreements are crucial. Make sure it’s in writing, and read the entire agreement before signing it. If necessary, seek legal counsel to ensure your bargaining power is nearly equal in strength and your interests are protected.

There’s a lot to consider when looking for a brokerage. These questions will help you find the brokerage that best fits your needs.

Jackson Cooper is a writer and real estate enthusiast at Jensen and Company. Follow Jensen & Company on Twitter or Facebook.

Email Jackson Cooper.

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