When the real estate market is extremely active, as it is now and has been in most of the United States – people start thinking about a career in real estate. After all, how hard can it be since there are approximately one million Realtors in the country? You undoubtedly know at least one agent and figure you can do at least as well as he or she is doing, right?

But, how much do you really know about the business of helping people buy and sell residential real estate? What are your concerns and questions?

Many times people say, "I don't want to be in sales" or "I've never sold anything in my life", etc.

Whether you realize it or not, you've been in sales all your life –

• Ever had a job? You sold yourself;

• Ever had a boyfriend/girlfriend? You sold yourself;

• Ever been married? You sold yourself;

• Ever convinced someone to do something your way? You sold yourself.

We sell ourselves every day, whether we realize it or not – and that is the first step in any sales profession – selling yourself.

If you have never been in commission sales, you need to give it some very serious thought. Contrary to what many hiring real estate managers/brokers will tell you, this is a very difficult business to get started in, and it is very expensive when you first enter the business. Most brokerages start new agents at a 50/50 split, meaning you will get 50 percent of any commissions to the company on closed transactions you are involved in, and you will stay at that 50/50 split until your gross commission income (GCI) reaches a certain level. GCI is the amount of the commission which comes to your company on a closed transaction.

Here's an example of the way most real estate transactions close as far as the distribution of the commission is concerned:

Now, I know what you're thinking – "If I do only two transactions a month, I can make over $100,000 per year!" Well slow down there Donald Trump, don't be rushing off to the nearest luxury car dealer just yet. You have expenses that must come out of those commission dollars.

To name a few:

• Health insurance - You will be an independent contractor, not an employee and the real estate company won't provide it for you;

• Car insurance - You will have to have your vehicle rated for business use, your company will require it, and that means higher premiums;

• Workers' compensation insurance - the real estate company generally buys it but bills you for your share;

• Errors and Omissions insurance - same as workers' comp;

• Office supplies - you will have to provide your own pens, papers, desk accessories, etc.;

• Income tax withholding - the real estate company will not withhold anything from your commission checks, that's your responsibility – and you'll need to file quarterly returns for Uncle Sam. If you don't, you're asking for a nasty surprise come April 15th;

• Multiple listing service dues;

• Realtors' associations dues;

• Continuing education class costs (required to renew your license);

• Advertising;

• Business cards - the company will generally only pay for the first order;

• Cell phone, long distance calls;

• Internet web site set-up and maintenance (if the company doesn't provide one or you want your own);

• Digital camera;

• Clothing;

• Gas, maintenance and wear and tear expenses on your vehicle.

There's more, but you can see now that your real estate income just took a big hit, that sucking sound you're hearing is the dollars flying out of your commission checks.

How to prepare financially

This is a critical area where you must be 100 percent honest with yourself. You need to completely and realistically itemize all of your monthly living expenses – then multiply the total times six. If you do not have a bare minimum of six months worth of income/expenses in liquid assets, you should not begin a real estate career until you do.

Even if your local market is very good, market conditions can change practically overnight and you must be prepared.

In addition to your six-month reserve, add another $2,000 to $3,000 for start-up expenses.

Scrimping in your financial planning will lead to problems, headaches and worries later – do it right and be certain that you can devote enough time to your new career to give yourself a chance to succeed.

Published: October 26, 2004

Use of this article without permission is a violation of federal copyright laws.

Mark McCloud is the owner of McCloud Seminars, a sales and management training/consulting company. He has over thirty-five years experience in real estate sales, marketing, management and providing educational services. He holds the professional designations of ABR, BA, CREI, CRRS, GRI, MMDP and was awarded the Outstanding Professionalism Award. He is a published author and public speaker, recognized for his insight and common-sense approach. He is available for training, consulting, and public speaking engagements. He can be reached at: 360/281-2086, .