Hey there, Top Producers. This is Jordan Curnutt, your Realtor-specific CERTIFIED FINANCIAL PLANNER™ professional.

According to the U.S. Bureau of Labor Statistics, the top 10% of Realtors nationwide average $178,000 per year of annual income. That means you make $14K, $15K per month, right? I didn’t think so. Uneven income streams are a very real fact of life for Top Producers.

Today, what we’re going to dive into is two big problems that contribute to uneven income streams and then two big solutions that you can implement in your personal financial plan. Let’s dive in.

As a CERTIFIED FINANCIAL PLANNER™ specializing in helping real estate agents, I understand the unique financial challenges top-producing real estate agents face. According to the most recent study by the U.S. Bureau of Labor Statistics, the top 10% of real estate agents earn in excess of $178,720 annually.* While earning over $178,720 annually is commendable, the uneven income streams associated with the profession require careful financial management. In this article, I’ll address two major issues contributing to uneven income and provide actionable solutions for real estate agents to achieve financial stability.

 

Big Problem #1: Seasonality

The first problem that we’re diving into is seasonality. Really take a look at the data. NAR has a really interesting study back from 2017 that stated in the Western United States, 71% of all transactions for the year occur during peak season—obviously leaving the remaining 29% of the transactions that happen outside of that time period.

As you can see, there’s a pretty disproportionate amount of activity happening during certain months of the year, and then it slows down during other times of the year. Your income is directly correlated with those transactions. So big problem number one is finding a way to overcome the seasonality of the real estate market.

Understanding the Impact

As any agent knows, the checks come in only when transactions occur, leaving much of the calendar year with a lower average monthly income. The main issue with seasonality is accounting for monthly expenses and maintaining lifestyle. As a result, seasonality is the first big problem agents face with their variable income.

Solution: Emergency Fund

Emergency funds consist of cash assets. We’re not looking at taking any risk with your emergency fund, and really, there’s just a couple of types of accounts that would fall into this category, the first one being your checking account.

We always want to make sure that we have enough money in our checking account to be able to do our daily, monthly spending and not have to worry about overdrawing our account or anything like that. But there are negatives to holding too much in your checking account.

These are institutions where there’s no brick-and-mortar location, and as a result, they’re able to pay you a little bit higher interest rate than you typically see at your local bank or credit union. The high-yield savings account is really the sweet spot for not taking risk with those funds in your emergency fund but still getting some interest there so taxes and inflation don’t eat away at your emergency fund over time.

To combat the challenges of seasonality, an emergency fund is your first line of defense. An emergency fund consists of cash assets and can be accessed on short notice at any time. Although the amount to keep in the emergency fund can vary depending on the risk tolerance of the agent, the rule of thumb is to keep three to six months of living expenses on hand. These funds should be easily accessible to help balance variable income through the off-season.

Given the previously mentioned issues surrounding uneven income streams, it makes sense for top producing real estate agents to be on the higher end of the three to six month range. Consider keeping this fund in an FDIC-insured high-yield savings account (HYSA). Typically, high-yield savings accounts are via online banks—American Express, Allied Bank, Capital One, just to name a few.

Just because your emergency fund must be held in cash does not mean that it cannot work for you. You will want to keep enough in your checking account to comfortably pay your monthly expenses, but you should hold anything above this amount that is designated for your emergency fund in an FDIC-insured high-yield savings account. Online banks offer attractive interest rates, ensuring your money works for you even during off-peak seasons. Used appropriately, an online HYSA account is a valuable tool in maintaining your emergency fund while making sure your money is working for you.

Big Problem #2: Commission Split

Admittedly, this may not apply to everyone. I realize there are several different business models that can be in place, but pretty regularly, you see a commission split being one of them. As you know very well, there could be a break point involved, so when you have transactions that are happening and you haven’t hit that break point yet, your payout on your commission is going to be less.

If you have those same amount of transactions and total volume, total gross commission income happening after you’ve hit that payout or that break point, you feel it more in your checking account. So those dollars to you at the end of the day are larger.

This is just something that compounds on the seasonality of real estate and is just one more layer of the uneven income streams that you have to account for in your personal financial plan.

Dealing with Commission Structures

Commission splits further complicate income stability. Varying rates paid to brokerages impact your net commission per transaction, affecting your cash flow distribution across the year. Although the rates and amounts paid to the brokerage can vary, the commission split has a large impact on the net commission to the agent per transaction until the hurdle is overcome.

This issue compounds the effect of seasonality by reducing the net income to the agent earlier in the year and allowing for higher payouts later in the year.

Solution: Brokerage Account

We already talked about the emergency fund. Those are strictly cash assets. We’re not taking risk. Those are in accounts that are FDIC insured, and as a result, we aren’t earning a whole lot on those accounts either.

The next step in our cash management plan would be the brokerage account. This is an account that’s not a retirement account, and it’s not cash. It falls in between on that spectrum, and so it’s something that you could get to in a very quick amount of time without penalties – while not an emergency fund, a brokerage account serves as a backup. Unlike retirement accounts, a brokerage account allows penalty-free withdrawals anytime. 

Unlike tax-qualified retirement accounts, which carry a penalty if withdrawn from before age 59 ½, a non-qualified brokerage account is available for withdrawals at any time. Additionally, depending on the investments held in the account, capital gains tax treatment applies in most scenarios, allowing for preferential tax treatment as gains are realized

One of the things that we’ve really come across, though, is we found that Top Producers tend to overweight their net worth to cash, and really, this can become a drag on your overall net worth. That’s where this brokerage account really comes into play—we never want to eat into that emergency fund and move emergency fund dollars into a brokerage account. That defeats the whole purpose of the emergency fund.

But if you have more cash on hand that isn’t working for you, or in a very limited basis, like it may be in your checking account, a brokerage account could make a lot of sense.

The key difference between your cash emergency fund and money held in a brokerage account is the amount of risk you take. Remember, there is no free lunch. The higher the rate of return you can expect from an investment moves in tandem with the amount of risk you take to achieve that return.

Since the emergency fund is meant to be used in the short term, it’s not the place to take risks with your net worth. In contrast, once the emergency fund is fully funded, you can consider a brokerage account. With a brokerage account you can invest in a diversified portfolio that carries a much higher expected return.

Invest in a diversified portfolio for higher returns, managing long-term financial goals while providing a safety net for emergencies. You must have a long-term view when investing in the stock market. However you still can access your brokerage account funds as needed before reaching retirement.

Again, everyone’s situation is different. You’ve got to dive into what those dollar amounts mean for you, but our second tool in the toolbox is a brokerage account for Top Producers to manage their variable income and still have the ability to get to the brokerage account assets if they need to without having any penalties like you would in a retirement account.

Conclusion

We tackled two big problems when it comes to variable income for Top Producers and then two big solutions that you have in your toolbox to combat that.

If you want to learn more about cash management plans and our approach to helping Top Producers battle this in their financial plan, we’d encourage you to download our ebook. It’s titled How Top Producers Can Take Control of Their Variable Income. It’s a five-step plan that we believe gives you the best opportunity to take full control over your variable income.

Success as a top real estate agent brings the challenge of uneven income streams. Counteract seasonality and commission splits with financial safeguards. Establish a robust emergency fund to navigate lean months and consider a brokerage account for long-term growth and backup funds. By implementing these solutions, you can enjoy both the rewards and stability of your thriving real estate career.

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By addressing these issues and providing actionable solutions, real estate agents can better manage their finances. Utilizing these solutions agents can secure their future and enjoy the benefits of their successful career in real estate.