Business Expenses of Realtors: Highlights from the NAR Member Profile

Four out of five REALTORS® work as independent contractors. As such,the majority of them are responsible for many of their own business expenses. Those expenses include costs of marketing
and promotion, technology, professional development (or continuing education), and administrative costs.

In 2007 the amount that REALTORS® spent on business declined compared to the level spent in 2006. This should come as no surprise, as sales and leasing activity in many markets decreased and, subsequently, so did the earnings of REALTORS®. Below we look at some of those expenses by category. The information is taken from the recently released 2008 NAR Member Profile,* and
reflects data characteristic of 2007.

Real Estate Business Expenses

The median business expense among all REALTORS® was $6,580 in 2007, seven percent lower than in 2006 when median business expense was $7,060. The aggregate amounts differ by license held
and by function in the real estate firm. For instance, broker and broker associate licensees reported a median annual business expense of nearly $10,000, while the median among sales agent licensees was
less than $5,000. The typical broker-owner who also was actively selling real estate had the highest expenses at $13,990, while the typical manager not engaged in selling, reported the lowest at $1,880.

Administrative Expenses

The median administrative expense reported for 2007 was $680, 15 percent lower than the amount reported for 2006. Eighteen percent of the members reported no administrative expense in 2007, and only 16 percent spent $2,500 or more. The typical REALTOR® with a sales agent license spent $580, $100 less than in 2006.

Affinity and Referral Relationship Expenses

Many real estate professionals have relationships with other real-estate related businesses - or indeed other real estate professionals - that can provide their clients with information or services during the home sales or home purchase transaction. Most REALTORS® (57%) reported no expenses associated with these relationships. 15% reported an expense of less than $500 (this is comparable to the level of expenses in 2006). Associate brokers and sales agents were the most likely to have reported any measurable amount of affinity and referral relationship expenses. One-quarter of brokers and about one-fifth of sales agents spent $1,000 or more on affinity and referral expenses.

Marketing of Services

Marketing is the second highest expense, after vehicle expenses, for most REALTORS®. The typical REALTOR® spent $810 in 2007 to market their services. Ten percent of total marketing and promotion
expenses were spent on online marketing. While 13 percent reported no expenses in this area, and about one-quarter spent less than $500, one-fifth spent $2,500 or more. The median marketing expense was $1,000 among those with a broker or broker associate license, and $730 among those with sales agent licenses. By function, sales agents spent a median of $820. Those functioning as associate
brokers reported the highest median expense in this category at $1,080.

Office Lease and Building Expenses

Three-quarters of REALTORS® (74 percent) did not have any office lease or building expenses, and 10 percent reported they spent less than $1,000 in 2007. For eight percent of REALTORS®, and 23 percent of broker-owners engaged in selling, office lease or building expenses were $5,000 or more.

Professional Development Expenses

Real estate professionals keep up with the changing business and real estate environment through continuing education, professional seminars, and by earning certifications and designations. The typical
REALTOR® spent $710 on professional development in 2007, which includes expenses for continuing education and training. REALTORS® functioning as associate brokers and sales agents typically spent
the most on professional development, a median of $810 and $720, respectively.

Business Promotion Expenses

REALTORS® spent a median of $780 for business promotion expenses in 2007. While 12 percent did not have any promotion expense, and over one-quarter spent less than $500, about one-fifth (19 percent) spent $2,500 or more. Those who function as associate brokers spent the most with a median expense of $980.

Technology

Most REALTORS® take advantage of some level of technology in their business. Indeed, virtually all of them use the Internet to promote their listings, and six in ten have a web site. But the costs for that
technology has actually declined (witness the recent price cut for an Apple I-Phone). While REALTORS® typically reduced their expenses across all categories, the smallest percentage decline was for technology products and services. Expenses decreased by only 4 percent from the 2006
level to a median of $790.

Business Use of Vehicle

REALTORS® spend a considerable portion of their time away from their desk meeting with current and potential clients. They also spend "time on the road" showing properties to clients and analyzing properties on the market. Hence, their largest expense is often associated with the business use of their
vehicle. In 2007, REALTORS® spent a median of $1,680 on vehicle expenses, only 5 percent less than in 2006. Those who function as broker associates reported the highest expenditures with a median of $2,320. Those who work as sales agents spent a median of $1,600 on the business use of their vehicle, while 37 percent reported an annual expense of $2,500 or more. The largest difference in vehicle expense was between firm managers who did not sell (a median of $770) and those that did ($1,960).
It is, however, important to note that these results were reported prior to the skyrocketing price of fuel - certainly well before the national average for a gallon of gasoline topped $4.00.

Conclusion - and more information

No matter what business you are in, it costs money to be successful - even to stay in business! REALTOR® business expenses did trend down in 2007, no doubt a reflection of the slowing housing
market. But technology - and experience - have also allowed REALTORS® to work more efficiently, thus keeping their expenses at a lower level.

Of course, as business people, REALTORS® need to balance their expenses against their income. More detailed information about REALTOR® earnings (as well as other expenses and business
characteristics) an be found in the full 2008 NAR Member Profile report.**

*In February 2008, NAR mailed an 89-question survey to a random sample of 72,000 REALTORS®. An identical questionnaire was also distributed to another group of 89,400 NAR members via a web-based online survey. A total of 9,997 responses were received. The survey had an adjusted response rate of 7.7 percent. Survey responses were weighted to be representative of state level NAR membership. All data presented in this article is representative of member characteristics in early 2008. The primary measure of central tendency used throughout this report is the median, the middle
point in the distribution of responses to a particular question or, equivalently, the point at which half of the responses are above and below a particular value. Data may not be comparable to previous Member Profile publications due to changes in questionnaire design. More detailed information about the survey methodology is available in the full report.