No matter how successful they are, real estate agents constantly struggle with bridging the gap between closings to smooth out their cash flow while still investing in their businesses. It’s an endless juggling act of closings, getting clients and promoting listings, and showing properties. The stress of keeping all the balls up in the air at the same time can be overwhelming, and that’s when a commission advance can be a real lifesaver for any agent.
Commission advances help agents smooth out their cash flow between closings, giving them cash they need when they need it to help keep business humming. The idea is simple: An agent with a pending contract applies before closing for an advance on the commission that would normally be paid to them at closing. Commission funds can be paid to the agent weeks or even months before the actual closing date.
Below are the top five types of real estate transactions that an agent would typically use for a commission advance on pending contracts:
The typical resale of a home is the No. 1 type of real estate transaction that agents use in applying for a commission advance. Since most real estate agents focus on resales of single-family homes, this is not surprising. Of course, this could be a townhome, duplex or condo sale.
Even top-performing agents can have a backlog of future closings, without any current closings. When this happens, an agent may decide to apply for a commission advance to bridge the gap until the next closing.
- New Construction
Due to the long timeline usually involved in closing on a new-construction house, agents with new-construction contracts commonly apply for commission advances. Since agents with new-construction listings must often commit to making marketing investments in order to “win” the listings, the funds from the advance can be leveraged to pay for this marketing. Fortunately, many commission advance companies work with agents on new-construction contracts and will do advances several months before closing, when needed.
- REO/Short Sales
Many real estate agents have built up relationships with short sale banks, which increases their success rate for getting this type of transaction accepted and closed. As long as the short sale has been approved by the bank, an agent may choose to do a commission advance on a short sale contract. Without a bank approval letter, there remains too much doubt about when and if the transaction will close; therefore, most commission advance services will not provide funding without the approval letter.
With REO sales, real estate agents are often responsible for securing and repairing the bank-owned home, which can result in a large outlay of cash for the agent. Therefore, the agent can use a commission advance for operational costs to prepare the home for upcoming showings.
- Investment Properties
Sometimes business opportunities present themselves to real estate agents, and they are too good to pass up. Often, this involves a cash investment that makes great business sense but demands cash on hand. To obtain the additional funds needed to invest in the business opportunity or investment property, an agent may turn to a short-term solution such as a commission advance on one of their upcoming pending contracts. In this situation, a commission advance can be a much better alternative to adding debt to a credit card or using a home equity line.
- Luxury Market
Buying and selling luxury real estate targets a limited number of potential clients. Advertising and selling these properties can be a challenge and take lots of time and money, since sellers of luxury properties expect their agents to make heavy investments in marketing with high-end signage, HD videos with drones and interactive tours. A commission advance can fund the demands of selling and listing homes in a luxury market.
Agents that focus on the luxury segment may have fewer annual transactions due to high price point, but they can manage the ups and downs of their cash flow during the year with a commission advance in between closings. Many luxury agents decide to take a partial advance from one of their upcoming pending deals to bridge the gap until their next closing.
Andrew Mintz is VP of Marketing for RealCommissions. Founded in 2004, RealCommissions is a leading national commission advance service provider for the real estate industry, with the goal of helping real estate agents balance their cash flow and give them the funding they need to sell more houses by paying them their commission in advance on a pending contract. For more information, please visit realcommissions.com.