Real estate commission advances help real estate agents grow their businesses.
Real estate agents work on a commission basis, which means they don’t get paid until they close a deal. But that is only part of the story. Even if a deal is agreed upon between buyer and seller, until the official closing happens, the realtor doesn’t get their commission. That waiting period can be thirty days, six months and sometimes well beyond six months. During that time, the realtor doesn’t get paid.
This can be a challenge because the real estate agent has probably incurred a lot of expenses to get the listing, market it, stage it, inspect it, and close the deal. This gap between laying out the money to get a house sold and getting the money back at closing causes cash flow problems for real estate agents.
Real estate commission advances help bridge these cash flow gaps by providing real estate agents with access to a portion of their commission before the deal closes. Real estate commission advances can be used to pay business expenses, marketing, and operational expenses, or to finance your next real estate deal.
A real estate commission advance is an agreement in which a real estate commission advance company advances a pre-agreed amount of money against future commissions upon the sale of a listing. The commission advance is typically repaid from the commission when it is paid out at closing. Additionally, some real estate commission advance companies can provide commission advances without requiring the broker’s signature on the loan agreement.
By providing real estate agents with access to the capital ahead of time, commission advances can help smooth out cash flow problems and give realtors more flexibility in managing their business. This can be especially helpful for agents who are just starting out or have growing businesses with limited cash flow.
A commission advance comes with a number of benefits, such as:
- Quick Access to Capital – Commission advances typically take only a few days to get approved and the money is deposited into the agent’s account almost immediately.
- Does NOT Impact Your Credit – Credit score is not a significant factor in the commission advance underwriting process.
- Flexibility – You can use commission advances when you need them, and not use them when you don’t. There is no requirement to continue using commission advances.
Overall, commission advances can provide real estate agents with a much-needed source of capital to help bridge cash flow gaps and give them more financial flexibility in managing their business. With the right lender, commission advances can be an efficient and cost-effective way for real estate agents to get access to capital when they need it most.
Who Uses Real Estate Commission Advances?
Some people believe that only financially irresponsible realtors use real estate commission advances. This belief stems from the notion that if you are truly successful, you should be able to finance your own growth. But big businesses don’t do that. Big businesses never hesitate to use all available financial vehicles to fund their success – why should you be any different?
The truth is, as a business, being debt free is not a good business goal. Anyone with even a cursory understanding of business finance knows that if you find a business that has no debt, this business is “asleep at the wheel” and is missing huge opportunities. Plus, using a real estate commission advance is paid back quickly so it is short term debt.
How do you know this? Because if a company is hiring top talent, making use of the best technology, marketing heavily, and constantly finding new deals to pursue, they wouldn’t be able to finance all of it on their own. Their cash flows wouldn’t allow it. So, if you spot a business that is not taking advantage of financial vehicles available to their business, you know they are losing ground to someone else who is financing their growth with every available resource.
When you try to rely on your own resources to finance your growth, you are by design, limiting your growth and slowing it down. Not only that, but you are also setting yourself up to have market share taken away by other real estate agents who DO understand business finance. They will go out, borrow, find private equity, factor their commissions, and raise capital to grow.
Business owners who think small – tend to stay small. If your goal is to grow, take market share, and really succeed at the real estate game, then you should not aspire to finance the growth of your real estate business with your own savings and credit cards. Big business would NEVER do this, and neither should you.
So be careful listening to “the experts” in your industry. Although they might be well intended, their ideas might very well limit your growth and slow you down. It isn’t a shameful thing to want access to your commissions as quickly as you can get them. Big businesses always use “other people’s money” to finance their continued growth because they know they’ll get left in the dust by their competitors if they don’t.
You need quick access to capital to succeed as a realtor, and a real estate commission advance is a great way to get it. So don’t listen to people who think using commission advances is only for undisciplined business owners. People who think like that are small-minded, and clearly do not understand business finance at all.
Why Realtors Use Real Estate Commission Advances
A real estate commission advance permits real estate agents to sell a part of their expected commission for a fee. This allows them to receive some of their money upfront, which they can use for operational expenses, marketing, vendor payments, or purchasing their next property to renovate and sell. Delayed payment can result in lost time which means lost money. An advance on commission helps keep funds coming in, which is essential for business growth.
How Does a Real Estate Commission Advance Work
You can sell a stock or bond at any time for an agreed-upon price, as they are considered assets. Similarly, a real estate commission owed to you at closing is also an asset, which can be sold to a buyer at an agreed-upon price.
Selling a Commission at a Discounted Rate*
$70,000 – Amount of Money You Are to Receive in Two Months (60 days)
$35,000 – Amount you take out as a Real Estate Commission Advance
$30,000 – Amount You Agree upon to Sell your $35,000 Asset for
$30,000 – Amount You Receive Immediately
$35,000 – Amount the Realtor Commission Advance Company Receives in Sixty Days
$5,000 – Profit the Commission Advance Company Receives on This Transaction
*This infographic does not depict an example of a real estate commission advance transaction, actual or fictitious, and is intended ONLY to explain how selling financial assets might work. It is intended for educational purposes only and should not be interpreted in any way to reflect an actual real estate commission advance transaction. Fees for Real Estate Commission Advances change frequently. In addition, you cannot take out an advance on more than 82% of the total commission due.
Using Real Estate Commission Advances to Solve Cash Flow Problems
When your money is flowing out quickly and flowing in slowly, you tend to have “cash flow problems.” Why? Because the money is “flowing out” faster than it is “flowing in” and if this continues to happen long enough you will run out of cash to pay your bills.
What are Cash Flow Problems for Real Estate Agents?
Cash flow problems for real estate agents can involve any of the following:
- Closing costs that need to be paid before you can receive your commission
- Tax obligations on a sale that are due even though you haven’t yet been paid
- Expenses related to running your business such as salaries, marketing and advertising costs, technology costs, and more
- Expenses related to finding your next deal such as appraisals and inspections
When you have to continue paying for all these expenses, but you aren’t getting paid until closing, this can become quite a burden on your savings account (or worse, your personal credit cards).
What Causes Cash Flow Problems for Realtors?
Cash flow problems for realtors are caused (like most businesses) by “timing.”
The “timing problem” arises when you sell a house and have to wait until the closing to receive payment. Even if you have money coming in soon, you still have to manage ongoing expenses such as bills, payroll, and marketing. Hence, while you have a constant outflow of money, the inflow is only occasional.
As a realtor, your income is irregular but your bills and living expenses are due at regular intervals. This can cause cash flow problems because the timing of money coming in does not match the timing of money going out.
This isn’t a problem that is unique to the real estate industry. Just about every type of business has cash flow struggles created by money going out constantly, and money coming in occasionally. Any time you perform services first, and get paid later, you will have cash flow problems and will need access to capital to solve them.
How to Solve Cash Flow Problems for Realtors
The solution to this cash flow problem is to find ways to “finance the gap” between reaching an agreement and getting your commission at closing. This means having access to some sort of capital (either cash or credit) to finance the wait time until closing.
Or, you can also shorten the wait time by factoring the money that is owed to you at closing. If you need money in your cash account quickly, consider taking out a real estate commission advance instead of waiting for closing. This way, you can receive your funds sooner rather than later.
Other Methods Realtors Use to Finance “The Gap”
What is a Line of Credit for Realtors?
When it comes to financing options most people think of trying to get a line of credit from the bank. A business line of credit is a type of loan that allows borrowers to access funds on an as-needed basis. The loan amount and repayment terms vary from lender to lender, but generally speaking, the borrower will be granted a predetermined sum of money that they can draw upon at any time for their business needs. This makes it easier for borrowers to manage their cash flow, as they don’t have to take out large sums of money at once and can draw upon the line of credit when necessary. Unfortunately, lines of credit are not easy to get – especially for a new business.
Does this mean you cannot receive a line of credit from a traditional lending institution? Not at all. Over time as your business grows, establishes a history of revenues, develops a strong balance sheet, and has assets to use for collateral, you will find it easier to obtain financing (including a business line of credit) from banks and other lending institutions. But until then, it is not going to be easy to get a line of credit.
Bank Loans for Real Estate Agents
Banks loans can be a good way for real estate agents to finance their business growth – if they qualify. Banks will normally require applicants to present non-liquid assets, such as bonds, stocks, and real estate. Assets are used as collateral to ensure that the applicant has valuable possessions that can be used to repay the loan. And, once you have those assets “tied up” backing a loan or line of credit, you can’t use them in the future as collateral for new loans.
Does this mean you shouldn’t try to get a bank loan? Not at all. It’s just important to understand how banks work. Once your business becomes well established, you should make use of bank loans. They offer stability, access to capital, and better interest rates than credit cards or business lines of credit for realtors.
SBA Loans for Real Estate Agents
You can get SBA loans for certain real estate transactions. According to the SBA website, an SBA 7 (a) loan can be used for:
- Long- and short-term working capital
- The purchase of real estate, including land and buildings
- The construction of a new building or renovation of an existing building
- Establishing a new business or assisting in the acquisition, operation, or expansion of an existing business
Source: https://www.sba.gov/funding-programs/loans/7a-loans#section-header-2
However, there are some drawbacks to SBA loans. First off, because you are still taking out a loan from a bank, you will need good credit. Second, the paperwork to obtain an SBA loan is often daunting enough by itself to prevent business owners from using SBA loans.
Also, when you are considering an SBA loan, you also must consider “speed.” If you are needing a cash injection in your business, or you have a great real estate investment opportunity in front of you, an SBA loan is probably going to be too “slow” for you. Just the reporting requirement would take most people a long time to get together.
What Is the Difference Between a Realtor Commission Advance and a Bank Loan?
A real estate commission advance differs from a loan in several ways. It doesn’t require paying back in installments, and your credit score is not the main factor for approval. Additionally, the fee structure is different, and there is no accumulation of daily, monthly, or yearly interest as with bank loans.
Credit Checks Are Not Necessary for Commission Advances
Real estate agents may encounter credit checks as an obstacle when seeking a bank loan or line of credit. If a real estate agent has recently switched agencies, filed for bankruptcy in the past few years, or has a high credit utilization ratio, their credit score may not meet the standards required for bank lending.
Real estate commission advance companies don’t give much importance to credit scores during their underwriting process. However, they do look for liens and judgments to ensure they can money during the closing process.
Having Options is Important for Business Finance
Managing cash flow with only one type of funding is not the best approach for business finance, regardless of the industry you are in. Depending on the situation, a loan or line of credit may be a suitable option for one segment of your business and be inappropriate for another. To support operations and expansion, big companies use a variety of financial instruments, such as credit, private equity, equity, bonds, futures trading, and factoring. Relying solely on lines of credit is uncommon for most businesses.
Real Estate Commission Advances are Fast and Flexible
When deciding on your business finance options, it’s important to think about speed, agility, and flexibility. As an example, if you find yourself in a position to get in on a real estate deal that requires a large amount of cash by tomorrow afternoon, it’s unlikely that you’ll be able to secure a loan or line of credit in time.
Banks are not fast. Speed, agility, and creativity are not part of their business model. They are more risk averse than private equity investors (typically). They work hard to ensure they don’t loan money that is at risk of not being repaid (naturally). All of this takes time for banks to work through.
A real estate commission advance can provide you with capital as early as the next day. Compared to the banking industry, commission advance companies have more flexible lending standards, which makes our industry quick to respond. Plus, using a real estate commission advance is very flexible. You can take out a real estate commission advance when you need it and use other financing vehicles when you don’t.
Real Estate Commission Advances Do Not Require Additional Collateral
Commission advanced doesn’t require collateral outside of the commission itself. You are securing the transaction with your future commissions, not your liquid assets, which frees those assets up to be used as collateral for longer-term financing projects.
Collateral is a big deal. When you secure a loan with a piece of collateral a Lien is filed against it. This lets any potential future lender know that in the event of default, someone else has first rights to any money recouped from the liquidation of the asset.
In many cases, you cannot use the same collateral for two different loans. This means that when obtaining financing that requires collateral, you must provide new collateral each time. However, a real estate commission advance is different because your commission serves as collateral, eliminating the need for additional collateral (in most cases).
Debt to Equity Reduces a Realtor’s Future Borrowing Power – but Not With a Commission Advance
The more money you borrow, the less you can borrow in the future. This is called the Debt to Equity ratio. If you have too much outstanding debt and too little equity, banks know they are at risk of not getting their money back. More debt equals more monthly payments and a reduction in your ability to pay for things in the future. Banks know the more debt you have, the harder it is to keep up with your payments. And until you get some of your debt paid down, they may refuse to loan you more money, even if you are asking for the money because your company is growing.
But when you take out a Realtor Commission Advance, it does not show up on your credit report, which helps you maintain a healthy debt to equity ratio.
Using Leverage to Market and Grow Your Real Estate Business
If you limit the amount of money you spend on marketing based only on how much you have in your savings, your business is going to be slow to grow. By leveraging every financial vehicle you have available to you, you can increase your marketing, and in so doing, decrease the time it takes for you to become successful.
But to do that, you can’t look at your marketing budget as an expense – you need to see it as an investment in your future success. In an interview, Gary Vaynerchuk said something like this: “Every month I saw the bill come in from Google for my Google Ads spend and it was like, eighty thousand dollars per month. And I thought to myself I should try to keep that expense down. I was wrong. So wrong. I should have been figuring out how to get that number up to three million dollars per month. And If I had done that, my company could have been where it is now, three years ago. But I only looked at the expense, not the goal of my marketing.”
If your marketing works, you shouldn’t be trying to reduce marketing costs, you should be figuring out how you can gain access to as much money as you can to do more marketing. If your marketing has a great return on ad spend, what difference does it make if a real estate commission advance costs you 10% if your return on marketing is 20% or 30%?
The bottom line is, you shouldn’t be sitting around for sixty or ninety days waiting to get paid on your last deal and THEN do some more marketing. You need to get access to that capital right away to “leverage” your marketing. Otherwise, you are simply going to delay your long-term success.
Taking out a real estate commission advance is one way to use leverage to keep your money working for you. The faster you receive your commission, the faster you can put that money to work for you.
Summary How Real Estate Commission Advances Help Realtors
Real estate commission advances help realtors by providing them with fast and easy access to the capital they can use to finance their growth, fund their marketing, take on new deals, and keep their business moving forward. Real estate commission advances are easy to apply for and do not require excellent credit for approval.
It can take from one month up to six months for closing on a new deal. And during that time, realtors need access to their commissions to pay bills, take on new deals, market themselves, stage homes, and more. Using a real estate commission advance allows realtors to get at a portion of their commissions in a couple of days rather than weeks or months.
There are real estate commission advance myths out there that suggest only realtors who are new, or who lack financial discipline use advances on commission, but that isn’t true. Big businesses never hesitate to use “other people’s money” to finance their operations and future growth. They take out loans, sell debt, sell equity, and use private equity investors to fund their future growth. Why should small businesses behave differently? Just remember – people who think small tend to stay small.
A real estate commission advance allows real estate agents the opportunity to get some of their commission fast so they can get their money back in the game and working for them.
What does a Real Estate commission advance application look like?
The application takes about 10 minutes to complete and can be filled out online. It asks for the amount of advance you are looking for, information related to the property on which you are requesting an advance, and the approximate closing date. Information related to the lender and lending officer is also usually requested.
In the application, you will be asked to provide:
- Proper identification, such as your driver’s license
- MLS listing of the property showing the status as “under contract”, “pending”, or “sold”
- Wire instructions (where to send your advance)
- Closing date
- Whether you are representing the buyer or seller.
- Evidence that contingencies have been satisfied.
- Commission sharing agreement or documentation showing net fees owed to you.
Applying with Accel Commission Advance
Once Accel receives your application, their proprietary cloud-based processing system allows them to advance your commission quickly and efficiently, in as little as 24 hours.
What do the underwriters look for in an application?
To confirm that the agent or broker requesting the advance is actively representing buyers or sellers in real estate transactions, underwriters look at data related to the number of transactions that the agent or broker has completed in the last six months and how many active and pending listings they currently have.
Accel Commission Advance requires that an agent or broker has at least three other listings or active deals in the process of closing. The deal must also be scheduled to will close within 14 – 90 days. Credit score is not considered in their underwriting process.
How Are The Fees Determined?
Fees are set based on numerous factors, and each case is assessed individually. Accel offers reduced fees as an agent or broker completes more advances with them and establishes a consistent track record. Accel offers competitive fees as low as 8 percent.
How Do I Get My Money From a Real Estate Commission Advance?
Advances will be delivered to your bank account via e-checks and wire transfers. Accel gets you paid fast.
How Do I Pay Back a Real Estate Commission Advance?
Repayment of the advance happens automatically when your sale closes. The settlement company will receive a commission disbursement authorization signed by your broker instructing them to send a portion of your commission directly to Accel on your closing date. So there is nothing for you to do. We collect our money directly at closing.
About Accel Real Estate Commission Advance
We are a direct funder, not a broker like most real estate commission advance companies. Because there’s no middleman involved, our fees are among the lowest in the industry, as we pass our savings on to you.
We factor numerous asset classes, helping attorneys, professional athletes, business owners, and of course real estate agents and brokers. Let Accel finance your next Real Estate Commission Advance.
Frequently Asked Questions about Real Estate Commission Advance
Question: Is there a minimum size commission that you advance Real Estate Agents?
Answer: There is no minimum size commission, but the minimum fee is $300.
Question: Is there a maximum size commission that you advance?
Answer: Yes. The maximum amount is $30,000.
Question: Are there any reserve holdbacks?
Answer: Yes, there is a 10% reserve holdback on every advance.
Question: Are there any administration fees?
Answer: There is a $30 wire fee for any outgoing wires. Agents can opt to receive funds via eCheck for no charge.
Question: Are there any application fees?
Answer: No
Question: Do you advance brokers of record?
Answer: Yes, on a case-by-case basis.
Question: Can I advance more than one deal at a time?
Answer: Yes
Question: How much of my Commission can I Advance?
Answer: Up to 82% of the net commission is due to the agent.
Question: How quickly can I get my advance processed?
Answer: Advances are processed in 48 hours or less – the majority of advances fund the same day.
Question: Are your advances restricted to a closing within 90 days?
Answer: We will consider up to 120 days on a case by case basis.
Question: Do you require a minimum size deposit?
Answer: No
