You Can’t Seize Real Estate Opportunities With Cash You Don’t Have
Waiting on real estate commissions may mean lost opportunities for realtors. If you’ve been a realtor, broker, or real estate investor long enough, there is a good chance you have experienced this already. Sometimes it seems like the best opportunities always arise at the precise moment your bank account is low because you are waiting on a few closings to wrap up. This isn’t just the real estate business – ask any entrepreneur if they have experienced almost missing out on a great new deal while waiting to get paid from the last one, and most will tell you they have, and often more than once.
To be successful and keep their businesses growing, realtors need better access to “quick capital” so they can take advantage of deals as they come up.
Real estate agents who have been in business for several years may have a line of credit established with a bank. In some cases, a real estate agent may have developed a working relationship with a private equity investor to help them take on new deals whenever they arise.
But for most real estate agents, this is not going to be the case. Especially not for new real estate agents. For most realtors, your access to capital will be limited to your credit cards, your own savings, or friends and family members loaning you money. None of these are ideal (unless you have a very wealthy family who can act as a private equity investor) and will often leave realtors struggling to get access to quick capital to finance real estate deals.
The bottom line is – there are going to be times when you need access to quick capital to take advantage of a great deal. Often, especially for newer realtors, if they could just get access to the commissions they are owed, it would be enough to do the next deal.
One way to get quick access to those pending commissions is to take out a real estate commission advance. Real estate commission advances allow realtors to get access to their closing money right away (for a fee) which can be the difference between securing that great deal or watching it slip through your fingertips.
How fast can you get your money if you take out a real estate commission advance? In some cases, the next day. In many cases, within a few days.
Why Waiting on Your Commissions is a Bad Idea
Time spent waiting on money is time lost. You can never get it back. If you are waiting on your money, there are things you aren’t doing – like marketing, hiring new talent, investing in new deals, taking on bigger projects, doing fix and flip projects, Etc.
And where does that lost time show up? In the length of time it takes you to become successful. Just imagine any time you spend waiting on your money, just gets added on to the back of your career, making it longer. Or worse, imagine that time you spent waiting on your money is lost forever and your success is diminished by some unknowable amount because you simply ran out of time at the end of your career and never made it up.
This isn’t just a cautionary tale – this is the truth. Time is the only finite resource in business. You can get more cash, more people, more technology, more everything – except time. You can’t spend your time waiting on your money – you need to get that money as fast as you can and get it back in the game working toward your successful future.
In an interview, the famous influencer Gary Vee (Vaynerchuk) said something like this about wrong thinking when it comes to capital: “Every month I saw the bill come in from our pay per click advertising and it would be like, eighty thousand dollars per month. And I thought to myself I should try to keep that expense down, so I did. But I was wrong. So wrong. Instead of trying to cut it down, I should have been figuring out how to get my ad spend 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 got caught in the trap of thinking of it as an expense, not as an investment in reaching my long-term goals, and it cost me time.”
You can’t succeed by sitting around for sixty or ninety days waiting to get paid on your last deal. You need to get access to that capital right away to “leverage” your marketing forward and take on new deals. Otherwise, you are simply going to delay your long-term success.
To do this, you are going to need quick access to capital. Even if it means sacrificing a few interest points or taking on some additional costs – you are going to need capital fast, and you must find a resource that is easy to work with and willing to grant you speedy access to capital.
Realtors Have Historically Had Limited Access to Quick Capital
There is a reason realtors have had trouble succeeding long term. Historically they have had limited access to capital.
If you read articles about how to finance your real estate business, here are the typical answers you will find:
- Use your savings
- Cash out your retirement plan
- Borrow money from your family
- Borrow money from your friends
- Use your personal credit cards
These are the answers realtors typically receive when asked how they are going to finance their operations and grow. But do any of these answers sound like the way REAL businesses get access to capital?
No, of course not. Normal businesses seek out private equity investment, take out business loans, get business lines of business credit, sell stocks, sell bonds, and more.
So why are new realtors told to use their parents’ and friends’ savings accounts and to deplete their own retirement plans to run their operations? Because this is what other realtors have done for a long time. This is how they started up and ran (and often continue to run) their real estate businesses.
So, this is what they tell other realtors to do. It’s not their fault – it’s what they know. So when they are asked, “what did you do to become successful,” they are telling people what they did, which is finance their survival with credit cards, cashed out retirement plans, and borrowing money from friends and family.
But if you really want your real estate business to succeed, you are going to need to figure out how to get access to capital beyond you and your family’s savings accounts. Otherwise, you are probably going to “muddle along” for a long time and never see true success.
One way to get access to quick capital is to use real estate commission advances to get your commissions as fast as you can to keep it working for you.
What is a Real Estate Commission Advance?
A real estate commission advance is a financial vehicle that allows realtors or brokers to sell a portion of their pending commissions for a fee. This allows the realtor to get quick access to their pending commissions.
What is the Difference Between a Real Estate Commission Advance and a Bank Loan?
A real estate commission advance is not a loan. There are no payments to be made. Commission advances do not impact your credit score (or even hit your credit report). When your sale closes, repayment of the advance happens automatically: there are no monthly payment to make.
How Does a Real Estate Commission Advance Work?
A stock or bond is an asset, and because it is an asset, you can sell it. Most people understand this.
What most people do not know is that when you are owed a real estate commission (due at closing), it is also an asset, and you can sell it whenever you want just like a stock or bond.
How Does That Work?
Example of Selling an Asset at a Discounted Rate*
$500,000 – Amount you having coming to you in two months (from a closing)
$360,000 – Amount you sold your $500,000 for (and will receive right away)
$500,000 – Amount the buyer will receive in two months (60 days)
$50,000 – Profit the buyer made on this purchase
Your Benefit – you get $360,000 cash to put back into your business right now
Buyer Benefit – they make a $50,000 profit for waiting sixty days to get their money back and taking the risk 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 – plus – you cannot receive a 100% advance on commissions owed to you.
Understanding the Cash Flow Problem Realtors Face
What is Cash Flow for Realtors?
In business, the term “cash flow” gets thrown around a lot. The problem is, few people truly understand what cash flow means, so it just becomes “jargon” people use to describe how their sales are doing. But your sales numbers are not cash flow. In fact, for most businesses, increasing your sales causes more cash flow problems, not less. So, let’s take a moment here to understand this mysterious term “cash flow” and hopefully restore it to its proper place in business language.
Cash flow is the “flow of cash” into your bank account versus the “flow of cash” out of your bank account. That is all cash flow is – money flowing in and money flowing out.
When your money is flowing out quickly (because of expenses) and at the same time flowing in slowly (because you are waiting to get paid for your work), you will 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. And when you can’t pay your bills, you are out of the game. It doesn’t matter if you have a large sum of money guaranteed to you sometime in the future; when you don’t have any of it in the bank, your creditors don’t care – they want their money now and you can’t pay them.
This is why companies factor their accounts receivable, establish lines of credit, use business credit cards, sell stocks or bonds, or seek out private equity investors – to finance the gap between doing their work and the time it takes to get paid for the work they’ve already completed.
What Causes Cash Flow Problems for Realtors?
Cash flow problems for realtors are caused by the “timing” of when they get paid (money flowing into their bank account) versus the timing of when that money gets spent (money flowing out of the bank account).
Realtors have “cash flow problems” because they have money flowing OUT of their bank account faster than money flows IN to their bank account (like while you are waiting months for closings to get paid their due commissions).
Understanding the Timing Problem
When you close a deal on a house, you must wait to be paid at closing. This is the cause of the “timing problem.” It doesn’t matter that you have money coming in “soon,” you still must pay your bills, make payroll, pay for marketing, etc.
So, you have money going out constantly (bills, payroll, marketing, staging, etc), but you only have money coming in occasionally (at closings).
Because you get paid at irregular intervals as a realtor, but you spend your money at regular intervals on bills and living expenses, you have a situation where the “timing” of money coming in does not match the “timing” of money going out, which creates cash flow problems.
This isn’t a problem that is unique to the real estate industry; most businesses have this kind of cash flow challenge. Lawyers who work on a contingency fee basis may work for YEARS on a case, incurring massive expenses along the way, conclude the case, and then wait years before they are finally paid. Imagine trying to keep that business model going and succeed at it.
The solution to this cash flow problem is to find ways to “finance the gap” between money going out and money coming back in or shorten the gap.
One way to shorten the cash flow gap – is to take out a real estate commission advance instead of waiting for closing to receive your funds at closing. You can’t do anything with “money you are owed.” You have to get the money into your bank account to make it work for you. A real estate commission advance is one way to do it.
Financing “The Gap” to Solve the Cash Flow Problem for Realtors
Using Business Lines of Credit and Business Loans for Cash Flow Management
When it comes to potential financing options, most people think of bank loans and business lines of credit. And although bank loans and lines of credit can be helpful for realtors, you may find that trying to secure a business loan or a line of credit is not always easy.
Banks often require applicants to present non-liquid assets, such as bonds, stocks, and real estate. These assets, used as collateral, guarantee that the applicant will have something of significant value with which to pay back the loan. Plus, once you have those assets “tied up” backing one loan or a line of credit, you can’t use them in the future as collateral for new loans. These assets become “frozen” because they are already pledged as collateral.
Business lines of credit are not always easy to get. If you perform a search on the internet for “business line of credit for realtors” you might notice there aren’t any banks that show up on the first page of Google. No financial institution shows up at all on the first page of search results. Most of what you see are articles about how hard it is to get a business line of credit or private equity firms offering capital loans. This tells us that banking institutions may not be that interested in marketing a business line of credit to real estate agents as an important part of their business strategy, otherwise, they would show up in internet search results – but they don’t.
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.
SBA Loans for Real Estate Agents
You can get SBA loans for certain real estate transactions. According to the SBA website, a SBA 7 (a) loan can be used for:
- Long- and short-term working capital
- Revolving funds based on the value of existing inventory and receivables
- The purchase of equipment, machinery, furniture, fixtures, supplies, or materials
- 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
- Refinancing existing business debt, under certain conditions
According to the SBA website, The SBA 7(a) loan may be the best type of SBA financing for independent real estate agents and small to mid-size brokerages.
However, there are some drawbacks to SBA loans. First – you still need to have good credit, and significant business history to be accepted for an SBA Loan. Second and probably more important, the paperwork required for obtaining any type of SBA loan is notoriously daunting. Just filling out the paperwork to apply for an SBA loan is sufficient to keep many small business owners from attempting it.
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.
Myths About Using Real Estate Commission Advances
A common myth about using real estate commission advances is that only realtors who lack cash flow discipline would take advantage of a real estate commission advance. This myth is based upon the reasoning that “if you were successful” you could use your own money to finance your continued growth.
But the truth is, no “real” business does things this way. Big businesses never hesitate to use “other people’s money” to finance their growth while keeping their own money in their checking accounts. Why should real estate be any different?
The truth is, being debt free, or financing your own growth with your own cash reserves should NEVER be a goal of a business owner. Anyone with even a cursory understanding of business finance knows that if you find a business that has no debt, and only uses cash to finance growth and operations, this business is “asleep at the wheel” and is missing huge opportunities.
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 it all on their own cash (nor would they even if they could). Their cash flows wouldn’t allow it. So, if you spot a business that is debt free, you can know with certainty that they are losing ground to someone else who is financing its growth with “other people’s money” which means its balance sheet will show debt.
When you try to rely on your own resources to finance your growth, you are by design, limiting your growth and slowing it down. 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 and borrow, find private equity, factor their commissions, and raise capital to grow. And if they do, you are going to fall behind while you try to finance your growth with your own money.
Business owners who think small – tend to stay small. And if staying small is your goal, then maybe this article isn’t for you. But if your goal is to grow, take market share, and really succeed in the real estate business, then you should not aspire to finance the growth of your real estate business with your own limited cash reserves. Big business would NEVER do this, and neither should you.
So be careful listening to “the experts” in your industry. Although their ideas may be well intended, they might limit your growth and slow you down. It isn’t a shameful thing to borrow money to finance your growth. Big business always uses third party funding to finance their continued growth because they know they’ll get left in the dust by their competitors if they don’t.
Having Options is Important for Business Finance
When it comes to business finance, regardless of the business you are in, having only one vehicle to manage cash flow is not optimal. A loan or line of credit might be a great option for one aspect of your business and be terrible for the next. Large businesses make use of credit, private equity, equity, bonds, futures trading, and factoring to finance operations and growth. Having multiple options can give you speed and flexibility – both important for the growth of any type of business.
Speed and Flexibility
Another thing to consider when you are thinking about your business finance options is speed, agility, and flexibility. When you need access to a large amount of cash by tomorrow afternoon to get in on a real estate deal you just found out about, a loan or line of credit in most cases is going to be nearly impossible to secure in time.
Although banks hold a great deal of the world’s financial power, FAST is not a word most people would associate with the banking industry. Speed, agility, and creativity are not (generally speaking) part of their business model. They are careful. They have lending standards that are precise and specific. They have processes they use to help ensure they don’t make “bad loans.” All this checking and double checking takes time.
But with a real estate commission advance, you can often secure capital the next day. Real estate commission advance companies have different lending standards than the banking industry. This makes our industry incredibly agile.
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.
Credit Checks Are Not Necessary for Commission Advances
Credit checks are another potential hurdle that real estate agents might face when applying for a bank loan or line of credit. Real Estate Agents who recently started working at a different agency, declared bankruptcy within the past few years, or have a high credit utilization ratio, may not meet bank lending standards because of their credit score.
For real estate commissions advance companies’ credit score is not a major determining factor in their underwriting process. They do check for liens and judgments to make sure they can collect their money at closing, but your credit score is not a major factor in their underwriting.
Real Estate Commission Advances Do Not Require Additional Collateral
Another great thing about a real estate commission advance is that you don’t need to tie up 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.
It’s not easy to keep coming up with collateral. Once you pledge an asset against a loan, a Lien is filed against it, notifying the whole world that in the event of default, someone else has first rights to the asset. Because of this, you can’t always use one piece of collateral for two separate loans. Meaning, to continue taking out financing that requires collateral, you have to keep coming up with new collateral. But with a real estate commission advance, the commission you are owed is the collateral, so no additional collateral is required (in most cases).
Debt to Equity
Another challenge with traditional lending institutions is that the more money you borrow, the less the banks are willing to loan you in the future. If a bank looks at your outstanding debts and sees you already have a lot of loans taken out, they will be less likely to loan you more money. They 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.
Summary – Waiting on Commission May Mean Lost Opportunities for Realtors
Waiting on commissions may mean lost opportunities for realtors. Often in business, it seems like the best deals come along at the precise moment you are waiting to get paid from the last deal you closed. But great deals wait for no one and if you can’t come up with the capital fast, you miss out.
Waiting on money is never a good plan. You need to get your money as quickly as possible to get that money back in the game and working for you. Time is a finite resource, and any time you spend waiting on your money either gets subtracted from your future success or adds more time to the length of time it takes to succeed.
Big businesses never finance their operations and future growth with their own money. They use loans, lines of credit, factoring accounts receivable, business credit cards, private equity investment, and more to finance their future expansion plans. So why would you as a realtor try to finance your growth with your own savings, retirement plans, personal credit cards, and borrowed money from friends and family?
Realtors need to get access to “quick capital” to succeed. One way to do that is to take out advances on commission rather than waiting for it. Your commission is an asset and can be sold to a real estate commission advance company like Accel Real Estate Commission Advance. This allows you to get some of your pending commissions right away rather than sitting around waiting to get paid.
So remember, don’t wait for your real estate commission – get it as fast as you can and get it working for you.
Applying with Accel Commission Advance
Once Accel Commission Advance 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 does a Realtor 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.
What Do the Underwriters Look for on the 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 one other listing or active deal in the process of closing. The deal must also be scheduled to will close within 45 days. Your 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 Does a Commission Advance Work?
Advances will be delivered to your bank account via a wire transfer. Accel gets you paid fast. Overnight funding for Realtors is possible, especially for agents and brokers that have already done business with Accel.
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.
Every transaction is different, and the timing of each sales cycle can vary widely depending on how long it takes to get an inspection and lender in place, among many other factors. Accel Commission Advance provides flexible cash flow solutions to Realtors to help them meet their financial needs.
The Accel Commission Advance Difference
Accel’s friendly staff guides each client from filling out the application all the way through funding the advance. If you think their real estate commission advance solution could be the right fit for you, please call one of their advance specialists at 267-769-0747. Or to apply online, simply click here to submit an application.
What Are Some Advantages to a Real Estate Commission Advance?
For starters –
Speed. Our turnaround is often the same day or next day. You get your money right away instead of waiting for closing which can sometimes take months.
Credit. Since you aren’t taking out a loan, your personal credit isn’t a major factor, which makes the application process much easier – not to mention, these types of advances are almost always approved.
Fees. Also, the fees for a real estate commission advance will tend to be much lower than taking out a loan or using a line of credit to finance your operations as a real estate agent.
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 $250.
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?
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?
Question: How much of my Commission can I Advance?
Answer: Up to 80% of net commission due to agent.
Question: How quickly can I get my advance processed?
Answer: Advances are processed in 48 hours or less – majority of advances fund same day.
Question: Are your advances restricted to a closing within 90 days?
Answer: Within 120 days.
Question: Do you require a minimum size deposit?