Sixth Annual Business Income and Expense Survey

IS YOUR PIGGY BANK HAPPY?

Last year was a great time to be in real estate. Income performance in 2000-- the second biggest year on record for existing-home sales--was strong for both brokers and salespeople, according to REALTOR^® Magazine’s annual income and expense survey.

Across the board, practitioners earned a median of $50,000 and an average of $69,910. Those with at least one personal assistant did even better, earning an average of $103,708.

Figures like that place the income of full-time real estate professionals in line with that of other professionals. Investment analysts, for example, earned an approximate national average of almost $70,000, and accountants, $63,000, according to Salary.com, which includes salary data from the first part of 2001.

One reason practitioners are showing such strong income in comparison with previous surveys has to do with our survey methodology. This year, instead of reporting figures in medians, as in past years, we’re reporting them in averages. Doing so helps us align income trends with expense trends, which some survey consultants say are better tracked in averages. Also, participants in this year’s survey were overwhelmingly full-time practitioners with many years’ experience, minimizing the impact of licensees who work part-time or as assistants.

Details of our methodology are included at the bottom of page 32.

The survey shows why real estate has been such an attractive career alternative for women: They earned an average of $67,155, just a few percentage points below the average income for men, which stood at $72,753.

But if gender doesn’t make much difference in this business, experience does. As you might expect, those just starting out earned the least in 2000--an average of $27,214 for those with five or fewer years’ experience. Income jumped to an average of $69,899 for those with six to 10 years’ experience. Those with 26 years or more of experience earned the highest average: $82,501.

Compensation arrangements affect income, too. Sales associates on 100 percent commission plans posted stronger earnings than those earning a split, an average of $73,769. But, as expected, they also spent more. The reported number was $13,852. However, because of an anomaly in this year’s survey sample--we attracted responses from an inordinate number of sole practitioners--we conducted additional telephone surveys to check the validity of income and expense numbers. We found most of the numbers to be on track. One number that didn’t check out, however, was desk costs. Brokers and brokerage consultants we talked with said desk costs run, on average, $7,000-$8,000 a year. That’s higher than the average $1,782 we found for 100 percent commission earners. If the higher desk costs were factored in, a 100 percent earner’s annual expenses would jump to about $20,000 instead of the reported $13,852.

“Desk fees are going to vary by market and other factors, such as working from home, but you can expect practitioners to pay at least $7,000 a year,” says Dennis Gould, managing partner, Compensation Master, a software and consulting company that helps brokerages set commission plans.

For sales associates on a percentage commission plan, earnings and expenses were a bit lower. The survey shows an average income of $66,141 and average expenses of $12,420.

As you’d expect, practitioners employing a personal assistant had the highest annual expense bill--more than $21,000 on average.

But the survey makes it clear that those dollars can translate into big income gains. Practitioners who paid all the costs of their personal assistant themselves earned an average of $123,006, making them one of the highest-paid groups in the industry.

The only group to surpass that amount was practitioners earning a salary plus commission. They earned an average of $135,952.

Practitioners reported that their personal assistants earned an average of $23,565 a year, a figure that includes both full-time and part-time assistants.

After desk charges, practitioners spent the most on ads and promotions, about $3,200 a year. That figure includes about $2,000 a year on classified ads. Another big-ticket item was technology. Practitioners on average spent about $1,500. Those earning 100 percent commission spent the most, about $1,700 compared with roughly $1,300 for those earning a commission split.

Despite the higher cost of doing business, 100 percent arrangements continue to be popular among sales associates. Slightly more than 30 percent of respondents said they’re on such plans. Although percentage commission splits continue to be the most common type of compensation plan--with almost 60 percent saying they earn some kind of split--almost 50 percent of practitioners responding said 100 percent commission would be their preferred plan if given a choice.

Another popular compensation plan is commission plus share of profits. More than 40 percent of respondents said they’d like that plan if given a choice.

Whatever their compensation plan, real estate pros had a booming year 2000. And with existing-home sales hovering near record levels--the latest sales figures from NAR showed a 3.5 percent increase over the pace set a year earlier--the good times show few signs of abating.

Methodology: Survey findings are based on 900 responses to a mail survey distributed in late February, and supplemented with 200 responses to a telephone survey conducted in mid-May. Unlike past REALTOR^® Magazine compensation surveys, our 2000 survey excludes virtually all “dabblers” (those who do real estate as part of an array of services), part-timers, and licensees working as assistants. We’ve also changed how we collect income and expense information. This year we asked for actual dollar amounts, instead of asking respondents to check a range.

SALES ASSOCIATE INCOME, EXPENSES
2000 average income and expenses

	Income	Expenses
By compensation type
Commission split	$66,141	$12,420
100 percent commission	73,769	19,570*
Salary	81,200	4,993
Salary plus share of profits	135,952	8,168
Commission plus share of profits	66,200	20,056
Share of profits only	59,357	15,569
All sales associates	67,882	12,271