Real estate agents always need to know how their business is holding up and what’s going on with the market. These are the most important metrics to start tracking.
6 most important metrics for real estate agents:
Real estate accounting is important so you always know where your business stands. You need visibility into the fine details while getting a high-level picture of your complete financial situation. This information helps you plan for the future, assess business growth, pay taxes, better manage your cash flow, and create more efficient processes and practices. Tracking the right key metrics will help you understand the ebbs and flows of the real estate market so you can run your business more effectively.
So, what should real estate agents be tracking? Here are the most important metrics to stay on top of.
1. Brokerage fees and expenses
Choosing a brokerage can have a big impact on your financial health. Think through brokerage fees, commission splits, marketing support, and training that will help you establish and grow your business. Consider whether everything you’ll have to pay is worth it, or if you can get those things for less elsewhere. Stay on top of brokerage fees and expenses each month so you always know the ROI on your brokerage.
2. Average commission
The average commission per sale tells you how much money you make for each transaction you have. On average, your commission should be between 2.5% and 3% of a transaction after the buyer’s agent and seller’s agent have taken their split, since the overall commission is usually 5% to 6% of the property’s sale price. You need to track your average commission to compare it to what’s happening in the market, ensuring that you are staying competitive and aware of what kind of profits your transactions are bringing you.
3. Average number of properties or clients
You also need to keep a close eye on how many clients you’re taking on and how many properties you’re trying to manage. You may be able to set a target number of clients each month, so you’re never taking on too much while still maintaining a healthy bottom line. Especially for new agents, this balance is very delicate and takes time to master.
4. Average sold price
As a real estate agent, you always have to know what’s happening in the market to help your clients succeed, whether you’re on the buying or selling end of a transaction. One way to do this is to track the average sold price for all the transactions you’re a part of. It also helps you predict what your commissions and income will be for the month or year based on the amount of work you’re taking on. This is crucial in forecasting and planning.
5. Number of days on the market
Another industry-related metric to track is the average time a property is on the market. This is the period between when a property is listed until its closing. This is a big indicator of how the market is doing and whether it’s a seller’s or buyer’s market. It also helps you plan out how many hours you may spend on one project.
6. Business expenses
An important part of your accounting approach will be managing all of your day-to-day expenses. What supplies and equipment do you need to do your job effectively? Track everything you spend money on and compare those expenses to your income.
In addition to basic office expenses, track these costs:
Administrative costs: These costs are not tied directly to a client or transaction, but they are part of the ongoing expenses that keep your business operating.
Marketing costs: What outlets are you using to market your business? Do you have business cards and a website? Do you put out ads? These are marketing costs.
For tax purposes, carefully track and report all costs of running your business.
Statements and reports for real estate agents
Once you start tracking all of these metrics, you will have greater visibility into your business and the market. What kinds of reports will you need to make that insight actionable?
First, put a process in place to conduct a monthly review. This is when you will review all of your incoming cash and outgoing costs, ensuring that you are on track to make a profit and cover everything you need to pay for. Working with a professional may be a good idea so they can prepare these reports and help interpret them.
You will also need to pull reports such as:
Cash flow analysis: This is when you dive deep into how you’re spending and earning money. It also tells you how much cash you have available now.
Tax information: You will need to submit annual tax returns where you report all of your income and expenses for the year. You also need to know what credits and deductions you are eligible for.
As you can see, accounting as a real estate agent needs consistent and close attention. When you’re unsure where to start or how to set up the right system, talk to an accounting expert who can help you create the right process.
Working with Franco Blueprint
The team at Franco Blueprint is ready to help you craft the right accounting approach for your real estate business. We help manage your taxes and automate the accounting process with the right tools. We specialize in helping small businesses set everything up for success from the beginning, providing more support than an accountant.
Contact the Franco Blueprint team today to schedule a free consultation.