A commission advance is a financial transaction that involves a real estate agent or broker selling part of his/her pending commission at a discount, in exchange for quick cash. Since this advance is a service and not a type of loan, it allows agents to monetize a transaction without having to wait until the closing period. There are many reasons why real estate agents choose to go for an advance on their commission, some of which include:
However, despite its advantages, there is still a lot of ongoing confusion regarding commission advances. This lack of familiarity sometimes leads to people making assumptions that are simply not true, and those assumptions eventually turn into ‘myths.’ To help you get a better understanding of what’s right and what’s not, we have compiled here a list of top 5 myths related to commission advances and the truth behind those assumptions.
This is not true. Despite a real estate agent’s success, commission advances are something that can prove to be of great use to almost anyone. Advancing your commission doesn’t make you any less superior or incompetent, and is by no means a sign of weakness. Since the industry is so dynamic, there is no guarantee of when and how the money will be flowing in and out.
When business is slow, and agents have to wait for a long period before receiving their commission, financing their day-to-day operations can become extremely difficult. This is why almost every real estate agent, at one point or another, will have to face a financial crunch. And in that time, a lot of agents, even the very successful ones, go for a commission advance to pay for their daily expenses.
Regardless of whether you own a billion-dollar oil company, a clothing store or a hotdog stall, all businesses experience ebbs and rise in cash flow. Conventional businesses access to credit lines to make sure their cash flow remains stable all year round. For real estate agents, however, conventional means of financing may not be all that easy. This is because banks and other financial institutions are often hesitant to lend them money owing to the volatility of the industry and uncertainty of income. In such a scenario, commission advances come to agents’ rescue.
Since a commission advance doesn’t fall under the category of a loan, it doesn’t involve credit checks and all that formality.In case of a credit check, the majority of commission advance firms carry out a background check which will them know if someone has accrued liens or past judgments. However, there are a lot of commission advance companies that do not carry out any credit checks, so you don’t have to worry about hurting your credit score. In fact, if you have easily accessible funds through a commission advance to pay your expenses, your credit score will be ultimately improved, not hurt.
What this means for real estate agents is that they won’t have to hustle much to obtain quick cash.
If you choose a reputable company to handle your commission advance, you won’t have to worry about a sale falling through. Experienced companies that have dealt with billions of dollars in commissions will tell you that there is only a 10% chance of an unsuccessful sale. And should that happen to you, a lot these companies are also willing to work with you to substitute the advance using a future earned commission?
Some agents worry about others finding out if they apply for a commission advance. What many don’t realize is that at present day, confidentiality is 100% guaranteed, and the entire procedure will remain private. A lot of online companies specializing in commission advances offer services that prioritize their clients’ safety concern, which means privacy shouldn’t be a concern for you if you choose the right company.
Sure, there are some charges involved if you decide to take a commission advance. However, this cost will vary depending on the amount of the advance and the amount of time until your sale closing. For instance, a new client can expect to pay around 10% of the amount they want to advance if the sale closing is in 40 days. Longer closings (around four months) will surely cost more.
While the service may initially seem pricey to you, the alternatives may be pricier – and involving a great deal of hassle. For instance, if you opt for taking out a cash advance from your credit card, first of all, you will not be allowed enough amount that will be of any real use. Second of all, you will have to pay interest and hidden charges that can prove to be much more expensive in the long run.
Although a commission advance is not always the solution to a financial crunch, it does come off as handy to agents, at a reasonable cost, and with a relatively much less effort.