Real Estate Company (Income & Commissions)

A real estate company earns income primarily through commissions and fees for services performed in real estate transactions.

• Gross income is the total income received before any expenses are deducted
• Includes:
  • Sales commissions
  • Leasing commissions
  • Property management fees
  • Referral fees
  • Consulting or brokerage fees

• A commission is compensation paid for completing a real estate transaction
• Usually based on a percentage of the sales price or lease value
• Must be agreed to in advance
• Must be paid only to a licensed broker

• Broker receives the entire commission
• Broker may then pay:
  • Salespersons
  • Broker-associates
• Salespersons are never paid directly by clients

• Net income = gross income − operating expenses
• Common expenses:
  • Salaries and commissions paid out
  • Office rent
  • Advertising and marketing
  • Insurance and licensing fees

• Client funds held by a broker (deposits, rents) are not income
• Must be held in a trust account
• Commingling is prohibited

• Gross income is income before expenses
• Commissions are earned by the broker, not the salesperson
• Trust funds are not part of gross income