One of the most challenging aspects of self-employment is the lack of predictability when it comes to getting paid. Though you may have put in the work to win the business, your future income doesn’t help you cover expenses you have today.
As a real estate agent, you usually have to wait weeks or months after an agreement of sale is signed before you get paid. With a commission advance, agents can access pending commissions sooner in exchange for a fee paid at closing.
Though the fees and terms of a real estate commission advance can vary, a commission advance works by following three simple steps.
The first step in a commission advance is completing an application. You’ll provide some basic information like your name, address, contact and banking information, as well as your broker’s contact information and the details of the pending deal or active listing you want to take the advance on.
Since your broker receives all commissions before disbursing them to agents, you’ll need your broker’s approval on any commission advance you take. If your broker agrees, you can move forward with selling a portion of your future commission to the advance company by signing off on the terms of the agreement. At a minimum, these terms will include the amount of the advance, any fees or interest charges, the grace period (if applicable), and your promise to repay the advance at closing.
Once you and your broker sign the commission advance documents, the company will begin an advanced review of your application.
Similar to a lender, an advance company will need to review your application to determine your eligibility. They may examine your credit (unlike a loan, this won’t impact your credit score) and production history as an agent. They’ll also review the transaction details and closing date and may contact the title company for verification.
If everything checks out, the advance company will approve your application and transfer the money directly to your bank account. This may be sent via ACH or wire. Note, wires sometimes cost an additional fee, but are almost instant whereas an ACH can take up to one business day. You can then spend the money however you’d like, from paying bills to investing in your next deal or growing your business.
When closing day arrives, it’s time to repay the advanced amount, along with any fees or interest charges. As part of your initial agreement, you sold a portion of your commission to the advance company. At the closing, those commission monies and the fees you promised to pay for early access to them, are sent directly to the commission advance company. Before you get to closing, make sure to check the fee schedule on your agreement to avoid any unpleasant surprises. Remember, the later your closing date, the higher your fee. If your closing is delayed, the advance company may offer a brief grace period but will begin charging additional fees if the closing is delayed beyond that window.
In some ways, applying for a real estate commission advance looks a lot like applying for a credit card. You’ll start by submitting a formal application, signing a binding agreement, and getting your broker’s approval. Next, the commission advance provider will review your application to determine if you qualify for an advance. Once they give their stamp of approval, they’ll provide the funding by wiring the money to your bank account. At closing, the advance company is repaid automatically from your commission, completing the commission advance process.
While a commission advance is a useful service for real estate agents, it requires broker approval and can get pretty costly. At Tongo, we recognize the limitations of a traditional commission advance, which is why we created a line of credit specifically for real estate agents. With Tongo, you get access to your commissions sooner, while maintaining your privacy and saving hundreds of dollars on fees.
If you’ve been using traditional commission advance, it’s time to upgrade to Tongo. Sign up for free today in less than two minutes, and start saving on your next deal.