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So you’ve worked hard in servicing real estate clients for many years. You successfully helped many people in owning their homes and achieve financial security. Shouldn’t you take a moment to plan for your retirement as well?
Real estate agents may retire by having a considerable nest egg such as personal savings, IRA, investments, proceed from selling their real estate business. Or they could have income flows (i.e., rental income, profit sharing with another Realtor.) that are sufficient to fund their retired lifestyle.
I spent the last few days researching this topic and talked to many real estate agents for their thoughts on retirement. In this post, you find out at what age do sales agents retire, what they are doing to reach that goal, and what they could do to transition away from the real estate business.
However, before we start, I want to emphasize that this post is just for general information and not intended to provide any financial advice. You should always consult a financial professional before making any decision.
When do real estate agents retire?
There is no mandatory retirement age for real estate agents. Therefore, the answer is different for each individual, and it’s hard to pinpoint when that time comes.
So I conducted polls on different real estate professional groups, and below is what I found.
22% of real agents plan to retire before or at age 60, and 9% between age 61 to 70. However, the majority of real estate agents responded that they would continue working as long as their health condition allows.
Unlike a 9 to 5 office job, which requires your full-time work hours 5 days a week, being a real estate agent gives you much more flexibility. Some people would work on a deal for a few weeks, then take a long break. And some may work only a few months in a year. Therefore, when comparing to another full-time job, there may not be such a strong driving force to retire.
Many senior real estate agents love to stay working in the business
I was just reading an article from Illinois REALTORS, where they interviewed several senior real estate agents/brokers. Although all of them are over age 70, they continue to have such a great time and fulfillment in the real estate business.
For example, Lorraine Epperson, age 92, the managing broker/owner of Century 21 Purdum-Epperson in Macomb, said that she enjoys the challenges in this industry. As long as she likes what she’s doing, she won’t consider retirement.
Frank Williams, age 81, who has run F. J. Williams Realty in Evergreen Park for 48 years, said he sees real estate as his ministry, and there’s too much work to be done. He’s not going to retire soon.
Also, David McClintock, the CEO of Three Rivers Association of REALTORS®, said that he is 70 years old, and a lot of his peers are still around.
Some people became a real estate agent at an older age
According to the National Association of Realtors, the median age of Realtors is 55, and 34% are age 60 or older. Interestingly, 11% of this senior group has only two years or less real estate experience, and 16% with five years or less.
I believe many of them already retired from their previous occupation and became realtors as a side gig to supplement their income. The real estate business also allows them to stay active and continue contributing to the workforce.
When choosing a real estate school to complete the CE requirement, consider one where you can take the courses online. This way, you could study at your own pace whenever and wherever. The Colibri is a trustworthy real estate education provider. You may click here to see the CE courses offer in your state. (**)
How do real estate agents save for retirement?
Most real estate salespeople are self-employed and do not receive a pension from their brokerage firm. So, they need to save for their own retirements.
In 2017, Inman conducted a survey with 448 respondents, consisting of real estate agents, brokers, coaches/trainers, and others. They were asked, “Which best describes your retirement plan?”
“We found property investments (57.6 percent) were the most popular form of retirement plan for agents, others relying on personal savings (50.7 percent), SEP IRAs and individual 401k (both 33.7 percent), simple IRAs (21.8 percent) — and 17.4 percent of respondents intended to benefit from their spouse’s retirement plan.
Quote from Inman.com – Special Report: How real estate agents can live happily ever after in retirement
Another 16.5 percent said their retirement would be partially funded by their franchise/brokerage revenue or profit sharing.”
I’m not surprised to see that more than half of the respondents use property investments as part of the retirement plan. After all, this is what they do every day. Many of them have great expertise and are confident in this asset class.
However, it’s shocking to know that only 16.5% includes their current real estate business as their retirement. You could have been working hard for years in growing the business. Shouldn’t it provide some value to your retirement?
When saving for your retirement, you should consider the longevity risk. Well, that’s just saying how likely you will outrun the money before you pass away. Also, since most realtors do not have any health benefits from the brokerage firm, you may need to account for future medical expenses.
What to do with the real estate business when you retire?
Although some sales agents prefer to work as long as possible, some would like to hang up their hats because of how much work it takes to run a successful practice.
Some agents may decide to sell off the real estate business and use the proceed to fund part of their retirement savings. However, if you don’t plan ahead, you could end up selling your business like a power sale of a property, where it is severely undervalued.
Here are some areas to consider when selling your real estate business
1) Find the right successor
You have been servicing your clients for years. Chances are many of them are your friends and family. Obviously, you would want them to be taken good care of. Besides, most of the buy-sell agreements would have a clause about the retention rate. If too many clients are not giving new business to the successor, it could lower the business’s selling price.
When choosing a successor, find one with expertise that aligns with your business is crucial. If you specialize in commercial real estate, it might not make sense to transfer your business to an agent who only deals with residential properties.
Are the work approach of the new agent a good match with your existing clients? Some agents told me that they prefer to send all the property listings through digitally, conduct virtual meetings and handle documents signing electronically. So they do not particularly enjoy working with clients who always insist on having physical meetings or talking on the phone for hours.
Furthermore, what is the real estate experience of the successor? I have nothing against people who are new to the industry. But statistically speaking, the turnover rate of new real estate agents in the first couple of years is very high. Imagine how your clients will feel if a few months after you introduced them to the new agent, then he/she quit the industry.
When selecting a successor, try to look for someone who is likely to stay working in this profession in the long haul.
2) Determine the business’s valuation
There are many different factors that could affect a business’s value.
How’s the relationship with your existing clients? Do you contact them regularly? How often do they bring you real estate business or referrals? If your database is merely cold internet leads, the selling price will not go too far north.
Rather than having just a phone number or email address, a CRM with meaningful detailed information are crucial. (i.e., employment, income, marital status, family members, date of birthday, interest/hobby, preferred communication method, records of real estate they own.)
Also, where are the opportunities for this book of business? Are they mainly consist of young families searching for their first home? Seniors looking to downsize to another property? Investors interested in rental income properties? If you have some existing listing, the new agent may split the commission with you upon closing.
Furthermore, some Realtors have developed a strong brand in their local area. So new clients will immediately think of the firm whenever they need real estate services. Such goodwill of a real estate company could be a valuable asset.
As you see, there isn’t a straight formula to determine the value of the business. The rule of thumb is the easier the business can transition to the new real estate agent, and the more align the work approach, the better value you could get from the sale proceeds.
To get an unbiased valuation of your real estate business, you may also hire an independent business appraiser or a certified accountant.
3) Prepare the clients through the transition phase
When transitioning your business to another real estate agent, it is important you mentally prepare your clients ahead of time. Else, they will just take their business elsewhere.
In the article “Life After Real Estate” from the National Association of Realtors, Cindy Marchant, a retired real estate professional, shared some brilliant ideas on how she eased the transition.
Before she entirely transferred the real estate business, she introduced the buying agent to everyone in her database. She took the time and co-marketed with the new agent for nearly a year. For example, they commissioned a headshot that featured both of them together and displayed that along with their names on email signatures, signage, monthly e-newsletters, and business cards.
Furthermore, they attended listing appointments together and co-showed homes for several months to ease the transition.
All these efforts really paid off in helping clients to be familiar with her replacement.
4) Put all details in writing
Like handling a real estate transaction, you need an agreement that lays out all the terms and conditions for selling your real estate business. What will be your involvement during the transition process, and how will the commission split be calculated?
In the NAR article, Cindy Marchant shared that she and the new agent did a 50 percent split for the first year, then gradually scaling back over ten years.
Also, it would be best to consider how far the referral arrangement goes. For example, if one of your existing clients brings in a referral to your replacement, will there be a commission split to you?
Furthermore, what would happen if you pass away during the transition period? Does the arrangement continue with the surviving family member? Will the replacement agent pay out a lump sum to your estate? If so, will there be a need to set up buy-sell life insurance?
To avoid unnecessary confusion or misunderstanding, you may consider hiring an attorney to draw up the contractual agreement.
5) Discuss with your real estate broker
Some brokerage firms may have resources to help you with the succession plan. Your broker may be able to connect you with potential candidates. Sometimes, it could be better to transit the business internally within the same brokerage firm.
I was just reading a blog post from April Myers, VP of Strategic Growth for RLAH Real Estate. Their brokerage has a “Realtor Business Transition Questionnaire” that could guide about-to-retire agents in the right direction.
Also, their company’s accounting department can help their agents to retrieve their financial records at ease. This really streamlines the buy-sell process.
Unfortunately, although real estate agents retiring their business book is not a new phenomenon, many agents expressed a lack of support from their broker. So if you are planning to retire in the next few years, you should consider which firm can provide the support you need.
6) Other considerations
Unlike professions with residual income, a real estate agent’s revenue rely on whether they can close a sale. Therefore, revenue sharing of future real estate closing often comes as part of the business buyout.
However, you should check with the state laws whether you need to maintain the real estate license for the commission splitting arrangement. If required, you still need to account for ongoing expenses such as license fees, continuing education during the transition period.
Furthermore, do you need the E&O coverage for an extended period after you fully transition the business? Will the policy continue to cover the deals you have done in the past? This could be something worth discussing with an insurance professional.
A Comprehensive Video on Taxes & Retirement for Realtors
We all want more money in our pocket. Therefore, tax planning will be a critical component of retirement. What will be the tax consequence when you sell the real estate business? What are some legal ways you may reduce the tax?
However, I’m not an expert in this area. Also, this post is just for general understanding and does not intend to provide any financial advice.
So I found a webinar from the National Association of Realtors. It is hosted by Nicole Cole, a Wealth Advisor. Perhaps, it could give you some insights into your retirement planning.
On a separate note, if you plan to retire soon and like another part-time business, you may consider becoming a loan signing agent. The fixed expenses are relatively low, and it’s not overly complicated to get and maintain a notary commission license. Many signing agents can make $75 to $200 per signing appointment. Here’s an article you may be interested in: “Can a Realtor be a Notary Signing Agent?“
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(**) Affiliate Disclosure: Please note that some of the links above are affiliate links, and at no additional cost to you. Our company, JCHQ Publishing will earn a commission if you decide to make a purchase after clicking on the link. Please understand that we include them based on our experience or the research on these companies or products, and we recommend them because they are helpful and useful, not because of the small commissions we make if you decide to buy something through the links. Please do not spend any money on these products unless you feel you need them or that they will help you achieve your goals.
Disclaimer: The information in this post is for general information only, and not intend to provide any advice. They are subjected to change without any notice, and not guaranteed to be error-free. Some of the posts on this site may contain views and opinions from individual not related to JCHQ Publishing. They do not necessarily reflect our view or position.
Reference:
- National Association of Realtors
- RLAH Real Estate Lifestyle – How to Sell Your Business and Actually Retire from Real Estate (source)
- inman – Special Report: How real estate agents can live happily ever after in retirement (source)
- Illinois Realtors – These REALTORS® won’t retire from who they R (source)
