Robert Sharoff is an architectural writer for The New York Times, Washington Post, Chicago Tribune, and Chicago Magazine. With photographer William Zbaren, he has produced books highlighting the architecture of Detroit and St. Louis. He is a former senior editor with REALTOR® Magazine.
Your Money When You Need it
Factoring makes its debut as a money management tool for salespeople.
August 1, 2000
A perennial problem for many real estate professionals is cash flow—or rather the lack of it.
“We’re like farmers. We get paid in lumps,” says Jo Stanton Ivey of Stanton Real Estate in Woodland Park, Colo. “We make scads of money when a transaction closes but nothing in between.”
“We’re on a roller coaster,” says Kathleen Knox, a salesperson with Prudential Prime Properties, Little, Mass. “I do a lot of business--probably 60 transactions a year—and there are months when I have 10 closings and months when I have one. My expenses, however, don’t change. It’s one of the really hard things to manage in this business.”
Both Ivey and Knox have recently started using a new service, called factoring, to even out the peaks and valleys in their incomes.
What is factoring? It’s the buying of accounts receivable at a discount; for example, a finance company buys a salesperson’s unpaid commission. That allows the salesperson to be paid immediately instead of having to wait 30 or more days until a deal closes.
In the past few years, several national factoring companies have started focusing on real estate salespeople. Among that group are eCommission, Commission Advance, and Commissions Today LLC. There are also some smaller local and franchise companies. Earlier this year, Commissions Today signed a preferred vendor agreement with NAR. eCommission has a similar agreement with Cendant and Prudential, and both Commission Advance and Commission Connection have agreements with Realty Executives.
No one denies that financing options are limited for salespeople. Most don’t qualify for small business loans. The other options--home equity loans and borrowing against other collateral--may or may not be possible and at any rate are probably not practical over the long term.
Factoring, on the other hand, is readily available and a “good way to stabilize cash flow,” says Dennis Kelly, senior vice president of network services for Prudential. “It helps you keep your eye on selling real estate rather than on what’s closing this month.”
The process of applying for an advance is similar at all three companies; in addition to a signed contract, salespeople also need the approval of their brokers. The terms vary from company to company (see box). Turnaround is anywhere from one to two days. All the national companies do a considerable portion of their business over the Internet, but they also use fax and telephone. “When things go according to plan, it’s extremely convenient,” says Ward Chandler, cofounder of Commission Advance.
One thing to remember is that factoring needs to be used wisely. “We’re not known in this business for being great financial managers,” says Peter Burgdorff, president and CEO of Cendant’s ERA division. “If you’re using factoring to get cash to pay for advertising and other business expenses, that’s great. If you’re using it to buy new living room furniture, that’s not so great.”
Who, where, and how much
7150 E. Camelback Road, Suite 300
Scottsdale, AZ 85251
Advances up to 85 percent of a commission. Terms: $125 processing fee, plus 5 percent to 10 percent of total advance depending on length of time and amount.
Commissions Today LLC
P.O. Box 2547
Cornelius, NC 28031
Advances up to 80 percent of a commission. Terms: $69 per thousand dollars for 45 days. Additional days are $1 per thousand dollars up to 90 days.
111 Congress Ave., 26th Floor
Austin, TX 78701
Advances up to 80 percent of a commission. Terms: $99 transaction fee, plus $1 per thousand dollars of advance per day up to 120 days.
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