5 Deadly Commission Advance Sins…
June 11th, 2008 by Sean Whaling
5) Advancing your last deal. Commission advances should be used as a solution to short term cash flow needs. The ideal time to take an advance is when you have two or three sales pending but they are all closing next month or later…and you have expenses to pay this month. Instead of paying late and jeopardizing your credit, advancing a commission can be a cost effective way to make sure your bills are paid on time. Best of all, repayment happens automatically when your sale closes.
4) Advancing on a family deal. I discourage clients from applying for commission advances when they are representing a family member or relative. As you can imagine, sometimes in family situations things happen that can result in you being asked to cut your commission at closing. If you’ve already advanced it, there’s a problem. Family representation and commission advances generally do not mix.
3) Advancing your biggest commission. If you typically sell homes in the 150K range and earn commissions of around $3,000 dollars, it’s never a good idea to advance the one $350K home you sell that nets you $10,000. The reason being, if something were to happen to that sale causing it to unexpectedly fall through, it’s going to take your next three or four sales to repay the advance. Playing it safe is always best.
2) Advancing on behalf of a colleague. Sometimes agents will advance a commission at the request of a colleague who needs the money but has nothing pending. Once again, if the sale were to unexpectedly fall through, sometimes it’s hard to go back to that friend who enjoyed the proceeds of your advance to convince them they now have to pay it back.
1) Advancing long closings. The cost to advance commissions is affected by the length of time to close. Shorter closings cost less to advance than longer ones. While eCommission will advance commissions as long as 120 days into the future, the cost is much higher and our experience shows delays to be commonplace. If considering a new construction commission advance, it’s best to make sure the home is at least 50% completed.
