Are Real Estate Agents Independent Contractors?

Most real estate agents working in the industry are classified as independent contractors. But what does this mean? According to the definition provided by the IRS, independent contractors are:

"People…who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors.

An individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done."

The IRS further classifies real estate workers as statutory nonemployees. These classifications give workers greater control over their work and taxes. In other words, as a real estate agent, you have control over when you report to work and how you file your taxes.

While you are an independent contractor, brokers still have some degree of control over your work. Therefore, the classification as an independent contractor may get tricky regarding real estate agents. Having a broker as a supervisor can sometimes create legal obstacles, which some real estate agents have challenged over the years, as with Dynamex Operations West, Inc. v. Superior Court of Los Angeles County. Here are more details about what makes real estate agents different from regular employees.

Real Estate Employees

While most real estate agents are independent contractors, some work as employees. For instance, if you work directly for a home builder, you may work for them as an employee rather than an independent contractor.

What this means is that the company completely controls the work you perform for the company. You'll likely receive a salary or hourly pay for your job. In such instances, the company controls how you work, how much you're paid, and your taxes.

As an employed real estate agent, you must arrive at a set time instead of coming to work when you want. You'll receive a regular paycheck from your employer, and they will withhold taxes taken from it. Additionally, your employer will have complete control over your work and be able to dictate what you do during the hours you work for them.

Real Estate Independent Contractors

Many real estate agents identify as independent contractors. In most cases, the broker that employs you will enter into a contract stating that you will work for them as an independent contractor. This satisfies the contract part of the definition.

What makes you independent is that you'll control your schedule and file taxes. You'll have autonomy as an independent contractor, but your broker has some control. It's not as extensive as it would be if you were an employee, but brokers have to have some authority to protect their interests and avoid lawsuits.

Brokers can encourage your work behavior but can't control it. If they did, they would be an employer responsible for workers' compensation, withholding taxes, and other legal work-related matters.

In most instances, your broker will take a "hands-off" approach to your work to avoid legal issues. They will present sales goals, but how you achieve them is up to you. Brokers won't tell you how to achieve your goals, but some may have training sessions you're welcome to attend to learn how to improve your marketing and sales skills.

Key Takeaways

  • Although you must operate under a broker to practice real estate, you are an independent contractor who develops your business.
  • You are responsible for paying taxes on your own earnings from the real estate brokerage. Your broker will not withhold taxes for you.
  • A broker cannot control when or where you work but may have some say regarding how you represent them and the company.

Frequently Asked Questions

Will I receive a base pay as an independent contractor for a real estate broker?

In most cases, real estate brokers do not pay independent contractors anything except the money earned from a real estate transaction. These jobs typically have a 100% commission, and you'll receive your share of pay from your broker.

Is my broker my boss?

A broker is responsible for supervising your activities but primarily to protect themselves from legal issues. They are not a boss in the traditional sense of the word. They may provide helpful info or tools for your growth, but they legally can't tell you what to do if you're an independent contractor.

Can I get fired by my broker?

Yes, a broker can fire you from their firm. According to NAR, you're real estate broker will likely fire you for the following reasons:

  • Not being truthful with clients
  • Bad negotiation skills
  • Not listening to clients' needs and only pursuing wants
  • Being lazy
  • Not paying attention to details
  • Fraud
  • Not responding to clients as quickly as possible
  • Promising a lot and delivering little

A broker can also fire you for consistently underperforming. However, they may be lenient when you're a new agent. Brokers realize that getting your business up and running takes time. However, they expect you to start contributing to their bottom line immediately.

Do I have to stay with the initial broker I signed with?

No. You may not like working for this broker after passing your licensing exam and joining a broker. You can move to another broker that will help you succeed in your career.

There may be some stipulations, however. For instance, you can't take your current clients with you. Additionally, you still must pay if you owe your current broker money.