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A client came to me and said, 'Hey Erick, I want to remodel my kitchen in six months, and I told my husband I would pay for it. So I've decided to get my real estate license, and get the money for the new kitchen selling real estate part-time.'

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For the purpose of telling this story, I will refer to her as 'Sally' to protect her identity.

'Oh,' I replied, 'How much money do you need to pay for the new kitchen?'

'Fifty-thousand dollars. What do I have to do to get the real estate license so I can start making that BIG MONEY really fast? I'm already getting bids for the job.'

'Well, first you go pay $225 dollars for the 60-hour pre-license class, then complete the class, take the state exam, and you'll have your real estate license.'

'Gee,' she said with a puzzled look, 'sixty hours in class? That could take me a MONTH!!!'

'Sally, you better get started right away. After you have a real estate license you will need to affiliate with a real estate company, and work as an agent of their broker.'

She smiled and said, 'I've already decided to get hired by Schmucketelly Realty.. they're the biggest company around, so I figure they will give me lots of clients to work with.'

'Ummm.. Sally.. real estate companies don't GIVE clients to agents, you have to go get YOUR OWN clients.'

'That can't be!!! Doesn't the company give me listings and buyers???'

'Nope, you have to go get the business. You bring the buyers and sellers to the company. Who do you know that wants to sell or buy a home in the next 60 days?'

'Well.. I guess I'll go get my license first, then I'll find out how Schmuckatelly Realty agents get clients.'

She called me back six weeks later.

'Hey Erick!! I passed the test!!! I'm going tomorrow to sign up as a real estate agent with Schmuckatelly Realty!'

'Great,' I said, 'Have you found anybody who needs to buy or sell?'

'Yes, I did!! My sister's tennis partner wants to sell her $400,000 home and move up to a $600,000 home. That's a million dollar client. I'll earn $60,000!! I can pay for the new kitchen, and have money left over for a seven-day Caribbean cruise.'

'How do you think you'll earn $60,000 selling just one million dollars worth of real estate?'

'Well, when you sold our old house, you charged six percent, and then you got paid six percent again when you were our agent when we bought the new house. I just multiplied the million dollars in sales by six percent and got $60,000.'

'Okay Sally, let me clear up a few misunderstandings. You PAID six percent in broker fees when you sold. Three percent went to my company as the listing fee, then three percent went to Jones Realty and the agent who brought us the contract from the buyers. So my company and I were paid three percent to sell your old house.'

'You did? Just three percent?'

'Then, when I represented you as your Buyer Agent for the new house, the house was listed by an agent with Smith Realty. According to the settlement statement, Smith Realty was paid three percent, and my company was paid three percent.'

'Oh.'

'So your million dollar client is worth only $30,000 to you and Schmuckatelly Realty. Get it???'

Silence.

I proceeded, 'Now, as a new agent, you split the $30,000 commission 50/50 with your company because you're a rookie, and new agents start on a 50/50 split.'

Sally exclaimed, 'So you're saying that all I get for selling a million dollars is just $15,000? That's not fair. That's horrible. Nobody told me. So I need THREE million dollar clients to make $45,000.. maybe I can get my husband to chip in the other $5,000 toward the $50,000 the kitchen will cost. Hmmmm.. I think he'll go along with that.'

'Actually, you don't really get to keep the $15,000. You will be paid as an independent contractor, not as an employee. So, as an independent contractor you pay 15% of your $15,000 to Uncle Sam as social security tax, or what I call self-employment tax. When you are a W-2 employee, you pay 7.5% to social security, and your employer pays 7.5% for you. Fifteen percent of $15,000 is $2,250, leaving you with $12,750.'

'That's not fair', she mumbled. 'That stinks.'

'Sally, I'm not an accountant. See your CPA for the real facts about your situation. I'm just sharing my experience.'

'Next comes federal income taxes. Filing a joint tax return with your six-figure-earning husband will put you into the 28% tax bracket.. maybe more. But we'll assume 28% federal tax, just to be kind. You'll pay $4,200 of the $12,750 in federal tax based on your $15,000 gross earnings, leaving $8,550 for you.'

More silence from Sally as reality smacked her in the face.

'Next, you'll pay 5% Virginia state income tax on your $15,000 commission, which will cost you $750, reducing your net earnings to $8,550.'

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'But Erick, I NEEEEED $50,000. $8,550 for selling a million dollars is chump-change.'

'Now Sally, you'll also need to factor in the money you will pay for advertising and marketing your listing. I spend around $1,200 for marketing on every listing.'

'What??? Doesn't the company pay that???'

'Nope. You and I pay for that stuff. So if you really want to do right by your client-friend, you'll need to spend at least, say, $600 for advertising.'

'But Erick, if I have to pay for advertising, and it costs $600, my $8,550 goes down to $7,950.'

'Oh, and Sally, don't forget to add in $250 for the cost of the pre-license 60-hour class, PLUS around $1,750 from your first check to pay your annual dues to the National Association of Realtors (NAR), the Virginia Association of Realtors (VAR), the Northern Virginia Association of Realtors (NVAR), and your subscription fee that goes to pay for access to the Multiple Listing Service (MLS). You'll have to pay $2,000 in dues and fees out of your first $7,950 check, leaving you with $5,950.'

'Gosh Erick, this is horrible.'

'Oh, and Sally, you'll also have to write a check from your earnings to pay for Errors and Ommissions insurance, the real estate equivalent of malpractice insurance.'

Sally sounded dismayed as she said, 'Just $5,650. I need ten times that much to pay for my new kitchen.'

'Sally, do you remember all the times a member of my staff or I drove to over to see you when your home was listed with me for meetings to price your home, sign papers, drop off brochures, install the sign, show your home to potential buyers, and firm-up the contract?'

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'Yes..'

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'And do you remeber riding with us to see homes?'

'Yes..'

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'Well, you'll do the same for your million dollar buyer. Gas costs around three dollars a gallon. Can you see how you could easily chunk-out fifty dollars for gas?'

'Yeah.'

'Sally, after