16REAL ESTATE BROKERAGE ACCOUNTING
In the real estate industry, brokerage firms play an essential role by bringing together real estate buyers and sellers. A typical real estate firm employs agents and brokers who help clients buy and sell real estate. Real estate firms vary from one-person firms to multinational firms. Some firms focus on a particular market area, particular type of properties, or some combination of the two.
In this chapter we discuss the accounting treatment of real estate brokerage transactions and how they are presented on financial statements. A thorough understanding of a brokerage firm's financials and how transactions affect them are crucial for management and users of such financial statements. They also help guide management on prudent business decision-making.
REAL ESTATE BROKERAGE REVENUES
Most real estate brokerage firms derive the majority of their revenues from representing their clients in transactions. These clients could be buyers, sellers, or both. Some brokerage firms also derive revenues through referral of their clients to other brokerage firms.
The services of a real estate firm are executed by its agents and brokers. These services can involve sales or leasing transactions. In a typical real estate brokerage transaction, the firms are compensated based on a percentage of the deal or fixed price. The firm then splits the compensation with their agents and/or brokers that work on the transaction. In most firms, these individuals are ...
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