Free Advice On Getting A Real Estate License Or Just Being An Investor

General Real Estate Investing
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In some cases having a real estate license could be helpful, in other cases it may not be the best choice.

The pros of having a real estate license:

Access to the MLS for pulling comparables-Access to the MLS will allow you to be able to pull data of recently sold homes, as well a homes that are currently on the market.

Get to keep your buyer side commissions- If you are a licensed agent and you are purchasing other listed homes then you will be able to keep the buyers side commission. The buyers side commission will be given to your office and then split with you, or you may be able to keep 100% of it depending on you office fee schedule.

May have access to home before they hit the MLS- If you work at a larger office there is a good chance that other agents within your office will let you know about listings that they have coming up before they hit the MLS

Access to the MLS for pulling expired listings- Pulling expired listings is a great strategy for locating motivated sellers. Expired listings are listings that have ended prior to the home getting sold.

The cons of getting your real estate license:

Sellers could think that since you’re a Realtor that you must be taking advantage of them- I have run into many situations where sellers think that because I am a Realtor that I am going to have an unfair advantage and somehow try to rip them off.

Buyers could think that since you’re a Realtor that you must be taking advantage of them- I have had situations where buyers think that because I am a Realtor that I must have an unfair advantage and will somehow pull the wool over their eyes. Other buyers have thoughts that Realtors take the good properties for themselves and then try to pass on the mediocre deals to them.

Association Dues- These fees include MLS fees, National Association of Realtors fees, State Realtor associations fees, as well as local Realtor fees which vary by location.

Realtors may not be quite as willing to help you out- If you are getting your Realtor license to save on commissions then it is likely that you will want to keep the commissions on the homes that you buy. The problem is that if you want to keep your commission then other Realtors have no reason to bring you great deals. Even though I am a licensed Realtor, I often let other agents keep the full commission if they bring me a great deal.

Expensive office fees- Most real estate offices work on a split commission system where you keep a certain percentage of the commission and you pay the office the other part. Splits that I have seen vary from 50/50 splits all the way to 80/20 splits where you keep 80% of the commission and pay the office 20%. Other versions of the split system are graduated scales. Graduated scales allow you to keep a greater percentage of your commission as you generate more sales.

The other type of office split allows you to keep 100% of your commission in exchange for paying a monthly fee. I have seen these monthly fees start anywhere from $395 for a home office all the way up to $2000/mo for a space at the main office.

The other fees that are normally associated with doing business are your signs, closing fees (vary by area), and business cards.

More paper work to disclose everything- In many areas it may not be required by law to disclose that you are a Realtor, but it is still a good idea to let either the buyer or seller know that you are a licensed Realtor.
You may not be able to keep your commission anyway-Many of the REO’s (Real Estate Owned) that are listed in my area will not pay a commission to the buyers side if the buyer is a licensed Realtor.

I hope this helps a few of you out.

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ericmedem this is great information. This question gets asked probably more than any one question on this board.

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Good post, Eric. Maybe it’ll get stickied and we won’t have to answer this over and over again.

Your “cons” are good. Though mentioned, it’s worth noting again the COSTS of simply being a REALTOR. Varies by area, but generally expensive, especially for someone not moving much product, which brings me to the “pros” side.

If someone is planning on getting a license and becoming a Realtor for these “pros” generally the costs will not be worth it.

You can easily pay a competent agent to generate comps for you and either do the CMA or simply supply them for you to determine value. Whether its done on a charge basis or a “return the favor” basis, the cost is minimal.

As you pointed out, many lenders won’t pay a commission to an agent that is a principal in the transaction, thus commission is totally gone. Even if you do, generally, an agent will only receive between 1-2% of the total commission, after splits. Hardly worth the costs unless your buying either a ton of properties OR very high end homes. I’ll also stick to my saying on this which is, “if 1-2% makes or breaks the deal, then it’s not a deal.”

Yes, you MAY have access, or knowledge, or upcoming REOs if you’re in an office that does alot. However, you’d also have that knowledge if you worked with an agent that deals in REOs, either the buy or sell side, as well, without the benefit of the license. Also, if the agent follows the code of ethics, having the knowledge wouldn’t help because the agent would HAVE to open it up to the public before accepting ANY offers on the property. Many lenders have actually made that a requirement, stating that the property must be in the MLS for X number of days before any offers are submitted.

Raj

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That’s a great post, especially from someone who is a realtor.

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Hi,

Thanks for the info. I acutally thought about getting my license so that I could become informed on the laws and the applicable forms needed. Is there a better way? Most of the books/courses get you motivated and tell you the basics, but unfortunately I don’t think they are detailed enough for real life experiences.

I’ve been researching for several months now and am particularly interested in short sales. I’ve attended a few auctions but have been out-bid. In essence, I’ve been getting “cold feet” because the unknown factor scares the heck out of me.

For example, if you go to auction, they tell you to do your homework because the house is subject to all liens and encumbrances. However, I’ve already lost 3 houses due to being out-bid. I can’t imagine paying for a title search on every property I am interested in. Is that really necessary? Are 2nd mortgages usually wiped out during a sheriff’s sale? I’ve been getting different responses from different sources. (I’ve spoken to a real estate attorney, listened to a podcast from a title company and spoke with an individual from the same title company AND talked to a realtor). I do understand that there may be delinquent property taxes and utilites due. Those do not concern me as they are easy enough to find out about. What concerns me are the junior liens. Are auctions worth the risk or will I get burned?

Sorry for the lengthy question. I’m really eager to get my first deal, but I’m afraid to jump right in.

I appreciate any help! Thanks.

p.s. I’m from Wisconsin.

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I'm really eager to get my first deal, but I'm afraid to jump right in.

You should be afraid to “jump right in”, especially with sheriff sales. I would strongly suggest that you do “whatever it takes” to completely understand the issues with the sheriff sales in your jurisdiction before you attempt to buy a property at these sales. Several of the successful investors in my area have horror stories about sheriff sales. I have bought several properties at sheriff sales and haven’t had a problem so far, but I realize the risks and do everything I can to minimize those risks.

I can't imagine paying for a title search on every property I am interested in. Is that really necessary?

YES! In my opinion, it is absolutely necessary to search the title for every property you plan to bid on at the sale. However, you don’t necessarily have to pay for a title search. You can certainly learn to do the title search yourself and that is what I do before I go to a sheriff sale. In my area, you can also go to the courthouse before the sale and talk to the lady who searches the title for the sheriff. She is happy to show me here research and I can compare that to my title search.

Are auctions worth the risk or will I get burned?

Auctions can be well worth the risk if you know what you’re doing, however, you can get BADLY BURNED if you don’t.

Good Luck,

Mike

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Thanks, Mike.

By saying I can get BADLY BURNED, are you saying that a second mortgage can be carried over with the property if sold at auction? I’ve been doing my own research, i.e. Local Treasurer’s office for property taxes, calling the utility companies and checking on clerk of courts for any lawsuits from contractors. However, that doesn’t include any potential federal liens either. Do those get carried over?

I’ve been told that if the notice is filed against multiple parties it means they’ve been notified and if they don’t bid at the auction they lose their interest.

I’ll keep your tip in mind about talking to the person at the courthouse.

Thanks.

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There have been entire courses dedicated to just buying via sheriff sales, so it’s basically impossible to give you all the details in a post or two.

Your state laws concerning such will greatly influence your risk factor. However, when buying at the courthouse steps, you are risking missing a valid, and unaffected, lien, dealing with holdover tenant/owners, unknown condition of the property, etc.

As to the laws concerning RE in your state, you don’t have to become an agent to learn them. Simply look them up. Your state’s RE commission should have the laws concerning RE and agency. Google your state and landlord-tenant laws and read up. Forms will vary depending on what you’re trying to do, but either the commission or the state’s national realtor website will probably have sample forms for you to view.

Raj

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Very helpful! Thanks Raj. I felt like I was at a dead end. At least you have given me new direction. I appreciate it.

(I’m also going to my first investors meeting on Tuesday, so I’m hoping to learn more there as well).

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YES!!!

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I've been doing my own research, i.e. Local Treasurer's office for property taxes, calling the utility companies and checking on clerk of courts for any lawsuits from contractors. However, that doesn't include any potential federal liens either. Do those get carried over?

I don’t know what could happen in your state. That’s why you MUST find out. Here in Ohio, sheriff sales are held under the principle of Caveat Emptor. In Ohio, if the sheriff misses something during the process, then that’s your problem!

Good Luck,

Mike

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Ericmedm,

I am a Realtor and have been one for 22 years. Some pros and cons have been posted here already, so I’ll not rehash that. What I would like to add is that becoming a Realtor is absolutely worth your time, if you know how to cut cost. If you don’t know that, then don’t waste your time.

Helpful hints.

First, an earlier post is correct as most office fees start at $395 and go up in excess of $2,000 a month. Even the lower fees can carry hidden fees as well. But there are some ways aroung this.

If you hang your license with a major company like Century 21, ReMax, Coldwell Banker, Keller Williams, etc., your fees may exceed $2,000 a month. Simple solution, don’t hang your license there.

Because of the way the industry is moving, you can find several small mom and pop organizations that are now setup for investors. I have actually hung my license for free for 2 years with such a company. Hey, free is good.

Next are some of the fees that are extra. In a lot of cases, there are association fees, E&O fees (Error and ommission insurance), copy fees, faxing fees, franchise fees, lockbox fees, etc… One can even avoid those if you’re just getting into investing…

As far as people thinking you’re taking advantage of them. Well, does it really matter? I have a friend that is an investor. He’s told me that people look down on him just like some look down on Realtors. What he’s told me is simple. If he walks into a deal and offers someone $.65 on a dollar, well, it angers people whether you’re a Realtor or not.

Besides, I find, at least in the deals that I’ve done, that it gives me a tremendous advantage. Here’s how:

I can buy a home and pay more for it than the average person. Why? Because I don’t have to pay a Realtor…

I can sell it for less and therefore quicker. Why? Because I don’t have to pay a comission. This actually gives me more money, which I can give some back to the buyer…WOW! I can sell a home for about 3% less than others. That means my holding time is shorter, thus my expenses are less, thus I make more money.

As an agent, and by giving back money, I’ve, at least not to this point, had one single buyer complain. In fact, just the opposite. Many have purchased my homes because my homes have been cheaper, passed inspection better, were move-in ready and I helped pay their closing costs.

So as you can see, the beauty is in the eye of the beholder. There really isn’t a right way, or a wrong way. It is a matter of how you chose to build your business…

Hope this helps,
Ken Tate (a.k.a. Mr. Real Estate)

P.S. For some reason I’m having trouble with my keyboard the past two days. Hey, maybe it’s old age…is there a spell check function on the site?

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There are definitely pros and cons to having a RE license AND investing. Being both, I think that there are more cons than pros, but depending on your type of investing (and method of buying), determines HOW much those cons outweigh the pros.

One major con that hasn’t been mentioned, at least in detail, is your responsiblity, legal accountablity as an agent vs. ‘just’ being an investor. Generally speaking, you’re held to a higher legal standard as an agent. This puts you at greater risk in potential legal issues that WILL arise. Also, many states’ have particular rules/laws about agents acting as principles in the transaction. IF you’re only buying/selling thru the MLS, this isn’t much of an issue, but if you primarily buy FSBOs, then it becomes much harder to close the sale when you also have a legal obligation to tell the seller, “well, MR. Seller, my profession opinion is that your house is worth $100K as is, with alittle rehab would be worth $150K, but I’m only going to pay you $50K.”

I also disagree with most of the pros listed by Mr. Tate. (No Offense)

No costs mom and pops to exist, but you also generally get what you pay for. If you’re already a knowledgable, experienced individual, then it’ll probably work. If not (the likely position), then you’ll probably have an absent BIC, lots of questions, and major problems. It’s also doubtful that they’ll keep you on, paying for your dues, etc., UNLESS you are producing enough income to offset the costs of doing so. Again, doubtful for a newbie.

As to paying more and selling less, well that depends. If your listing your properties on the MLS, then your only saving your side of the commission and then only the portion that you’d normally get as an agent, which is usually 2% or less of the price. Hardly a major discount, and again, if it makes or breaks the deal, it’s not a deal.

IF your not putting it on the MLS, then you’d be “saving” the commission anyway (that is, if your good at selling homes). Before I had to get my license, I could always sell my properties faster than any agent. In fact, I had many agents calling ME to ask HOW I sold them so quick. Point is, being an agent won’t make the sell quicker.

Sorry if it all sounds negative. It’s not. I just believe that it’s important for people to understand the role of an agent vs. an investor. It’s not the same thing. Not even close. Being one doesn’t mean that you have to, or will even be good at, the other.

Raj

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THanks for this post. I was just going to post this question. I figured it had probably been asked before, but for the life of me I couldn’t find a “search” function here. (I did eventually find it).

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I’ve had my South Carolina license for almost two years now and have just started being an investor in the last 6 months.

The above posts give some great info. I just thought I would add my two cents.

When I read RichDad/PoorDad 3 years ago…i made it a point to gain as much knowlege as possible. Being VERY green to the Real Estate industry, I felt the best way, for me, to gain the knowledge was by getting my license and selecting a quality larger brokerage with great training who would teach me the in’s and out’s of the industry.

What i’ve learned (along with all the RE info) is that there are two different mentalities when speaking about Realtors and Investors. Your average agent, or even Broker , doesn’t think the same way as a true investor.

If you can find a few GOOD/Knowledgeable/Creative agents to use, hang onto them. They could be worth their weight in gold. By having them do the work…it would free up your time to concentrate on the actual deals. On the other hand, if you choose to get your license, interview each brokerage to get as much info on their standards/policies/commission structures as possible. What may work for you in the beginning may not fit your type of investing strategy in the future…Then disclose, disclose, disclose.

My brokerage requires a 50/50 split on each personal & public transaction listed on the MLS with no desk fees. In the case of a Lease Option contract…my broker wants an additional “administrative fee” equal to one month’s rent for each year of the lease. <---- It’s now time to change brokerages because i’m going to concentrate on LO’s.

Hope this sheds a little more perspective.

Darin
HHI Investing