Alrighty folks…I’ve posted this question on a few other forums and now its time to hear from all those licensed individuals on the REI Club!(And hopefully i’ve posted this in the correct area)
I have my real estate license. I’ve also created an LLC to purchase and hold my investment properties, as well as having a Self-Directed ROTH IRA.
My question is this…
If I decide that MY LLC or MY ROTH IRA is going to buy a property which is NOT LISTED (FSBO)…(and yes, I make it clearly aware in contracts/agreements that “one or more individuals which are members of the LLC are licensed real estate agents who buy and sell real estate for a profit.”)…Am I correct in saying that there would be no commission involved because it’s a private transaction between a private principle and an private entity? (
I clearly understand that if I’M THE PRINCIPLE going to buy a property under MY NAME, I’m my own buyers agent and therefore I must split the appropriate commission with my broker whether the property is listed or not.
Maybe it’s as simple as speaking with my Broker and finding out but it doesn’t make sense that if I’m in an LLC partnership with 4 other people (all non-licensed) that the LLC would have to pay a commission to my broker on an unlisted property because i’m the only one licensed. :huh
Any other agents out there having their LLC or ROTH IRA buying properties?
I don’t know what being licensed has to do with paying a commission on an unlisted property that you’re buying to hold as an investment. Of course, you are required to disclose that you are a realtor, but is there a law that you must pay a commission on an unlisted property that YOU or your LLC is buying? A LLC is a separate legal entity and certainly should be able to buy an unlisted property without being forced to pay a commission.
hhiinvesting - I am also an agent and I am planning to buy property on my LLC. It is my understanding that my broker is responsible for all real estate transactions I am involved on. So if I am a principal or an agent in any real estate transaction, including the ones done in my LLC’s name, he becomes responsible for that transaction. And this is not a rule set forth by a broker. This is a rule of my state’s Department of Real Estate. My broker charges me a commission for any transaction I or my LLC do.
The basic idea is that if there is any problem with the transaction later, the Department of Real Estate will want to know why my broker did not review it and will hold him accountable.
It is no different than if you were the agent for someone else (in this case that someone else is your LLC). Can you close a transaction for a friend on a FSBO without paying your broker’s split/commission?
I agree with fadi - there are plenty of brokers out there. You may be able to find one that will not charge you the commission. However, at least in my state, he will still be responsible for the transaction…
This is one reason why I am planning to hang my license with a broker for 2 years and then apply for my broker’s license. Here we have to be an active Real Estate agent for 2 years before you can apply for a Broker’s license.
Now of course this all depends on the local regulations and real estate acts, but for the most part, what your split and deal with your broker can be is clearly (or should be) clearly defined in the independent contractor agreement you have with your broker.
Each broker / agent relationship is unique. Some have splits that are more generous to the agent, other to the broker, etc.
So go chat with your broker, but how can you split a commission when none is paid?
Typically, when there is no commission, the agent has to pay a fee to the broker for the transaction. In my area, most brokers will charge a flat amount (i.e.$250.00 or so) + the Errors & Ommissions (E&O) insurance fee (i.e. $45.00 or so). There are some that will calculate whatever they would be entitled if there was a commission in the transaction and charge the agent that fee - for example, if the typical transaction commission was 3% and the split is 20% broker / 80% agent, and the agent closes a transaction of a $100k house, than the broker would charge $100k x 3% x 20% (plus the E&O insurance fee).
At least this is how it seems to work for the majority of the brokerages in my area.