There are a lot of people that are considering getting started flipping houses that visit the site. One of the questions that comes up often is whether or not they should get their real estate license. I’ve always just said that it wasn’t necessary but didn’t go into much detail as to why it wasn’t necessary.
The biggest benefit that I can see with becoming a licensed real estate agent is that you can get access to the MLS (Multiple Listing Service). Having access to the most comprehensive and accurate source of comparable sales (comps) and being able to find deals is the biggest reason I would recommend becoming an agent.
The reason why I don’t normally recommend it is because you can more easily develop a relationship with an agent in order to get access to the MLS. Maybe you can’t get direct access yourself, but if they can pull comps for you and send you info on properties to make offers on, you are still benefiting without having to become an agent. They are not supposed to let non-agents use the MLS and if you can’t get the access, you might want to consider becoming an agent or having somebody you know become an agent.
You can run your own comps. You won’t need to bug somebody every time you get a lead that justifies analysis. You won’t have to wait for those comps and will be able to look at all of the pictures for each of the comps. If the search criteria used for the comps was insufficient to get enough valid comps, you will have to contact them again to run another search. Of course, if you are able to get access from an agent, you can do all of these things yourself.
As an agent, you can set up appointments to see listed properties and get the lockbox codes to gain entry.
You can write up and submit your own offers. You won’t have to wait for it to be done for you. You also get a commission from the purchase (as the buyer’s agent) and from the sale of a house (seller’s agent). This could allow you to buy some deals that are a little too tight for other investors. It’s really not that much though (usually 3%) so don’t go thinking you will be able to buy a lot that others aren’t buying.
You can search the MLS for deals yourself. You can make quick changes to your criteria to filter and find what you are looking for.
You can check on your offers yourself and negotiate for yourself. You won’t have to send everything through your Realtor.
Of course, most of these benefits really only relate to making offers and buying houses from the MLS, not directly from motivated sellers.
Want to go back to school? Here’s your chance. I’m sure it’s not too bad.
Yes, you have to pass an exam. They won’t just assume that you know what you need to know.
You’re gonna have to pay for the privelege of having access to the MLS. It’s not cheap either.
You will probably have to continually be learning to stay abreast of new laws and changes in Real Estate that affect agents.
It’s not enough to just get your license. Once you have it, you will need to find a broker to hang it with. The fee structures and set ups are different from broker to broker so I will not go into all of that. Some research on your part would be prudent.
This is a big one, especially if you are buying directly from homeowners instead of from banks. As a licensed real estate agent you will have a fiduciary responsibility to the homeowners you are buying from. This is because you are considered a professional as a real estate agent, which can be seen as having an unfair advantage over the people you are buying from. Yes, this means that you have more liability if things don’t work out. You will need to disclose that you are a Realtor during your intial contact with a seller.
So there you have it. The pros and cons of being a licensed real estate agent and a real estate investor at the same time.
If you were to ask me whether you should get your license or not, I will probably still tell you to just spend your time developing a relationship with an agent. Ask other investors and/or call some real estate agent offices and ask for an agent that works with residential real estate investors.
Do you have an opinion on the matter? I’d like to hear from you. Please let me know what pros and cons that you have considered in getting your real estate license or not. You can do so in the comments below.
Good article. Cleared up alot of things for me regarding getting my license. I am going to have to go with a big fat NO!!!
I’m glad it helped.
I had a broker tell me that I should get my license because by not having one I’m leaving money on the table. Instead I chose to share the wealth and just get an agent on my team and have them submit all of my listed property offers for me. Great article as usual Danny!
I agree with your way of looking at it. There are just some things I don’t like doing and submitting offers on listed properties is one of them. I know it doesn’t take much time, I just don’t like the hassle.
Good clarification Danny. It’s funny how my investment business has morphed over the last 5 years.
I can remember contemplating the pros and cons of getting a license. I finally decided to do so to list our renovations in order to increase our net profits. Then a year ago, a friend and I decided we weren’t happy with our brokerage situation and decided we would start our own (not much more difficult than being an agent).
So here I am, 2 years later, an investor, as an agent in my half owned real estate brokerage haha.
My decision was made to get a license based on this: of the biggest investors in my city, I saw a pattern. Most of them happened to be licensed. So I followed suit.
Good to hear from you.
You know, if I ever did decide to get my license (probably not likely), but if I did, I would do the same. I would become a broker.
How is your new site going?
In Texas since you have to be sponsored by a broker to get your license, would they get a piece of every deal you do ( wholesale, rehabs, etc.)?
Also I’ve read several opinions that many buyers (other investors) prefer not to work with realtors. Your thoughts?
It depends on the brokerage regarding what percentages they take or other costs are involved. I’ve never really looked into what the typical brokerage charges, but I’m sure the bigger-name ones will be more expensive and have more rules.
I’m not 100% on whether you would have to pay a percentage on deals you do that aren’t being sold through the MLS. Maybe someone that is licensed can chime in and discuss that a little.
I think the investors that prefer to not work with Realtors on wholesale deals are referring to ones that are not investors themselves. So, the investors that don’t like to work with them is just because they don’t want someone in the transaction that has a buyer but is not the buyer themselves (the agent isn’t the buyer).
Bill, from an Alabama perspective…
Them getting a piece of your wholesale pie depends on your relationship with the broker and the deal that you work out with them.
I would highly hanging your license with a broker that fully understands what your doing. Otherwise, fear of the unknown is likely to kick in…
Well I meant buy from realtors in a wholesale transaction, not just in general.
With that, I would say that if an individual isn’t needed and you can make more money without them, wouldn’t you want to cut out the middle man?
I can tell you that agents are needed and desired if they have access to deals that others don’t and truly understand investors wants and needs.
It also helps to be an investor yourself 🙂
Danny love your posts, lots of great info.dont take what I say here to personal because you bring a wealth of information that has been valuable to myself. However, I think your a little off the mark in this one.
First off, 3% could make or break a project. If you are rehabbing a 300k home that 10k could be money used for any emergency surprises or just pure profit in your pocket. #s are crucial to success and having that in your back pocket is extremely beneficial.
Disclosure is not a negative. people like professionalism and by saying you have to abide by laws you make it out to seem that it’s ok to swindle homeowners bc you do not have a license. I know that is not your intention but you can see where the average person would take that. Homwowners actually may be more reassured that your an agent, especially for how difficult and embarrassing these situations are for these people.
Everyone should continue to educate themselves no matter what. Continuing education is not a negative aspect because every great business person is always looking to learn. It can be structured in a classroom or through blogs like yours(one of the best out there).
A pro that you did not mention is you can make a little extra cash listing homes that you come across for unmotivated sellers that want their home on the market.
Obviously you can tell I’m pro getting your license but is am a firm believer im controlling as much as you can without over extending yourself. Having access to the mls is vital and depending on others can get tiresome, especially if they are busy doing other things. Just my two cents, keep up the great work!
Why do you have to rain on my parade? Just kidding of course. 🙂
I’m really glad you took the time to thoughtfully and thoroughly comment on this. I really wanted to get the view from the other side of the argument and here you have done a masterful job of that.
Every point you made I feel is a valid and good point. The additional pro is a good one. I should add it.
Thanks again and I really am glad you wrote this.
Disclosure requirements are going to vary state by state, as are requirements to get a broker’s license vs. a sales-person. I’m a broker in Texas; licensing requirements to become a broker just changed last year. There are now minimum experience requirements that would preclude most agent/investors that only work for themselves of being able to gain a broker’s license. That said, there are a lot of brokers out there that will hold your license for a monthly fee and take a very small piece of any commissions, vs. the traditional model that takes 20-40% of your commissions. In TX, whether as a broker or agent, you will spend a minimum of $2-$3k/yr to maintain your license and REALTOR status, between E&O insurance (brokers) or broker fees (agents), REALTOR association dues, and MLS access fees.
One note on disclosures (in TX, and again, I’m sure this varies state to state). You do need to disclose that you are a licensed agent, but that does not mean you have a fiduciary responsibility to someone that you are buying from. Just because the other party in the transaction is not represented does not automatically make them a client of yours, which triggers the fiduciary responsibility. It’s a good idea to make sure all parties are clear on that front, and document it in writing to CYA if things should go south. Also, make sure your E&O policy covers buying and selling of your own properties – many do not.
I appreciate your adding some specifics on the disclosures and the costs of hanging your license with a broker.
Very helpful. Thanks.
Similar in AL. You need 2 years with a license before becoming a broker. But that doesn’t mean you can’t start a real estate company and hire a broker for it and you be licensed (similar to me except I’m 50/50 owner in that company).
Most E&O’s don’t cover you selling your own properties.
I don’t like that.
But I don’t like insurance either anyway.
As a wholesaler with no license, you don’t have E&O anyway, so in my mind I see no difference and just do business as usual (feel free to tell me how dumb that is! won’t be offended ha).
Hi Danny, thanks for covering this topic. I actually have done it both ways. I got my license in 2008 when I first got started and do not regret it one bit, mostly because of the 3 weeks of training that went along with preparing for the exam. I think knowing those fundamentals about real estate is invaluable.
That said, I got tired of the continuing education requirements and the high cost of maintaining the license so I let mine lapse last year. Now I have full MLS access through an active agent as his assistant, at a cheaper cost and no continuing ed. He is willing to do this for me if I send him all my leads that require a retail realtor. It’s a great deal and I can always get my license again if I feel I need it. Alison
That’s a great point you added about the possibility of becoming an assistant. I’ve heard about this but didn’t know if it was something available in most places. Do you know, or anybody else know, if that is something that is commonly accepted for most board of Realtors?
We’ve always been licensed. Texas and California. In a hot market I cant wait on anybody, I’m in the door and making an offer within hours. I enjoy writing my offers, listing my properties and saving huge $, especially here in San Diego on 750k houses.
You mean you actually like saving money?
It makes a whole lot of sense there with those prices.
I am new to your blog, and I thoroughly enjoyed reading your responses and advice here…. good job!!!
Thanks, Michael. I appreciate that. Enjoy the blog.
is it necessary to have your Realtor license when trying to purchase land
Great article. However, in Florida a real estate agent does not owe a fiduciary duty to anyone until a single agency representation agreement is made. Otherwise, we’re working as a transactional broker and just owe each party the duty to act honesty and fairly during the deal. Just FYI.
Thanks for the input. I hope others that have differing situations in other parts of the country will also chime in.
In the state of Oregon there are some questions about wholesaling deals that would require a license. If you are doing lease options you better have a license. The state agency is not out looking for violators, but if something goes wrong with a deal, you could be in trouble.