getting licensed
Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
So I got sick of those calls where they didnt have enough equity for me to buy but they still needed to sell. I guess after the 20th one or so, I thought hey why am I throwing this money away and ending the calls with "what you need is a realtor, let me give you the number of XXX. - good luck!". So I decided if I can't buy it, I can stil sell it. Can't hurt right?
So - I've talked to a few brokers. I really just need a place to hang a license so I can go about doing my own thing legally. I've taken the classes and test and am all set. I've found a broker that I like.
Before I do this, I guess I'm looking for some last minute advice. Is there any reason (besides disclosure, which I understand and don't see as a major setback), that I should not do this? Is there some way being licensed could harm my goal of investing? Has anyone done this and regretted it? Anyone that did not, and wishes they did?
I wouldn't be able to tell you any reason why you shouldn't get licensed seeing how you understand the disclosures very well! I just haven't had any good real estate agents come my way and if they did there was all ways something wrong with them. But I know you will be one of those few good agents and I only wish you live in CA (LOL)! Good luck Minna...
I am licensed and my license hangs with a realtor. The main thing about being licensed is disclosure. The other factors are the costs involved, you have licensing fees, MLS fees (but also access), Errors & Omissions insurance, membership fees to your local Realtors association etc. These fees can add up to be a lot of money. The reason that I chose to get licensed was because I kept coming across a lot of deals and I was just passing them on to agents that I knew (sound familiar?). Since I wasn't looking to sell houses I did things a little differently, I am set up as a referral agent. This means that I can only refer business and collect a referral fee (typically 25% of earned commissions). I am not required to have E&O insurance, pay association fees or pay for the MLS. It works out well for me since my only cost is for the license itself and a small fee to the agency I am affiliated with. I don't know if your state allows for a referral only license but it is worth checking out.
8)
You asked for issues so I will raise 2.
1. Disclosure and avoiding certain deals. You have to be very careful. The average person has the right to believe that you would be focused on their best interest. Until you know if you are going to sell the property as their agent vs. buy direct and then resell you are in limbo. In some ways they should not tell you things if you are the buyer. If you are their agent you are a trusted party who can know all of their info.
So, the initial conversation can be a problem.
In many states you can not run any RE advertising without a clear indication that you are an agent. No more bandit signs and other things without the word AGENT on the sign. The state might require more than just a single word. Hence you could end up with fewer or different calls. You are clearly indicating that you are not a cash buyer, etc. You are an agent. Even if you say you are a cash buyer you look like an agent. If you call anyone, meet anyone you have to disclose very early that you are an agent so that they know what they should or should not be saying. Almost the first sentence when you call on ads, etc.
In some offices the agents can not do particular types of deals. The broker does not want the added liability. Subject-to, assignments, double closes and other creative techniques mostly. Many brokers will know less about investing than you so you need to restrict your business to their understanding.
If there is a dispute and you end up in court you are held to a higher standard as you have been licensed by the state as some sort of expert. The other side can claim they did not know that you were working for yourself or otherwise not representing this. Even if they signed things the damage could have been done with the first conversation before you told them your position.
Being an agent is about service to the public while investing is more about the deal. Hence there is almost a natural conflict.
2. Wasting your time.
If you are an agent and are not managing listings for clients you are changing the amount of time and the way you invest your time re: investing. You might find that the natural synergy is actually a drain on your investing activities.
The example above of being only a referral agent sounds pretty good. You can clearly position yourself differently. You do not have to invest a bunch of time in the listings. You are offsetting your marketing costs. You still will need to avoid the edges like bandit signs. You also will have to explain why someone who claims to be an agent in every one of their market materials, B cards, phone calls, etc is really a serious investor with cash.
In summary...
It could be that the calls you are getting are free referrals to agents you know. They need to find a way to help you out in return if they want to benefit from your market. It could also be that your marketing is attracting too many false positives so fix the marketing rather than get a license.
John Corey
I've heard the negatives and passed them along to others, too. I've spoken with investors who had their licenses and acknowledged it was troublesome. I've also spoken to an investor who said we (there were three of us talking at the REIA) were nuts for not getting licensed. So, opinions vary widely.
Since others have pointed out the downsides, here are the upsides, as pointed out by the guy I spoke to.
1) Access to the MLS.
2) The buyer's agent commission. He did condo conversions in small buildings. He said being able to collect the buyer's agent side commission himself often let him make a slighter higher offer in a competitive situation.
Personally, I still lean away from getting licensed. I work full time, though, and it would be a big time commitment to get licensed. And the costs Rehab points out are a consideration, too.
Jon
Okay I have clearly not considered disclosure to its full extent. Overlooked the fact that I would have to mention the broker on all my advertising. "we buy houses....century 21" would be a huge turn off to callers, I assume. I'm not sure I would want to do that.
I dont have a problem working it into the conversation when they call though. I'm pretty smooth on the phone I could pull that off. But wouldn;t want it on my advertising.
Maybe I'm reaching, but is there no way I can have my llc operate independently as the investor, without disclosing agency on advertising?
Minna if you are a Realtor® any advertising you do must have the name of your broker and the fair housing emblem on it otherwise you are opening yourself up to potential problems. It has gone as far as my signature on this forum for the identification that you should make.
That does create a whole mess of problems. I'm wondering if it's even worth it at the end of the day.
Legally you are the same person (investor and licensed agent) so you can not operate two distinct entities.
Being smooth on the phone is not enough. In some states you pretty much have to declare you are an agent in about 10 words or less from when the call starts.[list] Hello. This is Minna. I am an agent. [/list:u]
A license is a tool. It allows you do operate a specific type of business. If you have a second business that is in conflict avoid the tool or get out of the other business.
Sort of like getting married. You are saying yes to one but no to everyone else. Some forks in the road really are forks.
If you just want to pass on referrals consider a compensation plan that is legal in your state. Some states allow up to $25 being paid to an unlicensed person. Others are more flexible or will allow cross promotions. Or you just build up good karma and expect that you will get a deal on property management, listing fees and referrals back to you when a listing agent can not solve the problem. Just do not tie the karma to any specific deal closing.
John Corey
While I certainly do not claim to be intimately familiar with the licensing laws of all locales, I disagree with REI and Ohio.
The statutes in the states I have operated did not preclude you from acting independently as a legitimate investor. Yes, you are required to disclose the fact that you are a licensee "at the first substantial contact", and in practice it is generally accepted that this means in writing, on the purchase offer.
They also require the Broker's Business name and info be included in advertising for sale or rent, and that licensees can not advertise their own property (or ANY property they have an interest in) for sale as "FSBO".
If YOU, Ms. Investor, want to advertise that "You Buy Houses", without your Broker's info, this is perfectly fine. Don't use the office phone number though! There is no problem in stating that, while you are a licensee, you are interested in purchasing the property personally, then, once you determine that agreement cannot be reached, offering to list the property through your Broker. In fact, there is nothing wrong with making any kind of offer you want on a listing within your office, and if accepted, consummating the deal. As long as you properly disclose, and are honest in all aspects. The key is keeping your agency relationship clearly separate from your personal. Once you have agency, your fiduciary duty is clear.
The above is correct. It just can turn out that the judge does not agree with where you think the line is and what constitutes clear communication. Even more so if the seller can argue that they were under financial pressure because of a pending foreclosure or similar.
Then there are the brokers who you hang your license with. They might have had their fingers burned by an aggressive agent in the past. They likely have house rules that state they have to approve all advertising and all RE transactions in which you are involved.
Finding a RE broker who is willing to have you put their license and reputation at risk so you can do your creative deals is tough. Mostly because if they really understand the deals they would have little incentive to manage a group of traditional RE agents. A few brokers are savvy investors. Most are not and they do not want 'odd' deals connected to agents in their office. Check your broker carefully when you are thinking of being an investor with a license. Or just be your own broker.
I have meet many newer agents who were also new investors. The restrictions that they had to operate under were pretty strong.
One last thing. Beachbum said that disclosure should be in writing and mostly handled at contract time. I know of states in the west where you better be very clear with the disclosure long before there is a piece of paper being signed. The other party can sue if there was a reasonable expectation of agency even if nothing had been signed. Info they disclose to you when they are expecting agency can be considered private and not really something you should be using to decide if you wholesale vs. retail the deal. Flipping and being an agent can be very tough. In CA all ads for lending money, offering a property for rent. advertising that you buy for cash and other similar ads dealing with RE have to have the word agent in the ad if you hold a license. Using a different phone number or other things does not exempt you.
A licensed agent is a hired gun. You can not conceal that you have such a status in most states. When and how you disclose it could vary but that will vary by state law, by house rules for a brokerage and by the decision of the judge when they decide if you broke the law.
Having a licenses comes with benefits and with costs. Oil is not water. Water is not oil. Choose wisely.
John Corey
Think of it this way.
Why would you care about concealing if you were an agent on your bandit signs, on the phone and at other times? The only reason I can think of is people will react differently if they know you are an agent. If you know they will act differently then the judge will believe that you should be up front as to your legal status. To conceal your status so you can do deals you would otherwise not have a shot at becomes the issue.
John, I think we're on the same page...I just forget that all of my licensed activity has been exclusively with companies that focus on investment properties. I have worked for numerous Brokers that owned in excess of 100 units individually, and in various joint ventures/partnerships with other family members and or clients. Each of these Brokers was well respected in the community, and there was never any impropriety alleged. In fact they all have numerous repeat clients and manage some or all of their holdings. In short, ethics was never a problem.
Of course, some individuals are not as clear on when and where to draw the line. This is especially true of new and inexperienced agents...ALL of whom are "Loose Cannons". Most of these newbies go to work for the big franchises, where there ARE many limitations, and rightfully so. Real Estate classes do not teach the Business of real estate. You can only learn that from experience. The "typical" new Residential Specialist is just NOT who you should be practicing, or learning, REI with.
I'll make the analogy again about Doctors-- They all go to medical school, but you don't go to a podiatrist for brain surgery. Same for REI.
Minna,
I think that getting your license would be an excellent solution to your problems. You could make some extra money by working as a realtor and you could still invest for yourself. I know a couple of successful investors that are agents and they do just fine. I also think Beachbum is right about the advertising issue.
Finally, there are a lot of advantages to being an agent. You will make a lot of contacts and quickly learn who the good attorneys; title agents; and banks are, and you will build relationships with these people. In addition, you will receive a lot of inside information and will find out about a lot of deals before they come on the market.
In short, I think getting your license is a great idea!
Good Luck,
Mike
Mike,
Do you have your license in OH?
John Corey
John,
No, I am not a real estate agent, but I have a couple of relatives that are realtors and a couple of the local successful investors are realtors.
Mike
No, I am not a real estate agent, but I have a couple of relatives that are realtors and a couple of the local successful investors are realtors.
Mike
Mike,
Thanks. You said there were a lot of advantages to having a license. As you are rather successful and do not have a license other investors should be able to do the same (no license, investment success) if they follow what you do.
Is there anything that you find it hard without a license and therefore maybe a good reason to get a license?
John Corey
John,
That is right, but Minna is in a different situation. As I recall, her job was eliminated in a downsizing and she is in an expensive court battle with her ex. That means that she needs cash to keep things going while she is starting her investing business. It is very difficult to start a business with no job and no free cash, especially if you're trying to get loans. My point is that a real estate license could give her another source of income; would let her set her own hours; will help her make contacts; and keep her working in real estate.
Mike
All true...and my boiler blew last night to top it off...lol. Anyway yeah I could use the money. I can only live off this last rehab for so long before the money runs out. The upside of the license was all those things Mike just mentioned. My thoughts exactly.
Disclosure is an issue but I just dont believe its truly the end all be all. I think that could be adjusted for.
There is one other aspect to getting licensed in order to generate some cash, how long does it take to get licensed? Here in Nevada it took 6-8 months when the market was flying high. Of course that was because every cab driver, bartender and hairdresser was getting licensed to do real estate on the side because it was so easy. Now that there are far fewer people looking to get licensed it still takes 3-4 months because of the background checks that they are required to do here. How long will it take in CT? The other thing is that even after you get licensed it still takes a long time before you see a paycheck. If you are lucky enough to sell a house on your very first day you still don’t get paid until the deal is done, maybe 30-60 days later.
8)
Well I had to take a class and pass the test, but thats all done. The only time left is for me to sign the dotted line with a broker and run down to city hall and fork over $225. So we're talking a day or so from the time I decide to join a brokerage. I do realize it takes some time to get paid. Thats ok, i'm not bankrupt...yet.
Honestly I just wish I could find the right buy instead. But its not happening. All my calls lately are as mentioned above and I am putting lots of offers on reo's, but I'm still getting beat out every time. I mean somethings gotta give here eventually...but til then...I got cash going out like you wouldn't believe, and none coming in. Gotta do something.
I do NOT want to get a "job". This would be a lesser evil.
Plus...actually I get an edge on the reo's as an agent. I could put in so many offers so fast if I could skip the middleman. It would be helpful in that aspect. But thats beside the point really.
As far as the question of whether to become an agent goes, I've found that the best case scenario is to have a very good friend who is an agent (particularly an SO). If you are an agent, it pays to have a good friend how is not.
There are many deals in which it is optimal to be an agent or optimal to not be an agent. You can't "profit share" unless you share a combined houshold incomebut you can rever business back and forth and give gifts (if the business is going more your way at the moment, buy him/her a pair of plane tickets and a hotel room someplace nice).
Jeff,
Good idea.
John Corey
Thats a fantastic idea. Furthermore, I believe there would be nothing illegal in this person who is not an agent perhaps getting a property under contract and then assigning it to me right? doesn't sound illegal.
Correct. You must, of course, fully disclose to the person assigning the deal that you are an agent (I hope that person would already know *grin*) and, I believe, that you must declare to the seller when you take over the contract (but there's not much they can do about it at that time).
OT: after rereading my original post, I need to post when I'm not so tired. *sigh*
Bad idea.
The agent should not be buying from people and then assign the deal as that gets into the gray where representation could be confused.
You can do a deal as the non-licensed person and then have the friend list it for a commission. Flipping by putting it on the MLS. The agent should not be a prinicipal, just your agent.
The agent can turn you on to listed properties that are a good deal. They can represent the seller or they can be your buyer's agent. They could then find deals for you to buy but they have to tell the seller immediately that they are representing the buyer and not the seller.
It is all about what goes on in the mind of the seller and if the agent said or did anything that makes them appear to be a normal agent hunting for a listing representing the seller. A seller has a right to assume that unless the agent tells them otherwise the agent is there to help the seller. If that is not the going in assumption then going in the agent needs to speak. A CYA need to speak up.
John Corey
I think you misunderstood John. I was suggesting that the agent could basically buy from a wholesaler no problem. No conflict in that.