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Investors: Should You Get Your Real Estate License?

by J Scott on February 24, 2010 · 52 comments

  

Not a week goes by where I don’t read a thread on BiggerPockets or receive an email asking the question, “Should I get my real estate license?” For anyone planning to become a long-term real estate investor, it’s a tremendously important decision that should be given a lot of thought. And while you can read plenty of opinions on the BP forums (including my own), I just wanted to spend a couple minutes putting down my thoughts in an organized way, so that in the future when I get this question, I can just point folks to this particular post.

First, let me begin by saying that there is no “right” answer to this question, and what I pose here is my opinion only, and is largely based on my investing experiences and my particular business model. I’m sure some others will disagree, and I’m also sure that they will have very valid reasons for disagreeing, most likely based on their specific investing experiences and their business model.

It’s been about a year and a half since my wife got her real estate agent’s license for the sole purpose of benefiting our investing business. And given our experience over the past year and a half, I couldn’t imagine being a full-time real estate investor and not having someone in our business who had their license.

Benefits of Getting Your Real Estate License

  1. Access to MLS. First and foremost, having your license means getting access to the local MLS. While there are certainly other ways to get access to the MLS, having your license will allow you access without having to rely on other agents, friends or colleagues to get access. This means you don’t have to worry about it going away, and you don’t have to worry about anyone getting in trouble if they’re giving you access to their account “illegally”.
  2. When we first decided that my wife would get her license, this was the impetus. We wanted access to the MLS not just to be able to run search queries and find candidate properties, but also because we wanted access to the wealth of historical data that the MLS provides. I have spent literally hundreds of hours on the MLS mining data to determine which areas to focus on, which types of houses to focus on, and which types of buyers to focus on.

    I credit this research with much of our early success in this business. And I never would have had access to this data without access to the MLS.

  3. Make More Money. Many investors realize that every time they sell a house through another agent, they are spending about 6% of the sale price in agent commissions. What they don’t realize is that when they buy property, their agent is also collecting up to 3% for facilitating the transaction.
  4. This means that on a typical purchase and sale of a property, an investor has access to up to about 7-8% of the total sale price of the property in extra profit, if he didn’t have to give that money up to his agent. If you buy a property for $50K and sell it for $100K, that’s $7500 in additional profit (assuming your buyer didn’t have his own agent) you could have if you were your own agent on the purchase and sale of that deal! Doing just four deals per year, having your real estate license could earn you an extra $30K.

    In the past year, we saved/earned nearly $50K in extra income by not having to use another agent. Even with the brokerage fees we paid ($300 per month and $40 per transaction), we still netted an extra $45K in our business by having a real estate license. It made the extra paperwork well-worth it.

  5. Controlling Our Deals. Being our own agent for our purchases and sales allows us full control over our deals. We can submit offers to and negotiate directly with listing agents. We deal directly with the lenders, the appraisers, the inspectors, the closing attorneys, and all other parties involved in the closing of our transactions, both on the buy and sell side. We control our marketing, our sales, and the showing of our properties to prospective buyers.
  6. While there is certainly overhead involved in being the agent for your own deals, that headache is far outweighed by the fact that you have full control over every aspect of the deal. Will your agent drive to your property before every showing, turn on the lights, open the windows, and put out fresh cookies? Will your agent follow-up with everyone who has viewed your property to get feedback and recommendations? Will your agent send marketing materials to renters in the neighborhood who might be looking for a house to buy? Will your agent make sure to be at the house with the appraisers to ensure that get a favorable viewing of the property?

    Probably not…but because all aspects of the transaction go through us, we can (and do) do all these things. It’s a good part of why our typical property only spends two weeks on the market before we get our first offer.

  7. Enticing Listing Agents. Imagine your the listing agent for (the one selling) a bank owned foreclosure property. And imagine one day you get a call from an agent whose client is interested in buying that property.
  8. That agent says to you:

    I’m going to submit an offer on this property. All you need to do is get the bank to accept the offer. After that, I will take care of letting my client into the house for inspections, I will take care of getting the utilities turned on for the inspections, I will complete all the additional paperwork, I will work with the title company on the title search, and I will work with the closing attorney on scheduling the closing. Then, on the day of closing, you don’t need to even show up. I will get your lockbox and your sign from the property, I will get your commission check from the closing attorney, and I will drive all of it over to your office immediately after the closing is finished to drop off to you. Oh, and by the way, I’ll also give you MY half of the commission as a bonus, so you’ll earn twice as much money on this deal.

    So, do you think the listing agent would be interested in working with you? Of course they would. And this is what we do with most of our deals. That’s why the listing agents let us know when they have properties getting ready to hit the market, they let us know when their properties are about to have price drops, they let us know how much the bank is willing to negotiate, etc.

    Basically, they give us an advantage over all those investors who don’t have the ability to do this for the agent. And that’s why nearly 40% of the houses we make offers on, we get under contract.

The Drawbacks of a Real Estate License for Investors

All that said, as I mentioned above, depending on your specific business model, there are some drawbacks to having your license. Among them:

  • Getting Your License. First and foremost, you need to actually get your license. This often requires a couple hundred dollar investment, and then about 100 hours in coursework, studying, and taking exams to qualify to get your license. In addition, once you have your license, you need to find a broker to work under, and that may involve some additional fees and responsibilities. Plus, you’ll probably be required to earn about a dozen hours per year in ongoing education credits to retain your license.
  • In our case, we pay our broker $300 per month and $40 for every purchase/sale we do, and beyond that, we don’t have any extra work required by the broker. In addition to the $300/$40 requirement, my wife has to take about 10 hours per year in continuing education classes. But, if you’re a part-time investor, the time commitment required to get (and keep) your license may be prohibitive.

  • Paperwork. Okay, I’m not going to lie to you. If you do a bunch of deals, you’ll end up doing a bunch of paperwork. This is the most annoying part of having your license, but it comes with the territory. You’ll be responsible for writing your own offers, submitting forms to attorneys, agents, brokers, the MLS, etc.
  • In the past year, my wife has handled about 20 transactions for us (both purchases and sales), and has probably averaged about 5-10 hours per week doing paperwork required for those transactions. That said, there are people who can handle most of the paperwork for you (for a fee), so even that’s not required if you really don’t want to or can’t do it. But again, part-time investors may find the paperwork requirements a bit daunting in terms of time commitment.

  • Disclosures. When you have your real estate license, you are held to a higher standard. You must disclose to buyers/sellers that you are a licensed agent; you can’t “knowingly take advantage” of a buyer/seller; etc. Some investors feel that having to make these disclosures and being held to this higher standard negatively impacts their business, and that is why they don’t want to get their license.
  • While I can’t speak for other investors, I haven’t had an circumstance — and can’t imagine one — where I would have any issue disclosing to a buyer/seller that my wife is licensed. In fact, in my experience, this has been a selling point for those buyers who are untrustworthy, and now feel more confident that they are dealing with someone who is licensed and knowledgeable.

Given all that, I would personally recommend that any serious investor — especially those who plan to buy/sell using the MLS — get his/her real estate license. Better yet, have you spouse get his/her license so that you get all the benefits of it, but can generally get around the disclosure requirements if you ever really need to.

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{ 51 comments… read them below or add one }

Michael Acord February 24, 2010 at 1:16 pm

I’m an agent who enjoys investing outside my state more than in because disclosure and the spotlight my department of commerce shines on investing realtors. I got licensed to have access to the MLS there was no “website” with property listings like today.

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Robert Steele September 21, 2010 at 3:05 pm

No one mentioned the tax benefit of being married to a licensed Realtor. That is: no passive activity loss limit!

Assume that I have 30 rentals each with a depreciation basis of $100K. I can write off $3703 a year in depreciation on each property. Also assume that my cash flow for the year turned out to be $2040 for each property ($170/month after vacancy & maintenance). So my loss on paper would be $1663 per property. Remember this is not a real loss. I actually made $2040 per property.

Multiply my phantom $1663 loss by 30 properties and that equals almost $50K in phantom losses. If I am a Realtor I can use that loss to write off non-passive income from other sources such as wages and salaries. So if the other spouse makes $90K/year salary they only have to pay taxes on $40K of it!

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J Scott September 21, 2010 at 3:25 pm

Hi Robert –

Actually, having your real estate license doesn’t qualify you as a “Real Estate Professional” in the IRS’ eyes, and therefore doesn’t necessarily allow you to avoid passive loss limits.

Qualifying as a Real Estate Professional is based on the number of hours you spend doing work that qualifies towards this status (there are a list of activities that qualify) and having your license (or not) has impact on whether you qualify or not.

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Anonymous November 1, 2010 at 9:39 am

If you or your spouse are a Realtor (and not just a license carrying investor) then it is pretty easy to meet these qualifications.

http://www.irs.gov/publications/p925/ar02.html

Qualifications. You qualified as a real estate professional for the year if you met both of the following requirements.

* More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.
* You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.

J Scott November 1, 2010 at 6:36 pm

Anonymous –

Actually, that’s not correct. The work you do representing clients as a non-principal in real estate transactions (i.e., representing buyers and sellers for houses you don’t own) doesn’t count towards the number of hours you need to qualify as a real estate professional.

Those hours need to be accrued buying, selling or working on properties where you are the principal (i.e., the owner). So, a typical real estate agent would generally not qualify as a Real Estate Professional.

Chris Guthrie February 24, 2010 at 1:33 pm

Very well put, J. I think you presented both sides of this age old argument very well.
.-= Chris Guthrie´s last undefined ..If you register your site for free at =-.

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Ian Marshall February 24, 2010 at 8:07 pm

Wow I’ve never looked at it like that before.

I just been under the assumption to let the Realtors do their job and as an investor I’ll do mine.

But this post may have really swayed that for me.

Ian

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Jon C February 24, 2010 at 8:11 pm

Thanks for the post. I always hear the benefit of access to the MLS. However, I assume you are not given a username/password with your license and that’s never mentioned in any posts about getting the license. People start to assume license = MLS access. A broker must grant you access, correct? And $300/month? Whoa, thats a lot of money. Plus, would a broker ‘hire’ you if all you wanted to do was wholesale property and never get a commision? You are the first to actually mention some of that but could you clarify? Also, access to the home is a huge plus.

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J Scott February 24, 2010 at 9:04 pm

Hey Jon –

First, yes you are correct that you will most likely need to “hang your license” with a broker in order to get MLS access and be able to perform any transactions. And yes, you are correct that this will generally cost some money.

But, let me clarify about the $300/month and $40/transaction. This is what we pay given the volume of transactions we do. My wife works for a rather large brokerage (over 3000 agents), and their basic rate plan is actually $40/month and $300/transaction (we could do this plan, but it’s cheaper the other way given that we do a lot of transactions each year).

So, in our case, we could get MLS access for about $480/year, plus about $100-200 per year in other fees. Additionally, her brokerage doesn’t require that she complete any transactions whatsoever, and doesn’t require that she ever come to an office. So, if we were just using the license for MLS access, they’d be fine with it, and it would cost us about $500-600 per year.

And that said, I know there are even lower cost brokerages out there that cater specifically to investors. Find one of those, and you may be able to get MLS access for much less than even that.

So, yes, finding a broker to work with and paying to work with that broker *is* a real issue, but if you shop around, you can likely find a solution that’s low-cost enough that it’s well worth the price to get MLS access and access to houses.

Again, just my opinion…

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Mark Yuschak February 25, 2010 at 5:43 am

Jason, this is an outstanding blog post! You did an awesome job of laying out the benefits and pitfalls of being an agent and investor.

Like your wife, the sole reason I became an agent is to have better control over my investing business. To take it a step further, I’ll be a broker very soon so that I don’t even have to “hang my license” anywhere. I’ll than have only the MLS fees associated with my office of one (me).

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Craig Grella February 25, 2010 at 7:49 am

great article, covers almost everything.
I’ve found my real estate license very helpful in my work. Even on the financing side of things, i’ve had several clients call me to find out if I can finance a property for them, and when they find out I have a license they end up using me to place and negotiate their offers on the purchase.

While there is some maintenance required from a cost and paperwork standpoint, i think the benefits far outweigh them. If nothing else, going through the process of getting your license will make you a much better educated investor.

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Bill February 25, 2010 at 5:40 pm

What an excellent, thought provoking article. And after a pause to ponder, I still say, naaah! Not THIS investor :-)

A reading of the article reveals to me that I enjoy all of the advantages applicable to my business model, while enduring none of the drawbacks. And yep, that inlcudes MLS access since I have a great realtor on my team.

What finally convinced me that I was on the right track of not being licensed was Jason’s statement that “better yet, have [your] spouse get his/her license so that you get all the benefits of it, but can generally get around the disclosure requirements if you ever really need to.” Now, I have a realtor already on my team, but that gives one pause to ponder a whole other question. But I digress :-)

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matt mathews February 25, 2010 at 5:59 pm

Great post! I have made quite a few comment/replies about this very subject. What a lot of Investors don’t understand about the MLS is that without a license you never get to see all the inside info that’s available only between agents-never to the general public. You also have complete access to get into any property listed on the MLS. sometimes before anyone else can. As an Investor before my license and now with my license, I can, like yourself, make a better case for vs against. Thanks again for a great post.

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Paul Ryan February 26, 2010 at 2:23 pm

Knowledge is power, I think its a must for every investor to get their BROKERS license.

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Neil Uttamsingh February 26, 2010 at 9:06 pm

The statement that I am going to make is a generalization, and may not be representative of other readers experiences’.

In my experience, in speaking to fellow real estate investors, I have noticed that the most successful investors do not have their license. Nor to they have the desire to obtain it. They are laser focused on their goal at hand…investing in real estate.

I have also noticed that investors who are continually debating whether or not to get their license, do not become the most successful investors, because they are distracted with these other thoughts.

Again, some of the most successful real estate investors (in terms of number of rental properties owned) do not have their real estate license.

Just my $0.02.

Regards,
Neil.

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CHAYO BRIGGS February 27, 2010 at 12:44 am

I totally agree with Neil Uttamsingh.

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J. Lamar Ferren February 27, 2010 at 5:20 am

Really great post J. I’m not a big supporter of investors getting their license, as I never thought it was truly necessary. Based on my business model, I still don’t see the necessity at this time… (that’s just me though…)

However, your article has opened my eyes to more of the benefits involved with getting a license. Benefits I never really thought about other than gaining access to the MLS. More importantly you show how getting a license can contribute highly to business growth, something that should be a top priority to any investor.

With that said, if I ever decide to change up my model and actually go for my license, I’ll definitely take this into consideration. Thanks for the eye opener.

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Brian Gibbons February 27, 2010 at 8:10 am

I think in certain states it it really helpful to get a license.

I was with a buddy of mine in Long Beach L.A. , in his RE Lawyer’s office, and lawyer said doing Lease Option Assignments for a fee (which I do a lot of) would get you in hot water with the A.G., at least in L.A. County.

He said the state legislature of CALIF just a few years ago passed legislation saying that Agents could (GET THIS) draft seller financing contracts, like lease options and Installment Contracts and have limited ability to practice residential contract law.

But if an unlicensed REI drafted a Lease Option then assigned it for a fee, he-she would be breaking 3 Calif state realty statutes.

Man, is Calif wacky or what?

Since then, my buddy is REGRETTABLY getting his CALIF license. But hey, if he can write seller financing contracts for sellers with the Calif RE Sales license, that is what I would do if I lived in California.

On another note, I heard unless you are licensed in the state of HI, you can’t write more than 5 option to purchase agreements unless you are RE licensed. (Its just not enforced, but its on the books) What a racket!

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Ryan Hinricher February 27, 2010 at 6:06 pm

J, thanks for presenting both sides of this particular issue. As a real estate entrepreneur, I own property for long-term wealth building, buy and sell property, and own a brokerage. I retired my license to focus on the entrepreneurial aspects of building my company brand (which happens to be a brokerage). While that might not make total sense, it does from a time perspective. I still have access to agents but can maximize my time by not having one.

For investors who do not own a brokerage, I would highly recommend having one. Also I think from a legal perspective many wholesalers cross the line into representing people on real estate sales without having. I like the additional ethics standards that licensed agents adhere to (or are supposed to). There are many investor-friendly realty companies out there although they aren’t the big name companies. Seek one of them out and place your license with them. Being around that network seems to open a lot of doors for licensed investors as well.

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Darell L. Ashely February 28, 2010 at 12:46 pm

Hi Josh, I wanted to add once you find a Broker in Michigan you must register with a board, NAR . This have been very informative , but could anyone explain to me on how to get in touch with assets managers to list REO’s and do BPO’s.

Thank you in advance!

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Joshua Dorkin February 28, 2010 at 1:16 pm

Darrell –
Here’s a list of asset managers, as per your request.

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Steele V. Propp February 28, 2010 at 6:34 pm

Interesting comments. A couple of thoughts/clarifications. First of all, if a spouse has the license it does not give the other spouse legal access to the MLS. In this case, the wife is the only one that should be looking through that data. Every MLS has similiar rules on this. If she give her spouse access, it is no different then giving it out to anyone else.

Also regarding “bribing” reo or other listing agents. Asking for first notification on a listing or even a price reduction might be ethical (then again, might not) but asking or suggesting that they tell you bottom line of their client… No. You are not just making it possible for them to betray their client, you are encouraging it. And that makes you equally guilty. And also the licensed spouse.

I realize that there is probably no maliciousness in this but ethics are ethics. Not situational.

Same for MLS rules and regulations. Unlicensed spouse should not be given access.

Them’s the rules.

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Jason April 25, 2013 at 6:46 pm

I’m glad you brought this up, it makes me cringe whenever investors say, just use the listing agent, he’ll give you confidential seller info no problem!

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J Scott February 28, 2010 at 7:42 pm

Hi Steele,

A couple thoughts regarding your comment above:

1. You are certainly correct that the spouse of an agent isn’t authorized by the MLS to have access. That said, I imagine it is a rule that is broken by a very large percentage of agents who use the MLS for their personal investing benefit. That doesn’t make it right, but I’m not going to lose sleep over breaking that rule… :)

2. I’m going to disagree with you on the ethics of asking a listing agent for information about their client’s intentions on a property. In my opinion, asking a question is never ethically wrong…it’s merely good negotiating. Ethical agents won’t provide any information that harm their client financially, and other than simply asking questions, I would never induce an agent to act unethically. Personally, if my agent didn’t ask these questions and attempt to get as much information as possible to help my negotiations, then MY AGENT is not doing her job.

3. A listing agent can do plenty of ethical things to help a buyer, and by giving our side of the commission to the listing agents, we are encouraging those agents to do everything they can (within the bound of ethics) to help us. They generally do.

4. As for considering the commission we’re passing to the listing agent to be a “bribe,” I would disagree with that as well. At no time would we ever expect a listing agent to act unethically because we have given them a bonus. I love it when they do. And when they choose to, I won’t stop them (it’s not my responsibility to force a negotiating adversary to act ethically). In fact, those agents that have proven time and again that they won’t act unethically, they STILL get our half of the commission. In terms of us giving them extra commission, there is no penalty to the listing agents who act 100% ethically; if there were, I can see how it would be considered a bribe.

I would never suggest that anyone in this business act unethically. But at the same time, the industry is not a level playing field for all involved, and those who take the initiative to “tilt the field” to their advantage are most likely to succeed.

Just my $.02…

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Angie Menegay August 13, 2010 at 9:43 pm

Regarding MLS access, I do not know your MLS board’s rules, but our association allows MLS access to unlicensed “assistants” without any special additional requirements. Of course, you’re still liable for all activities under your MLS access ID, but that’s a mute point since this is your spouse. Unlicensed assistants can also get their own MLS access ID’s, though they have to go through some training…
So technically my husband is my assistant and I can let him use my ID to access MLS.

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Glenda Jones February 28, 2010 at 8:14 pm

Please notify me of future comments on this topic via email

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Joshua Dorkin February 28, 2010 at 8:29 pm

Glenda – Simply click the SUBSCRIBE to comments link and you’ll be signed up.

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Steele V. Propp February 28, 2010 at 9:54 pm

You, of course, have your opinion. Seems a bit of situational ethics. But that is my opinion.

Your point #1 is a direct MLS violation for your wife. Period. She should be doing all the access. Period. You want to play there, get your own license. I do investing as well but I do my own research and have my own license. I wouldn’t give access to an unlicensed partner, spouse or otherwise. The comment that others do it is not an excuse. And frankly it isn’t done lots of the time.

As to 2,3 and 4, interesting arguments but a bribe is a bribe. You are hoping for something in return. If not this time, then the next. You are putting temptation on the table and a claim that it isn’t your fault if they give in to temptation and tell you secrets…then why did you specifically mention getting insider information in your example? I believe that they refer to the concept as entrapment :>)

As mentioned in one of the first comments, real estate licensees are held to a stricter standard. If any of these actions led to a problem it would be your wife coming under scrutiny. If you feel comfortable with these as your answers that is fine with me. Just thought I would raise the questions.

Having a license is a good idea much of the time. We just disagree on some of the finer points.

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Dan Guillermo March 1, 2010 at 8:14 am

Great post…I actually just passed my RE license exam. It is a decision that I pondered for quite some time. Your post made me feel better about my decision.

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Larry Lowenthal March 2, 2010 at 7:57 pm

Perhaps the author will explain why on earth a selling agent will offer to hand over his/her half of the commission to the listing agent?

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J Scott March 2, 2010 at 8:26 pm

Larry –

It’s simple economics…

On a typical transaction we do (we stick to REO purchases), we will collect 2.5 – 3.0% of the purchase price in commission. With a typical purchase in the $50K range for us, that’s a commission of $1250-1500. We actually don’t give the full amount to the agents…normally, we’ll give $500-1000 as a bonus.

Our typical profit on a deal is in the $20-30K range.

So, given those number, if even 5% of the properties we purchase are the result of goodwill we’ve built with listing agents, then financially-speaking, it’s worth it. In reality, I’d say that about 25% of the properties we purchase are helped by the fact that listing agents love to work with us, and certainly a part of that is that we give them a bonus for working with us.

As for how the listing agents help us, there are several ways:

– Sometimes they will alert us to properties about to hit the market;
– Sometimes they will alert us to properties that are about to see a price drop;
– Sometimes they will come to us when a contract falls through and the bank is serious about getting another offer;
– Sometimes they will let us know when the banks are desperate to sell and are willing to drop their prices drastically;
– Sometimes if there are multiple offers, they will “put in a good word” for us with the bank (banks like to work with buyers who make the process very easy, which we do);
– Sometimes the agents will actually do unethical things to help us (tell us what the other offers are, suggest to us what the bank will accept, etc).

All of these things are beneficial when working in the highly competitive REO arena, especially in my area and at the price-point where I’m buying.

So, again, for us, it’s pure economics…

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Larry Lowenthal March 3, 2010 at 9:39 am

All you have to do is offer 5-6% to the selling office, and you will not only achieve the same results, but even better, you will motivate every Realtor in the market to aggressively find buyers for the properties. It becomes, “I don’t want anyone else to get that commission!”

P.S. I earned a broker’s license in Florida over 30 years ago, and now work as an expert witness in real estate-related lawsuits. I remember seeing 6% listings and they drove us mad with desire.

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Steele V. Propp March 3, 2010 at 3:00 pm

I agree that offering a “better than average split” to buyer agents does work. The REO industry has been doing that for some years. If you want to list REO properties be prepared for the seller (bank/asset management company) to tell you exactly how fees will be split.

One thing and perhaps it is different in other areas but all my lender clients do not pay out a buying side commission to a Realtor who is a buyer or related. And it is right in the seller’s addendum.

Of course, one could lie and take a chance. But I wouldn’t. Especially when your license could hang in the balance. But one can just take the fee into consideration and subtract it from the offer.

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J Scott March 3, 2010 at 3:15 pm

It’s funny…we’ve purchased 16 REOs in the past year, and we’ve always disclosed that my wife is a principal in the transaction — despite every addendum saying we weren’t entitled to a split, every single time we’ve gotten the commission listed in the agreement.

I don’t know if it’s the sellers being sloppy when reviewing the contracts and entering the information into the closing forms, or whether they’re just being generous, but we’ve always gotten the commission.

In fact, there was one situation where we didn’t want the commission (the property was purchased with retirement funds, and to satisfy IRS rules we weren’t allowed to take a commission), and we had to push the closing out for two days while the seller/bank figured out how to update their system so as not to give us the commission!

So, while it’s true that agents-as-principals generally aren’t contractually entitled to a commission, in our experience, the banks always pay it anyway.

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Steele V. Propp March 3, 2010 at 3:29 pm

The lesson is that it never hurts to ask. We’ve seen the opposite with a couple of our REO lenders. They even assumed a party was a principal when they were not. Had to fight to get them paid. First American has been a real stickler for us.

As long as full disclosure is happening, one can’t be accused of hiding anything.

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Judy Rothermel March 4, 2010 at 11:52 am

Thank you J Scott for a great post.

Very Interesting points of views here. As a license broker, a couple of points you should also address. There are additional cost involved by being an agent. Along with your cost of obtaining your license through taking the course and ongoing training. You have E/O insurance, MLS subscriptions, IDX subsciptions, local realtor boards, and also state boards. If you want to be Nationally certified, you would also have join NAR. I am also investor, but I feel the other costs involved should be also mentioned. Biggest issue investors that do have a license is they have to disclose they are an licensed agent.

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Jack Allen December 10, 2010 at 6:42 pm

Thanks for the post and the comments. This answered some questions I had for a long time and never found correct answer. I’m new to real estate investment business and I’m an IT professional. I’m considering becoming a broker for my investment purposes, and so I was doing research legal aspects of getting into real estate.

I’m in CA and RE seem to be more regulated here than other states.

I’m still not clear on a few things. Can you help me get some clarification on the matter ? If I become a broker, do I have more liability than if I’m just a normal investor ? Even if I disclose that I’m a principal, if you get sued, aren’t u in more trouble because you are licensed vs investor who can say “I’m sorry – didn’t know the rules” and get away?

If I’m a broker, can i market to a particular locality telling call me for solutions and depending on how the call goes with the seller decide to act as a principal or a broker? basically to see if it fits a wholesale deal or say just listing deal ? is the illegal?

If I’m a broker, can I run it from my home and a website ? do I need to get a office etc especially if I do only for my own investment?

If I get other agents to work for me, am I liable for their acts / omissions / commissions?

How much does access to mls cost in terms of fees etc and what other fixed costs are there apart from rent etc.

If I become a broker and do some marketing for my investing and come across leads, can I legally send them to other brokers and get paid?

If I become a broker, can I run a investment fund / pool money from other investors for investment purposes ? are there any advantages/disadvantages of license for this?

Isn’t becoming a broker better than becoming a sales agent?

Can realtors use MLS for their own investment purposes as principals? can I say use the list of cash buyers ans solicit them to buy my wholesale deals? is that illegal?

On contracts – if I’m not a broker or agent, can I use my own contract form and language to buy property in CA ? does state mandate that we use realtor forms and or state forms ? If I use say option contract with another wholesaler to sell his property, does that give me the equitable interest to claim that I’m a principal ?

can I use realtor forms even if I’m not licensed at all? can I just get a form from a friend and use it?

Too many questions! But I do deeply appreciate any light you can throw on this. As I start the comments all these questions were pouring forth..

Thanks!

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Nate Worcester January 4, 2011 at 1:26 pm

Great article!

I’m curious about the tax implications. When you are an agent and a principal in the transaction, is any commission you receive considered income for taxation purposes or could it simply be considered a “discount” on the purchase of the property?

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Larry January 5, 2011 at 1:57 pm

I believe that if you are buying from a builder, then it will be like a discount. But if someone (broker) cuts you a check, then it is 1099 income.

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Robert Steele January 5, 2011 at 1:41 pm

I believe it is considered income. At least that is how I prepare my taxes.

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David January 26, 2012 at 8:17 am

The question came up as to whether time spent in typical real estate agent work (buying/selling for others) qualifies for the designation of “real estate professional”. I was looking at the Nolo tax guide, and it says plainly that the answer is typically “yes”, if you are a typical commission-based agent working as an independent contractor (not a W2 employee). This is kind of a fringe issue for investors, but I just wanted to get consensus on it, as there seemed to be some disagreement above.

Also, my property manager (who is of course also an agent) told me just this week that she couldn’t purchase most govt foreclosures directly for her own account (Fannie/Freddie/HUD) as an agent. I thought this sounded ludicrous. Are there any restrictions for an agent to purchase REOs for themselves? Obviously not if the agent is the listing agent. But what if the listing agent also works out of your office, is that a problem?

As others have mentioned in the Comments, getting physical access to all MLS properties is another big plus with having the license, as well as access to ‘expired listings’ and all prior listing activity (this would fall under J’s general comment about having access to ‘historical data’, but wanted to bring this out specifically).

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Maren K August 1, 2012 at 9:38 am

(Looks like I’m kind of late in posting a comment; hope you still get this!)

What about purchasing real estate in a state other than your own? I am considering getting licensed (especially after reading your great post; thanks!), and I assume I need to be licensed in my own state (WA). However, we really prefer to invest in other states. Have you ever done this? Perhaps the benefit of being licensed is only for those who invest locally. Or maybe there is just an extra set of hoops to jump through.

Also, would I need any special certification to buy/sell commercial RE and apartment buildings?

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Elizabeth January 29, 2013 at 7:05 pm

Hi J,

I’m new in my pursuit in investing/real estate. Can you please answer a question that I have? Wouldn’t getting a real estate license only benefit and not hurt an investor? Besides for any fees, that is, what else would obtaining a real estate license take away from an investor? I want to be an investor (I’m 25) and I just don’t know what the best route is! I’d appreciate your input. By the way, great article. Thanks in advance!

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jonathan February 2, 2013 at 5:14 pm

hello,
I found this article to very interesting and it helped me out a bit but my situation is a little different and i was hoping you could give me some advice. My father and i want to work together to buy homes and flip(Southern, CA). Hes the one with the money, enough to buy at least 1 home cash. So i figured I should get my license to cut out the middle man and earn a little more on the sale. Now i have no experience other than owning my home and my father owning his. I just want to know what would you suggest to get the most out of my situation? Im willing to get my license and maybe becoming a broker and so on to whatever is eventually going to get me and my father the most out of this route to investing. Thank You for your article and time.

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Jason April 25, 2013 at 6:55 pm

In my opinion, on your first investment deal I probably would not recommend doing it yourself as a first time agent AND a first time investor, you should try and find a good agent, and or local investment mentor, that will show you the research, and so you under stand the market trends.

Sure you can save a few percentage points on the purchase and sale, but you can also overpay by many percentage points if you aren’t careful.

Not saying you can’t do both things first time by yourself, but I think you would be better served by having someone with experience help you. Not just any agent though, a real good one, which maybe only 10% of agents would fall into that category

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Jamela March 8, 2013 at 9:36 am

Very Informative! I’ve received a call from a broker before, and he told me that It would cost $2,000 just to become an agent. I thought you’d just go through the ropes to get you’re license and then you’re done. Didn’t realize the cost of trying to keep your license. It seems to be more of an expense than anything to me now lol.

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Jason April 25, 2013 at 6:49 pm

it’s more expensive now than in 2010, that’s for sure, the number of agents has dropped by about 27% from it’s peak in 2006

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Stuart May 27, 2013 at 5:32 pm

Having been a Realtor & licensed real estate agent before, I am taking a different approach. I enjoy the separation between investor and agent. When you are making a lot of offers every week, plus finding several deals on your own without agents involved, it works for me to have an agent cover all MLS deals so I can focus on other methods. Plus the record keeping and fiduciary responsibilities involved of being a RE agent make the money I lose by not being an agent worthwhile for me. But each investor has to find their own path – my younger brother, who I was a Realtor with for several years – has kept up his license and owns his own real estate brokerage now. The most important thing is to take consistent, educated action and have some patience in any business endeavor you are involved with.

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Chester November 19, 2013 at 1:14 pm

Hi J

I’m trying to revive this old thread because I think it’s a really valuable one.

It’s a great article with lots of good responses, but nobody asked the question that most sticks out in my mind, and that is this:

You said, ” I have spent literally hundreds of hours on the MLS mining data to determine which areas to focus on, which types of houses to focus on, and which types of buyers to focus on.”

My questions are:

1. What type of MLS data were you mining to determine which areas to focus on?
Were you looking at sales to listing activity?
And how did that data help you to determine that you would focus on one area over another?

2. What MLS data did you use to determine what type of houses to focus on?

3. What MLS data did you use to determine which types of buyers to focus on?

Thanks a million,

Chester

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Natalya Safronova August 26, 2014 at 11:23 am

I just got licensed in VA and even though our team has not done any deals yet, I can already see the immense advantage to having access to MLS. There is so much information that isn’t in Zillow, Trulia, etc. plus the CMA tool and ability to find accurate comps will be vital to our business. I was on the fence about it at first, but this article definitely helped make up my mind. Thanks so much for the information!

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Sarah Johansen September 15, 2014 at 3:33 pm

I have a question regarding disclosing that you are an agent when participating in investing/wholesaling, specifically when it comes to getting unlisted properties under contract. If my husband has his real estate license but I do not, am I still obligated to disclose that he is a real estate agent, or can I act alone as the buyer to get around some of the restrictions and guidelines (and just potential negative connotation) that comes with being an agent? My guess is no but I haven’t been able to find this answer anywhere spelled out. We’re from MN if that matters. Thanks in advance!

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