Real Estate Investing Basics

Should I Get My Real Estate License? An Examination of Benefits & Costs

Expertise: Real Estate Investing Basics, Real Estate News & Commentary, Personal Development, Flipping Houses, Landlording & Rental Properties, Personal Finance
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smiling brown-haired man with glasses and shadow of a beard evaluates exterior of a residential property while wearing suit and carrying a folder

One of the most often asked questions on the BiggerPockets Forums is from relative newbies wondering if they should get their real estate licenses. I have seen this question on almost every forum topic, asked at least once a week. On the surface, it seems like there are only perks.

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There are definite benefits to having a license:

  • Instant “Rebate” When Purchasing: This is easily the number one reason I got my license. I am not a high-volume flipper. I buy one property at a time, fix it up myself, and then sell it when I’m done. I add considerable value to the property, listing every home I have ever sold for more than $100,000 above what I paid for it. Just that $100,000 will cost you $3,000 in typical commissions or save you an equal amount when you list it yourself.
  • MLS Access: This is especially helpful for comparative home sales so you know what properties have sold for recently.
  • Property Access: Get in to see the houses when it works for you. My husband works from home, and our farm area is our neighborhood. When a property gets listed, we immediately make the earliest appointment to view it. We don't have to call our agent, who then has to call the listing agent to set up a time.

But getting a license isn’t just calling up the state licensing commission and asking to be added to their list. If you are starting from ground zero — that is, no prior licensing — it takes a serious time commitment and an initial outlay of cash to not only earn your license, but to become a member of the several different professional organizations that go along with having a license.

So what does it take? Let’s look at the different steps involved in earning your license.

Unfortunately, there isn't a national system for licensing; each state has their own rules and regulations. I live in Colorado, and we are a fairly progressive state, real estate agent licensing-wise. Here are the expenses related to earning your real estate license in the state of Colorado.

Expenses Related to Acquiring Your Real Estate License

School

The great state of Colorado requires 168 credit hours of study to be eligible to take the state exam. I did a little Googling and found a company called VanEd that is completely online. (They offer licensing courses for about seven different states.) I have young children, and going to a physical classroom for those 168 hours wasn't really feasible for my family. Taking courses online, I could watch and re-watch the lessons again and again. I could take 10 hours this week and not do anything else for the next 3 weeks if I so chose.

Related: You Just Passed Your Real Estate License Test. Now What?

The total for my VanEd courses was $695. This price includes a test preparation course, which was invaluable to me. I started my classes at the beginning of November and took (and passed on the first try) my state exam at the end of February.

State Licensing Exam

While the course cost includes the exam prep, it does not include the cost of the state licensing exam. It cost me $85 to take the exam the first time. Since I passed with flying colors, I didn’t have to take it more than once. If you don’t pass, it will cost you $80 each time you sit for the exam. It’s worth passing the first time.

OK, now that you have paid for the course and the exam, you’re done, right? Not even close…

Fingerprinting & Background Check

Being a real estate agent allows you access to any property listed on the MLS. Most homeowners aren't home when the house is being shown. You must pass an FBI background check to be allowed a real estate license. In order to pass said background check, you have to submit your fingerprints, along with your Social Security Number.

How do you get your fingerprints to them? Two ways: certain testing facilities will do it for a fee, or you can go to your local police department who will also do it for a fee. The testing facility will do an electronic fingerprint, which has a higher success rate, meaning the prints are more easily read than the traditional ink pad fingerprint done at the police department. The testing facility I used charges $56.75, which includes the $39.50 state processing fee and their own $17.25 processing fee. The police department in my city charges $10 to fingerprint, on top of the $39.50 state charge.

Employing Broker

Most states require newly licensed agents to work under the supervision of an Employing Broker for a period of two years. Unlike other fields, there are fees charged for being associated with a particular brokerage. The fees vary widely, but are usually a monthly "desk fee" and a portion of your commission earned for every house sale.

Honestly, these fees kept me from getting my license for a really long time. Desk fees I was quoted were up to $1,500 a month. New agent commission splits can be up to 50% of the commission, meaning you only pocket half of what you earn. That seemed a bit steep for me. I read about a company founded by an agent who felt the same way and ended up with a $52/month desk fee and a flat rate of $499 per property bought or sold.

Errors & Omissions Insurance

All licensed agents are required to have errors and omissions insurance. Your license will be suspended immediately upon board notification that your insurance has lapsed, so this isn’t something you can go without. Figure $350-$400 per year.

NAR Membership

My office requires me to be a member of my local Realtor board. With that membership comes inclusion in the National Association of Realtors. Dues are paid yearly. 2015 Dues are $562. To become a member of your local board, you must take an ethics class to the tune of $65.

MLS Access

The MLS (Multiple Listing Service) is where the majority of properties are listed. The amount of additional information available to MLS users can be pretty substantial. My MLS has a bit of software that analyzes comparable properties — that is, properties similar to the one you are considering.

Related: Pursuing Real Estate Investing Freedom? Consider Getting a Real Estate License!

While it isn’t perfect, it helps give a quick look, which lets me know if the property is worth looking into further. Access costs $117 every quarter, $468 per year.

Out-of-Pocket Tally

School: $695
State Exam: $85
Fingerprinting: $10
Background Check: $39.50
Desk Fee: $624 ($52 X 12 months)
E&O Insurance: $374
NAR Membership: $562
Ethics Class: $40
MLS Access: $468

First Year Out-of-Pocket: $2,923

While it won’t be the exact same for you if you are in a different state, this is a fair estimate of what it will cost, both time and money, for you to earn your license. These out-of-pocket expenses are just the beginning. I haven’t factored in any marketing costs, including business cards and signs. It has been a few months since I earned my license; I am sure I am forgetting something that would push that out-of-pocket total over $3,000.

To Be or Not to Be (Licensed): That is the Question

So back to the topic at hand: should you get your license? It certainly isn’t necessary to obtain a license before you start looking for deals. If you are new to this, perhaps it would be better to have an experienced agent to help walk you through your first deal or two. Factor in the commission you will pay when you sell the house before you make the offer.

On the other hand, if you plan to — or already are — executing multiple transactions per year, you could reap huge rewards by earning your license.

Has earning a license helped you in your investing? Do you wish you hadn’t spent the time and money earning it?

Let’s help each other out by sharing our experiences in the comments below!

Mindy Jensen has been buying and selling homes for more than 20 years. She buys houses, moves in, makes them beautiful, sells them, and starts the process all over again. She is a licensed real est...
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    Michael Montinelli from Niles, Ohio
    Replied over 3 years ago
    Great article Mindy! Thank you for writing it. You lay out the cost/benefits very clearly.
    Sherri
    Replied over 3 years ago
    I’m from Oklahoma and which course is the best to take and is that the only way to study for the test or are there other ways out there not so expensive?
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied over 3 years ago
    Hi Sherri. The coursework prices vary from state to state. My state requirements (at the time this was originally written in late 2014) are the longest (and now in second place to Texas) so our course costs will be higher than a state that has a significantly lower education requirement. There are few places to take the licensure courses – and their prices are pretty similar across the board. You may be able to shave off a few dollars here and there – I liked my online course provider because they offered practice tests included with the course cost.
    JD Martin Rock Star Extraordinaire from Northeast, TN
    Replied about 3 years ago
    This was an excellent blog post!!
    shiva
    Replied over 2 years ago
    This information is so much useful, step by step description.
    Eliseo Medrano
    Replied over 2 years ago
    Mhmm.. maybe it would be beneficial for me to team up for a agent instead of going through all the trouble to become an agent myself. Thanks for the post Mindy!
    Josh Cook from Fort Collins, CO
    Replied almost 2 years ago
    Wow, great article! I had no idea how much time and money you have to shell out to become an agent. I was definitely in that boat of thinking “It’s easy to become an agent!” I don’t think the benefits outweigh the costs of becoming an agent for me right now, as I’m just starting out on my journey in real estate investing. The main benefit I could see would be having access to the MLS, but, then again, I know in many circumstances the best deals are to be had outside of the MLS.
    S Rusch
    Replied about 1 year ago
    Great article Mindy!!! My husband and I area planning on purchasing a home in Longmont. It will be a pricey home so we would hate to leave that much money on the table. For a while now I’ve been thinking about getting my real estate license to do the transaction of purchasing our home as well as investment properties in the future. I have heard that the real estate classes do not really prepare you for actually doing a real estate deal. I plan on hanging my license in one of those brokers that charge a flat fee and no desk fee. But I’d imagine that they would not provide any guidance in completing this first deal. Do you have any suggestions on how I could find help with my first couple of deals? Are there realtors who would provide this kind of assistance? Any tips or advice you could give me on how to buy my first home after getting my license would be greatly appreciated. Many thanks in advance.
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied about 1 year ago
    Hi there. You are correct, those flat-fee brokers provide little to no training. The purpose of hanging your license under a more experienced broker is to be able to ask them questions about your transaction, but if you’re looking to learn, you should interview several brokers to see what sort of mentoring and training they offer.
    Brandon Boogren Real Estate Agent from Hastings, MN
    Replied 5 months ago
    QUESTION: I just completed all my schooling and testing for becoming a real estate agent (~$1,200 in MN passing all the tests in the first try). I started reaching out to brokers this week to see which one would be best for me. My main and most important goal (like many of you), is to purchase rental/investment properties of my own. Last night, I met with a broker that has been in the Real Estate space over 40 years. He explained that it would be better for me to not officially get my license as it creates an "unfair advantage" legally and can put me at risk when purchasing properties from sellers (Ex. If I buy a property for $200k that is valued at $250k the seller could come back and say the deal wasn't fair as I had more knowledge as an agent). I thought it would be fine to do such a deal if I just disclosed I was an agent, but this broker explained that wasn't the case. He also said there can be conflicts of interest if I am looking for the same properties my potential clients are. Does anyone have any advice for me? My main goal is to build an investment portfolio. Am I better off taking the knowledge I learned and NOT getting my license or should I get my license and run with these risks? Are these risks he explained real? I would plan on being a part-time Minnesota agent if I do end up getting my license. Thanks!
    Kile Clark New to Real Estate from Texas
    Replied 4 months ago
    Brandon, I read through this entire blog and everyone has great info to give everyone. I apologize I have no information in which I would be able to help you. I myself am looking at getting my license here in Texas and have the same goals as yours. I read your questions and haven't seen a reply yet which I am really interested in seeing what is said. I think if there were cases in which it would cause a "conflict of interest" or "the deal wasn't fair", then it would behoove us to think outside the box as to be more creative in acquiring the properties.
    Matt Higgins Property Manager from Blaine
    Replied 4 months ago
    I started as an agent with the same goal. I have made and saved probably a couple hundred thousand dollars thanks to that license. I’m not saying he’s wrong, if you were trying to be wholesaler especially, but if you want to sit on the couch and fire off low ball offers, buy deals off the MLS, or 1031 into bigger deals I think being an agent would be a net positive.