Real Estate Investing Basics

Seriously, Don’t Get Your Real Estate License—Here Are 3 Reasons Why

Expertise:
3 Articles Written
Beautiful african american woman with afro hair wearing casual pink sweater looking unhappy and angry showing rejection and negative with thumbs down gesture. Bad expression.

I hear so many real estate investors say, “It would be such a great idea if I got my real estate license!” But I’m here to tell you the top three reasons that’s probably not a good idea.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

3 Reasons Investors Should NOT Get a Real Estate License

  1. You’re only going to save 3 percent, not 6 percent, on real estate commissions.

People who are focused on investing—serious investors like fix and flippers with the goal to flip 10 or 12 houses a year or rental investors who are trying to have 10, 20, or 50 rentals—might think they’d save so much on commissions if only they had their license. It’s not true though.

To explain, I'm just going to use a standard 6 percent commission. In a transaction, of that 6 percent, 3 percent is for the agent who represents the seller and 3 percent is for the agent who represents the buyer. So when you did your calculation for what you're actually going to save as an investor, you only save on one side of the transaction.

  1. You won’t even get the full 3 percent.

Let’s say you save that 3 percent. That could be a lot of money if you sell a house for $500,000. However, let’s go into when they cut that check for that 3 percent and how you’re not even going to get the full three.

The check will be automatically sent to your broker from the title company, because you have to work for a brokerage as a real estate agent. How much your broker gets is going to be determined based on the contract that you have.

Every brokerage will have a fee—that’s how they make money, how they stay in business. So you have to keep that in mind when you go out and you’re interviewing or you’re looking for a brokerage. You have to make sure you subtract that because that is going to come out of the 3 percent.

And there are all these other expenses as a real estate agent that you have to pay whether you do one deal or 25 deals in the year. You still have these expenses to stay current with your real estate license.

And for the real estate agents out there right now, please leave in the comments your fees and things like that, so that people can see that this is a reality. In every state, you are going to have a lot of fees as a real estate agent. But they do vary by region.

You have your Multiple Listing Service fee; that’s going to be a couple hundred dollars or like a thousand dollars on average a year. You actually also have professional association dues. Here in Virginia, they are so expensive—a little over $1,000.

So you have to look and see what these fees are in your state. These are all things you’ll have to subtract from that 3 percent.

You also have to carry errors and omissions insurance, so you have to pay that. You also have desk fees, your broker’s cut (as I mentioned), self-employment tax—again that 3 percent is pre-taxed commission.

And then, to keep your license current, once you become a licensed real estate agent, each state has continuing education requirements. So you have to factor in taking your continuing education, otherwise your license will go inactive.

real estate agent giving a home tour to clients

Related: The Epic Guide to Finding an Investor-Friendly Real Estate Agent

  1. You have to do and pay for all the things your agent would have done and paid for you.

Also, now that you are the real estate agent, all the things that your agent would normally pay for to market your house and to get it listed are your responsibility. Now you have to pay for lockboxes (the centralized ones are about $300), signs in the yard, professional photography, staging—all those expenses are now yours.

I just mention this so that you know it is not an easy, “Oh, I’m going to keep all this commission!”

Once you factor in all that, is it really worth it? This is why I tell you if your goal is to be a flipper or if your goal is to have a lot of rentals, factor in all the time that being an agent is going to take away from concentrating on your investing business.

When it comes to putting your property on the market, all of the activities that your agent would have done are now your responsibility. This includes all the administrative things to get the house on the market, get it in the MLS, stage it, do all the negotiations—there are always negotiations.

There are so many administrative tasks in real estate deals. For most agents, that’s why they have a transaction manager or a transaction coordinator to help. Because even as real estate agents we know, “Hey, I cannot spend so much time on administrative work that I am not out doing my lead generation and growing my business.”

So it’s the same thing for you as an investor if you’re tied down doing all the administrative things to get your house listed. All of these administrative tasks are taking away time from getting and finding another rehab deal. Think about that.

You could be stuck doing something that is really a $10/hour job when you really need to be focused on finding your next rehab deal that could be paying you, what, $50,000 or so?

The Bottom Line

You see how getting your real estate license in that situation, it’s not even worth it?

And then there's so many things that come up each day in a real estate agent's day that take away our time. Like I said, that's why a lot of real estate agents now have assistants. We need help.

For instance, the other day for me, I have a property on the market. I got a call saying the lockbox is stuck, it’s jammed. This means whenever people visit the property, they can’t get in. So I guess I have to either pay someone to go out and switch that box out or I have to do it myself. And there’s always just these daily activities and emergencies that come up that you need to respond to.

You can see after you subtract and really factor all that in, if your goal is really to be an investor, focus on being an investor. Spend your time doing that.

And you can always negotiate. It's better for you to negotiate with your real estate agent their fees and things like that as opposed to taking everything on yourself. Let someone else focus on selling your listing for the most money.

What do you think? Are you still considering getting your license? Why or why not? 

Let me know in a comment below!

 

Neva Williamson is among the top-producing real estate professionals in Virginia. For over 11 years, she has managed to master every aspect of real estate. Prior to her stint as a full-time real estate agent, she was a successful real estate investor flipping properties throughout the Washington, D.C. Metro area. With her well-rounded experience in all areas of the real estate industry, Neva has been named a “360 Degree View Realtor.” She's also the bestselling author of Blood, Sweat, and Goals: Finding Your Way as an Entrepreneur.

    Andy Walsh from Waukee, Iowa
    Replied 4 months ago
    Great post! Thanks for the information.
    Jeremy Wickens
    Replied 4 months ago
    if you are only using it to access the MLS and it costs you a few thousand a year to have that privelage. You only need to find one extra deal a year to pay those fees. I think as a buyer this makes sense but to sell your projects I agree that people need to understand what they are getting into.
    Nancy Roth Investor from Washington, Washington D.C.
    Replied 4 months ago
    Appreciate your perspective, but I don’t find it representative of my experience at all. If all one expects to do as a realtor is list and sell one’s rehabbed houses I agree getting a license makes no sense. But what about finding deals? You don’t think that access to MLS can be helpful? What about the professional cohort one can gain as a realtor and the informed conversations one can have as a result, is all of that useless to an investor? What about the negotiating skills one can gain as a realtor? What about the knowledge of the law, which one must refresh every two years to keep that license? I am personally not doing much work with home-sellers/home-buyers these days as a realtor, and this year, when I faced the choice of taking the CE courses to renew license or letting it go, I weighed all these things, the costs, the investment of time, etc., and still decided to renew. At present I think it’s a nice complement to my investing work. Not everyone would decide the same, and that’s fine. But I don’t think it’s right to tell investors across the board that getting a license is never worthwhile. People need all kinds of strategies in finding a path into investing, and real estate licensure is a valid one.
    Alex Zarate
    Replied 4 months ago
    Nancy, I agree completely with your take on this. MLS access absolutely invaluable! If your agent comes across a potential good deal are you the first to know? Well I know I am because I’m the agent looking for it. There is also the wealth of information on the property management side.
    Edward Seid Real Estate Agent from Seattle, WA
    Replied 4 months ago
    1500/year for brokerage desk fee, 100% commission 600/yr MLS fee 180/yr eKey app 300/2yrs license renewal + CE courses I think it depends where you are, but in Seattle I can close 1 home and it will cover everything for the year.
    Romilda P Smith Real Estate Agent from Richmond, Virginia
    Replied 4 months ago
    Neva I couldn’t agree with you more. I teach Principles of real estate classes and there are always investors in there with that thinking that they can save money. Before I even start the class I tell them of the likely challenges. We addressed maintaining your license, what about startup fees. I live in VA as well. I tell them they need to look for a broker that is investor friendly. Your major companies are not always the best ones. And yes you may recoup all the output on your first sale, but how much is your time worth? Something to think about.
    Timothy Murray
    Replied 4 months ago
    Sound advice, thanks for sharing.
    Shannon S. Investor from Cincinnati, Ohio
    Replied 4 months ago
    I can’t tag her for some reason, but Nancy Roth’s comments are accurate for me as well. I average one- two deals a year as a Realtor and that pays me back for all my annual fees and costs. Plus, I am on a team, so my costs are much lower, and we have support for admin and other rigmarole stuff. On top of that, I am with Keller Williams so I get profit share on Realtors who I bring in to the brokerage (passive income). The access to the MLS, ability to run real comps, and freedom to write offers and list my own properties is valuable to me, and as long as I can cover my costs. I also value what I have learned and can get from my Realtor relationships. Since it supports my two businesses which are RE based, I intend to keep my license.
    Robert Ombres Real Estate Broker from Asheville, NC
    Replied 4 months ago
    I’m not sure if this was a blog post just to get attention or what. Out of the many reasons not to get a license, this post didn’t really hit on any of the significant ones. I’m not making a blog post, so I won’t either. However, I am responding to this post… so I’ll elaborate. 1) There is no “standard commission.” As a “top producing real estate professional” in the business for 11 years- you should have had this hammered into your skull at least 11 hundred thousand times. Also, the agent/investor is going to save the commission on the buy side as well as the sell side- if they’re flipping. Do that 5, 10, 15, 20 times and it really adds up, right? Investors are playing with small margins these days. That 3% on BOTH sides (6%) could nudge the deal in the right direction to make the numbers work. 2) This is a cost of doing business- just like the rest of the flip. However, there are many flat fee or capping brokerages that the broker payout isn’t going to be a significant cost. OR… they could just create their own firm- like MANY investor/agents do. All the fees you’re breaking down would be covered by 1 or 2 deals in most markets. 3) Or they could hire all those things out- like good agents do. Bottom Line This post is bunk. There are plenty of good reasons for an investor not to get their license. These aren’t them.
    Jeremy Wickens
    Replied 4 months ago
    Agreed
    Miles Trumble from Orange county, ca
    Replied 4 months ago
    The title says 3 reasons but I only see 1. It’s true the 3% savings has costs associated with it, however that can be significant depending on the market. This article didn’t convince me otherwise, however I would suggest anyone interested weigh the pros and cons overall.
    Roman Rytov Rental Property Investor from Cumming, GA
    Replied 4 months ago
    To be mathematically honest you have to add 3% that you get as a buyer agent when you buy a house. Even if you split 30/70 (I’m paying only $500/sell including all the office support) it’s still about 5% on the house. A lot of money to waste.
    Bob Galivan
    Replied 4 months ago
    The value of a license to an investor has nothing to do with saving commission, although that could be a small consideration – as the previous poster said, there is no standard commission as it’s illegal, but all that aside, if you pick up a couple % on a deal, that certainly helps. But the biggest reason for an investor to have a license is access to information. Having access to listings as the appear is quite valuable. Yes, they show up on partner sites and *usually* right away – but not always. They also are not very good a showing who the listing agent is. But the true value is that when there are price changes or listing updates, that info does NOT always flow to the secondary sites; that can take several days or never. Access to sales and listing comps, the ability to do in-depth analysis of deals, and the sheer volume of information available is well worth getting a license. There are plenty of discount brokers or small brokers that will reduce the desk fees, so the main expense is joining a board. If you can leverage a few points on a deal with timely access to info, and pick up a point or two on commissions, then you’ve made the license more than pay for itself. BTW, I am a high-producing agent in Florida, closing 50-60 deals a year. I recently got licensed in Ohio SPECIFICALLY for investor purposes, not to act as a normal agent, and that’s already paid off quite nicely.
    Radsford Felix Real Estate Agent from Hawai'i
    Replied 4 months ago
    Wow. Nancy, Edward, Robert and Shannon. Hit on all I disagree with in this “article”. The fact is that no matter the business you get into, it’s going to cost you money to run it. I’m a Hawaii Agent. You want to talk about expensive…yes it’s expensive to be a Realtor here but relative to making one median sale (roughly 750k) I can easily afford to pay all fees, licensing, taxes and CE needed for the year without a problem. If the issue is all the time you’re going to spend on these “Realtor tasks” I look at it differently. If I wasn’t doing said tasks I wouldn’t have the exposure I do to the market, the off-market, other Realtors experiences, contractors, wholesalers, lenders, good and more affordable stagers and other investors on the ground and in their element. We cannot forget the intangibles that we gain by doing what we do since there’s no price tag associated with it. My whole day consists of multi-tasking my way through it. While attempting to build my Realtor base, I’m inadvertently building up my Investor base as well. Maybe after 11 years this writer has forgotten that or just takes it for granted now. Who knows. My point is that there isn’t a one-size fits all for this. If you feel being an Agent is getting in your way…quit and focus on what you feel works for you. Realize this is just an Op-Ed and unfortunately it comes up kinda shallow on the facts side.
    Diego Ortega Investor from Ferndale, Michigan
    Replied 4 months ago
    The fees for my brokerage come out to about $1,700 a year (This includes marketing fees, mls access, insurance, etc). One transaction and I’ve pretty much covered it. I’ve been able to do 7 so far in my first year. -My commission split of the 3% is 50/50 for each transaction. -Once I have given the brokerage $12k in commission splits (It’s $18k for full time) then 91.5% of the commission is mine until the calendar year is up. -5 out of the 7 are this calendar year and I just need one more transaction to reach the $12k. I’m currently looking for 2 more rentals as well as have clients from my day job and others I have met through my natural networking in real estate. Access to the MLS and market in my area, plus all the people I meet has proven very fruitful. So I’d say for me, getting my license was totally worth it. Also important to note, all those fees are tax write offs, just like your car miles, supplies, etc. I’m in South East Michigan.
    Matt Sicignano Investor from Smyrna, Georgia
    Replied 4 months ago
    Here’s another reason not to get your license. In most states, you’re operating under Real Estate Commission rules like holding security deposits in separate accounts, reporting requirements, security deposit return requirements, and property move-in and move out regulations. No so if you’re an investor under a certain amount. Makes it much easier and less paperwork to do business!
    Radsford Felix Real Estate Agent from Hawai'i
    Replied 4 months ago
    You’re conflating property management with real estate sales. This writer is talking about the sales side of the token vs. investing. Just to be fair.
    Matt Sicignano Investor from Smyrna, Georgia
    Replied 4 months ago
    I certainly didn’t want to conflate anything, but if you read her post, you’ll see that she mentions “real estate investors” and not just real estate ” sellers”. My comment was useful for the former. And it still remains a reason not to get your real estate license, the title of her post.
    Radsford Felix Real Estate Agent from Hawai'i
    Replied 4 months ago
    The 3% she mentions throughout the post is referring to real estate sales. Nothing in the entire article references property management. She’s targeting what you can make as a Real Estate Agent (3%, 6%, sales) with taking that time “wasted” doing that and instead building your investment portfolio. Which can, on the surface be a good argument if none of the underlying benefits are disregarded. If she had written this out to be Property Management vs. Investing then I would be fully on your side of the court there, that’s for sure. What a lot of property managers do though is they leverage their clients tenants and attempt to turn them into home owners instead of renters. That creates a residual income with the possibility of a sales bump here and there.
    Alan Brown Rental Property Investor from NY MA CT VT MT, MO
    Replied 4 months ago
    Sorry this is a bizarre argument… I think Bob Galivan has it right: there is no substitute for access to the real information, the MLS. Zillow is like using a butter knife to cut meat, and that’s the best of the secondary information sites. I’ve been a realtor since ’93 and whenever i go out of state to find property, and try to find a decent agent that knows anything about investing, I find myself pulling my hair out. The value of looking at properties on my own schedule instead of wasting a realtor’s time is invaluable; learning the market with extreme accuracy is only possible when you’ve seen the inside of as many houses in the market as possible before they’re sold, and then knowing how much they sold for in how many Days on Market, for cash, conventional, FHA, VA or owner carry–that’s key to knowing the market you’re using for your business. Board and MLS fees are cheap when you figure how much value you get daily. I’ve never had a realtor that could satisfactorily get me sold information streaming to me consistently, which is the only real way, I think, to evaluate ARV’s which are really the most important part of any flip, or Buy and Hold with value added. The only thing that ever gave me (and especially any owner/broker I’ve worked with) pause was the possibility of getting sued for conflict of interest if a seller felt I took advantage of them. So make sure you don’t take advantage of them. Full disclosure and then some. Try to help a distressed seller in any way possible, (and we know there are myriad ways to help), document it , and buy the property from them as a last resort.
    Lee Wenger Investor from Englewood, Colorado
    Replied 4 months ago
    I have a license and it’s literally saved me on the order of 200k-250k in commissions/fees in the 3 years that I’ve had it. So for me, it’s an absolute no brainer. I happily work with Agents and occasionally have even purchased properties using another Agent, but only when they bring me a property and the value is already baked into the deal… And, there’s the rub, very few Agent’s (read like close to zero) actually provide enough value in a given deal to justify their commission. I would honestly prefer to sub out the actual transaction but when I pay my Stager like 1-3k and the agent thinks they should get 35k, and, oh by the way, my Stager is way more important to the deal IMO than the agent, so it just doesn’t work for me.
    Aaron Howell Investor from Crozet, Virginia
    Replied 4 months ago
    I haven’t seen anyone mention the “Real Estate Professional” status in the IRS’s eyes. Getting my license and keeping track of my hours (active hours) that I spend in Real Estate is going to be very beneficial for me. Spending a few thousand is a drop in the bucket as an investor so the costs of being a Realtor are easily outweighed by the benefits gained by being one.
    Rich E. Real Estate Agent from Lawrenceburg, Indiana
    Replied 4 months ago
    Let me add another reason not to get your licenses (note, I do have one), when you are trying to buy off-market properties, say with mailers, you have to disclose you are licensed. This is an automatic red flag to a lot of owners (even though my letter says “I want to buy, not list your property. There will be no commissions.”. They suspect you are fishing for a commission. Several times I have talked to owners that I have mailed/emailed and the fist thing they say is “I am not paying a commission”. How many deal has this cost me? I have no way to know, but it is enough of a concern that I am considering dropping my license.
    Radsford Felix Real Estate Agent from Hawai'i
    Replied 4 months ago
    Simple remedy to this would be to get a partner or your spouse to send out your mailers. I have a colleague (licensed) that has her husband (unlicensed) do their mailers using his company’s name (LLC).
    Roger Michels
    Replied 4 months ago
    Click bait… not thought thoroughly through by author/publisher. A thoughtful and balanced consideration of the subject reveals there are clearly pros and cons as readers have commented. Thanks to readers for fleshing this out!
    Roger Michels
    Replied 4 months ago
    Two words: click bait
    Glen Mauldin from Houston, Texas
    Replied 4 months ago
    You need to think through YOUR business plan to determine if a license is right for you…and YOU are the only one who can decide that. One thing to keep in mind though is that if you do choose to get your license, at some point you may be eligible to get a Broker’s License, which has its own good/bad issues.
    Edward Bramblett Real Estate Professional from Friendswood, Texas
    Replied 4 months ago
    This issue of being regulated vs unregulated seems a better topic for this discussion. Any business has expenses and the cost of being licensed is low. The information available to Realtors is very valuable. Does your State have the ability to tell you how to behave without the license? Are you subject to a grievance process? What can/must you do when the owner of the property asks you what the property is worth rather than how much you are willing to pay?
    Brittney Edwards
    Replied 4 months ago
    I have a brokers license and that was day job before I became a full time investor. What I like about being licensed is that I have access to the MLS, standard contracts and can access properties on my my time without involving another agent. Lately I’ve been thinking of letting my license go because the main downside is the additional liability and disclosure requirments. For example, if I find someone who wants to sell me a $300k property for $200k, which I often do, I’m supposed to inform them of the real value or else I could be sued. I’m also required to produce the hundreds of disclosures required for licensed people, and in essence I become a dual agent. I also have to disclose on contracts that I am a licensed agent, which sometimes prompts sellers to seek the advise of an agent of their own, bummer! If the property is listed with an agent, I usually have them write the contract for me so I don’t have the paperwork requirement and have double commission incentive to deal pushed though on my terms. I aslo hate listing my own properties because it’s good to have a buffer who doesn’t know all info about the property. For example, if a buyer asks me as the owner and selling agent, “what work was done without permits”, I’m on the spot and must disclose all. If the same buyer asks my hired agent, their answer is something like I don’t know let me get the disclosures over to you, and things usually look better on paper than they sound. There are pro’s on a cons, if I was a new investor I wouldn’t bother being licensed at all, but because I have it already I’m not 100% sure I want to let it go because I can still use agents when I need them. The costs are really nothing if you multiple deals a year, plus if your margins are tight you can make it work.
    Katie Rogers from Santa Barbara, California
    Replied 4 months ago
    Being a broker is different from being an agent. You will have to spend a few years as a agent before you can become a broker. During the time you are an agent, you will not be able to operate unless you work for a broker. You may be able to find a broker who will take you on so long as they are not aware you plan to work for yourself, not the broker, but sooner or later they will figure it out, and there goes your access. It is unethical to be looking for ways to avoid giving prospective buyers full disclosure, or to avoid giving sellers full information on the value of their house. Fair market value (FMV) is an estimate of the market value of a property, based on what a KNOWLEDGEABLE, willing, and unpressured buyer would probably pay to a KNOWLEDGEABLE, willing, and unpressured seller in the market. If one or the other party does not possess full knowledge, the the transaction is not fair. All you have managed to convey with your comment is that the impression that agents and brokers routinely violate their fiduciary duty is accurate. The whole system need to be revamped to be fair for all parties, especially concerning what is usually the biggest financial transaction of either the buyer or the seller’s life.
    Huiping Sheng Real Estate Agent and RE investor from Tampa, Florida
    Replied 4 months ago
    RE agent is facing huge challenge from business like opendoor and other new technologies. It seems it is one of the top professions, like phone operators, will be replace soon by AI. Except the MLS database for market analysis, I feel the license has little value. The process to get license learned lots the basic knowledge of RE. Understand real RE is from real work late.
    Robert Andrew Findlay
    Replied 4 months ago
    Thanks, Neva, that’s super helpful! I was considering getting my license — great CBA — I’ll focus my energies on other things.
    Kenneth Townsend
    Replied 4 months ago
    Great post; I think you just saved me a ton of time
    Isis Amoedo from Miami
    Replied 4 months ago
    Agreed 101%. Even though I studied to get the license, over the years I noticed that the most profitable deals I had done were advertised or entered on MLS. I got them in the right time because I knew the right people and had the right information networking … if I was spending time on MLS instead of in the market knowing people, I wouldn’t have gotten them.