Is it worth getting a brokers license???

24 Replies

I am a real estate agent doing rehabs. When I buy or sell I go through my broker and doing that costs me a lot of money. I was thinking about getting a brokers license but I am not sure what are pros and cons doing that. Is it worth getting a brokers license and what are additional costs associated with that.

Another option is to find a brokerage with lower fees. For example, my wife pays just $40 per transaction, regardless of whether the sale was $10,000 or $10M. For reference, this is a medium sized brokerage (about 3000 agents), so the support and marketing are pretty decent as well.

That said, there are some advantages to getting a broker's license. Not just the savings on commission, but the additional control you have over deals. My wife's brokerage can be pretty conservative on investor-related transactions, and we're often "advised" not to do some standard investor transactions (for example, short sale flips).

So, my wife having her broker's license will give us the freedom to pursue additional investing avenues, without having to find another broker.

Also, having your broker's license gives you the opportunity to hire other agents, if that's part of your plan. Depending on your business model, this could be another avenue for income.

I recently got my broker's license and haven't determined my exact strategy on which direction I want to go with it. When I was working on all the prereqs for getting the license my thought was to eventually own a brokerage. However, rehab flips have been treating me very well...enough so that I'm not convinced I would do as well with being a broker and having multiple agents (headaches) to deal with.

I have also thought about buying my rehabs through myself as the broker (so there's no commission split) and selling under the name of the broker I'm currently employed by. That way I'm capitalizing on the name recognition of my current office. However, it comes at a cost...a 70/30 split.

J - which office is your wife with? KW by chance?

I was thinking about getting a brokers license so I can buy and sell properties myself and not having to deal with a brokerage that doesnt necessarily support what Im doing.
I wasnt sure if being a broker myself would require me to create a brokerage company or could I just do it myself as an independent contractor through my RE Investment company?

Originally posted by Mark Yuschak:

J - which office is your wife with? KW by chance?

She's with Solid Source Realty, which I believe is local to Georgia, but is one of the fastest growing companies (top 100) in the US...

She has two options for fees:

1. $300 per month and $40 per transaction; or
2. $40 per month and $300 per transaction.

The answer is a definate YES. First, it advances your education and knowledge in your field. Second, clients will respect you more. Third, it relieves pressure in the work place. This means even if you work for another broker, you can leave and go to work for yourself in a matter of minutes.

Originally posted by Randy Chapman:
The answer is a definate YES. First, it advances your education and knowledge in your field. Second, clients will respect you more. Third, it relieves pressure in the work place. This means even if you work for another broker, you can leave and go to work for yourself in a matter of minutes.

Agreed that those are definitely some PROS of the decision...

But the CONS are the increased liability, the increased upfront expenses (MLS access, insurance, broker fees, etc), the increased paperwork, etc.

Though I certainly agree with you Randy that there are some clear benefits...I think each investor is going to have to weigh their particular circumstances. Personally, we haven't yet decided which way to go come October when my wife is eligible...

Welcome to the forum, btw!!!

Originally posted by J Scott:

Agreed that those are definitely some PROS of the decision...

But the CONS are the increased liability, the increased upfront expenses (MLS access, insurance, broker fees, etc), the increased paperwork, etc.

Though I certainly agree with you Randy that there are some clear benefits...I think each investor is going to have to weigh their particular circumstances. Personally, we haven't yet decided which way to go come October when my wife is eligible...

Welcome to the forum, btw!!!

Any idea what the actual costs of thsose things are? I am looking to potentially start a brokerage llc (just to hold my license) and know what the state licensing costs are, but I don't have a feel for what the insurance and MLS costs are.

Thanks!

as a California Broker and Real Estate Investor this is a simple answer "NO".

In the old days, 5 years ago, before some of the data sites you needed a license to obtain data and having a brokers allowed for the non side split. However in today’s market and having available sites like Agent first, trulia and fastweb why even have a license.

I dont even list my own resells anymore... It doesn’t make sense... We are supposed to be out there buying at 30 % so why try and say 3-6 %?

As for the comment of it making you smarter, sorry Randy... The exam is a joke, and the questions on the test have little to do with creative real estate. I can't remember the last time I needed to know the size of an acre or length of a figgin mile. Not to mention all of the crap on water rights and affective easements. I did learn that the white piece of paper stays on your desk for notes; the pink one is turned into the test administrator and the yellow goes under your desk with your other processions. Oh and that you can’t go to the bathroom with any other test taker… That was an important point to remember.

Dismissing it as 3-6%, I think, distorts how much the commission cuts into the profits of a flip. You are buying based on a fraction of ARV. The 3-6% is on the ARV, not the cost to buy and rehab.

The point you missed is that if an agent is will to work for 6% and our job is finding sellers who will sell at a 30% discount then we should only be talking to sellers.

Selling ourselves could actually cost.

AND I never buy based on ARV. I buy based on today's AS IS value... ARV is hype that gets a ton of new investors in trouble.

I agree Michael but only if you are able to constantly be buying at 30% discounts (I mean 40 hours a week or more worth of time). Otherwise some of that down time not talking to sellers could be used to sell the property which saves 3-6%. If you could theoretically have enough money and sellers to keep buying from 24/7 then yes making 30% is much smarter just not sure how feasible that is for most people.

I think if you run a big operation it is definitely worth it get your broker's license.

You can pick up another 3% of your sales price for very little work. It is really easy to put a property in the MLS and let Buyer's Agents bring you offers.

I would have made over $100,000 less last year if I didn't have my brokers license and paid listing agents 3%. Having the brokers license only costs about 1,000/yr in fees and that includes MLS access which I'd need regardless.

The other option is finding a discount brokerage to handle list them. They may do things for about $500-$1,000 per transaction in California. But from the agents I've talked too they prefer not to deal with those type of companies. This still would have cost me $20,000 - $25,000.

Assuming you are getting your brokers license and opening your own office, then you will have all of the expenses of running a business i.e. insurance, occupational licenses, rent (if brick & mortar) etc.

If you can get your BK license and renegotiate your contract with your current broker to open a branch office, then you may add Errors & Ommissions insurance to the above cost. This way, you can capitalize on any and everything you've already established, specifically the branding.

Opening your own firm means you will be responsible for your actions as opposed to the former broker being ultimately responsible.

@Michael, no state school or test I've ever taken intended to teach creative anything. That would be Carlton Sheet and the likes. And, that's not a slight on Mr Sheets.

Why do you have to open an office if you're getting a broker's license? It sounds like the original poster is already running a business (rehabing) and all the costs you mentioned she would already have figured out.

Steve, do you pay extra insurance for the Broker's license vs. having the regular Real Estate Agent insurance?

Errors and Omissions insurance is typically paid by the RE agent or factored into the costs. So you wouldn't pay more.

There is more liability, as the broker is the one signing everything (agents are not allowed). We typically fix whatever clients complain about if it is legitimate anyways..

Really depends on what part of the country you are in.Each state has it's own requirements.

I own my brokerage in Georgia. I started at Metro Brokers/GMAC real estate then went to Solid Source Realty. It was funny in those days because Solid Source only had about 50 agents when I joined.

Michele Shoda (I think it's Velcheck) now and Ken met with about 4 of us upstairs to try to recruit us.

The 100% model in our area did not exist.Sure you has Re/max but the desk fee was a crazy 1,000 a month or more whether you sold or not.

I think the fee then was about 20 something dollars a month and the per transaction fee was in the 200's.It's been awhile so I can't remember.

In Georgia it will cost you much more than 1,000 to start up.

FMLS wants I believe it was either a 1,500 or 2,000 deposit that they hold and then you have to meet minimum volume goals of paying up to 1,500 in yearly fees or you will have to pay the difference.

FMLS charges .0012 of the sales price.Carrying E and O insurance is not a requirement here. Although if you want listings from banks,etc. it's a smart move to have.

Yearly broker E and O policy runs about 750 to 1,000 per year.

If you want GAMLS you pay about an 800 deposit but then the monthly access fee is about 150.00 a month.You also have to pay real estate brokerage fees to the state commission.

In some states you have to have brick and mortar but in Georgia you can run out of your home office,etc.

So without a brick and mortar figure on 5,000 at least. Brick and mortar holding costs will be much higher.

At one point I was going to do a 100% company which I did and grew it to about 50 agents.I now have about 20.

I charge the 300 trans fee.What I found is a few things.Many of the top producers are demanding and will stay where they are at regardless of split. They have system in place where they feed off the new agents through profit shares.So when a brokerage charges fees for fat splits to new agents retirement funds are being fattened on
the upline.

Many agents that gravitate toward lower fees are struggling agents or are investors.Investors can get you in hot water sometimes trying hair brained schemes to make money.

Struggling agents either are part time working a JOB or work full time but don't have many deals close each year.

Both make the agents require alot of training and time because they are inexperienced or they get rusty doing a deal. They also owe back payments on child support,taxes to the IRS,education lapse,non-paying of dues.

So for 300 a transaction the paperwork I was having to keep up with was ridiculous.I make so much more working my own deals.

Also if you own a brokerage you will need to decide if you want to pony up NAR fees or not.Some MLS's are NAR controlled or owned.Luckily in Georgia ours are not controlled by NAR so you don't have to pay NAR to belong to the MLS's.

The reason MLS's collect upfront fees is just like agents don't last in the business neither do 90 percent of start up brokerages.The struggling brokerages don't pay their fees and take the money instead.This is where the MLS deposits come in.The MLS here can simply take the deposit and not have to chase down these brokerages in court and time to collect money.

Solid Source is a great company but years ago I wanted to run my own ship.Solid was also growing huge at that time and Michele wasn't as accessible so it lost that intimate feel of something special.

It grew to her growing the national franchise concept which I don't blame her at all.This is when Ken left to start his own little company as he didn't have the same vision in mind.

If you are going to have a bunch of agents you should own the building instead of rent and use the fees to payoff the mortgage.Then if the business loses value over time you can sell off the building for cash.If you rent instead you don't really have much value to sell unless the business is still doing well.

I have a CA brokerage currently and am pretty happy with it. E&O runs me $121 per deal but a minimum of $121 a month deal or no deal. You don't have to run under a corporation, LLC, etc. if you don't want to. I chose to for credibility and branding purposes. However, when you do pick up a corp or LLC the fees come along for taxes, Franchise Tax Board, some Board of Equalization, and probably a couple other. I use a transaction coordinator that only runs $250 per deal and she handles all the paperwork. The licensing fees are a pain and grow as well if you implement a corporation because it and all officers need a license obviously right??? It's nickle and dime central and the fees add up to thousands of $ a year. Just paid $450 for my officers renewal and that's in a addition to my brokerage license. It would have been $300 but the address was not linked to my brokerage license and so I had a $150 late fee. MLS and association dues run me about $550 a year and that is just for me any agents have their fees as well.

Originally I paid a yearly E&O premium to who CAR endorsed. I think it was about $1200 a year. Now I do the per deal but it's more expensive is only a short term solution until I decide if I am keeping the brokerage active.

To summarize, it doesn't sound like a must have for you but I certainly would never do a 70/30 split on my own deals. These days 100% brokerages are all over CA and some are even legit.

The liability issue that has been touched on is legitimate for me. I run a small shop with my brother for that reason. I also don't want to babysit anyone and if I were do so they wouldn't like their split. E&O and transaction coordinators on every deal are a must for the liability front for me.

Great responses, most of which are about monthly fees. I did get my license, I am an investor and hard money lender.

Depending on your state, becoming a broker can create more or less challenges, mostly depending on whether or not you want to employ other licensees.

I would see if your state differentiates Independent vs Employing broker.

When brokers talk about liability as a big bad boogie man, I find it kinda funny, as that really is not the issue, that some poor homebuyer is going to sue because the agent didn't disclose that there was a hole in the roof where the chimney use to be. That's why you have E&O and a blanket liabilty policy and require that you agents have a business auto policy with reasonable limits.

The hidden liability is something that most agents never see or hear about.....the dreaded Real Estate Commission Compliance Reviews!

Brokers are conservative not so much as in fear of a suit from any client, but the sanctions against them by the state for doing or allowing something that in their SOLE OPINION is not in the public's best interest!

If you are a small broker and not turning out much business, you could go several years before a regulator comes and knocks on your door. If the brokerage is running 100 million in sales, they are probably there every year, and if they found any significant discrepecies, they could be there every three months or just live there! They can put a broker on probation, they can put you out of business! If any commission puts a brokerage on suspension for 90 days, what do you think all the agents will do....they aren't hanging around the coffee pot , they will be moving their license!

Being conservative is all about compliance issues, not some law suit you can easily manage that! Not there is no liability or any concerns, but allowing someone to do deals that look like a net listing for example and call it a cooperative option is another.

As to the original post, is it worth it? I think not, at least in my state. The brokerage must have:
An office, a toll free telephone, a sign,posted office hours or if by appointment only, a place and time for appointments, a performance bond, E&O, an insured escrow account and the office must be sufficient for the business contemplated (boy that's an opening). Your books must be kept at the place your business is registered and copies of all agreements where you were a broker (offers for a year, closed contracts 7 years) so if you do any business, you're going to have file cabinets that you never really open. (I beleive exceptions can be made for storage facilities that you can access fairly quickly). You'll have MLS fees, NAR and CE requirements.

To say paper work is an understatement. The commission can dictate where each piece of paper goes in the file, file maintenance alone can be a job for someone. Compliance reviews are accomplished in all offices, making sure that the time and date on a contract is actually in line ensuring that the contract of 20 pages of addendums were executed properly.

Most agents don't have a clue as to what goes on in an operating RE brokerage or why, IMO. They just are not exposed to the business side of a brokerage, except when they have to go to the office and provide a correction.

While many think the closing company is responsible for a closing (they are to a degree) but itis the listing broker who is ultimately responsible and gives closing instructions to the settlement agent if there is anything off center from the customary, depending on state law. So, there is also the closing compliance with each transaction.

So, IMO, while you think you are just free to do anything you like because you no longer have a broker to answer to, you're under a misconception IMO. If you think appraisers are opinionated, wait till you meet a regulator or compliance officer from the state RE commission on a complaince review!

IMO, you have two choices as a broker, work by yourself and keep overhead low or grow to a point where your agency is paying for the expenses of them being there, which is about 20 agents. Who you get will be very important and I know brokers who pay 100% to the agent and have them pay expenses and a small monthly amount as Jason pointed out. Doing that, the broker is usually not getting rich!
I chose to go alone.

Pros, there is a slightly better public perception, IMO in saying you are a broker instead of an agent. Most in the public don't know the difference between the two. And frankly, according to many in my area, the public perception of a used car dealer is higher in the community eye than a real estate agent...maybe that's a bum rap. Professionals you may work with do know the difference and you would be held in higher esteem. That's about it.

Check again on the powers of your state real estate commission and what kinds of penalties they can impose, with a simple hearing, not going to court. I know of some brokers who bucked the MO. commission in court and they didn't get far.

So my answer is .... it depends on what you want to do, just be sure you understand what all is involved in hanging your own shingle on the door. I think it's much better to find a broker you can work with who trusts your judgment and work as an agent.

Hi guys,

I am a recent college graduate trying to figure out if I should get my real estate or broker license. I just graduated from a university as a business major and want to get my license really for the knowledge of buying and selling homes. I am looking to do this more as a independent side project/hobby of flipping houses. I'm trying to figure out if having my brokers or real estate license would be more helpful and the costs to benefits of having that license.

Hi, Whit.

First, welcome to BiggerPockets. It is helpful to have a real estate license for flipping. Though there are pros and cons which have been discussed here on BP before. If you do a search, you'll probably turn up one of the discussions.

As for getting a broker's license, you have to be a licensed real estate agent for a few years here in California before you can get a broker's license anyway, so it's not really a decision you have to make right now.

Originally posted by Mike G.:

As for getting a broker's license, you have to be a licensed real estate agent for a few years here in California before you can get a broker's license anyway, so it's not really a decision you have to make right now.

This is not true in California. With a bachelors degree (especially in Business) you qualify by simply taking five additional online courses. They can be completed in about three months.

I've never been a real estate agent, and I will be ready to sit for the state exam by the end of this month.

See, Education In Lieu of Experience

http://www.dre.ca.gov/exm_broker_exper.html

Some great advice. I wish there was a more clear cut answer but that seems to be the theme of this business. I am glad to have read the post as I was wondering the same thing as well. Is there anything else to consider such strongly as how the benefits differentiate between states? Maybe it is better off for fix and flip then wholesaling, or buy and holds? I understand the costs that go along with them but how much time does it save in negotiation, if at all?
J Scott, I thought you had an interesting take seemingly a million posts before the current ones when the original question was posed. You had mentioned the obvious benefits of it but clearly stated it is different for everyone. Today, as I was floating your website www.123flip.com (which I find very useful and go there out of intrigue as much as knowledge) I read your 3 year recap which had a mention of you saving something like $82k by you and your wife having your licenses. If you have time I think it would be useful for us pondering newbies if you could expand on how being an agent helps more than hurts.

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