Brokers want a % of my personal investments

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Brokers want a % of my personal investments

John Princinsky
Lender · Saginaw, MI · Member since 2012 · 16 posts · 0 votes

So I am considering getting my RE license in Michigan, but all of the brokers keep telling me I would have to go through them (and pay them their split) on personal investments/ purchases if I have my license. (With small exceptions: 1 property/ year, ect..)

Does anyone know if this is accurate? I feel like it just sounds like a way for the broker to ensure they get a cut- if I'm representing myself, why should I have to use a brokerage? I can't seem to find any law that states the need to, yet the brokers all seem to insist that I would need to go through them for my own investments.

What am I missing here?

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Mark Ferguson
Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
13y

Almost every brokerage has the same policy. If you want to get around it, consider the no service brokerages that only charge monthly fees and have no split.

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  • John Princinsky
    OP
    Lender · Saginaw, MI · Member since 2012 · 16 posts · 0 votes
    13y

    I don't mean to be selfish with this, perhaps I just don't see how the brokers role adds any value to an investment I'm making for myself...

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    13y

    Any RE sales commission collected as an agent, must go through your broker-period. What % commission split you have with broker is purely negotiable, whether you are a principal, or not. Profits from RE sales have nothing to do with your broker. Also, whether your personal properties Must be listed or not, is a negotiation with your broker.

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    13y

    If you were to wave the commission on personal properties you sell, is there a deemed minimum in your brokerage agreement?

    0Reply
  • Annette Hibbler
    Real Estate Consultant · Brighton, MI · Member since 2013 · 607 posts · 251 votes
    13y

    Well, if the only way you can obtain a license is by securing sponsorship from a broker then I understand they'd want something out of it too. It's just business and in business you don't get something for nothing. You need to give them some incentive to sponsor you. Try negotiating the percentage of your personal deals.

    Consider if the benefits of having a real estate license far outweigh the drawbacks of paying a small portion to the broker. In my opinion, there are huge benefits to obtaining a RE license. One is, INSTANT CREDIBILITY which goes a long way in this market.

    0Reply
  • Patrick G.
    Abingdon, MD · Member since 2013 · 193 posts · 60 votes
    13y

    I don't think you are being selfish.
    I would imagine a lot of realtors may use thier spouse's name to avoid that fee.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    13y

    It is common for a broker to waive their split on an agent's personal residence, but not on investment properties, if the agent receives a commission.

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  • Steven Walter
    Long Beach, CA · Member since 2013 · 79 posts · 8 votes
    13y

    The broker has fixed costs, obligations and liabilities you're not considering. Of course, you could always get your broker's license. Problem solved.

    0Reply
  • Mark Ferguson
    Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
    13y

    Almost every brokerage has the same policy. If you want to get around it, consider the no service brokerages that only charge monthly fees and have no split.

    2Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    At the end of the day the principal broker is responsible for the activities of the licensed agent.

    Now if the agent acts against the broker with gross negligence after being trained properly by the brokerage then there is not much the brokerage could have done to prevent that situation.

    The state real estate commissions understands the brokerages occasionally will get rouge agents who do not fully comply with the rules.

    John I understand your thoughts and this is EXACTLY why I have not had agents at my brokerage for years and I DO NOT want them.

    Newly licensed agents way overvalue themselves most of the time in my opinion. I have way less stress working one on one with my commercial clients on multimillion dollar deals and my own investments then watching a bunch of agents.

    Usually for each agent one out of three if you are lucky might have a closing a month. If you are at a 300 per transaction fee then you would need 30 agents to be a 3,000 gross income a month before expenses and that is not having a building for a brokerage etc.

    It's a volume business where you have massive headaches from agents not doing continuing education courses required, not paying license renewal fees, not paying mls access dues on time, getting licenses suspended for delinquent student loans, child support, etc.

    Also you get notices for the IRS to levy their commission check. There is so much BS to put up with just to me it is not worth it. If an agent is rusty doing a deal or they get stuck in a transaction then I am jumping in to save the client and their transaction and getting a crappy 300 bucks for it. At one point I had almost 50 agents but have zero now.

    It sounds like you need to go to a brokerage that has monthly minimum dues and no support and will let you do what you want.

    All the best.

    I am not trying to sound discouraging I have just been on all sides of this before as a new agent way back when to getting a brokers license and having my own firm. When you have made that progression the world will look totally different than it does to you now.

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  • John Princinsky
    OP
    Lender · Saginaw, MI · Member since 2012 · 16 posts · 0 votes
    13y

    Thank you all for your responses. Your input is incredibly beneficial and I hope to be able to return the valuable insight I’ve gained at some point. Hopefully my response here will cover all of your helpful comments.

    I guess I should mention that I’m referring to unlisted properties that I would be buying or selling for myself and not be getting a commission on. If it were listed it would make sense for the broker (and me) to receive part of the commission.
    So I guess the real question is whether or not the broker should require that I list all of the properties that I work with.

    They have told me that this is required by law, but I am not so sure that is true. I do believe it is common for brokers to have this policy with their agents, but most agents don't seem to have much interest in investing themselves (Which surprises me!). I can see that the sponsoring broker would want to have some control over their agents' personal investment practices so that they are not unknowingly held liable for any unethical practices on behalf of the agent. But from an investor's standpoint, I don't like the idea of unnecessarily needing to list my property on the MLS and pay my broker 3% for me to sell my own property.

    I did consider a no-service broker for a monthly fee, but can’t seem to find one in my area at the moment. (Which doesn’t surprise me really, because it doesn’t sound like an effective business plan from a broker’s standpoint, IMO) So perhaps I will just have to see if I can negotiate some other kind of terms with a broker…
    I wouldn't mind obtaining a broker's license at some point so I have more control (not to supervise a bunch of salespeople!), but in MI you're required to have a minimum of 3 years of full time experience as a real estate professional to obtain a brokers license. I also would like to jump right into just REI, but do not currently have a ‘career' and it seems to make sense to pursue a career in the same industry if I am seeking employment.

    So, I guess I need to just work on negotiating with a broker to find a fitting agreement. I do have the fear that it will seem I am overvaluing myself as a new agent and hope that is not the case. I just think that if I am representing myself and not as an agent for someone else, I should be able to fall under the applicable laws/ responsibilities as a property owner.
    Thank you all for your comments! I will have to get a look at some specifics in the contracts and/or talk again with some brokers to see what can be worked out with them. (Maybe a smaller %).

    Oh, and Joel Owens, not at all discouraging- I appreciate your insight.

    0Reply
  • Jesse Rivera
    Lender · Long Beach, CA · Member since 2013 · 496 posts · 296 votes
    13y

    Every state is different, but I think it is ridiculous for a Broker to expect part of the profit on a personal deal. If it is listed, yes, they are entitled to their split. But if you wholesale a deal, or flip a home and sell it without listing it, they get nothing. My Broker encourages us to do our own deals, but he is an investor himself.

    They do need to approve all paperwork involving any real estate.

    Ask them to show you the law or state rule that applies. I bet they can't. Keep looking for a Broker that is friendly towards investors.

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    It's all about the risk to the brokerage for the return involved.

    Some brokerages do not mind the risk. If an investor is wholesaling 40 deals a year and the brokerage makes nothing on those transactions but yet has to be responsible for the agent and review all the paperwork that seems like a big loser to me. A bunch of risk and no revenue.

    This is the same as agents wanting to do (BPO's) broker price opinions. They want to crank out 3,000 dollars worth of those a month doing little reports for the BPO mills and yet the brokerage have to review a ton of paperwork for a very little return.

    John your best bet might be to go to your local REIA (real estate investor association) and seek out a head broker there that is already working with investor clients. They might be more open to the type of arrangement you want.

    Regular title companies and attorneys and big brokerages want VANILLA DEALS. Regular homebuyer type stuff that has no hair on it where you can't get into a mess and an E and O claim doing the creative type deals.

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  • Jesse Rivera
    Lender · Long Beach, CA · Member since 2013 · 496 posts · 296 votes
    13y
    Originally posted by Joel Owens:

    Regular title companies and attorneys and big brokerages want VANILLA DEALS. Regular homebuyer type stuff that has no hair on it where you can get a mess and an E and O claim.

    Well said Joel Owens

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Thanks Jesse.

    I am all for someone finding the right fit for their business model and I am sure if John looks long enough he will most likely find it.

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  • Ed L.
    Residential Real Estate Agent · Hattiesburg, MS · Member since 2011 · 475 posts · 141 votes
    13y

    I've had people approach our brokerage just looking for a place to hang their license and not contribute anything to the company.

    Unfortunately there is a great deal of liability, and aggravation involved with hiring on new agents.

    If you plan on actually practicing as a full time RE agent then be sure to explain that to the broker so they will know your intentions.

    1Reply
  • Rob K.
    Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
    13y

    In MIchigan, it's perfectly legal for an agent to purchase property directly from an owner without your broker being involved. When you sell property as an agent, it must go through a broker unless it's your personal residence.

    If you're working for a brokerage with a split, you will need to pay them the negotiated cut from any commission you receive. If you are purchasing houses from owners, you can buy them without your broker knowing. If you are buying through other agents, I would suggest negotiating the price down and not receiving a commission. I don't want to have to pay taxes on that money anyway.

    If you are selling houses, your broker will want a cut of those sales. I would suggest going to a 100% type company like Remax or Realty Executives.

    This is the reason why I got my brokers license. I didn't want to have to pay someone from my own purchases and sales.

    0Reply
  • Joe Delia
    Involved In Real Estate · Rochester Hills, MI · Member since 2010 · 812 posts · 178 votes
    13y
    Originally posted by Patrick G.:
    I don't think you are being selfish.
    I would imagine a lot of realtors may use thier spouse's name to avoid that fee.

    What? It's his commission split, whether or not he's representing himself or his wife doesn't change anything.

    Your personal stuff is purely negotiable. My broker just has me pay the franchise fee's and $249 additional brokerage commission, no split, however ohio had the one a year rule like you mentioned.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    13y

    A different way to explain it might be to explain that when you hold a license under a broker, that broker is responsible for everything on real estate that you do. Even if you never close a deal, if you screw up some owner your broker has a liability having you deal with the public.

    Many professional errors and omissions insurance policies set premiums to brokers based on the dollar volume of deals done, even listed not sold can subject brokers to risks. The fact that you buy for yourself has no bearing on the risk being reduced as to the seller, it's still a deal.

    They also need to ensure all paper work, contracts, closings, etc. are on file for all activities they o their agents are involved in. Looking for a ruling or law that says you need to go through them is looking in the wrong place, look at the records that must be kept by the broker, that may show their responsibility to have audit trails and docs on all transactions in the agency, which you would be a part of.

    Now, you might see that even your deal causes them work and record keeping as well as insurance expenses, so pay them something. They will have your back too. :)

    0Reply
  • Mike H.
    Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
    13y

    Sounds like you should just skip the realtor's license unless you can go all the way and do the broker license or you can find a realtor that will work with you a little.

    My guess is it would depend on your model. If you're only wholesaling, then there isn't much in it for him to even work with you. But if you're doing a mix of things and there will be some deals that you do sell and he's getting his cut, then why wouldn't he take you in.

    Here's the other thing. If I was a broker and saw a new investor doing deals, I'd want to bring every one of them into my firm. I'd cut them a deal on their transactions too. The more buying and selling thats going, the more opportunity there will be for the firm.

    Maybe you could negotiate something with the broker that says the first 2 deals he gets a normal a cut, then the next 2 he only gets a small percentage.

    That way he's making something but isn't becoming a defacto partner. The bottom line is that you're the one bringing the business. What is the broker bringing to the table to you? NOTHING. Review some docs? Come on!

    If the brokers won't budge, don't get your license. When you buy yourself, you won't be a realtor and won't have to go through a broker. Problem solved. When you sell yourself, do a FSBO service that lets you put the property on MLS for $500 or so.

    Thats a heck of a lot cheaper than paying some greedy broker 1.5%. On a 150k houses, thats over 2k a pop and just plain Nonsense.

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  • Joe Delia
    Involved In Real Estate · Rochester Hills, MI · Member since 2010 · 812 posts · 178 votes
    13y
    Originally posted by Mike H.:
    Sounds like you should just skip the realtor's license unless you can go all the way and do the broker license or you can find a realtor that will work with you a little.

    My guess is it would depend on your model. If you're only wholesaling, then there isn't much in it for him to even work with you. But if you're doing a mix of things and there will be some deals that you do sell and he's getting his cut, then why wouldn't he take you in.

    Here's the other thing. If I was a broker and saw a new investor doing deals, I'd want to bring every one of them into my firm. I'd cut them a deal on their transactions too. The more buying and selling thats going, the more opportunity there will be for the firm.

    Maybe you could negotiate something with the broker that says the first 2 deals he gets a normal a cut, then the next 2 he only gets a small percentage.

    That way he's making something but isn't becoming a defacto partner. The bottom line is that you're the one bringing the business. What is the broker bringing to the table to you? NOTHING. Review some docs? Come on!

    If the brokers won't budge, don't get your license. When you buy yourself, you won't be a realtor and won't have to go through a broker. Problem solved. When you sell yourself, do a FSBO service that lets you put the property on MLS for $500 or so.

    Thats a heck of a lot cheaper than paying some greedy broker 1.5%. On a 150k houses, thats over 2k a pop and just plain Nonsense.

    This post cracks me up. You're saying a broker offers you noting on a 50/50 split? 50/50 split brokerages typically offer a lot, and cap you out at a certain split %.

    In reality most successful brokerages ROI is pathetic

    Rob K already highlighted this, go to a 100% brokerage if you don't want any help or any brand name.

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  • Phil Z.
    Real Estate Broker · Orange, CT · Member since 2013 · 951 posts · 218 votes
    13y

    Any buying/selling commissions would have to be paid to the broker and they will give you your split.

    As far as the investment profit itself, they do not need a piece of the pie. However, if you actually look into the law .. if you flip houses for a living, you are supposed to be a licensed real estate broker. (at least in CT)

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