Is it worth holding a real estate license as a developer?

Question

hi folks

i am currently trying to weigh the potential benefits of getting a real estate license for my california deals.

I have $8 million of new homes to sell in one year and am understandably reluctant to the idea of handling $400,000 of my hard earned money to a realtor who will only open the doors for me

I don't think that holding a RE license would make my lenders more flexible or cheaper.

As the market is fairly hot for now, i could just pay a few hundred bucks for a MLS listing and handle the sale myself. I am a professional developer so my liability is in line anyway and no RE agent can shield me from potential claims according lawyers i've been talking to

What's your take on it?

Michael P. · Answer

Account Closed I am a broker and I list all of my new construction myself.   I pay the buyer's agent who brings the buyer 3%.  Even that 3% is a tough pill to swallow I can't imagine not being the listing broker and coughing up another 3%.

I recently made a video on this subject so feel free to click the link in my signature and you can watch it on my youtube channel.  Even if you don't want to go the route of getting your license I would recommend hiring a broker who will list your houses on MLS for a flat fee or a reduced commission.  MLS is key though.

Account Closed · Answer

Account Closed

My partner has a re license and uses it in the following manner: looking up properties that fit his buying criteria, running comps, going to properties that have a little a lock box directly in order to save time.  Sometimes on the purchase side he will take a commission however sometimes he will forgo all commissions  and give the full 6% to the listing agent.  We're more interested in getting the property than saving 2.5%.

When we go to sell the property he will always be the listing agent for one reason-control.  He takes 1% and gives the rest to the buyers agent.  However no other agent will sell his property and have his best interest like himself.

Our properties sell for about 1.4MM to 4MM if that helps.

Good luck

Michael P. · Answer

Account Closed I don't worry about any liabilities from having my Broker's License.  I disclose everything and also give the buyer's a 1/2/10 year warranty so unless you are hiding something I don't see this as an issue.

The fees are so minimal, you're talking about building 8 Million in real estate this year, being worried about a few grand is the least of your worries or expenses.

As far as paying the 3% to the buyer's agent that is just pretty standard.  If a buyer approaches me directly I usually offer them the 3% as a discount on the home if they are not represented to give them extra incentive to purchase the house.  When you talking about million dollar homes that 3% is often a huge reduction in price and and a huge incentive for the buyers.

Goodluck...

Jonathan Minerick · Answer

Here's a BP blog post I did which breaks down the time and costs for a California license: https://www.biggerpockets.com/blogs/9561/55035-wha...

In a nutshell, 140 hours + $450 to get the CA license, and another $1,500 for your first year MLS/lockbox/realtor fees (based on the San Diego MLS).

As you stated, the listing agent commission is easy to avoid, just do a flat fee MLS listing (can be had for $100 in CA). You can also rent the MLS linked lockboxes for a flat fee (~$125).

When you get a license, you'd need to hang it with a brokerage to get access to the MLS. Many brokerages prohibit you from listing your own properties (E+O issues are one reason), so you'd often need to pay a nominal fee to a fellow agent in the office to do the listing.

You are way further ahead just using flat fee services. And even if you need help with the paperwork, IMO it's easier just to get a flat fee attorney to take care of it.

Account Closed · Answer

I would just interview a few agents and offer 1% listing fee and if the homes a super nice a 1 or 1.5% buyers agent fee and call it a day Realtors might balk but $8 million in commssions at 1% is still a good pay day The fact that you are already a developermeans  you can also market your upcoming properties thru associates and close them through an attorney saving even  more money Good luck

Justin R. · Answer

Account Closed We also have a set of new construction homes ($800k range) coming on market. Mostly in SoCal beach area.

From what I've seen, agents also know that it's really easy to sell right now and are competing for listings - I'm seeing sell-side commissions in the 1% to 1.5% range for multiple homes from integrated agentbrokers.  If you're offering 2.5% to the buyers agent, that means you're maybe only saving $80-120k on the sell side for the whole project ... some of which you'll give to the broker and expenses anyways.

I don't know how many buyers will come without representation, so maybe the savings would be larger.  In any case, sales costs shouldn't be higher than, say, 4%.  And, there's still real work involved. Haven't tried using my own TC or flat fee attorney and self-listing.

I'm comfortable with reasonable commissions so they focus on getting things sold quickly and I can focus on finishing them efficiently.

I'll keep watch the thread to see where you land.

Karen Margrave · Answer

Account Closed Unless you're doing something illegal or unethical, there's really no added liability. As to the 3% discount, are you planning on writing the contract yourself, and doing all the work the selling agent normally does? You might be able to get a seller to discount the sales price as a trade off, but it's not a sure thing like a commission is. Also, once you discount the property 3% you've basically devalued the property by that much, in comps, etc., so will have to make it back up.

Account Closed · Answer

Hi @Karen Margrave

I read that having a broker license comes with a significant burden of liabilities; if that is true, that is something that i'd rather avoid.

I am not sure about the benefits of holding a license as buyer. Maybe can you just negociate with the listing agent and ask for a 3% discount on the purchase price?

I do agree that you as developer have the best understanding and knowledge of the property, and it must be indeed a great experience to deal directly with the buyers.

Account Closed · Answer

@Michael P.  I am wondering what is the added value of being a broker to sell your own properties; why not marketing them directly as builder/developer and pay a flat fee to have your home listed on the MLS? Large developers have their own sales persons; why not being your own salesman?

I am no expert but i bet being an official broker actually increases your liability because of the ethical and legal requirements you must comply with; it probably isn't cheap either

Regarding the buyer's agent 3% commission, i guess it is negociable and you can also just flatly refuse to pay and leave it to the buyer. Many buyers shop on internet and call sellers directly; this is maybe when you can dissuade them to hire an agent warning them that you won't pay for it.

If the buyers want legal representation and counseling, you can suggest them to bring an attorney, which would be much cheaper than 3% of a $3 millions dollar home ($90,000!)

Anyway, i wouldn't really worry about the buyer's agent commission; what matters in the end it your net sale price regardless of how the money is allocated

Account Closed · Answer

The question wasn't should i get a realtor; it was should i get a real estate license and how usefull would it be to an active developer.

I do complex projects, develop land and build homes for a living so the selling part is the least of my worries. I build new furnished modern architectural homes with views in very desirable locations; any idiot can sell them in the current market.

Is it worth holding a real estate license as a developer?

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