Investing With a Broker's License?
Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes
Investing With a Broker's License?
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Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y@Jack Fernandes
I suppose you need to realize that all brokered transactions are “broker to broker” and licensed agents work for licensed brokers. Real estate has a two tiered licensing system.
So, for the sake of argument let’s say an agents split with the broker is 50/50. So, when the agent closes a transaction, his broker receives the commission due for their end of the transactions, then the agent gets half, in this example, of the commission.
To your question, if it’s a licensed broker who directly completes the transaction, then there is nobody with which to split the commission.
Take it one step further. Let’s say this broker is listing his own property (personal residence or otherwise). There does not need to be a commission paid to the listing agent since the broker would be paying himself a commission which he would only have to pay income tax on.
Does that clear it up?
43 Replies
- Lender · San Diego, CA · Member since 2019 · 874 posts · 355 votes6y
Originally posted by @Jack Fernandes:
I was curious as to how licensed brokers (in California, or anywhere similar) handle fee splitting when buying properties for themselves. Presumably as a broker/agent, if you present the selling agent with a buyer, you are entitled to your portion of the fee. What if you are a licensed broker representing yourself? Do you still get to split the fee? How is this usually handled/negotiated?
On the other end, what if you're a broker but are selling your own house? How are fees negotiated here? Do you get to save out on all fees?Thank you in advance for your patience and for answering my question thoughtfully and respectfully.
No different from any other Purchase/Sale. It doesn't matter who is represented by whom the commission split is what it is, it belongs to the licensed brokers/agent in the transaction.
- Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes6y
@Guifre Mora
Really? So a broker buying a house without representation is charged identically to a non broker who is represented by a buyer’s agent?
- Lender · San Diego, CA · Member since 2019 · 874 posts · 355 votes6y
Originally posted by @Jack Fernandes:
@Guifre Mora
Really? So a broker buying a house without representation is charged identically to a non broker who is represented by a buyer’s agent?
Technically he represents himself, hold a brokers license so he is legally able to engage in any real estate representation. Doesn’t matter who is on the contract as buyer/seller and who is on the broker agent they both can represent themselves.
I’ve seen transactions where the seller is a broker and the buyer is a broker. The seller offers a split for the buyers agent who come alongside, when the sale is escrowed each party takes their fee. Seller saves 3% -buyers earns 3%. The way they want to take it is up to their own accord credit back, price reduction etc.
If you represent yourself in any legal matter you don’t charge yourself your own fees. Right? If your own firm represents you but you work as one of the lawyers in this case your firm doesn’t charge you what you charge the firm for the work. - Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes6y
@Guifre Mora
Actually, that’s wrong. You do charge fees if you represent yourself. You keep a running and itemized tally, and if you win, the court will award you those fees from whomever is opposed to you in court.
I appreciate your response, but maybe an actual broker can comment on this thread. I’d like to hear from brokers who have represented themselves in order to save fees from an investment perspective.
- Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes6y
@Guifre Mora sorry if that last comment sounded snappy- I’m texting from my phone and having trouble with the bigger pockets app. I do appreciate your thoughtful response- thank you.
- Lender · San Diego, CA · Member since 2019 · 874 posts · 355 votes6y
No worries, I’ve been part of this kind of transactions a few dozen times In my capacity as a lender.
Stay safe
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes6y
@Jack Fernandes
I suppose you need to realize that all brokered transactions are “broker to broker” and licensed agents work for licensed brokers. Real estate has a two tiered licensing system.
So, for the sake of argument let’s say an agents split with the broker is 50/50. So, when the agent closes a transaction, his broker receives the commission due for their end of the transactions, then the agent gets half, in this example, of the commission.
To your question, if it’s a licensed broker who directly completes the transaction, then there is nobody with which to split the commission.
Take it one step further. Let’s say this broker is listing his own property (personal residence or otherwise). There does not need to be a commission paid to the listing agent since the broker would be paying himself a commission which he would only have to pay income tax on.
Does that clear it up?
- Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes6y
@David M.
Not really.
Let me simplify the question: Brokers who have bought and sold properties! Please respond:
How much $ do you save on purchases and how much do you save on sales? Is getting the broker’s license worth it as someone who invests in multifamily holds and the occasional flip?
- 6yCharlie CameronBusiness MemberInvestor · Niceville, FL · Member since 2017 · 451 posts · 366 votes
@Jack Fernandes Disclaimer: not a broker, just an investor agent.
Some brokerages will allow you to keep 100% of your commission (no split) for personal transactions. Mine allows three sides per year. So instead of keeping 80%, I can keep 100% on my own deals (I don't do that many since they're mostly multifamily). No need for a broker's license.
- Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes6y
@Charlie Cameron
Thanks, Cameron. I don’t work for a brokerage. What if I just had my broker’s license? Free reign?
- Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes6y
@Charlie Cameron
That still doesn’t quite answer the question, though.
Can someone tell me in plain English whether a broker buying or selling his own home saves money? And if so, what percent?
- 6yCharlie CameronBusiness MemberInvestor · Niceville, FL · Member since 2017 · 451 posts · 366 votes
@Jack Fernandes let’s go back to basics:
Broker: authorized to conduct real estate transactions. When a listing agreement is signed, it is between the broker and the property’s owner (let’s say they agree to 6% commission to sell the property). Broker can do this as themself or hire agents to assist. If working for themselves, they would gross either 6% if they are on both sides of the transaction or 3% if the buyer comes from another brokerage (most common).
Broker other side: if the buyer comes from another brokerage, then they generally agree to split commission (in this case 3% goes to each brokerage).
Agent/salesperson/licensee/sales associate: facilitates transactions as an independent contractor (commonly) for the broker. Can only work FOR a broker or become a broker. Typically split commission with broker as part of the working arrangement. Let’s say 50/50. So for one side of the transaction, a broker would keep 1.5% and agent would keep 1.5%.
So, if you were an agent working for a broker buying a property, in this case you’d save 1.5%. Some brokers allow you to keep your full commission on personal transactions, so in that case you’d save 3% less any fees.
If you became a broker (which usually requires you to be an agent first for a few years in many states), you’d still only keep 3% unless you were on both sides of the transaction (probably unlikely).
Hope that helps.
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Ok I am a licensed CA RE broker and have been since 1975.. so I think I qualify on that score.
the answer is it depends.
Generally if I am buying to hold I just want the price discounted by what my commission would be
if i am flipping it its ordinary income either way. IE commission income or sale of inventory.
I believe as an attorney in CA you may qualify to skip the salesmen license and work for a broker for a few years before you can take the broker exam. In other words you may be able to sit for the brokers test without the apprenticeship time all of us other folks had to do. But check the regs.
I work as an independent broker and have for most of all my career..
so if your offering on a MLS listed property the other agent is offering a BAC commish your entitle to it.. Or like I said sometimes I negotiate the commission offered as a reduction in purchase price..
or if its a smokin deal and the commish is irrelevant I will offer the listing broker both sides . - Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes6y
@Charlie Cameron
Charlie- you’re the man! Thank you. Yes, I already understood the basics, but just wanted to see if it’s common for a Broker/investor to pocket fees and whether that affects the offers they put in while purchasing, or their listing price when selling (their own home). 6% can be quite a lot, and 3% as well! I’m in SoCal where 4-units regularly sell in the $1.5m range and modest single family can easily hit the $1m range.
Thank you, Charlie! Sorry I called you Cameron earlier.
Ps there is an attorney exception I’d qualify for in San Diego. Because I have more than 2 years of equivalent real estate experience, I am eligible to sit for the brokers examination.
I’m trying to figure out if it will be worth it, financially, because it would take me at least 3 months (application processing time is minimum 10 weeks and then I’d have to study for the exam).
A special thanks to all who have been patient and respectful responding so far. If anyone has more comments (brokers, please!) chime in!
- Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes6y
@Jay Hinrichs
Awesome! An experienced broker. Thank you for taking time to respond.
That is very interesting. You’re right- I wouldn’t even have to work for a broker. Because I have equivalent experience dealing with leases and acquisitions, I can just send in my application and sit for the exam (I still need to study hard and make sure I pass).
Would you think it would be worth it if I don’t plan on brokering other people’s deals aside from friends and family?
I mostly want to save fees on my own acquisitions and sales, which will be in multifamily properties and eventually small scale commercial developments (probably in the range of 3 to 12 units).
Thanks for your time
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Jack Fernandes:
@Jay Hinrichs
Awesome! An experienced broker. Thank you for taking time to respond.
That is very interesting. You’re right- I wouldn’t even have to work for a broker. Because I have equivalent experience dealing with leases and acquisitions, I can just send in my application and sit for the exam (I still need to study hard and make sure I pass).
Would you think it would be worth it if I don’t plan on brokering other people’s deals aside from friends and family?
I mostly want to save fees on my own acquisitions and sales, which will be in multifamily properties and eventually small scale commercial developments (probably in the range of 3 to 12 units).
Thanks for your time
does a bear $$$$$ in the woods.. there are all sorts of revenue streams with a CA brokers license.. ONE of them is you can legally broker HML without having a lenders license.. I ran a pretty sizable HML shop in Oakland with my brokers license.. and you don't need to be a member of MLS or the board or anything.. although In Oregon were we are very active my wife is a broker and we have MLS access which is important for what we do.. build new construction and sell it.. the amount of money we save is pretty significant we sell about 10 mil or a little more of our own inventory a year.. so if I had to pay a broker to list it that's 200k to 300k we save right there..
Also you can legally take referral fee's I do this through the year.. someone contacts me wants something in whatever state I refer to a broker in Know and I get a nice check for that.. and I can legally do it with my CA license.
I thought as an attorney you could just sit for the test.. its heavy to law so it should not be an issue for you at ALL
- Real Estate Broker · DC MD, VA & NV · Member since 2014 · 512 posts · 292 votes6y
I'll chime in here @Jack Fernandes. It sounds like you're contemplating getting your Broker's license so that you can save $$ on your own deals, right? Although I am a Broker, I've not run my own Brokerage, however, I'll offer insight from my own experience as this is not a very cut and dry subject. After being a Broker-Salesperson for 17 years, I am currently with a Brokerage that allows me to keep 100% of the commission from my personal deals- i.e., say on a 6% commission, wherein the owner of a property I'm buying has previously agreed to pay 3% (see @Charlie Cameron's comment above), I can keep the entire 3%. And as you'll learn in 'Realtor-school', commissions are never up for negotiation in a sales agreement as the amount the Seller has agreed to pay has already been pre-agreed to. Alternatively, if I'm listing my own property, I can agree to pay the Buyer's agent a split, and pay $0 on the listing side, however a minimal of $250 per transaction and likely a minimal Broker Review and EEO fee will be required by the Broker. With my previous Broker, they weren't as generous with this and collected whatever my previously agreed-to split was on a standard transaction i.e., if my split was 70/30, the Brokerage would take 30% of the 3% on my personal transactions just as they would on a non-personal sale. Alternatively, there are some Brokerages that completely prohibit agents from selling their own properties... likely due to perceived conflict of interest and potential liability for the Brokerage. I'll also add that while my current brokerage, allows 100% of commission split on personal deals, that is limited t0 3/year and you will generally be expected to sell real estate to others in order to reap the full benefit of this. So ideally you can join a company like this until you meet your minimal requirement to go on your own.
Regarding your interest in becoming your own Broker, have you looked into the costs associated with that? Getting your license is the easy part, however, as Charlie also pointed out above, each State has different licensing laws that generally require an Agent to affiliate with an established Brokerage and to have a number of years (generally 2) experience prior to going on their own. As an agent, you will need to not only pay for the cost of your pre-licensing course, but will also need to pay to join the National and local realtor associations, MLS dues, lockbox fees, meeting continuing education requirements (generally 40 hour CE credits required every 2 years) signs, marketing, business cards, lead generation, CRM, and other technology required to run your business. And when you do eventually do become a Broker, you'll then need to ensure you have your own EEO and business liability coverage, and likely many other fees should you decide to open a Bricks 'n Mortar company. ...so in a nutshell, I would say "NO', it is not cost effective to become a Broker strictly to save on your own deals. Perhaps you will see a personal benefit after years of putting in the required time, experience and money for a real estate career, as I have. Otherwise, I would bite the bullet and pay commissions- it's a tax write off, right? Also, if you're looking to save $$, I would start by moving from CA to tax-free NV!! Have you noticed what's happening in Reno from an investment standpoint? ...and just to add that it's right down the mountain from Lake Tahoe which, I must say isn't a bad place to live! ; D. Would also love to see other's thoughts on this. Best of luck.
- Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes6y
@Jay Hinrichs
Great advice man- Always glad to hear about revenue streams and ideas...In CA attorney must first pass the California bar and then have 2 years of equivalent experience to a sales agent, which I believe I have..
Interesting points. I’d love to get into commercial development in the future and partner up with a construction co to build on land I’ve rezoned with the city.
Thanks for your feedback. Good encouragement for me to go sit for the test once the Coronavirus pandemic response allows people to take exams!
- Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes6y
@Marian Huish
Hi Marian! Thanks for the thorough response.
Since I passed the California bar exam I can “leapfrog” being a sales agent and go straight to becoming a broker. All I have to do is pass the test. My specialization as a lawyer is in corporate, so forming companies and ensuring they are complying with all regulatory parameters isn’t a challenge for me (in theory!).
It looks like I should just sit for the rest, since I don’t mind spending a few hundred or thousand dollars to potentially save tens or hundreds of thousands in my personal deals.
It also looks like I am lucky to be able to “leapfrog” over all of the complicated sales-agent stuff which is not of interest to me at all. I am a deals guy, not a sales guy. I really have tons of respect for the sales people out there, more than I already did.
- Real Estate Broker · DC MD, VA & NV · Member since 2014 · 512 posts · 292 votes6y
Good for you @Jack Fernandes. Sounds as though you're already 'earned your stripes' in this regard- Best of luck!
- Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes6y
@Marian Huish
Thank you, Marian. Health and wellness to you and your loved ones.
- Real Estate Broker · DC MD, VA & NV · Member since 2014 · 512 posts · 292 votes6y
Thanks @Jack Fernandes. You too!
- Real Estate Broker · Kansas City, MO · Member since 2015 · 33 posts · 13 votes6y
@David M.
Exactly what David said!
Dear poster,
Don't complicate the transaction!
- Attorney · San Diego, CA · Member since 2020 · 40 posts · 11 votes6y
@Kanita Jefferson
Dear Kantina-
Speak in plain English! Like why didn’t anyone say “hey, if you’re a broker selling your house, you don’t pay a commission to anyone, because it doesn’t make sense to pay a commission. To yourself. If you’re a broker buying a house, you get half of whatever fees the seller has agreed to.”
But is that even true? If you’re a broker buying a house, do you get to split fees with the sellers agent? What does that generally amount to? (1%? 2%? 3%?) and do you get a check for that or do you just roll it into the purchase price?
Not complicating the transaction, just trying to get a straightforward answer to an honest question!
- Real Estate Broker · Kansas City, MO · Member since 2015 · 33 posts · 13 votes6y
Jack I'm sorry you didn't understand my English. Once again I do feel you're reading too much into the situation that has you asking the question. Sounds like you want someone to BREAK IT DOWN.
#1- I'll point out, if you're an attorney you should be very very familiar with "every state is different regarding laws ". Real estate is the same way in this case minus any lending situation
#2- no one can give you an exact because you need to follow the law in that state where this so called broker is buying or selling
#3- there's more details I feel we need to answer the question jack. Is this licensed broker selling their own property and running the sale thru another brokerage firm (?) or, theyre using thru own firm ?? So many variables here...
"hypothetically speaking " if this was a sale in my state and I was a licensed broker selling my own house (thru my own firm).... NO I don't have to split anything with anyone. You should also know everything is NEGOTIABLE but if I want a decent buyer and don't wanna piss anyone off then it's best for me to Co op and be willing to pay for my buyer's agent or.....I can just leave that up to the buyer to pay because indeed it is their representation (shrugs)...especially since their agent or broker is Negotiating against me as the seller. If the broker Is selling thru own house and using a different firm to list...then it's up to them...
Also some brokers will still take a commission so it can listed on the HUD statement and or for tax planning purposes
So again, it's all depends. There's no certain answer here. Please refer back to what David said. I hope I made some things clearer
Disclaimer - I'm replying thru the email and not the app. Please excuse any wrong Grammar or typos
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