Cons of having a realtor license?
Residential Real Estate Agent · Minneapolis, MN · Member since 2014 · 61 posts · 15 votes
Hi all,
I'm considering getting my real estate agent license. I think I'm aware of most of the pros, but I was wondering if I could get your feedback as to what might be the cons of being a realtor who also looks for off market deals (other than the upfront costs, continuing ed requirements, dues, and other costs).
Thanks!
MODERATOR: THE QUESTION IS ABOUT THE PROS AND CONS OF HAVING A LICENSE. NOTHING ELSE. FURTHER OFF TOPIC POSTS WILL BE REMOVED.
I have mine.
Pros- Access to MLS and being able to see a property yourself without having to synch to someone else's schedule. Controlling exactly how your MLS listing appears.
Cons- Expense. MLS access is expensive, plus mandatory realtor board fees, continuing education time spent and fees...and the continuing education classes that are cheap are a total joke. You do have to disclose license status, although I've never had anyone that I've disclosed to care. But since you have your license you are held to a higher standard so make certain you know what your fair housing laws are.
I agree with J Scott's post. Having to disclose, I did this many times even though I was in a state that didn't require it. Why? It gave you the status of someone that knew what they were doing and could handle all the required items involved, it was not a case of the blind leading the blind and the other party liked that. Also why shouldn't the other party be aware of you being licensed? That means they were aware you could show them listed property now or in the future, etc, I put them in my tickler file. They could provide you with referrals.
Expenses, wow, not a problem, if you are active as an investor the deals I picked up as an agent that provided income to me would have been wasted time when I passed on them as an investor. Every year when I did my income taxes it reinforced getting my license was a very smart choice.
The E&O thing was never a problem. Why? I never had any even with multiple offices and lots of agents. I rented one office to be our investment sales office. The rest of the building was full of attorneys. One day in the conference room the building was enjoying a spread put out by a title company, One of the lawyers asked me how much was E&O insurance was costing now days. I said for me nothing, I don't carry any and you could hear the consensus which was if my name came up don't take the case if the outcome is likely to be a nuisance settlement goal because it is Insurance companies that keep that source of income flowing, and those lawyers that knew me knew my policy was bury the enemy not settle.
Continuing ed, I thought this was a good thing. Especially if the class covered new laws since the last time you studied anything. Agents do not make it a habit to stay up to date, they have the tendency to think what they know is enough and if it was anything really important they would have heard about it. Well in California the state and the courts were changing the law every five minutes it seemed like. And don't forget the Feds, the political hacks in DC were jumping to the lobbyist wishes just as often.
The cons of having a license are minimal or non existent
I've never viewed disclosing my licensed status as a con. It is either a non issue or possibly a pro as you appear more credible to the seller.
I'm licensed in DC, MD and VA and about to get my brokers licenses in all three. Being a Realtor has been my full-time job for 5 years now and I've been an investor for 9 years. If you want access to your local MLS, you don't need to bug your agent or get your license. If you have a Realtor who is your go-to person on all your deals, ask them to sign you up in their MLS as their "assistant". You pay the fee for access and you have your own account to do all the research you want to your heart's content.
The cons of getting you real estate license, if you don't intend to actually use it to make a living are:
- the expense, about $3,000 per year, because you cannot be licensed without parking it with a broker. All brokers will charge you fees (desk fees, admin fees, IT fees, royalty fees - that's if you DON'T have office space) and require that you join their preferred Realtor association, which also comes with fees, plus the CE classes, plus lockbox access fees, plus MLS fees. Plus, you have to pay that broker a percentage of ALL your commissions. Most are a 50% split, better ones are a 65-35% split. There are some brokerages that do a flat rate fee rather than a split, but you better hope you never get into trouble because they WON'T be there for you, or even be there for you to ask questions. They just collect their fee.
- the disclosures are not just about disclosing that you are an agent. If you flip a property or have owned a property, by law (at least in MD, VA and DC) you have to disclose EVERY defect that you know about that property that has not been fully addressed, or risk losing your license or, at the very least, get fined for not disclosing latent defects discovered by the buyer. They WILL go after your E&O insurance, so you better make sure you have it. Expect to spend at least $10,000 just in lawyer fees, if it ever happens.
If you flip a property or have owned a property, by law (at least in MD, VA and DC) you have to disclose EVERY defect that you know about that property that has not been fully addressed...
That's true for every seller, not just sellers who have their license.
Okay, I'm going to put in my two cents about why I've chosen not to get licensed. (I actually was going to this last spring, finished all the CLEs, and was set to take the exam.) I'll be honest, I haven't read all the posts so maybe this is duplicative.
I have zero interest in becoming licensed because it adds absolutely nothing to my particular business. (As a preface, I have been licensed in the past.) First, access to the MLS is not an issue for me and for most unlicensed investors I know. Second, picking up deals off the MLS is not part of my model. In my area, the MLS is insanely competitive. I know there are people who do this and make a good living off of it. (@Mark Ferguson comes to mind.) Third, I pick up most of my deals through yellow marketing. I believe and (have some evidence to back it up) that disclosing your status as a realtor changes the tone and message of your marketing. When I'm marketing, I am an individual investor buying properties for myself. Period. I don't feel like explaining why I'm not functioning as a realtor in this particular transaction or why I'm not just trying to list their house. (I know others will disagree with this statement, and we'll just have to agree to disagree.) Fourth, I have zero interest in subjecting myself to the regulatory authority of the local real estate commission or other realtors. This is not because I don't hold myself to the commission's standards (I actually hold myself to a much higher standard.) It is because I have generally found that there are enough petty, vindictive, and ignorant realtors out there, that they could easily file unfounded grievances against me or otherwise make my life miserable. The specific example I think of is if one of my mailings ended up going to a homeowner whose house is listed. Even though I would have done nothing wrong, I can easily see an ignorant realtor filing a grievance or otherwise trying to stir up trouble with my broker or something. In sum, I can easily see the case for becoming licensed if it fits your model and I don't think there's a "one-size fits all" answer as to whether one should become licensed.
Excellent post. I am glad to see someone offer a different opinion regarding how disclosing the agent status can change the tone. I share that opinion, but it is based solely on my own perception as a buyer. Right or wrong, when I see "seller is an agent" I immediately think "NOT A DEAL."
Although I believe that reaction is irrational to an extent, it is what I am seeing in the markets I am looking in.
You asked for the Minnesota perspective, here it is (I've been a Broker in Minnesota since 1992):
MLS, Realtor Associations, are expensive as noted previously, and finding a broker that isn't too expensive is more difficult than you may think (I have been told "hidden" fees brokers charge to agents are common).
The other cons of getting a license:
1. Minnesota allows property owners to waive disclosure of the defects on the property. Licensees do not have this ability, they must share any material defects they are aware of, with no ability to waive the disclosure. Many non-licensee sellers waive disclosure as a liability reduction strategy, but as a licensee this option is not available.
2. As a licensee, you may not advertise properties you do not own unless have written permission from all the owners. So when you want to find a tenant for that property you don't close on for 6 weeks, you can't unless you have written permission, which is harder to get than many people realize. My investor clients often start advertising that rental vacancy as soon as they have a purchase agreement, and often can have a tenant in there a day after closing.
Good luck to you!
Thanks @Albert Hepp for the Minnesota perspective! I thought I had heard that if you have a purchase agreement, you have equitable interest in a property and could therefore market the property. This doesn't apply in Minnesota?
Pros: I sell my own rehabs keeping tens of thousands of dollars in my pocket every year. I control my own MLS access. I sometimes list houses that have too little equity for me to buy and flip or wholesale. I can give my financial friends MLS access as assistants. I can list my friends rehab deals in exchange for paying all my licensing fees.
Cons: It costs a few hundred dollars a year to be licensed (see above) and every few years I have to take some lame courses that have nothing to do with actually making any money in this game. So, about the only con I see is the course work and open book tests you have to suffer through. But, your state may be different.
Oh, one more Pro - you can get your face on a bus bench if you're really bad at marketing. Maybe this is a con? Not sure. Can't figure out for the life of me how advertising to sell houses to people who take the bus makes any sense?... But hey - YOUR FACE ON A BUS BENCH!!! Won't mom be proud and the neighbors jealous!
I have my broker license in both california and georgia. in state of Georgia, I would say the biggest con is the 36 ce hours of actual timed classroom time to maintain your license in the state of Georgia. I already had 24 ce class room hours in GA and was hoping to get the remaining 12 ce credits waived from my california 45 ce hours and GREC turned down my request.
So in state of Georgia is seems that they want real timed 36 class room hours while in other states you maybe able to whiz through 45 hours in 2 hours online like J Hindrichs mentioned. This is only con I see.
Georgia will also start to require two real estate law classes as part of the 36 hours.
Cons - Can get expensive with all the classes, time etc. but its worth if you even make 1 good deal
Property Management: As a licensee in GA there are a lot of laws, rules, paperwork around managing your own properties. Depending on the # of properties you own it may be better to get a property management company to avoid any litigation associated with having a licensee status.
Good Post