Question about getting a real estate license to do flipping, etc.
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
I was thinking about getting my RE license just so that I could obtain MLS access and have an advantage over other buyers, but there were a few things I was wondering about:
1) Is there a long lag time from the time you pass the test to when you actually receive your license (and are able to purchase an MLS subscription)?
2) I know that when you work under a broker you need to pay the broker a yearly(?) fee. But do they also expect you to do other things such as desk duty at the office, etc.? Is it a good idea to tell them you are only doing this for MLS access, or will that make them not want to deal with you?
3) I suppose it varies by state, but what are some of the disclosures that you are required to make (as an agent) when you sell a flip?
Thanks.
Getting MLS access is just one benefit of getting your license, and I would argue not the most important. I would also argue that saving 3% commission on purchases/sales is not the most important.
In my opinion, BY FAR the best reason to get your real estate license is so that you can CONTROL YOUR DEALS. How many people post here daily about the frustrations they have with their buyer's agents, the listing agents of the properties they buy, appraisers, buyer inspectors, their end-buyers and end-buyer agents, mortgage brokers, etc?
We normally don't have those issues. I'm my own buyer's agent so I always know what's going on with my offers. If a listing agent isn't doing their job, I don't have to sit around and wait -- I can call them directly, call their broker, call the real estate commission, etc. When I have a property on the market, I know when it is being shown (the agents call me directly), I can get feedback directly from the agents, and I don't have to worry about another agent saying something I don't want them to say during a negotiation. When I get a property under contract to sell, I can talk directly to the buyer's agent, I can require that they put me in touch with the appraiser, I can call the buyer's mortgage broker whenever I want, I know when the buyer's inspector is going to be going out to the property. Also, I don't have to wonder if there are emails flying around between the closing attorney, the buyer's agent, the mortgage broker, etc, without me knowing about it -- I'm looped into everything.
Yes, I'm a control freak. I couldn't imagine being successful in this business without being one...and having a real estate license gives you the power to control pretty much every aspect of your transactions.
Here are more of my thoughts on the topic (if you never read anything else I ever write, I recommend this one):
These are based on my experiences in AZ.
No, I received my license the next day or same day. I cannot remember. MLS is ran through the Realtor's association and is also very quick. Same day or next day.
This will depend on your broker. I'm with a small to medium size brokerage (40-50 agents). I've never done desk duty, but a lot of agents volunteer for this because they can cherry pick the leads that come in. You may need to go through a training program, but that is broker dependent. The best answer is that it depends.
Just that you are the owner/agent.
Somethings to consider:
My buddy who also flips homes went thru the training to become an agent with the same intentions to conceivably obtain a better edge over fellow investors. Although he graduated he never followed thru with his license for two reasons.
First of all most banks will not pay you the buyers commission as an agent if you are also the buyer.
Second, he felt he opened himself up to increased liability in the disclosures being the home owner and selling agent.
Hope this helps.
Jim
I just did this recently.
1. No. As soon as you pass the exam you are licensed, although inactive until you sign up with a broker. MLS access took about a week and cost about a grand +/- with misc fees and memberships. I don't believe it will be that much on an annual basis.
2. I'm sure you could find a small broker and just pay them a small fee per transaction. I signed up under a family member who has a brokers license.
3. You just need to disclose that you're an owner / agent and be honest about any disclosure issues that you know of.
Bienes / In Florida, look into Charles Rutenburg Realty. They are a very, very low cost brokerage, with no office obligations.
Jim S. has some good points re: getting an edge.
A subsciption with Realty Trac gets you some of what you're looking for at a lot less cost.
Although, the RE licence will save you part of the selling commission.
Mike P.
This is a common misconception, and is not true for REO purchases...
Of the 33 REOs I've purchased personally, there has only been one where the seller refused to pay a commission. They slipped it into the agreement during a revision (my fault -- I didn't re-read the contract to make sure they didn't change anything), and had I known about it, I would have either tried to negotiate it out or would have refused to sign without a price concession for the same amount. I believe I ultimately would have gotten the money.
So, in my experience, it's very rare that a bank won't pay an owner-agent for an REO purchase these days...and certainly the big banks don't have an issue with it...
Thanks for the responses....
Bienes, have you considered a broker's license, I'm sure you would pass it, it's usually an extra class after the agent school.
Some states are now requiring tenure as an agent before getting a broker license, so that could be an issue.
If you can, I'd suggest you consider it, especially if you have an office. The number of deals you do, any office fees and commission splits compared to costs of being a broker will guide you.
A broker has more leeway in doing deals, technically they may be able to close a transaction and if you have the experience you could become an insured closing agent as well. Many brokers may shy away from certain types of transactions and that's up to them as they determine their exposure to liabilities, a broker could say no Sub-2 deals for example and as an agent you'd have to comply. Just a thought for you....
What good is a agent/brokerage license & the MLS?
New REI here. I'm not clear why you need a license to be a successful REI or what it does for you? These days the MLS feeds a lot of private websites, there are also flat fee services that charge around $300 to sellers on its way to reducing or eliminating the need for a sellers agent imo. Only use I can see for license/MLS access is a tool for buyer's agents to find commissions which can be accomplished on any website like Realestate.com, etc…As far as locating deals I can't see how a license or MLS helps that much if at all?
This is a common misconception, and is not true for REO purchases...
Of the 33 REOs I've purchased personally, there has only been one where the seller refused to pay a commission. They slipped it into the agreement during a revision (my fault -- I didn't re-read the contract to make sure they didn't change anything), and had I known about it, I would have either tried to negotiate it out or would have refused to sign without a price concession for the same amount. I believe I ultimately would have gotten the money.
So, in my experience, it's very rare that a bank won't pay an owner-agent for an REO purchase these days...and certainly the big banks don't have an issue with it...
Its not a misconception in the DC area. Its reality. It's happened many times when I partner with a buddy who is an agent. His name is on our Articles of Incorporation and they will not pay commission to him as an agent and a shareholder about 80% of the time. Sometimes the banks try to further reduce his commission also. Maybe its different in your area.
Just another great example of "real estate is local"...
Thanks for the clarification, and I apologize for any misinformation I put out there!
If you're buying/selling off the MLS, there are lots of good reasons:
- Access to MLS
- More profit from commissions you keep/save
- Ability to list yourself (I don't believe flat fee listings are nearly as successful)
- More control over your deals
Basically, not having your license leaves a lot to chance, and as far as I'm concerned, the less I leave to chance, the more successful my business will be.
New REI here. I'm not clear why you need a license to be a successful REI or what it does for you? These days the MLS feeds a lot of private websites, there are also flat fee services that charge around $300 to sellers on its way to reducing or eliminating the need for a sellers agent imo. Only use I can see for license/MLS access is a tool for buyer's agents to find commissions which can be accomplished on any website like Realestate.com, etc…As far as locating deals I can't see how a license or MLS helps that much if at all?
Terry, the first advice I give any new investor is to get full access to the MLS. I'm sure it varies by region, but if you don't have access to information that others do, you are behind. This is not a business where you want to be at a disadvantage right out of the gate.
In my market, there are great websites with MLS data, www.themlsonline.com, but they are nowhere near what you get from full MLS access. Honestly, the private websites here probably give you 5% of the picture that the full MLS gives. It is astounding how much data is in there.
I hope that helps. Get MLS access otherwise you are flying blind! You don't need to be licensed to get access, but getting licensed is also a good idea. It will teach you how to run comps and write purchase agreements. If you are not licensed you will need to rely on someone else to write PAs on your behalf and they may not be available when that hot deal flies past your desk.
-Jaden
I tend to agree with jscott on this I am in Maryland and I have a real estate license, I have done at least 3 rehabs and was paid as a buyers agent and sellers whenI sold the house, it is true some banks will not pay a commission, I think they are in the minority, most of them will pay, the most important issue is disclosure, you have to disclose this when buying and selling, once that is done you should be fine.
This is a common misconception, and is not true for REO purchases...
Of the 33 REOs I've purchased personally, there has only been one where the seller refused to pay a commission. They slipped it into the agreement during a revision (my fault -- I didn't re-read the contract to make sure they didn't change anything), and had I known about it, I would have either tried to negotiate it out or would have refused to sign without a price concession for the same amount. I believe I ultimately would have gotten the money.
So, in my experience, it's very rare that a bank won't pay an owner-agent for an REO purchase these days...and certainly the big banks don't have an issue with it...
Jason,
When I have seen this in my area, the clause is in the bank's addendum. As you know, the banks just aren't very willing to change anything in their addendum. So, I doubt you would have been able to get them to take that out.
Also, I've seen it restrict the agent's commission when a family member of the agent was the buyer.
Tol clarify on this issue of agents getting commissions when they buy.
The vast majority of REOs are with the major national banks/servicers: Fannie, Freddie, HUD, BofA, Chase, Wells, Deutsche, etc. I would assume that these guys have standard practices, and not dictated by local convention. This correct?
If so, are we then just talking about local/regional bank REO's potentially having language restricting payment of commission to agent/buyer?
The vast majority of REOs are with the major national banks/servicers: Fannie, Freddie, HUD, BofA, Chase, Wells, Deutsche, etc. I would assume that these guys have standard practices, and not dictated by local convention. This correct?
If so, are we then just talking about local/regional bank REO's potentially having language restricting payment of commission to agent/buyer?
Yup, the addendums for the big banks don't say anything about agents not getting commissions (at least not the ones I've seen), and the only time I've seen it was from a regional bank.
But again, as Jim said, it may be a regional thing...
Jaden and the rest, makes sense thanks! Trying to locate my first property now by learning my market, visiting bank REO's, tax sales, agents, etc….
How do I obtain MLS access with out a license?
Where do I go to see what it takes to be an agent?
OK, getting a license just to get MLS access, waste of time and money. less money and the right contacts can get you that. I was an investor for 10 years before I added real estate broker to my resume.
The main reason is if your really an active investor you will come across a ton of opportunities to make extra money from a license. I was giving an agent those leads in a hand washing deal and one day at lunch two agents came in at sat at the counter with me. They talked about deals and commissions, etc. and I sort of listed the deals I had sent the agent the past deal and when I saw the amount he had made off me I said maybe I should get a license.
Well I have never regretted it, so use it to make money not just MLS access. Now your state may require disclosure but California doesn't. Many agents think it state law but it is not, it is the Realtors Code of Ethics that requires it, not the state, so check with your state. But a proper disclosure is not a big deal, many prospects like the idea your licensed because they figure you know what your doing.
As for using it to collect commission on your deals, don't do that if you don't have to. Deduct the amount from the sales price and make it capital gains instead of earned income. If I take a commission I have to pay income taxes on it, I also have to pay the self-employment tax on it. Save the money and use it. plus telling the prospect your not paying a commission has some impact.
Here is wording straight out of an addendum (name of brokerage changed and italicized):
Seller shall pay a real estate commission pursuant to the REO Brokers' Real Estate Brokerage Agreement. However, no commission shall be paid, nor credit given, to a Buyer who may hold a license to sale or market real estate. This includes any broker or brokerage firm with which Buyer is affiliated. Additionally, no commission will be paid to any such license holder representing his or her spouse who is a Buyer. In no event shall any real estate broker commissions be deemed earned and payable until the closing of the purchase and sale is consummated; title passes to Buyer; and Seller receives proceeds of the sale, without exception.
...
Now, the fact that this does happen does not mean it always happens. But you shouldn't be surprised to encounter something similar.
The main reason is if your really an active investor you will come across a ton of opportunities to make extra money from a license. I was giving an agent those leads in a hand washing deal and one day at lunch two agents came in at sat at the counter with me. They talked about deals and commissions, etc. and I sort of listed the deals I had sent the agent the past deal and when I saw the amount he had made off me I said maybe I should get a license.
Well I have never regretted it, so use it to make money not just MLS access. Now your state may require disclosure but California doesn't. Many agents think it state law but it is not, it is the Realtors Code of Ethics that requires it, not the state, so check with your state. But a proper disclosure is not a big deal, many prospects like the idea your licensed because they figure you know what your doing.
As for using it to collect commission on your deals, don't do that if you don't have to. Deduct the amount from the sales price and make it capital gains instead of earned income. If I take a commission I have to pay income taxes on it, I also have to pay the self-employment tax on it. Save the money and use it. plus telling the prospect your not paying a commission has some impact.
Brian, I'm a little confused. You say the main reason you got a license is you were giving leads to agents in a hand washing deal then realized the money they were making. I am assuming you mean you passed up on commissions, ie: 2-3% of sales, vs. giving good investment opportunities away, or both? I would not understand giving good deals away as an REI, then it becomes a matter of do you want to spend your time selling property or investing in it does it not?
Also, as you said, you don't need a license to shift money as income to capital gains, nor to find info on the internet bulk of which some say is "only found in MLS" which I have no access and don't know. I did one flip property long ago, only thing the bank used that lent me 100% LTV on a projected after rehab is my personal income. He told me he has investor's that have established a positive track record with their bank and once I do that he will not need my personal income. Never cared if I had a license or not. Not that I knew what I was doing back then and I lost my job, but I remember what little experience I do have. That was 12 years ago the amount of info on the net has far since developed making me wonder if MLS and the need for agents will eventually go away.
I just sold my primary home through a $300 flat fee service I heard through a freind and will never hire an agent again to sell my home, and word is spreading in my town. I saved around $5,000 and if I ever had to buy I would not hire an agent and look @ FSBO, websites, REO's, etc…..I also negoited the buyers agents commision down $1500 from the MLS listing. Lots of sellers in my area like me can't afford agents they are taking to big a loss already in a bad market.
If you're flipping, the taxes on earned income will be the same as capital gains, so it doesn't matter if you pay yourself a commission or add it to the basis of the property. Also, you'll most likely pay self employment tax on either option.
Here is another reason to get your license: IDX. When you build a website for your real estate business, if the local MLS will allow you to have IDX on your website, it can be great for SEO purposes when done properly. Instead of just having your properties for the search engines to crawl, they will have all the listings in the MLS to crawl. Meaning more content. But you need to have an indexable IDX with search engine friendly urls.
Terry
Yes you are confused. The deals I referred to the agent are deals it didn't make any sense to pursue as a investor and you should run into a ton of these, so instead of saying pass, you say commission or fee.
JScott
Yes the tax rate on short term capital gains is the same as earned income but often on many deals I do the short term becomes long term thus cheaper. Also never pay self employment tax on capital gains long or short thus saving the 15% prox.
Mark
Good reason for sure.