Many investors ask whether or not they should become a licensed agent. As with any choice, there are benefits and drawbacks to consider when making the decision.
You could get your real estate license and then you’d have all that marketing data and comps on demand at your fingertips without having to ask someone and wait for it.
You’d also be able to send out your own offers without limits. If you need to sell a property retail, you could do it without paying a commission if you are the only agent involved.
Rather than rely on busy agents to birddog for you on the MLS, as a licensed agent you are able to do so yourself, which makes scanning and finding properties much quicker, and oftentimes more effective.
As an agent you can also seek out lenders with REO properties who may be hesitant for technical reasons to deal one-on-one with an investor, but who are more than willing to give an agent access to REO properties that could be listed. If you think they are a good buy, you could purchase them yourself.
To be licensed you will have to be somewhat current with the real estate laws in your area and you are required to have continuing education for this purpose. However, this requirement can be a benefit, as it is likely that you may have overlooked or not been aware of new laws that could very well affect you as an investor.
There are a few drawbacks that you should be aware of. The benefits will probably outweigh the negatives, but consider these points when making a decision about whether or not to be licensed.
The primary negative is that since you are licensed, you are bound by state law as it applies to real estate licensees. This can sometimes prohibit the licensee from entering into ‘creative deals’ since they may be in direct violation of the requirements of their licensing.
These same ‘creative deals’ are not prohibited to the public so you can imagine that to some degree carrying the agent’s license may very well exclude you from some otherwise lucrative opportunities.
The best example of this is the type of deal that amounts to a “net commission”. This could arise by cutting a deal with a seller that you were going to ‘flip’ his property and he would get a specific or net figure regardless of what you ultimately sell the property for.
This is very typical in many real estate deals. However, if you were licensed and did a deal like this, either for yourself or a client, you would be in direct violation of the law and could very well be subject to civil and possibly criminal penalties. Basically, you just can’t do this type of deal if you’re licensed. (One method of doing this is discussed in the section entitled “Division of Proceeds Agreement” in the “types of Closing” section – you could not use this method if you are a licensed agent)
How does this affect your ability to wholesale if you are licensed?
The net proceeds issue relates to how the seller is paid, specifically if they get a specified amount, net of any settlement costs, and the buyer/assignee gets the rest. Then it is a net commission deal, which is illegal for an agent.
If it is purely an assignment of a contract, as in most wholesaling, then if you are licensed, add a disclaimer specifically referencing the fact that the seller was told, up front, that the agent is NOT functioning as an agent at all in the deal, and that the agent is looking to assign the contract for a profit, and have the signatures on the agreement notarized.
Another drawback is that you may owe your broker a percent of all your deals, including wholesales or renovations. That could really cut into your profits. Usually, just so no major problems arise, the agent/investor works a deal with their broker. In some cases the broker doesn’t care, in which case the broker gets nothing. In the case of a more diligent broker, who is responsible for any contract written by any of their agents, they usually get a nominal fee of maybe $100 to $200 per deal. It will be up to you to negotiate and work this out with the broker you sign up with.
Another issue is that your broker may also not be comfortable with how investors operate and do deals. Therefore they may get in your way or be a negative influence on you.
As a licensed agent, you will not be able to pay birddog fees.
Another minor drawback is that you need to spend time and money to get licensed. There is a cost involved and you will have to study for the exam.
As a licensed agent you also need to disclose the fact that you are an agent to everyone you do business with. This isn’t too bad, as you can tell sellers that you are licensed and therefore accountable and trustworthy since you have to answer to the state licensing authority for anything you do wrong. In this way, being licensed can help to build credibility.
If you are licensed you must acknowledge that on all of your advertising including your website. A simple statement such as the following can be used:
“Buyer is a licensed real estate agent in the State of _______. Buyer is purchasing properties for his/her own investment. This is not an offer of agency. If this property is already listed with an agent, please disregard this notice.”
You are also obligated as a licensee to display the Fair Housing Logo on all marketing that you distribute. Failure to do so could result in fines or other actions taken against you by the Real Estate Commission.
If the agent is advertising themselves as a real estate agent in their marketing materials then the broker’s logo must also appear on all the marketing materials as well. If the agent is looking only for property to buy personally and will not be flipping the property, then they can run their own ads. Check with your broker and a local attorney to be sure of the law in your area.
Finally, if you are licensed, the Real Estate Commission provides an unhappy client the perfect forum to make a formal protest regarding your activities.
If a non-licensed investor gets involved in a deal that isn’t illegal, but is a bit questionable, there is no way an unhappy client can seek redress. However, if that same situation arose with a licensee, they would be explaining it to the Commission at a minimum and possibly expose themselves to a fine or other punishment. Not that you will be doing anything questionable we hope, but sometimes people’s complaints get misconstrued.
Be mindful of the fact that if you are fined by the Commission the fine doesn’t go away if you give up your license. The fine becomes a debt that is legally collectible by the State and you can be sued for its payment.
The Decision is Yours
The specifics for all of these issues will vary depending on the state you are operating in. Please be sure to check each of the issues we address in this section with a local attorney familiar with real estate licensing laws in your state so that you have accurate local information to base your decision on.
Deciding whether or not to get licensed is up to you. There is no right or wrong answer. Consider the pros and cons just like you would with any other business decision. Be sure to know the laws in the state you plan to be licensed and operate in.
Don’t take any of this the wrong way. Agents are a key part of your team. You just need to understand where they fit in and how to best use them without having them inadvertently confuse or discourage you.
Once you find a good one, hold on tight.