In the beginning, I wondered if I should get my license. I made my first real estate investment deal in 2005, and as an investor, I knew I didn’t need a real estate license. Every investment guru out there said that becoming a licensed agent was a bad idea — I would be held to a different standard.
But I went against their “conventional wisdom,” and I got my license in 2009; I was generating leads and referring them out anyway, so I figured I may as well profit from them.
Many real estate investors find themselves in this situation: to get a license or not? Below is a list of pros and cons that can help you decide.
Advantages of getting a real estate license
There are three reasons you would want to get a real estate license: commission, MLS and market growth through relationships and knowledge.
Commission
Getting your license means that you can get commission from your purchases and sales. Real estate agent commission is 6 percent.
It’s split in half between the buyer’s agent and the seller’s agent. Your broker will keep some of the commission you earn.
While the profit you’re looking to make might be a lot greater than your commission on the home, the added revenue is nothing to turn your nose at.
Earning commission is especially important for young professionals looking to get started in investments.
Access to the multiple listing service (MLS)
When you’re a real estate agent, you have direct access to the MLS system where homes are posted by all brokerage firms. This will give you access to a wider pool to choose from than an agent would typically present to you.
Additionally, if you don’t have access and your agent is also an investor, he or she may choose to keep the best properties and give you the second rate properties.
The MLS has historical data about each property that could affect your decision to invest. The data includes what the house has sold for in the past, comparable properties and how quickly those comparable houses sold.
Market growth, knowledge and relationships
Having a license can help you form relationships that will help you down the line. Another agent you interact with might find something he or she thinks will interest you and forward you the lead. You learn about operating a real estate business and how to hire and structure your team.
Your broker can protect you from getting into legal issues. In addition, your broker (and the education you get to earn your license) can teach you the ins and outs of contracts, so that you do not get caught in a loophole.
Your broker will have experience working with land surveyors and inspectors and can refer you to the best ones.
Once I got my license and started studying the systems, my business really took off. I was able to do multiple transactions a month instead of a deal here and there.
I was networking with some people who sold 750 properties a year. There are very few people who run any kind of consistent volume. I was able to model my investment business after the tried-and-true methods of these highly successful people.
Before I had my license, I bought homes from people who were close to foreclosure for less than they were worth, rehabbed them and then sold them at a higher price. If they didn’t want to buy from me, they would get off the phone and call a licensed agent for help.
As an agent, I can help those people sell the property for a better price instead and make a commission from it. I would no longer lose that revenue. This strategy helped me generate a bigger market and collect all the money that was on the table.
Disadvantages of getting a real estate licence
For the longest time, I didn’t get a license because of the following three reasons. These were “common knowledge” in the business, but I found them to be mostly false.
Paying commission to your broker and annual fees
You do have to give commission to your broker or pay annual fees to use the MLS, but the benefit is that the MLS helps you get a true estimate of what a home is worth in a way that other investors cannot.
The extra work and money deters a lot of investors, but all that pays off because you become better at your business than they are.
Loyalty to your broker
Many believe agents are required to sell to other agents within their brokerage. However, most brokers and agents are looking for the quickest sale.
Although it’s convenient for the broker to make double the commission, it would take a lot longer to wait around for an agent within the brokerage to find a buyer than to accept the deal on the table.
It’s in everyone’s best interest to get the commission. If a property is on the MLS, you can purchase it, even if it’s listed by a different brokerage company.
Agent disclosure
When I say that I am a real estate investor, people assume that I am an agent, whether I am one or not.
The downside is that a seller may not want to give commission, so they will avoid working with an agent.
However, if they are already assuming you are one, you’re going to take the loss either way. You do have to disclose that you’re an agent, and you’re considered more responsible as one too.
You have a responsibility to the person you’re representing. But if you’re buying the house as an investor, you’re acting as a principal, not an agent, so you don’t need to disclose.
Direct mail and marketing are more difficult because you have to disclose on the marketing material, even if you’re acting as a principal. In court, there is no way to prove that you were acting as a principal and not an agent.
Deciding to become an agent is a personal choice, and I hope this list of pros and cons will help you make yours.
Martin Orefice is the founder of Rent to Own Labs in Orlando, Florida. Follow him on Facebook or connect with him on LinkedIn.