“Do you have your real estate license?”
If you are a real estate investor you have probably been asked this question. If you are wanting to be a real estate investor you are probably wanting to ask this question in one form or another. Some ask “do I need to have a real estate license to invest?” Well, the answer is no. However, there are pros and cons of having a real estate license as an investor that this article will cover.
Pros of getting a real estate license.
Education
To receive your state license, you must go thru a class and pass the exam. In Tennessee, the 60-hour required course covers topics like contract law, listing agreements, real estate finance, closings, Tennessee laws, and more. The course will also prepare you for your state exam. You also need to take a 30-hour New Affiliates Course that covers practical concepts of real estate. Although a lot of what you learn for the test you will not need in running your business it sets a good foundation for learning real estate in general.
Access to the MLS (Multiple Listing Service)
The MLS is a proprietary tool and only accessible for licensed agents. The MLS and property tax platform included is a very powerful tool as a real estate investor. You can setup searches to find deals when they go live on the MLS. You can also run comparables with up to date information and not have to wait on another agent to do them for you. The property tax platform allows you to do in-depth research on properties as well as property owner searches for direct marketing. This is the biggest advantage for getting your license.
Standard of Ethics
As a licensed real estate agent you have shown the professional community, buyers, and sellers you have put forth the effort to get licensed and met a standard. You also are bound by the state’s real estate commission to have certain values and ethics. When communicating with sellers, this can be an advantage in a competitive market if other investors do not have a license.
Commission income
When I first had my license, I did represent a few friends as a buyer’s agent. I also listed some of my renovated homes for sale to save some money. I realized I was not a particularly good agent, nor did I enjoy it. I also realized I needed to be more focused on my investing business, so I stopped representing others and I hired a quality listing agent, negotiating their commission as a co-agent and a repeat client.
A benefit when purchasing property through the MLS is you can negotiate your commission as the buyer. If you submit a low offer but lower or eliminate your commission it can make your offer more attractive over other offers.
Cons of having a real estate license.
The Exam
If someone tells you passing the license exam is easy, they are either a member of Mensa or lying. You need to absorb a lot of information in a short period of time and the exam has tricky questions on purpose. In Tennessee the exam is divided into two sections. The national exam consisting of 80 questions with an allotted time of 150 minutes. The other section is the state specific exam of 50 questions with an allotted time of 90 minutes. You need to have at least 75% correct on each section to pass. I am not embarrassed to say that when I took the exam in 2004 I passed the state exam by 1 correct question.
Continuing Education
At a minimum you are required to take at least 16 hours of accredited courses every two years. Most classes either online or in-person are agent specific and not-related to investing and cost money to enroll.
Expense
To pay for your courses, exam, insurance, and become a member of a local association it will cost about $1500-2000 on the front end. Then there is an average cost of about $1200-1500/year for association dues, MLS subscription, insurance, and continuing education classes. (Estimates are based on a license in Tennessee).
As a licensee you are required to be under a broker. Some broker’s charge monthly fees or have other time requirements. There is also a commission split with the broker when you do earn a commission.
Paperwork
All brokers are audited and therefore paperwork for a transaction from the MLS is laborious compared to a 2-page contract in a transaction without real estate agents. The sales contracts and all required disclosures and forms are very time consuming to complete and manage even though most are all created online with e-signatures.
Constant Uninterested Communications
This might not seem like a big deal but when you are a licensed agent only using it for investing you get emails everyday about open houses, the next coming soon, a broker’s open with fancy cheese and wine or an agent’s buyer needs for that unicorn property that does not exist. You don’t want to unsubscribe because there might be that one email that is a potential deal. You also get emails reminding you to pay your dues which is helpful. You also get occasional marketing phone calls where you have to say, “no thanks. I am an agent, but I don’t want to increase my sales.”
Tips if you do get your license.
Choose the right broker
I have been “fired” by two different brokers. One broker said she looked at my website and because I had rental properties, I was self-managing (you do not need a license to self-manage) she didn’t want the liability exposure. What was ironic was the agent that referred me to that broker had twice as many rentals as I did and he is still at that broker (he does not have a website).
The other broker was very particular about the paperwork and when I apologized, fixed the issue, and half-joked about moving to another broker, he said “fine, you have 1 week to change broker’s”.
If you are an investor you do not need a broker that has training, monthly quotas, goal setting for sales, or mandatory meetings where you sheepishly stand up and say, “I have no buyers and no listings.” You want a broker that does not bother you, does not cost much, but is available if you need them.
Continuing Education
I typically take the MLS courses as they are free, only 1-2 hours long, and teach tools to use the MLS and tax platform more effectively. I also try to find electives that are related to investing. For example, I a few years ago I went to one about third-party property management. I walked out of that class saying to myself, “I am never going to manage property for others”.
So, if you want to put forth the effort, time, and money having a real estate license is worth it in my opinion. Another option is you partner with someone who is a licensed agent. You can also seek out an agent who specializes in representing investors, not retail clients. Whatever route you take it is important to network and build relationships with real estate agents.