Paying Realtor fees is a cost of doing business as a real estate investor. But what if you didn’t have to pay some of those fees? What if you became your own agent, keeping the money you’d normally pay to someone else and increasing your return on investment? Seems like an easy competitive advantage.
Well, maybe. While becoming a licensed real estate agent can be a money-saving venture, it doesn’t necessarily pay to do so. Like any other major financial decision, there is plenty to consider before diving in. We’ve rounded up some information about the pros and cons of becoming a licensed agent and what you’ll need to do to make it happen.
The licensing requirements for real estate agents vary from state to state, so you’ll need to check with your state’s real estate commission for the specifics. In general, you’ll need to start by taking classes and passing an exam. In California, for example, you’re required to pass three college-level real estate classes to be a salesperson; more classes are required to become a broker. Many colleges and universities offer accredited courses, and there are also online options.
Other requirements include a background check, obtaining errors and omissions (E&O) insurance and submitting an application for your license. The order in which these steps need to be taken will depend upon your state. Once you’ve successfully completed those tasks, you’ll probably be required to find a managing broker to work with, at least for the first two years. Again, every state is different, so make sure you understand what yours requires.
It’s All about the Money – Now that you know the basics, you’re ready to get to the good stuff, right? That probably means money. And yes, the money you can save by being your own agent can be significant. When you sell a home you pay approximately 6 percent in commissions, which is generally split between the listing and buyer’s agents. So imagine keeping half of that money for yourself instead of paying it to another agent. Even if you do just a few transactions a year, the savings can quickly mount.
However, you can also make money if you’re buying. Although the seller fronts the commissions, the buyer’s agent is still making money. If you’re the buyer’s agent (the buyer, of course, being you), you’ll actually get paid to make that purchase. Sweet. And don’t forget that having your license means you can buy and sell for others, too. The extra income from a few additional transactions might well be worth a little bit of your time.
Direct Access to MLS – Another benefit to being a licensed agent is access to all-important Multiple Listing Services. Agents provide information about properties they are selling on MLSs, so having immediate and around-the-clock access to those listings as they become available is an invaluable tool for real estate investors. For vacant rentals, you can post rental listings directly on the MLS without owing any commissions or fees. You can also research historical data, pricing trends and more.
You’re in Control – Perhaps the biggest advantage of being your own agent is that you’re in the driver’s seat. If you’re looking to buy a property, you don’t have to make an appointment with your agent to go looking – you can do that on your own schedule. You don’t have to try to explain to someone else what it is you’re looking for, or why the property you just viewed didn’t have it.
Serving as your own agent also means you have greater control over the selling process. If you want to sweeten the deal for the other agent, you can offer them additional incentives such as a larger commission. You’ll also be able to give the time and attention to your properties that a full-time agent with many other clients couldn’t, and you’re invested in your properties in a way that another agent could never be.
It’s Still All about the Money – Using the word “license” should conjure up images of dollar signs. There’s no question that becoming a licensed real estate agent is going to cost you some coin. Although the amount depends on a variety of factors, you should plan on around $1,500-$2,000 to get started.
You’ve probably already considered the fact that you’ll need to pay for the required classes and exam fees. But you might not have thought about paying for insurance or fingerprinting – you will be entering people’s homes, so a criminal background check will be required.
If you’re a brand-new agent, you’ll most likely be required to align yourself with a broker who may have additional fees and requirements, such as a desk fee or membership in local and state associations. The broker is also going to take a portion of your commissions, so don’t count on being able to keep all of that money. And that all-important MLS access? You’ll have to pay for that, too. Although some of these costs will be one-time deals, others will be on-going expenses.
Time is Money, Too – Getting licensed costs money, and it also costs time. You’ll need to spend time taking those classes and studying for exams, and if you’re already working or have other commitments, you may only be able to chip away at those a little at a time. If you’re working for a broker, you may need to put in some front-desk time, and plan on needing continuing education hours even after you’ve gotten your license.
If you previously used a real estate agent, you weren’t just paying for knowledge and experience – you were also paying for the agent’s time. If you’re going to do the work yourself, count on lots of hours spent searching for listings, completing paperwork, dealing with other agents and writing contracts. If real estate is a part-time gig for you, it may be difficult to find the hours to devote to these tasks.
Disclosure – As either a buyer and seller, you'll need to disclose your status as a licensed real estate agent. This may turn off some buyers or sellers, who might think they'll never get a good deal from you.
A Fool for a Client? – Abraham Lincoln made the case against self-representation by saying that those who go that route have fools for clients. Of course, he was talking about lawyers. But if you’re new to the business, you may not have the breadth of experience that a more seasoned agent would have. A dedicated agent has a firm pulse on the local real estate market, knows the history of the area and may be able to predict trends. You may not want to trade that kind of knowledge for the part-time efforts of a newbie (and yes, we’re talking about you).
Before you take the plunge, consider your commitment to real estate investing, both in terms of the time you can devote and your interest. If you only dabble, it may be worthwhile to pay someone else to handle the sales and purchases for you. But if you’re an investor looking to take a full-time real estate investing business to the next level, becoming a licensed agent could help you reach it.