In 1986,Guest Posting I became a licensed real estate agent not long after I started my real estate investing career. Before I earned my license I had to rely on a Realtor™ to get me into properties, wait for them to get me comparables and pay them a commission. The reason I had to rely on a Realtor™ was because Pinetree Hill Condo they had access to the Multiple Listing Service (MLS). The MLS, in any given area in our country, is the single largest source of real estate for sale and in most areas only Realtors™ have access to it. After I purchased several homes at the beginning of my investing career, I decided I did not want to wait for or rely on a Realtor™ to buy and sell my own properties.
As a real estate investor, becoming a Realtor™ will give you many advantages. In fact, there are no disadvantages that I know of. Investors tend to be adamant one way or the other about being a licensed Realtor™. I am definitely on the side of becoming licensed. Being licensed has been one of the best tools that I have.
Real estate commissions are a costly, but usually necessary part of buying and selling investment real estate. The average commission is 6% of the selling price of the property, split between the selling agent and the listing agent. The commission is, typically, paid by the seller. If you buy a real estate investment and then resell it a couple of years later, using a Realtor™ on both sides of the transaction, there is a total of 12% in commissions being paid on that property. If you get your license you can easily cut that number in half and add 6% to your profits. In other words, if you get your license, when you buy the property YOU will receive the 3% that goes to the selling agent and when you sell the property YOU will receive the 3% that goes to the listing agent (of course your broker will take a percentage of that). How much is that 6%? The median home price in our country right now is about $215,000. Six percent of that is $12,900!
When you are buying real estate a critical component is knowing the actual value based on comparable sales (or comps). To be successful as an investor you need the most up to date comps especially in changing markets. I already mentioned the MLS is the single largest source of real estate for sale. It is also the best source for comps. It is the source that Realtors™ and appraisers use to determine the value of a property. Because comps are such an essential part of buying our real estate investments, I personally like to do my own. Maybe that is the controlling part of me J, but if you’ve ever tried to sell a property and found out it wasn’t worth what someone else told you and it cost you thousands in profits, you suddenly feel a very strong desire to make sure of the numbers yourself instead of trusting them to someone else.
If you are buying an investment through a Realtor™ it is reasonable to expect them to provide you with comps. If you are buying a home that is “For Sale By Owner” (FSBO) and you call a Realtor™ and ask them to provide you with comps, expect to wait a long time. You might be thinking, “Well, I’ll offer to pay them or offer to use them as my Realtor™ on another deal.” Here are the realities: First, you cannot pay the Realtor™ directly for providing you with comps. It’s against the law for a licensed real estate agent to accept payment for real estate work from anyone but their broker (I’ll explain the agent-broker relationship shortly). Second, very few people are willing to work for free on the promise that it might get them additional work in the future. And if you think that you are the first person that has promised the agent the possibility of future work in exchange for free labor…
Some investors say it gives you more liability to be licensed because you gain “expert” status in the eyes of the court. I have two answers to that:
1) What are you doing to create liability?
2) Don’t you think a judge is going to know you are an “expert” anyway when they find that you buy and sell real estate investments?
Some investors also say sellers won’t sell to you if you are licensed. I find the opposite is true. Most sellers are happy that I am licensed and “know what I am doing.” Being licensed gives you far more credibility in the eyes of a seller than simply being an investor.