A common question we get is if a new or experienced investor should take the time to get their real estate license. I think this is a very valid concern and must be considered carefully. There are big advantages and disadvantages on both sides of the argument. It is really going to come down to your specific situation and your specific goals. This article should help you weigh the advantages of both to help you in the decision making process.
GETTING THE LICENSE:
Commission – This is obviously the biggest reason you will want to consider getting your license. You should expect to make more money on every deal you do because you can collect a commission when you sell, and many times you can also collect one when you buy. I personally think if you are just getting started and need some additional cash flow, this is something you should consider. It is also a huge benefit if you want to buy someone’s house but there is not enough equity for you. At that point, you can offer to sell it for them and pick up listings. Business is all about cash flow. Transactions for a real estate professional create cash flow, which will help supplement other real estate activities you participate in. You never know, you might really enjoy helping clients buy and sell houses.
Access to the MLS – The next biggest reason I see investors get their license is to gain access to the MLS. I want to point out that this is really a poor reason to get your license, but it is a fantastic benefit to having one. You can typically get access to the MLS without a license. For example, you can have your agent pull your comps for you or send you a list each morning of new listings. That is common, but it means you are relying on someone else. It is always nice when you have all the tools that you need to be successful.
Credibility – If you don’t deal directly with sellers, this is not a benefit; but if you are marketing and working directly with homeowners, this could be a tremendous benefit. Let me give you an example. Let’s say you got a call from someone going into foreclosure. They want you to buy their house but they are also talking to another investor. If both offers are the same and they know that you are a licensed real estate professional, do you think it is possible they would rather work with you? What if you negotiate some kind of owner carry or lease option deal? Do you think they would trust you more if they knew you were regulated by the state? Is it possible you can convince them to only meet with licensed buyers and potentially prevent your competitor from ever having a meeting with them? I would think all of these are possible.
NOT GETTING THE LICENSE:
Save the Time – I chose not to get my real estate license for several reasons, but this was one of the biggest for me. I never wanted to spend the time listing my houses. I would rather pay someone that was good at that to get my properties sold for me. I know many great real estate investors that had a license and have decided to let it go. Their time is much better spent letting other agents write their offers and sell their houses. They make money looking for deals and managing projects. What I have learned, is the more focused you are the more successful you will be. Although they can tie together nicely and it does work for a lot of people, I think being an agent and an investor are two different activities. Not to mention the time you need to put in to get the license and the time you need to put in to keep it.
Not held to the high standard – Again, this could be a benefit to getting your license like I spoke about above, but it could also hurt you. I am not talking about having more flexibility to do what is wrong but there is a lot more flexibility when working with homeowners. For example, because I don’t have a license, I can market to houses that are currently on the MLS and might be expiring soon. I can get to these homeowners that want to sell their house before agents can. This way I can have a dialog with the owner before the listing expires. Another big benefit for me is I can use any contract that I want and am not forced to use a real long intimidating contract approved by the state. Finally, not that anyone would intentionally do anything wrong, but if a mistake was made during a transaction, you would either shift responsibility to the licensed agent helping you or any recourse against you would be less severe.
Helps with some negotiations – Some would argue that having the license adds credibility to a negotiation, which could be true, but I would rather go into a negotiation without a license. I can really see both sides to this and it will all depend on the investor’s personal experience and confidence. For me, not having a license is better because I like to appear less sophisticated or at least at the same level with the motivated seller. If the seller thinks they are smarter than you, they are more willing to work with you and feel better about the transaction. If they know you are smarter and more sophisticated, unless they are highly confident, they will be resistant and hard to negotiate with. They will constantly be thinking you are taking advantage of them and wondering if it is a good deal. If you are licensed, you are a trained real estate professional, which could be intimidating. Of course this is all based on my experience, and someone else’s experience could be different.
When I was buying and selling full time, before I started Pine Financial, I would meet with five or more sellers a week. I would sit down with them at their dining room table and talk really slow. I would even sometimes catch myself stuttering. I really focused on keeping their confidence level high and their guard down the entire time I was in their home.
Working with friends and family – When you have a license your friends and family will expect you to help them with their real estate needs. Did I mention they will also expect a discount? It is always nice to help someone when you can, but it could be nice to not be in a position to choose who you are able and not able to help.
Costs – It is not free to get or keep your license. There are typically monthly office fees, MLS fees, CE credits, and license fees.
You can see that there is a lot to consider when making this decision. Everyone has a different situation and will need to make their own decisions, but here are some typical situations where I think the decision would be easier:
Husband/Wife teams – This is very common. Steph and I did this business together for a long time. In our case, neither one of us had a license but if I was to do it all over again, one of us would go ahead and get it. In a husband/Wife team, you can really have the best of both worlds if one gets their license and one does not.
Newer investors without the motivation or desire to work directly with motivated sellers – It is a lot easier to make offers from the MLS, so if you are not interested in working directly with motivated sellers and would rather just buy foreclosures from banks, you might consider getting the license so you can at least get the commissions. This should change as you start to get busier doing deals; you may want to shift this task to an agent you hire. Again, the commissions are a huge benefit, especially when you are getting started.
Extremely successful investors or developers – I see more successful investors without their license than I do with. Again this comes back to the focus thing I was talking about above. They all have fantastic agents that help them find and sell houses.